We continue our operations with a total of 21 breweries consisting of, 3 in Turkey, 11 in Russia, 3 in Ukraine, 2 in Kazakhstan and one in Moldova and Georgia, along with 5 malteries, 1 hops processing facility and 1 preform production facility. We are the 5th biggest company in Europe, 15th in the world in terms of sales volume. We're leading the market in Turkey, Kazakhstan, Georgia and Moldova.


Tuncay Özilhan

Dear Stakeholders,

As one of the world's leading beverage companies, in 2017, we continued to create value by reaching both our operational and financial targets.

2017 was an eventful year in terms of both political and economic developments. Both in Turkey and on the global markets, we experienced ups and downs in many areas including the economy, politics and financial markets. In 2017, we once again felt the impact of geopolitical risks and political relations on the economy.

Developed countries started 2018 with considerable stability achieved in macroeconomic indicators such as growth, inflation and unemployment rates. The GDP of the U.S. and the Euro zone grew by 2.3 percent each, year-on-year in 2017. The Federal Reserve is strongly expected to continue raising the interest rate in the coming period. Although a more cautious approach was observed across Europe, we see that the European Central Bank may continue its bond purchase program for some time to come; however, they aim to gradually reduce purchases.

The moderate recovery of economic activity continues due to increased confidence in the global economy. After two years of poor indicators, an increase in global growth is expected along with increased production activity, which stimulates trade. The Organization for Economic Co-operation and Development (OECD) stated that the global economy continues to strengthen and expand. In its Global Economic Outlook Report, IMF revised its global growth forecasts upward to 3.6 percent and 3.7 percent for 2017 and 2018, respectively, which is 0.1 percentage point higher than projected in 2016

From the perspective of emerging markets, 2017 was a good year. The risk appetite remained firm despite headwinds. Of course, economic and political issues specific to certain countries and regions, rising interest rates and the resurgence of the economies of developed countries continued to be a risk factor for developing economies and their currencies.

Thanks to growth measures taken by the government, the Turkish economy achieved a good momentum despite the problems inherited from 2016 and that arose in 2017. In the third quarter of the year, Turkey became the only G20 country to achieve a double-digit growth rate of 11.1 percent. Turkey was followed by China and India with 6.8 percent and 6.3 percent, respectively.

The Turkish lira continued to depreciate against foreign currencies, with a lower pace compared to the previous two years. The USD/TRY rate, which reached its highest level at the beginning of the year, dropped to 3.52, at the 2016 year-end, and continued to drop to below 3.40. However, the Turkish lira still ended the year with depreciation. In addition to the depreciation of the Turkish lira, continued high domestic demand and the rise in energy prices pushed inflation to double digits. We will feel its impact on production costs even more next year.

For 2018, the main risks to the Turkey's economy are going to be the reverberations of global developments, regional issues, inflation and the current account deficit.

We leveraged our experience to successfully navigate market fluctuations

Anadolu Efes has a successful record of managing and reducing risk using the experience it has gained over many years in highly volatile markets. In 2017, we took the necessary steps to reduce the risks originating from the financial markets in order to successfully navigate market fluctuations.

2017 was a tough year for the Turkish brewing industry due to tax increases and only a partial recovery in tourism revenues. The inflationary pressures triggered by exchange rate fluctuations put a downward pressure on sales figures.

Refreshing our strategy with relaunches

Our Turkey beer operations has reacted to the market strongly during this period by revisiting its strategy.

We positioned "quality" and "freshness" at the center of our portfolio strategy with the "real beer" relaunch that we carried out in July.

We took an important step in providing both freshness and taste by shortening our product's shelf life from one year to six months. We organized "Better Together" meetings in Trabzon, Samsun, Bursa, Tekirdağ, Adana, Izmir and Denizli in our effort to promote our products in the field. We talked about our "Real Beer" with more than 3,000 customers and we had a chance to chat with them. It made us all very proud to receive positive feedback from our customers in every region from all over the country.

Turkey's first choice since 1969, Efes has touched the hearts of three different generations. As has always been the case, we continue to use the highest quality and the most natural raw materials with the least amount of additives thanks to our well-established quality practices. The basic raw materials of our real beer are the earth, water and the hard work of the Anatolian people.

We grew over the last two quarters of the year in Turkey with our marketing efforts following the relaunches. The investments we make in our brands, the best market practices, our uncompromising dedication to productivity, and our sustainable and robust relationships with our stakeholders continue to be the core elements of our strategy.

"Efes Pilsen" received the "Brand of the Year" award in its category at the World Branding Awards, which is a strong testament to the efficacy of our branding efforts. At the same time, Tuğrul Ağırbaş, who had assumed important roles in our group for nearly three decades, was appointed as Anadolu Efes Turkey Managing Director. I am fully convinced that he will also do great in his new role and produce great results.

Handshake for giant partnership with Anheuser-Busch InBev

We also took a very important step in Russia, our largest market by sales volume. After Anheuser-Busch InBev became our new shareholder following its merger with SABMiller in 2016, we signed a non-binding agreement to combine our operations under one management in Russia and Ukraine. The parties continue to work on the binding agreements. Meanwhile, we maintained in 2017 the growth momentum we achieved in Russia since the second half of last year. In 2017, we increased our market share with a sales volume growth well above the beer market At the same time, we have maintained and strenghtened our market leadership in Kazakhstan, Georgia and Moldova.

As a result of these concerted efforts, our total revenues increased by 24 percent to 13 billion Turkish lira. Consolidated EBITDA increased by 26 percent to 2.2 billion Turkish lira.

Thirty-six (36) percent of the total sales revenue of our beer group came from domestic operations while the contribution of our international operations was 64 percent. Forty-seven (47) percent of the total sales revenues of our soft drink group came from domestic operations and 53 percent from international operations. Thanks to our tight balance sheet management, effective capex policies and our focus on profitability, we recorded a consolidated free cash flow of 1.3 billion Turkish lira in 2017.

Today, Anadolu Efes serves more than 690 million people around the world and continues to be the fifth largest brewer in Europe, the 15th largest brewer in the world and the sixth largest bottler of in the global Coca-Cola system through its subsidiary, Coca-Cola İçecek.

We are delighted to continue to achieve strong results in such a challenging year like 2017. Our company, closely monitored by international rating agencies, has managed to maintain its investment-grade rating thanks to its strong liquidity profile, financial discipline and the ability to generate strong cash flows.

Sustainability is key

The starting point of the Anadolu Efes Positive Effect Plan that we began to implement in 2011 was to boost the positive impact of our activities by generating a responsible, smart and profitable business model that secures the future of the community. In this respect, we achieved significant progress in the six priority areas we established in our management approach as well as in our social, environmental and economic performance. We identified performance indicators in each of our priority areas. All indicators of water use, energy and recycling are developed and monitored using GRI Standards. In 2017, we were one of 44 companies listed in the BIST Sustainability Index.

Moreover, we continued to support local development by creating sustainable agriculture and tourism models as part of our social responsibility commitment; we continued to contribute to social development in social areas such as sports, cinema and theater.

Anadolu Group companies under one roof

Anadolu Group continues to be one of the most successful enterprises and one that was built with shared wisdom since its establishment in 1950. The three founding companies of the Anadolu Group were brought under the name AG Anadolu Grubu Holding A.Ş. and started to be traded on BIST, with the founding Yazıcı and Özilhan families enjoying equal representation and management rights.

The merger, which was successfully completed on December 26, 2017, aims to increase the profitability, efficiency and productivity of the Anadolu Group and to carry out its activities in a stable, economical and strong manner in order to strengthen institutional and legal management infrastructure, to maximize value creation for all stakeholders and to maintain the legacy of the Anadolu Group for many generations to come.

Our future looks bright

At Anadolu Efes, we have one of the best teams in the brewing industry, including our employees, dealers and distributors in all country operations, our sales points and all our business partners.

In the years to come, we will continue our journey standing on our corporate experience, our sound and timely decisions, and with the same enthusiasm that we have had since day one.

Anadolu Efes will continue to lead in every field thanks to your support and valuable contributions.

With my sincere regards,

Tuncay Özilhan