There is a special concept that we mention in our corporate vision: Inspiration....
Regardless of the field or operational area, one of the most important factors that brings success to people or companies is inspiration. We are moving forward into the future with the vision of “Being an exemplary beverage company that leads the sector, inspires its employees and creates added value through excellence.” On this journey, we know that the greatest inspiration we can give to our employees is the achievements we have gained through their hard work. Today, we are the sixth largest beer producer in Europe and the 14th biggest worldwide. In addition, we continue to be one of the top five bottlers in the global Coca-Cola system through our subsidiary CocaCola İçecek.
We believe that difficult times are also a source of inspiration. During this challenging period, we were relatively less impacted by the fragility of the economy—by working harder, embracing innovation and always creating value. We continued our investment drive in 2016 despite the many uncertainties. I would also like to share with you the happiness of having achieved a sustainable growth performance that will bolster our strong position in both domestic and international markets which encompass over 670 million people.
Global economic growth comes in below expectations...
Looking at the world in 2016, the global economy has left behind a year of great change, the effects of which we will feel more clearly in the coming period. In line with the improvement in growth and employment figures in 2016, America’s Federal Reserve (the Fed) continued to hike interest rates, raising expectations for higher interest rates in the upcoming period. With the election of Donald Trump as the President of the United States, significant changes are expected to take place, particularly in US foreign policy. The Eurozone was adversely affected by problems in the Italian and German banking systems, as well as the United Kingdom’s decision to exit the EU after the Brexit referendum. The European Central Bank (ECB) continued its expansionary fiscal policies to stave off recession. For the years to come, economic growth is projected to remain under pressure, as a consequence of Brexit as well as by the heavy political agenda in Europe due to elections in the Netherlands, France and Germany. With the price of oil per barrel surpassing the USD 50 level after OPEC and nonOPEC oil producers decided to curtail oil production and lower supply, expectations grew for a significant economic recovery in oil-producing economies. Included also in the outlook is the impact of the expectation of higher costs for the commodity-importing developed economies due to the increase in oil prices.
The economic agenda was shadowed by the political environment...
In Turkey, we lived 2016 as a year in which political fragilities and international geopolitical risks increased significantly. These developments prompted Moody’s, S&P and Fitch to downgrade Turkey’s sovereign credit rating. The significant depreciation of the TRL, also a result of the appreciating US dollar in international markets, drove the CBRT to raise interest rates, the first such hike in a long time. The decline in energy prices during the first half of 2016 played a key role in narrowing Turkey’s current account deficit. The Turkish economy, which experienced a 1.8% contraction in the third quarter, is expected to record growth of around 3% by year-end 2016.
Russia’s economy is on the verge of expanding again...
In Russia, Anadolu Efes’ largest international beer operation by volume, the economic contraction in the last two years as a result of international sanctions and the sharp decline in oil prices has decelerated to a large extent in 2016. With the gradual rise in oil prices, consumer confidence in the country is expected to rebound in the coming period.
We maintained our profitability despite the fluctuations in the market...
Anadolu Efes maintained leadership in its Turkey beer operations as of year-end 2016. We saw that the negative impact on purchasing power due to the excise taxes imposed at the beginning of the year on the prices of certain goods, the pressure of the terrorist attacks on consumer confidence and the sharp contraction in the tourism sector have affected our sales. Meanwhile, the performance of our international beer operations in 2016 exceeded our expectations despite all the macroeconomic and political challenges experienced in these countries during the year. In addition to raising our share in the Russian beer market year-on-year, we continued to lead the market in our other operations. With our business operations in geographies with strong potential for growth, in addition to Turkey, we recorded year-end consolidated financial results that will bolster our strong market position. Thanks to our successful production and sales activities in local geographies, our total revenues increased by 2.1% to TRL10.4 billion. On a consolidated basis, EBITDA (BNRI) increased by 0.3% to TRL 1.8 billion. Some 43% of total sales revenue of our beer group was from domestic operations, while the contribution of our international operations stood at 57%. As for our soft drinks group, 51% of total sales revenue was from domestic operations with 49% from international operations.
By closely monitoring the fluctuations in the markets in 2016, we maintained our strong balance sheet performance both through our disciplined and conservative financial policy and our efficiency studies. Despite the challenging conditions we faced in our operating region, we achieved the highest amount of free cash flow in our Company’s history, generating over TRL 1 billion free cash on a consolidated basis. During the year, our Company’s credit rating remained at investment grade despite the turbulence in financial markets and the change in Turkey’s sovereign rating. We maintained this rating thanks to this strong cash flow, an important competitive edge for our Company financially, long-term debt composition, our ability to access international financing facilities, and our strong liquidity position.
Our corporate governance rating increased to 9.58
We boast the ability to manage financial and operational processes in different geographies and segments in line with common goals. This capability allowed us to effectively assess the risks and opportunities in the global economy and our focus sectors in fiscal year 2016. Our corporate governance rating which is already high compared to many companies traded on the BİST, increased to 9.58. As a company, we placed sustainability at the heart of all our operations. Since our inception, we have focused our business strategies on creating a sustainable positive impact.
We continue to apply the sustainability approach in all our business processes from suppliers to sales. In 2016, in accordance with our social responsibility perspective, we continued on the one hand to support local development by creating sustainable models in the fields of agriculture and tourism, and on the other, to uphold social and cultural development through our activities in fields such as theater, cinema and sports. As for environmental sustainability, we made significant progress towards building a sustainable future through the projects we develop within the company and around our operations, in crucial areas such as water consumption, energy and emissions management, and recycling activities. We put our signature under collaborative efforts such as the UN Global Compact and The CEO Water Mandate, thereby carrying our environmental commitment to the international level. Furthermore, in 2016, we maintained our position in the BIST Sustainability Index that features 43 companies, thus adding value to our shareholders’ savings.
New collaborations, dynamic organizational structure...
In 2016, we continued to take steps forward to make our success sustainable through new collaborations and restructuring efforts. After AB InBev acquired SABMiller, which is our shareholder with a 24% stake, we laid the foundation for a new, strong partnership. Efes Russia Managing Director John Gavin Hudson, a standout with his work that creates added value, was appointed as the Beer Group President and Anadolu Efes CEO as of January 2017. I believe that Mr. Hudson, who has an important role in the successful operations of our company in Russia, will undertake critically important work in his new position.
We look to the future with our deep corporate experience...
At Anadolu Efes, we will continue our production and sales activities in the coming period in a highly dynamic geography, with Turkey positioned at the center, with the same enthusiasm and motivation. Our deep expertise in our core business lines, widespread brand awareness, and strong growth potential due to low per capita consumption in our business geography comprise the main starting point for our future breakthroughs.
I would like to extend my thanks to all our stakeholders, who have accompanied us on our journey to sustainable corporate development. In the coming year, I hope that our achievements will rise ever higher.
Chairman of the Board