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Edited Transcript of AEFES.IS earnings conference call or presentation 6-Nov-19 10:59am GMT

Q3 2019 Anadolu Efes Biracilik ve Malt Sanayii AS Earnings Call

Istanbul Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Anadolu Efes Biracilik ve Malt Sanayii AS earnings conference call or presentation Wednesday, November 6, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Asli Kiliç Demirel

Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - IR Manager

* Can Çaka

Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President

* N. Orhun Köstem

Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO

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Conference Call Participants

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* Ece Mandaci Baysal

Unlu & Co., Research Division - Research Analyst

* Edward Brampton Mundy

Jefferies LLC, Research Division - Equity Analyst

* Hanzade Kilickiran

JP Morgan Chase & Co, Research Division - Analyst

* Nikolay Kovalev

VTB Capital, Research Division - Equities Analyst

* Selim Kunter

Deniz Yatirim Menkul Degerler A.S., Research Division - Director & Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to Anadolu Efes Third Quarter 2019 Financial Results Conference Call and Webcast.

I now hand over to Investor Relations Manager, Mrs. Asli Demirel. Please go ahead.

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Asli Kiliç Demirel, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - IR Manager [2]

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Hi, everyone. Anadolu Efes Beer Operations 2019 Third Quarter Results Conference Call and Webcast. Before I 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.

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [3]

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Thank you, Asli. Good afternoon, and good morning, everyone. And again, once again, thanks for joining our third quarter earnings call. We are glad to report a strong quarter as we continue to make consistent progress on our strategy to build competitive advantage through leaner and more efficient processes within our organization. Notwithstanding the challenges in the quarter, our geographical and product diversification, once again resulted in a balanced results. Softness in Turkey beer and international soft drinks were offset by very strong performance of our international beer operations and solid soft drinks performance in Turkey.

Our sales volume growth in the third quarter of the year was 0.7% for Anadolu Efes on a consolidated basis, while we were able to continue our strong growth on the Beer segment and reported more than 4% growth on a year-on-year basis. However, contributions were quite mixed during the period. In Turkey, sales volume for beer was down, while for soft drinks, it was up. In the international operations, just the opposite was the case, where beer operations posted strong growth with weakness in the soft drinks side. Positive price/mix and higher volumes led to 12% consolidated, and for the beer revenues, 20% growth in the third quarter year-on-year basis. EBITDA growth was ahead of the revenue in both segments, resulting in 46 basis points and 138 basis points margin expansion in Anadolu Efes consolidated and Beer Group results respectively. Especially strong was the margin expansion in international beer operations, which was driven by higher volumes and a section of synergies. As you would remember from our earlier calls, we constantly put emphasis on working capital management. And this quarter, we saw positive results on that front as well, especially in soft drink operations and international beer. Our working capital needs were decreased, leading to strong free cash flow generation together with improved profitability. In the first 9 months of the year, we recorded TRY 1.4 billion of free cash flow generation. Naturally, seasonality has a positive impact here as well.

Our bottom line performance was quite positive. We recorded TRY 583 million net income against TRY 66 million loss last year. Increase in operational profit as well as lower FX losses, lower net financial and other expenses resulted in the strong bottom line figure. In addition, we incurred FX gains from repatriation of cash from our international operations to Turkey as well.

I already touched base on the financial figures. But what I want to highlight here is that our exposure to international markets is growing quarter-by-quarter significantly. International beer revenue now accounts for more than 1/3 in consolidated results. And together with CCI'S international exposure, the revenue generation outside of the home country, Turkey, is not more than 60% -- around 65%. The 4% growth we recorded in Beer Group in the third quarter represents the sixth consecutive quarterly growth in our beer operations. All our beer countries, with the exception of Turkey, recorded growth and delivered strong results. Russia and Ukraine, in particular, continued to deliver ahead of our expectations by growing mid- and high-single digits, respectively. Both performances were above the market growth in the relevant countries. This is, of course, led to a solidified market position. In Russia, in the quarter, all AB InBev Efes brands in various price segments showed positive market share growth, in particular, BUD, Efes, Gold Mine, Löwenbräu, Stella Artois and Hoegaarden showed market share improvements. Our market share increased in modern and traditional trade channels. Similarly, in Ukraine, the growth leaders were BUD, Stella, Corona, Hoegaarden and Redd's. In addition, in Ukraine, this year, we launched ex-Efes brands, CraftIzdat, Stary Melnik and Bely Medved and they contributed strongly to the performance as well. In Kazakhstan, our volumes benefited from extended visibility in modern trade, while in Moldova, a launch of ABI portfolio and relaunch of our national mainstream brand and strong contribution from Efes brand drove the volumes up. Similarly, in Georgia, despite the challenges with the relaunch of our mainstream market leader brand, Natahktari, we were able to report double-digit growth. In Turkey, 2019 was, in general, a difficult year for the FMCG sector at all, which contracted around 5% in the first 9 months of the year, and the decline in the alcohol beverage industry was around 7%, and for the beer segment, it was around 6%. The continued increase in excise taxes, which resulted in higher prices, deteriorated affordable so we discussed this before as well was the main reason behind this decrease in the consumer pool. In addition, we were expecting -- as we discussed earlier this year, we were expecting an improvement in the consumer confidence, but we haven't -- unfortunately, we haven't seen that. And we have seen consumer confidence was at the lowest levels for the past decade, continuing throughout the season as well. On the positive side, tourism was favorable and in line with expectations, but the unfavorable weather conditions, especially in September and through the summer season, combined with the high base of last year when our volumes were growing 7%, put further pressure on the beer market. As a result, our sales were volume contracted, 6.4% in the third quarter in Turkey and 4.6% in the first 9 months. This is the reason why we made slight revisions in our full year guidance, which I will touch base on the later slides.

Our sales volume performance in the first 2 quarters were slightly below the market. Yet, in the third quarter, our performance was more present to the market contraction. We are quite happy to see a solid brand performance of Efes Malt and Bomonti unfiltered and stabilization of the market share of our main Efes Pilsen brand. Furthermore, premium brands share in our total sales continue to increase. In Turkey, we continue to leverage on our portfolio and showed quality and freshness of our beer. We continue increasing our touch points with our consumers through more events and festivals. Notwithstanding the softness in volume, we continue spending on our marketing and sales execution activities, improving our infrastructure, and accordingly, we are increasing our service levels and customer satisfaction. We view this as an indispensable investment for the sustainability of our business going forward.

I will briefly say a couple of things on soft drinks. I'm sure most of you have heard the conference that our colleagues had yesterday. Consolidated sales -- soft drinks sales volume decreased by 0.8% in the third quarter, cycling almost a 3% growth last year. Although, Turkey grew by almost 4% in the quarter, lower volume in Pakistan and continued production stoppage in Turkmenistan, led to 5% international volume contraction in the quarter.

Now I hand over to Orhun for financial review.

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [4]

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Thank you, Can, and good morning, good afternoon, ladies and gentlemen. Welcome, once again. Before I take you through the financial results for the period, just a word on the numbers overall. As you may have seen in our announcement as well, the numbers we're reporting and discussing, all of them excludes the impact of IFRS 16 adjustments in the year 2019, so they would be comparable. With that, again, I'm also quite happy to report a strong quarter for Andolu Efes as well as the Beer Group business. In both, you see that our revenues are growing ahead of volume and our profits growing ahead of revenue. So that's the way we would very much like them to be.

One thing that you don't see on this page, I'm sure you have seen in our announcement as well, that we have also reported a very strong net income on our bottom line. I remember reading in one of the research pieces that it was the highest over the past 7 years, which I'm sure is true. And obviously, that's driven by the operational performance as well as a more stable Turkish lira in this period. Our efforts to hedge our risk in our balance sheet, plus, obviously, our ability to utilize the dividends we received from our international beer business to ensure that we don't overpay, let's say, any credit -- high credit terms in Turkey. So that's also under utilization, which resulted in this.

If I look a bit deeper in the results, obviously, you see growth and margin expansion. If you look at the beer group, this is primarily driven by our international businesses. Across the board, we reported very strong results, but especially, and size-wise, obviously, the performance of our business in Russia and Ukraine is obviously quite strong, which led to a very significant margin expansion as well as growth in this 9-month period, which balance the softness that we are seeing in Turkey, as Can was explaining earlier. Obviously, we have been discussing in these calls throughout the year, the elements that's impacting our gross profit, the raw material costs and et cetera. But also, we continue to invest in our sales execution and appeal to our brands and portfolio in general, which we believe we started to see positive results, and we expect to see them going forward as well.

In next page, you're going to see how the EBITDA on the Beer Group is moving. Just a few words. Again, if you look at the incremental revenue generation, about 3/4 of that is coming from businesses outside of Turkey, obviously. Some elements here, like you see, especially in G&A and other income, have calendar impact, so may change in absolute terms as we go towards the end of the year. But this should give you an indication, A, obviously, of the synergies that we're extracting in our businesses and the impact of conversion in our results. There, you see about -- in the incremental about the 1/4 of the impact is coming from conversion. And hence, we're reporting a 66% EBITDA growth in the 9 months in 2019.

And that's actually, if you look at our free cash flow generation, on the next page. Free cash flow conversion rate is about 55%. Our working capital, starting from the Beer Group. Obviously, our working capital is in check. We still deliver on beer group-wide a minus core working capital as a percent of net sales revenue. Our CapEx to sales is as per our guidance, it's about 8%, just under 8%. And as you see here, as I tried to touch base. Our net financial expense is under, let's say, check so far, which leads to strong free cash flow generation. Likewise, in Anadolu Efes in general, we have good working capital management, again, in the minus territory on core working capital to net sales revenue basis. And again, CapEx to sales, again, under check in slightly above high single digits, in line with our guidance. And there, the free cash flow conversion rate is about 45%.

We talked about how we mitigate the balance sheet risks on the next page. You see, on the Beer Group side about 77% of our debt is hedged, especially through the net investment hedge. And on Anadolu Efes level, together with the Coca-Cola Icecek business, we have about 60% of debt exposure hedged through net investment hedge and cross currency swaps. Just a word, obviously, this is what you see on balance sheet. Having said that, we're actively managing the short-term currency risks that's impacting our P&L as well. That's under cost of goods sold and OpEx. So just an indication for 2019, we've already -- for our Turkish business, have hedged about 70% of that exposure. And if you look at the international business, especially in Russia and Ukraine, that's even higher, about 80%, and a little bit over. If you look at the current state of our balance sheet, our net debt-to-EBITDA on the Beer Group is 1.2x and on Anadolu Efes, 1.1x. These are, I believe, quite healthy -- still quite very healthy figures. You see in the maturity schedule that we have about $149 million maturing on the beer side before the end of the year. This bit has already been rolled over, about EUR 100 million of this is already refinanced with maturities of 2 to 3 years. And half of that is in hard currency, half of that already in Turkish lira, and the rest is being paid. And the average maturity at the Beer Group now is about 2.5 years. The number you see as 2.2 is now longer, and for Anadolu Efes, on a pro forma basis, obviously, this is about 3.2 years at the moment.

So with this, I will hand back to Can for his closing remarks.

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [5]

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Thank you. Orhun. Hi, again. Obviously, we are happy with our performance in the quarter despite the challenges we discussed. Very solid international beer performance and continued growth in Turkey soft drinks allow us to maintain our consolidated and Beer Group guidances. However, as I mentioned before, due to the softer-than-expected season in Turkey beer and lower international soft drinks volumes, we are revising our segment volume and revenue guidances. Earlier, we guided for a low single-digit decline in Turkey beer, which we are now revising to mid-single-digit decline. Accordingly, the revenue growth for Turkey, although still very solid, is being revised to low 20s growth from high 20s. We reiterate our initial EBITDA margin contraction expansion for Turkey beer, but the rate of decline will be slightly higher than initially expected. Consolidated softing sales volume guidance is revised down to slight decline from previous 1% to 3% growth on the back of the revision in international soft drink volume guidance from 2% to 4% growth to low single-digit decline. And finally, consolidated soft drink revenue growth is revised from its previous level of 16%to 18 % to 10% to 12% level. All others remain unchanged. As a beverage company with strong positions across the board, our strategic priorities remain our people, our brands, obviously, our consumers and customers as well as our operational excellence, as we call it, corporate wisdom, which lately takes a lot of focus on digital transformation. Financial discipline is in Anadolu Efes DNA, and our commitment to prudently and conservatively managing our balance sheet will remain our priority. We at Anadolu Efes will continue to bring joy for our -- all the stakeholders. And we are ready to take questions. Thank you for listening us.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a first question from Selim Kunter from AK Investment.

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Selim Kunter, Deniz Yatirim Menkul Degerler A.S., Research Division - Director & Senior Analyst [2]

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I just have a question on the domestic market. And I believe it's quite early to talk about 2020, but it would be very helpful if you could just elaborate what to expect from domestic market and at least in the foreseeable future in terms of the sentiment and how the market is performing? And where you are within the competition? And also, could you give some insights on how to deal with the upcoming packaging tax?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [3]

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Yes, let me -- I mean, it's obviously difficult to put forward any guidance as of today. And by the beginning of the year, we will -- obviously, would be reviewing and giving more guidance. We are in the process of preparing our plans for 2020. So -- but again, I mean -- but up until now, we have seen the current price levels. Obviously, we believe the affordability of our business, affordability of our beers and/or, let's say, our consumers reached our peers lower given the current price levels. We have been impacted with the devaluation and high tax increases through the last 12 months. So the current level is creating a barrier in that perspective. That's why we have seen the beer market declining in terms of volume. But on the revenue side, obviously, with the pricing and with the mix, we are growing strongly. So that is a holding factor, which has, unfortunately, coincided with the lowest level of consumer sentiment in the country for a while. And I think the very first point is by changing the mood, I mean, in the country with the consumer sentiment improving, certainly, we could be more, let's say, optimistic going forward with respect to the growth and so on and so forth. But obviously, what had happened last year in August and Turkish lira devaluation had impacted the beginning of the year strongly, and that sentiment continued. That's that's something we have to follow very carefully, and we see that weakness through the season. And despite the fact that after the election period so on and so forth, with the summer period, we're expecting a little bit of improvement, which we haven't, unfortunately, seen that.

And that is not only valid for the beer category, that's valid for all the alcoholic beverages and valid for all FMCG categories. So that is the main factor that's holding us to put forward any, let's say, expectations for the coming periods.

But on the other side, I mean, we are -- as we discussed, we are investing in our infrastructure. We are investing in terms of sales force efficiency and effectiveness. We are investing in our brands. We are investing in increasing touch points with our consumers and which -- in all those respects, we are having positive signals. So despite the weakness in the market, we are seeing positive developments in terms of the brand health scores that we are following. So in that perspective, we are more confident with the competitive landscape that we have as of today. So basically, in the coming months, we will be reviewing the plans for the coming year and we will be able to give you a proper guidance at the beginning of the year.

When it comes to the packaging tax, I think, on the beer side, we are a little bit, let's say, in a favorable position because still a significant part of our business is returnable bottles. That is around 40%. We will take -- so that helps in that perspective. So we have to see how the -- how that packaging tax is going to be structured. Certainly, as a company that invests a lot and that has deep position in terms of sustainability of our business, certainly, that's an area we are very careful. In the last couple of years, we've been investing in various developments in that perspective, lowering our aluminum usage, lowering our carbon footprint, lowering our energy usage in the old perspective. So in that perspective, we were one of the pioneers in Turkish market, but also significantly increasing our efforts in that area. So as the, let's say, packaging tax details are revealed, we will be able to give you more clarity.

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Operator [4]

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We have a next question from Nikolay Kovalev from MTB Capital (sic) [VTB Capital]

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Nikolay Kovalev, VTB Capital, Research Division - Equities Analyst [5]

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Hello?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [6]

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Hello. Yes.

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Nikolay Kovalev, VTB Capital, Research Division - Equities Analyst [7]

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Hello, can you hear me?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [8]

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Yes. We can hear you, Nikolay.

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Nikolay Kovalev, VTB Capital, Research Division - Equities Analyst [9]

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Yes. Basically, I have 2 Questions. I just wanted to say congratulations on good results particularly internationally. And my first question is on Russia and your EBI business and JV. So can you update us on how much of synergies you achieved already year-to-date? And what do you plan for next year, I mean, operation-wise, so that you can reach your ultimate guidance for up to $100 million of synergies? And my second question is on your stock performance. We basically see quite impressive results, but Anadolu's one of the worst performance on the stock market in Turkey. So my question is, what are your thoughts here? And anything on the corporate front you consider that can support the stock?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [10]

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Tough question. That's why I leave it to Orhun.

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [11]

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Thank you, Can. Now Nikolay, as you remember that the initial guidance on synergies of the businesses in Russia and Ukraine was announced somewhere between $80 million to $100 million over the course of 3 years. I can't say the exact number on a year-to-date. What I can say is, we potentially could end towards the higher end of that spectrum and to deliver on the synergies over the 3-year period because we have already been on track to deliver, hopefully, a bit better than our initial anticipation for the first 2 years as we end 2019. Obviously, on the stock performance, well, I believe one of the things, again, I was reading today in the research pieces was that now, especially the story of Anadolu Efes outside of Turkey is becoming a little bit more clear, and I'm sure you may be following that as well, especially the contribution from the businesses in Russia and Ukraine. So potentially, I would have thought before any, let's say, corporate moves, obviously, it's our job and business to ensure that we continue that performance and make sure that we make that performance quite clear so that it can become part of Anadolu Efes value that's coming through the Beer Group. Obviously, we can talk about, let's say, risks and rewards going forward about the Turkish market in general. How we have done, again, in general, in the course of this year. But I believe, going forward and hopefully, it's going to be -- once we can integrate the results that we achieved in our story, we may be looking at a different picture. But let us please continue talking about this quarter-on-quarter and let's see if this prediction comes through.

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Operator [12]

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We have another question from Hanzade Kilickiran from JPMorgan.

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Hanzade Kilickiran, JP Morgan Chase & Co, Research Division - Analyst [13]

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I have questions on Russia as well, 3 questions. The first one is that, did you continue to gain market share in Russia in the third quarter? And if so, can you please share it with us, I mean, or let us know your volume growth, particularly for Russia in this quarter? And the second thing is that, when I look at the Russia retail sales data, the market data, I can see that it was down by around 10% in the third quarter. And last year same quarter seems to be a kind of low base because there was another 12% decline last year. Do you continue to see weakness in Russian retail sales so far in the fourth quarter? I tried to understand the ongoing trend there? And finally, on Russia, what is your margin -- EBITDA margin target in the international beer after the synergies? I mean, current level is over 14%, do you think that you can expand it more towards like 15%, 16% levels?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [14]

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Thank you. I mean, obviously, we -- our sales volumes throughout the season was higher than the market in Russia. So -- and in Ukraine as well, despite high comparables for our business because last year summer was better summer with the World Cup support and the better weather conditions, but still, we were able to grow better than the market. That's obviously reflected into our market share performance, especially in high priority brands in our portfolio. So in that respect, that the season was positive for our businesses, both in Russia and Ukraine. Retail sales, I -- Orhun, if you can help me on that ground, but for -- I mean, the weather conditions partly impacted throughout the season. And I would say, September was more or less in the same manner. So in that perspective, we need to see the coming months to be able to give you more clarity on -- for the fourth quarter, but we see more or less the same trend as per the season.

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [15]

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Yes. That would be true, Hanzade. Obviously, again, if you look at the overall beer market, what we see this year, which was very promising, that the overall market in Russia has been growing. And that's also good news because, obviously, to be able to grow over the base of 2018, where we have seen the World Cup taking place, where a lot of beer was being consumed, that's quite good to have. Obviously, we could argue, on one hand, the environment has been quite stable in terms of regulatory changes or taxes in a sector in 2019, which could -- which is assisting this growth. On the other hand, obviously, the weather was not very favorable. There was a VAT increase, which I believe also have been impactful on the overall softness in the retail segment in Russia as well. But so far, at least, we have been able to grow a little bit ahead of even market growth for 2019. And we can report back as we close the year, back to your point, whether that softness that we have been seeing in the third quarter continues or not in general, once we announce our annual results. Now for EBITDA, margin in this -- what I can say is, if you look at the first 9 months, you'll see our international business delivering about 13.9% EBITDA margin. And even though the swing in our businesses from Russia and Ukraine is quite high versus last year. They are still below that average. And therefore, the margins that we deliver outside of Russia and Ukraine currently are higher. So therefore, at least, I would have thought that should be our initial target. So there is more scope, obviously, to continue expanding our margins. On one hand, certainly, through the extraction of incremental synergies, but that's not all. Because, as I was saying, the good news is, we've seen a growing market this year. We know that the strategy that was implemented last year is working, and we would expect -- continue expecting that to work, which helps also our top line growth and our revenue growth. And this should expect -- I would expect to continue expanding our margins in Russia and Ukraine. So let's say, about mid teens, that's, I believe, overall, is where it first should come to naturally.

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Hanzade Kilickiran, JP Morgan Chase & Co, Research Division - Analyst [16]

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Orhun, the -- when you say, about 15 -- mid-50 --n I mean mid-teens, sorry. Do you mean like EBITDA margin on the international beer business can go over like 15%, 16% levels, but not 20% level, right? Why 20% is a quite high-margin to achieve, I presume?

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [17]

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I didn't say 20%.

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Hanzade Kilickiran, JP Morgan Chase & Co, Research Division - Analyst [18]

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Yes. I know. I'm trying to -- because that mid- and low single -- this guidance always makes me confused because mid-teens means like 15%, 16%, you mean?

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [19]

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I believe that's a natural target, Hanzade, because, again, the businesses outside of Turkey, except Russia and Ukraine are at a higher EBITDA margin. That's what I was trying to say. The blended 13.9% comes where Russia and Ukraine are at a lower margin versus the other piece, even though they're swing are higher versus last year. So naturally, you would expect them to come at least to deliver in line with our overall international business, which should take our overall margins to at least mid-teens levels. On the long term, we can discuss further how much we can continue growing them, obviously. We have our own scope and expectations. But I would rather discuss them once we are able to deliver on our annual results given that we are in the interim now.

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Operator [20]

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We have no other questions for the moment. (Operator Instructions) We have another question from Ece Mandaci from Unlu & Co.

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Ece Mandaci Baysal, Unlu & Co., Research Division - Research Analyst [21]

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Could you please provide an update regarding the competition environment, again, particularly from the DIOT side, and any regulatory changes on that front regarding the batching, et cetera? Could you just please elaborate on that?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [22]

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Yes. The DIOT -- the draft on off-trade, in specific, I guess, you are referring to Russia. It's a very competitive part of the market, I would say, especially also supported, and it's kind of, let's say, source of revenue and source of position for local brewers. So in that perspective, when you look at the total Russian beer market, slightly more than 1/4 of the beer market managed or is provided by the local brewers and that they are benefiting from the DIOT sales. So that's a very competitive market, I would say. But on the other hand, again, I mean, that's also creating a consumer demand. So in that perspective, that's segment of the market where we would like to ensure that we are reaching other consumers. It requires expanding our footprint in those channels. And that was one of our strategies throughout the year, which is growing healthily for our business. It's contributing, I mean, both in terms of top line growth and in terms of profitability as well. So despite the fact that it's very competitive. I'm not saying that it's less profitable. So in that perspective, it is a nice piece of the market. And so we are more focusing, I would say, as the joint venture and benefiting from the growth and consumer demand on that specific segment.

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Ece Mandaci Baysal, Unlu & Co., Research Division - Research Analyst [23]

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And is there any news regarding the regulatory environment in Russia?

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [24]

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No, to my knowledge, there is no -- any additional change in the needed legislation or an option?

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [25]

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No. But nothing new. I mean, there could be a non-excise tax increase next year, but ruble...

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [26]

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Which is announced (inaudible)

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [27]

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Yes. That's already known. Other than that, currently, I mean, look, that doesn't mean obviously that there will not be any changes. At least we can say it respectively, that in the absence of any changes, we know that there is great potential in the market to continue growing as the market have demonstrated. So for the time being, nothing that we know.

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Operator [28]

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We have another question from Edward Mundy from Jeffries.

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Edward Brampton Mundy, Jefferies LLC, Research Division - Equity Analyst [29]

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I've got 2 questions, please. The first is on your local currency revenue per hectoliter in the international beer operations. On Slide 18 of the slide deck, you show the Turkish lira versus rubble and Ukrainian currency movements, which looks like, on average -- a blended average, there's been a strengthening versus Turkish lira of probably 15% or so. It looks like you've got 26% revenue per hectoliter growth within EBI, which would imply your local currency revenue per hectoliter is around 10%. First question, is that roughly correct math? And then the second question is, whilst you've seen some extremely strong EBITDA margin expansion up to 14%, your gross profit margins are still relatively low. I was wondering, what is the opportunity to get gross profit margins up through stronger pricing over the next few years? Have you continued to premise the portfolio?

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [30]

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Let me start -- by the way, Ed, it's good to hear from you. It's been quite a while. Let me start. Yes, I mean, if you look at the results of the joint venture. Obviously, there are 2 things that takes place. One, what's happening in the local currency level. And obviously, as we report in Turkish lira, what's happening at the, let's say, Turkish lira to dollar level as well. In -- I believe you said just about 10% on a currency-neutral basis, that's what I heard from you, if I'm not just mistaken.

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Edward Brampton Mundy, Jefferies LLC, Research Division - Equity Analyst [31]

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Yes.

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [32]

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It's a little bit higher than that, but obviously, is lower than the reported level, still in double-digit in that sense, basically. And I believe that's also a function of -- for example, this year's rubble being relatively stronger against the dollar and, et cetera. So we've gained on that as well. That is one. Secondly, on the -- I hope that answers the question, by the way, first of all?

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Edward Brampton Mundy, Jefferies LLC, Research Division - Equity Analyst [33]

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It does. Yes. So you've got double-digit revenue per hectoliter in local currency?

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [34]

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Yes. Yes. Secondly, obviously, on the gross margin level, certainly, there could be more opportunities, especially outside of Turkey, one could be from the top line, as you stated, as we continue selling more premium, especially in markets like Russia. Those segments are the segments we're strong and expect to -- going forward expect to be stronger. That is also true. But secondly, obviously, when we talk about synergies, not all of them are on the OpEx side. Obviously, we are generating them through cross brewing and et cetera, overall cost base as well. Now let's keep in mind that the markets we talk about are obviously very competitive markets as well. So it's -- at least it would be reasonable to expect that the average pricing in these markets could be driven more with the portfolio and the composition as we execute high revenue growth management efforts. And obviously, we'll continue extracting from our cost base. But you're right. I mean, looking forward, we would continue seeking gross profit margin expansion because at the end of the day, that's how we first start generating our margin growth.

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [35]

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I guess, what Orhun commented, we have to -- also, we can confidently share with you guys is that our team, especially on the joint venture side, we have a lot of focus in terms of variable industrial and variable logistics costs, and the team has highly granular review of all the cost components, and we're trying to improve, and we have already identified a couple of areas where we are trying to benefit from cross brewing functions and so on and so forth. So in that perspective, yes, up until now, we have benefited with the synergies that has contributed both on the OpEx line and on the cost side, and we expect to improve on the gross profit margin level as well going forward.

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Operator [36]

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We have no other question for the moment. (Operator Instructions) We have no other question. Sir, back to you for the conclusion.

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Can Çaka, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CEO & Beer Group President [37]

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Thank you very much, all, for your participation and contributions and questions. Hope to talk to you in the next quarter results call.

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N. Orhun Köstem, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi - CFO [38]

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Thank you.

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Operator [39]

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Ladies and gentlemen, this concludes our conference call. You may now disconnect.