Coca-Cola Içecek Anonim Sirketi (CCOLA) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I would like to welcome you to the Coca-Cola Icecek's conference call and live webcast to present and discuss the second quarter 2026 financial and operational results. We are here with the management team, and today's speakers are the CEO, Mr. Ahmet Ertin; and CFO, Mrs. Cicek Usakligil Ozgunes. Before starting, I would like to kindly remind you to review the disclaimer on the webcast presentation. After the call, there will be an opportunity to ask questions. I would now like to turn the call over to Burak Berki, Head of Investor Relations. Sir, the floor is yours. Please go ahead.

Well, good morning and good afternoon, ladies and gentlemen. Welcome to our second quarter 2026 results webcast. As the operator said, I'm here with our CEO, Ahmet Ertin; and CFO, Cicek Usakligil Ozgunes. Today's remarks will be accompanied by a slide deck, and we will turn the call to all our questions. Before we begin, please kindly be advised of our cautionary statement. The conference call may contain forward-looking management comments, including projections. These should be considered in conjunction with the cautionary language contained in our earnings release. A copy of our earnings release and financials are available on our website. In addition, in accordance with the decree of the Capital Markets Board, our 2026 financials are reported using TAS 29, Financial Reporting in Hyperinflationary Economies. The financial figures in this presentation and all comparative amounts for previous periods have been adjusted according to the changes in general purchasing power of Turkish lira in accordance with TAS 29 and finally expressed in terms of the purchasing power of TAS, as of June 30, 2026. However, certain items from our financials are also presented without inflation adjustment for information purposes. These unaudited figures are clearly identified as such. Following the call, a full transcript will be made available as soon as possible on our website. Now let me turn the call over to Ahmet Ertin.

Thank you, Burak. Daniella, thank you. So I mean, this is the term that we were together with Karim. So it is good to remember him as well. So we always keep his name in our mind and heart. Good morning, and good afternoon, everyone. Thank you for joining CCI's second quarter 2026 results webcast. It's a pleasure to speak with you for the first time as CEO of CCI. Having spent many years with the company, I have had the privilege of witnessing the dedication of our people and the strength of our business across our diverse markets. Our values, strategic priorities, and disciplined approach to execution remain firmly in place. We will continue to focus on sustainable, profitable growth, disciplined capital allocation, and creating long-term value for all our stakeholders. Our second quarter performance once again highlighted the resilience of our business model and the benefits of our diversified geographic footprint. Despite continued macroeconomic and geopolitical uncertainty across several of our markets, including the impact of the ongoing regional conflict, we delivered another strong quarter and a resilient first half performance. Supported by the balanced contribution of our operations, we continue to deliver on our quality growth algorithm, turning robust volume growth into value creation across the P&L and converting that value into strong cash generation. We delivered a solid second quarter with consolidated sales volume increasing by 9.8% year-on-year to 519 million unit cases. Strong momentum across our international operations, led by Pakistan and Central Asia, more than offset the subdued volume performance in Turkiye. Pakistan delivered an outstanding quarter, while Central Asia sustained its growth momentum. In line with our mix improvement strategy, the consolidated immediate consumption share improved by 23 basis points from 28% to 28.2% in second quarter '26. Similarly, our on-premise channel continued to gain traction with its share in total volume increasing to 33.8%. We also continued to increase the penetration of no sugar products within the sparkling category, with their share rising by 84 basis points year-on-year to 3.8%, further strengthening our portfolio mix and increasing the share of higher-margin products. We delivered 284 basis points expansion in gross margin to 38.2%, driven by improvements in both Turkiye and our international operations. In Turkiye, timely pricing actions, favorable input costs and disciplined cost management supported profitability. Our international operations also delivered healthy margin expansion, supported by solid volume growth and continued cost discipline, despite a more moderate pricing environment. Below the gross profit line, we continued to deliver strong financial performance, with EBIT margin expanding by 287 basis points to 17.9%, supported by stronger gross profitability, disciplined operating expense management across both Turkiye and our international operations, and to a lesser extent, a softer base in the prior year. This translated into an increase in net profit to TRY 8.3 billion, supported by stronger operating profitability and lower net financial expenses. We generated a strong free cash flow of TRY 2.3 billion in the first half of the year or TRY 2.5 billion, excluding inflation accounting, supported by improved profitability, disciplined capital allocation and lower financing costs. Finally, while our first half performance was ahead of expectations, we believe it is prudent to maintain our full year guidance. The operating environment remains uncertain with ongoing geopolitical development, potential pressure from energy and commodity costs, and the competitive market backdrop across several of our geographies. We prefer to retain the flexibility to continue investing in the market where we see attractive opportunities rather than optimize for a short-term guidance upgrade. Next slide, please. International operations delivered strong volume growth led by Pakistan and Central Asia, with positive contributions from all markets. The sparkling category maintained its growth momentum in second quarter '26, delivering a 7.9% increase on top of a 4.9% growth base in the same period last year. Coca-Cola trademark outperformed the category, posting an 11.1% growth in sales volume. The stills category, including iced teas, and ice drinks and juices, delivered robust growth of 18.5%, primarily driven by Fusetea, whose sales volume increased by 23.9% year-on-year and remained a key contributor to overall category performance. The energy segment also posted a strong 21.2% year-on-year growth, supported by the continued solid volume performance of both Monster and Predator, along with Predator launch in Pakistan. The water category posted an 18.4% year-on-year increase in second quarter '26 due to low base effect and pre-summer inventory build-up by distributors. Our mix optimization initiatives continue to strengthen portfolio quality, supported by higher immediate consumption, on-premise and no sugar mix in line with our commitment to sustainable long-term value creation. Next slide, please. Turkiye. Turkiye sales volume declined by 1.1% each year-on-year to 159 million unit cases in second quarter '26, bringing the cumulative 6-month volume to 289 million unit case, broadly flat compared to first 6 months of last year. Our increasingly diversified portfolio continued to support volume performance during the quarter. While sparkling volumes declined by 6.6%, Coca-Cola Zero Sugar grew by 16.9% year-on-year. At the same time, the stills category expanded by 8.8% year-on-year, led by the continued strong momentum of Fusetea, up 11% year-on-year, and the water category increased by 15.1% due to the low base of last year and pre-summer inventory build by distributors. Turkiye reported NSR of TRY 26 billion in second quarter, down 3.4% year-on-year. Excluding TAS 29, NSR grew by 28% year-on-year with NSR per unit case reaching to TRY 162, up 29.4% year-on-year. Gross profit, EBIT and EBITDA margins, all improved sharply year-on-year, driven by the utilization of previously secured lower cost raw material inventories, favorable sugar prices and disciplined cost and operating expense management. Next slide, please. International. International operations delivered a robust 15.4% year-on-year sales volume growth in second quarter '26, building on a strong 10.6% growth based in the same period last year. Growth was broad-based across markets, with Pakistan emerging as a standout performer during the quarter, while Central Asia continued to deliver strong momentum. All major categories posted double-digit growth. NSR increased by 12.3% to TRY 41.2 billion, driven by disciplined revenue growth management initiatives that balance affordability with volume growth along with mix optimization and successful product innovations. EBIT margin expanded by 296 basis points year-on-year in second quarter '26, mainly driven by substantial improvement in gross profit margin, while disciplined management of operating expenses provided additional support. Next slide, please. So largest international market, Pakistan. Sales volume increased by an impressive 17% year-on-year to 122 million unit cases in second quarter '26. Growth was driven by Coca-Cola trademark. Successful product innovations, particularly Fanta Pomegranate and Predator as well as the Eid season, despite a challenging geopolitical environment, our strengthened competitive market positioning, supported by continued investment in coolers, returnable glass bottles and outlet expansion, remains a key competitive advantage. Kazakhstan delivered 12.7% year-on-year volume growth, cycling a solid 16.7% growth, supported by commercial initiatives and innovation launches. Growth was broad-based across both sparkling and stills categories, with Fusetea remaining a key growth driver, while the immediate consumption mix continued to improve. Uzbekistan sustained its strong growth trajectory in second quarter '26 with sales volume increasing by 21.1% year-on-year, following an exceptional growth of 40.7% in the first quarter. The operating environment remained highly supportive, benefiting from favorable macroeconomic conditions and multiple demand tailwinds, which continue to underpin healthy consumer demand and business momentum. Commercial initiatives, including product innovations and under-the-cap promotions across both RGB and PET packs, also contributed to the strong performance. Market conditions remained broadly unchanged from the first quarter. Operation -- Operating conditions in Iraq remain challenging with regional geopolitical tensions, oil-related disruptions and lower tourism continue to weigh on consumer demand. Despite these headwinds, we delivered resilient volume performance, growing sales volume by 1.1% to 37 million unit cases in the quarter. Our immediate consumption mix reached 77.2% in second quarter '26. Now I will leave the floor to Cicek for the financial review. Thank you.

Thank you, Ahmet, and thank you all for joining us today. Building on the strong momentum from the first quarter, we delivered another solid quarter with robust performance across all key financial metrics. I would like to highlight the quality of the performance. Revenue growth was accompanied by a significant improvement in operating profitability, which also translated strongly into the bottom line, supported by lower net financial expenses. Net sales revenue increased by 5.7% year-on-year to TRY 67.2 billion, bringing the first half revenue to TRY 123.3 billion, up 7.9%. When we look at our performance, excluding the impact of inflation accounting, the underlying strength of our business becomes even more evident. Net sales revenue grew by 40.7%, while NSR per unit case increased by 28.1%, reflecting our disciplined revenue growth management, effective pricing actions and favorable mix. Consolidated EBIT margin increased by 287 basis points year-on-year to 17.9%. Excluding TAS 29, EBIT margin reached 19.9%, up 299 basis points year-on-year. The expansion was primarily driven by a significant improvement in gross margin, complemented by disciplined operating expense management. As a result, both our Turkiye and international operations delivered year-on-year margin expansion. Our bottom line performance remained strong in the second quarter. Net profit increased by 24.2% year-on-year to TRY 8.3 billion, bringing first half net profit to TRY 13.9 billion, up 64.3% versus the last year. This performance was supported by strong operating profitability across both Turkiye and our international operations as well as lower net financial expenses, while monetary gains remained broadly stable year-on-year. Excluding the impact of inflation accounting, net profit almost doubled to TRY 8.2 billion from TRY 4.4 billion in the second quarter of last year, highlighting the significant improvement in our underlying profitability. Next slide, please. Let me briefly walk you through our per unit case metrics now, as they provide a clearer view of the underlying business performance. On a per unit case basis, NSR declined by 3.7% year-on-year in the second quarter. Excluding the impact of inflation accounting, NSR per unit case reached TRY 133.3, up 28.1%, providing a better indication of the underlying revenue trend. In U.S. dollar terms, NSR per unit case reached $2.9, marking the highest second quarter level in the past 10 years. The real progress this quarter is on the cost side. Cost of sales per unit case declined by 8% in the second quarter, reflecting favorable commodity costs, effective hedging and disciplined cost management. This resulted in a meaningful improvement in gross margin. Together with frugal OpEx management, EBIT per unit case increased by 14.6% and by over 50%, excluding inflation accounting. Next slide, please. Moving further down the P&L, the improvement in operating profitability translated into strong bottom line growth. Net profit reached TRY 8.3 billion in the second quarter, as discussed, up 24.2% year-on-year, representing an increase of TRY 1.6 billion in absolute terms. The biggest contributor was clearly the improvement in operating profitability. But there is another element I would like to highlight here, which is the financial expense management. Despite the high interest rate environment across several of our markets, lower net financial expenses made a positive contribution to net earnings. This is an area where we have been deliberate, looking at liquidity and funding increasingly through a consolidated balance sheet lens rather than managing each market in isolation. So the improvement in net income reflects not only strong operations, but also better conversion of operating profit into earnings for our shareholders. Monetary gains remained broadly stable year-on-year. Excluding TAS 29, net profit almost doubled to TRY 8.2 billion in the second quarter from TRY 4.4 billion recorded in the second quarter of '25. Next slide, please. And this brings me to free cash flow, which remains one of our key priorities. We generated TRY 2.3 billion of free cash flow in the first half, marking a significant improvement compared to negative TRY 4.4 billion in the same period last year. This strong performance was primarily driven by improved operating profitability and lower financing costs, supported by a meaningful decline in interest expenses. In addition, the timing of CapEx spending provided a temporary relief -- temporary benefit to free cash flow generation in the first half as well. Excluding TAS 29 inflation accounting, free cash flow amounted to TRY 2.5 billion. The positive free cash flow generation we delivered in the first quarter despite the usual seasonality of our business, provided a solid foundation for our first half performance. While some CapEx, as I said -- CapEx timings, as I said, benefited strongly from -- they benefited the free cash flow strongly in the first 5 to 6 months, it is expected to normalize in the remainder of the year and the continuation of the regional conflict may put some pressure on working capital. However, the fundamentals of our cash generation still remain strong. We continue to focus on profitable growth, disciplined working capital management and sustainable cash generation. Next slide, please. In periods of heightened volatility like today, we deliberately take a conservative approach, prioritizing business continuity while preserving financial flexibility. Maintaining visibility over our cost base is, therefore, a key priority. This was particularly relevant during the quarter as geopolitical tensions in the Gulf region created upward pressure on petrochemical-linked input costs. While we observed price increases across certain categories during the second quarter, we did not have any disruptions or delays in our supply chain. This is the most important thing for us. Our revenue growth management capabilities, together with ongoing supply chain initiatives, provide us with multiple levers to mitigate input cost inflation. In addition, our participation in the Coca-Cola systems cross-enterprise procurement group strengthens our purchasing capabilities, while our previously secured inventory further cushions the near-term impact of higher input costs. I can confidently say that we benefit from a broad and resilient supplier base across our geography across the key inputs, anchored by the local sourcing capabilities and executing with local agility, sustainability of supply is the main thing here. As of July, we have secured a very significant portion of our key commodity requirements for '26, including over 90% of sugar and resin and 80% of aluminum. We have also started selectively building coverage for '27, where we see attractive opportunities, while maintaining flexibility. As said, resin and aluminum are among the raw materials most sensitive to rising geopolitical tensions in our region. However, we are carefully capitalizing on attractive pricing windows through disciplined procurement and hedging, supporting long-term cost efficiency and margin stability. Next slide, please. And finally, let me close with the balance sheet. We have always placed strong emphasis on financial discipline, which continues to stand out as one of our key competitive strengths, particularly in periods like today where geopolitical tensions are elevated and visibility remains limited. Our balance sheet is one of the main drivers of our resilience. Strong cash generation and disciplined capital allocation have allowed us to maintain leverage below 1x despite continued investments behind growth. As of end of second quarter, our net debt was USD 640 million with our net debt-to-EBITDA ratio improving to 0.7x from 0.8x at the end of '25. Our consolidated financial debt remains well diversified with 54% denominated in U.S. dollars, 4% in euros and the remaining 23% in Turkish lira and/or other currencies. While our overall FX position has remained broadly stable year-on-year, we have continued to optimize our borrowing structure by increasing exposure to lower interest rate markets. This strategic shift has supported a reduction in total interest expenses. Importantly, our diversification strategy goes beyond Turkish lira, extending into key operating currencies such as Uzbek som, Pakistan rupee, Kazakhstan tenge and Azerbaijan manat, further strengthening the nature of hedge within our balance sheet. We continue to maintain a disciplined FX position. We hedge where appropriate, we match currencies where possible, and we limit structural FX short position on the balance sheet. We currently have a short FX position after net investment hedge at only $78 million and before net investment, hedge of $325 million. We consistently monitor our short position by benchmarking it against our international EBITDA, right now it is 0.5x, ensuring it remains within prudent and manageable levels. The reason is that we repatriate hard currency dividends from international operations and use this to serve our FX liabilities. The majority of our scheduled debt payments in '26 that you see in the graph here, consists of local currency loans or the short-term portion of long-term facilities. Therefore, we do not anticipate any refinancing risk in this context. Now we will be happy to answer your questions. Dear closure agents, over to you, please.

[Operator Instructions] Our first question comes from Maksim Nekrasov from Citi.

I think the most important question and topic I wanted to discuss is the guidance or the lack of any guidance upgrade. So, I was wondering if you can help us to reconcile very strong results we saw in the first half and the lack of the guidance change, both on the volume side and on the margin side? I'm interested, in particular, are there any signs in July and August that prevents you from changing the guidance and whether you see some reversal on the volume side and some moderation? And on the margin side, flat EBIT margin guidance for the full year basically implies a 4 percentage point decline in the second half of the year. Is this what you are guiding for? Or you just prefer to be cautious, but there might be upside risk to your full year margin?

I will try to cover some parts of that, and I will ask Cicek as well to support me. I mean we try to cover that one during the presentation as well. While first half performance was strong, particularly in our international markets, we remain prudent on the second half. We benefited from a relatively favorable cost environment in the first half, while we expect higher raw material, energy and distribution costs across our markets going forward. At the same time, pressure on disposable income makes affordability increasingly important. We -- many, many times, we underline that we are operating in a low per capita market. So that's something that we have to watch out always. And we want to continue investing in our markets and execution to sustain volume momentum. While the strong first half may provide some upside potential on the margin side, at this stage, we do not see it as significant enough to justify a revision to our full year guidance. Overall, we believe our current guidance appropriately balances the opportunities and risks we see for the remainder of the year. Cicek, do you want to add something on top of that?

Maybe I can elaborate on Maksim's question on July or August. No, actually, we are not seeing anything that would reverse our current trend. It's going in line with our expectations. The volume is still solid, especially in the international markets. We are not -- the reason we did not change the guidance is not because of that. As I said, as Ahmet also said, we are seeing second quarter from -- just purely from a base effect perspective. And also because the utilization of the lower cost inventory and the rest of the year we are facing a higher cost inventory, these are the main reasons why we are not right now guiding for an upgrade. There could be some upside risk naturally, especially on the volume side, but we don't see it at a level that would require us to change guidance at this point.

Understood. And just to confirm on the volume side. So basically, you do not see a material change compared to the previous momentum on the volume side in July, August so far? And just a follow-up on specific markets, right? We saw a strong recovery in Pakistan, for example, how sustainable is that, because the country was quite volatile -- the performance there was quite volatile in the previous quarters? So, were you able to sustain that momentum going forward?

I mean I lived in Pakistan 6 years. So, I'll have all the questions related with Pakistan always. Pakistan, I mean, is one of the most important market for us, that is because the population is 215 million official. But I've been hearing from the people that it is around 250 million. One of the lowest per capita with one of the lowest GDP, yet we have a kind of a capacity of 450 million case of production. So that makes Pakistan a critical market for us, where our affordability focused approach remains a key competitive advantage. Through returnable packs, enhanced cold availability, targeted cooler investments, expanded outlet coverage and disciplined trade investments, we have further strengthened our market position and consumer penetration. Despite ongoing cost inflation, we have maintained broad consumer access to our brands, supporting both competitiveness and sustainable growth. Looking ahead, we will continue investing in the market to strengthen our position and capture significant long-term growth opportunity. So, I could say that, yes, we are in line with our expectation about Pakistan. Anyone wants to add anything, Cicek, about Pakistan?

No. I think that's it.

Our next question comes from Ece Baysal from OYAK Yatirim.

I would like to congratulate you on your new role. And I have also a question regarding your guidance. You have already mentioned about your cautious view for the second half regarding volume growth and margins, also highlighting, flagging the possible cost pressure or any other uncertainty on the logistics cost. But in your assumptions, have you taken into consideration any potential increase in the volume share of Pakistan operations? Because as far as I know, Pakistan had a relatively lower margin performance in the last couple of years compared to the other markets in Central Asia. So, could it be related to also the change in mix of -- geographical mix of your revenues? And secondly, in your guidance, you were previously highlighting high-single digit CapEx over sales, but the first half trajectory is lower than that. For the second half, should we see a higher capital intensity? And regarding the working capital, you mentioned about the potential risks on higher working capital management going forward. For what particular market do you assume such uncertainty or upward risk on your working capital requirements?

I mean I will cover the first part, and I will give the second part by -- covered by Cicek. So Pakistan, I mean, the question is we have seen some kind of opportunities coming from some countries, and we have seen some risk coming from some other countries. And overall, that's why we haven't changed the guidance. Pakistan is going well, which is in line our expectations more or less. We keep being aggressive and competitive. That's why I would say, yes, Pakistan mix could be increased. Meanwhile, I mean, this is always having a kind of a diversified portfolio. And each and every country have a specific role at the beginning of the year, and we guided like this, and we usually share this one with everyone at the beginning of the year. So, Pakistan is a market that we are looking mainly for profit -- volume-driven markets because this is the less per capita with the less NSR and the less GDP. So that's why having an expectation that Pakistan is going to increase the volume and getting a kind of increasing the share could be, yes. The second part I'm giving the word to Cicek.

Ece, on CapEx, yes, we guided for high-single digit CapEx over net sales revenue for the full year. And in the first half, it is running below -- behind that. And that is the reason actually when I was covering the free cash flow, yes, with all the excitement about high free cash flow despite seasonality, I also mentioned that there is some phasing of the spend of the CapEx. Therefore, we did not give up certain projects. They are still continuing, but just their timings have shifted a bit, therefore, their spendings have shifted a bit as well. So, in the third and fourth quarter, you will see more cash outflow due to this pre-approved, pre-aligned CapEx. So for the full year, our guidance is not changing. Maybe there could be a small reduction in that, but not meaningfully. We are expanding -- we are buying lines. We are buying coolers. We are expanding our footprints -- manufacturing footprint. Therefore, that is still there, so no changes. On working capital, I mean, due to the war, yes, we are extra careful on working capital because, as I mentioned when I was covering the commodity part, continuing the supply chains without any interruption is the main priority, obviously. And when the war first started, we started building up stock, both finished goods and raw materials, just to make sure that there is no disruption in the operations. And that trend is still continuing with a decreasing trend, but that is also having some impact on working capital. And also, particularly in Turkiye, which you can also see from Turkiye's standalone balance sheet as well, the biggest challenge on working capital is in Turkiye, and it's mostly due to the channel mix shift, as you can imagine. So we expect this trend to continue. It is more of a structural thing. But when it's combined together with higher inventories because of the war, that results in deterioration in net working capital. But nevertheless, it remains a core priority for us to decrease it to the levels that we have achieved back in '22 -- '21 -- 2021, '22. So that's a trajectory that we are going. But right now, because of the war, we are seeing some pressure, especially coming from Turkiye.

Just I would like to beat on the second part. So, you know that we have a war in between of the region. And all these new lines, investments are coming from -- mainly from Europe. So that's why we had some delays. And when there is a delay in the line and whatever, then there will be a delay in the payment as well. So mainly Cicek is right. So that delay was mainly because of that one.

So, for the full year, will the financial leverage ratio of 0.7x be sustainable?

Yes, we believe it will. I mean it will definitely be below 1x, that's our expectations, maybe 0.7, 0.8. We do not have a specific target for that. But yes, I mean, there will be positive free cash flow generation throughout the year. And with our much controlled FX share as well, FX exposure of the balance sheet, we believe the year-end net debt-to-EBITDA ratio will stay again very low.

Our next question comes from Hanzade Kilickiran from JPMorgan.