Coca-Cola Icecek AS

IST:CCOLA.E

Earnings Call Transcript 2021-Q2

[Çiçek Özgünes, executive]

Good morning and good afternoon, ladies and gentlemen. Welcome to Coca-Cola Içecek Second Quarter 2021 Financial Results Conference Call and Webcast.

My name is Çiçek Usakligil Özgünes, I'm the Director of Treasury and Investor Relations at CCI. Our presenters today are Mr. Burak Basarir, our CEO; and Mr. Andriy Avramenko, our CFO.

[Operator Instructions]

Just to remind you, this conference call is being recorded and the link will be available online. If you have any objections, please disconnect at this time.

Before we start, I would kindly request you to refer to our notes in our presentation regarding forward-looking statements and the text for clarification about personal data protection.

Now I'm leaving the floor to Mr. Burak Basarir. Sir.

[Burak Basarir, executive]

Well, thanks, Çiçek. Good morning and good afternoon, everyone. Thank you for joining us today to discuss CCI's second quarter and first half 2021 results.

As you know, Turkey is going through a difficult time with unfortunate wildfires in multiple locations like Greece, Italy, Russia and several other countries struggling with similar events.

I want to recognize the heroic efforts of the Turkish firefighters and other first responders at the forefront of firefighting this disaster, and express our sympathy and support to those affected by the huge tragedy. To contribute first response efforts, we have provided beverages, coolers and other equipment, send refrigeration trucks to the affected regions. We are also looking into other engagements to help communities affected by the wildfires, including monetary support, beverage donations and additional support.

Following successful results in the first quarter of 2021, our business momentum continued to accelerate in the second quarter. Once again, we delivered robust operational and financial performance despite the pandemic-related challenges, lockdowns and restricted mobility in the majority of the second quarter. Thanks to our great people, agile business model, strong brands and frugal mindset, we've registered a broad-based positive performance across all of our end markets.

Our consolidated sales volume grew by 20% to double-digit growth, both in international markets and Turkey. Despite the continuing restrictions on the on-premise channel and curfews, we grew transactions through an increasing focus on at-home consumption occasions, translating into our IC share increasing to 23%, growing 5% on a year-on-year basis.

In the second quarter, our net sales revenue increased by 61%, EBITDA by 23%, with a margin of 23.3%, while net income doubled reaching TRY 721 million.

And let me move to the next slide, please. In line with our priorities, we once again delivered in line with our quality growth algorithm in the second quarter of the year.

Sales volume was strong in all markets led by sparkling, energy and iced tea categories. Through successful integration of IC packs for at-home occasions, we mitigated the negative effect of on-premise closures to some extent. We also managed to grow the number of transactions with significantly ahead of the volume growth. In addition, our disciplined price increases and other RGM initiatives enabled us to grow our net revenue per unit case by 35% in the second quarter and 29% in the first half of the year.

Net revenue per unit case growth, disciplined cost management and frugal OpEx management led to 158 basis points EBITDA margin expansion in the second quarter and 267 basis points in the first half of the year.

Moving on to the next slide, please. Looking at the category trends, the sparkling category performed outstandingly with 18% quarterly growth, mainly with the sound performance of brand Coca-Cola growing 12%, whilst price grew by 16%. The decline of sparkling category in the second quarter of 2020 was limited to 10% and brand Coca-Cola to 7%. Cycling 27% declined in the second quarter of the year. Stills category performed well in the second quarter of this year with 40% growth on the back of solid performance of energy drinks and iced tea categories.

The energy category grew by a remarkable 61%, while ice tea grew by 54% and the juice category also grew by 20%.

With our continuing focus on immediate consumption tax, the water category grew by 29%, cycling 47% declined a year ago. The sparkling water with the new visual identity and addition of new flavors grew by 92% in the year. Keeping in mind that we were cycling in a very low base, the on-premise also doubled as we model fast to take home and home delivery at on-premise channel. The gradual normalization and partial recovery of the tourism sector started by June also supported this solid performance.

The at-home channel performed great, growing double digit in the second quarter as we focus home occasions such as work, leisure, entertainment and family gatherings. We were able to expand profitable penetration of IC multipacks in this channel and increased availability of these multipacks at the retail outlets, including discounters.

Let me move on to the next slide, please. In Turkey, sales volume grew by 18% despite lockdowns and limited mobility due to pandemics in the first 2 months of the quarter.

Our continued focus on core brands, effective promotion management, segmented consumer promotions and new product extensions helped us to deliver this solid performance. We also partnered with other FMCG companies creating various campaigns and increased our portfolio's availability on e-commerce channel.

Category-wise, sparkling beverages grew by 13% on an annual basis, led by 18% growth of the Coca-Cola brand. The Coca-Cola Zero Sugar relaunched with an improved taste, a new [ VIS ] resulted in a remarkable 50% growth on a year-to-date basis.

Energy, juice and iced tea categories all registered double-digit growth. Water category recovered mainly driven by small packs and very strong mineral water performance while slightly in a very low base in the year.

IC share has now fully recovered to the pre-pandemic levels, but share of IC at-home channel, which is 75% of our business increased to 14% as compared to 10% in 2019.

Net revenue per case grew by 25%, supported by improved pack and channel mix and price increases. Higher volumes, effective commodity hedging initiatives and tight OpEx management enabled a solid 66% EBITDA growth along with margin expansion of almost 195 basis points.

Let me move to the next slide, slide, please. Continuing their strong business momentum, international operations performed exceptionally well in the second quarter, too.

Looking at the categories. Sparkling beverages grew by 20%, led by 21% growth of the brand Coca-Cola and double-digit growth of Fanta and Sprite. The decline in the sparkling in the second quarter of 2020 was only 6%.

Stills category grew by 55%, mainly on the back of solid performance in iced tea and juice categories. The water category recovered partially, growing by 32% in the second quarter of 2021 on the back of our value-focused prioritizing smaller packs in the category. The on-premise channel grew by 92% in the second quarter of 2021 and 50% in the first half, while growing more than 20% in all other channels.

Net sales revenue grew by 3x more than volume in our reported currency TL and 2x FX neutral terms. EBITDA increased by 73%, leading to a 40 basis points margin expansion.

Moving on to the next slide, please. So Pakistan continues to be on the right track of robust and sustainable growth in volume and value terms. After fixing the fundamentals of the business, starting with the supply chain and finally, fixing the route to market with correct fundamentals, Pakistan continues to deliver ahead of the market growth.

With the strength of our core portfolio, product innovations, increasing outlet penetration, effective cooler placements, strengthening the route to market system and improving market execution, we grew volume by 20% in the second quarter and continued to increasing our market share.

With our IC, focused transactions grew ahead of volume. Disciplined revenue management led to enable 35% revenue growth in the second quarter in local currency terms. Further productivity initiatives, disciplined cost management led to 37% EBITDA growth.

Investing in infrastructure and increasing availability through quality execution, we are committed to improving our business in Pakistan in the coming years as well.

Next slide, please. Another -- one of our key markets, Kazakhstan sales volume grew by 22% versus prior year, while revenue and EBITDA grew by 42%. Our continued focus on IC packs and e-commerce made significant contribution to our performance.

Sparkling beverages were the main driver for growth with a 19% increase, while stills grew by 46% mainly driven by the iced tea category.

In Iraq, we have made a double-digit price increase in [ FX ] and local currency devaluation impact at the end of last year, as you know. This was the first price increase in a long time. And despite the price increase, our sales volume growth was -- prioritizing future consumption packages on water, the category decreased by 26%.

On the other hand, our total sales volume growth was double digit, excluding the water category. Price increase led to solid revenue growth of 35%, while sparkling category grew by 13%, led by a strong performance of the brand Coca-Cola.

Let me move on to the next slide. As we announced last Friday, we signed a binding share purchase agreement with Uzbekistan State Privatization Agency to acquire a majority stake in Coca-Cola Bottlers Uzbekistan. This transaction strengthens our position as one of the strongest partners within the Coca-Cola system.

Uzbekistan is an excellent fit for our current operating geography. It is the most populous country in Central Asia and its population is almost equal to our other Central Asian markets combined. The median age is [ 28 ].

Uzbekistan has a growing population and very favorable NARTD fundamentals. Per capita consumption of NARTD beverages is very low. For example, the population is twice as high as Kazakhstan and NARTD per cap consumption is half of Kazakhstan.

Coke share in the total NARTD market is relatively low. Only 1/4 of the total market offer a huge growth potential.

Beverage categories other than sparkling are still practically untapped. The economy is undergoing liberalization and the regulatory regime aims to become foreign investment friendly. We have a huge respect for the Coca-Cola Bottlers Uzbekistan employees and history as a local Coca-Cola bottlers. If we believe that with CCI's knowledge and experience in building market execution capabilities, supply chain know-how, effective route to market capabilities and digital capabilities, there's a significant potential for delivering sustainable profitable growth in this fascinating market. We expect the transaction to be earnings accretive immediately since closing, which is expected in the next 30 to 60 days.

I will now leave the floor to Andriy to go over the financial results. Andriy, please?

[Andriy Avramenko, executive]

Thank you, Burak. We continue to deliver successful financial results in the second quarter following a very strong first quarter. In the second quarter, our net sales revenue grew by 61%, driven by strong volume growth in all markets, higher share of sparkling, improved package mix, timely price adjustments, and other revenue growth management initiatives. The positive impact of currency translation also helped. However, excluding the FX impact, the net sales revenue growth was still solid at 45%.

Gross profit grew ahead of net sales, leading to 206 basis points margin increase. As you may remember, we made an accounting methodology change in relation to the spare parts amortization starting from the fourth quarter 2020. Due to this change, in the second quarter of 2020, consolidated gross margins was restated to 33.8% from 35%. Excluding the impact of this restatement, gross margin expansion in the second quarter was 88 basis points. This strong expansion was mainly attributable to better price and package architecture, improving channel mix and higher per unit case net sales prices as well as successful management of commodity-related cost pressures.

We continued with our disciplined OpEx management despite gradual normalization. Accordingly, OpEx to sales ratio continued to decrease, leading to close to 300 basis points of EBIT margin expansion in the second quarter 2021.

EBITDA grew by 73% and margin improved by 158 basis points. Here, I want to note that we had an accounting methodology change regarding marketing expenses. Previously, marketing expenses were accounted for on an accrual basis. Starting from this quarter, we are accounting for them on pro rata volume basis.

In the full year, it won't make any difference, while seasonality impact is distributed more properly now. Accordingly, in order to provide a fair comparison, we restated last year's EBITDA margin as well.

Without a restatement reflected in the second quarter 2020 financials, the margin expansion would be 68 basis points in the second quarter 2021. Reflecting robust operational performance, net income doubled both in the quarter and in the first half. On top of strong operational profitability, our prudent financial risk management enabled net FX gains in the quarter, supporting the positive performance at the bottom line.

On to the next slide, please. The net revenue per unit case growth is one of the most significant reasons of our solid results. Disciplined price increases, tight discount management and strategic RGM initiatives, including SKU prioritization, segment-based marketing and premiumization are crucial part of our strategy to realize sustainable growth per unit case metrics and ensure delivery of our quality growth algorithm.

In line with this mindset, 21% FX-neutral NSR per unit case growth was significantly higher than the 17% COGS per unit case increase in the back of successful management of cost pressures with prudent hedging initiatives. Similarly, tight OpEx management despite normalization of marketing spending enabled us to deliver higher EBITDA margins on both quarterly and half year basis.

Next slide, please. As part of our value creation mindset, we are committed to profitable and sustainable EBITDA growth and translation of this profitability to solid free cash flow generation through tight balance sheet and prudent CapEx management.

As discussed in the previous slide, main contribution to EBITDA generation came from high unit case sales prices, successful hedging initiatives that mitigated the commodity cost pressures and frugal OpEx mindset. Our net working capital over our annualized sales continues to be as low single digits. This, along with the strong operational performance and disciplined CapEx management led to a 34% increase in free cash flow generation in the first half of the year.

On to the next slide, please. As a result of a continuing free cash flow generation and our prudent FX risk management, our net leverage continued to decrease to the lowest ever level of 0.4x.

Burak talked about the exciting Uzbekistan acquisition, which we are financing fully with cash on hand. Our strong balance sheet enabled that. With our commitment to free cash flow generation, as discussed in our guidance, we do not see a significant change in our net debt-to-EBITDA figure by the end of the year. We feel comfortable with the strength of our balance sheet and liquidity position. What will change a bit is the net loan position that we have in our balance sheet.

As you can see at the chart on the bottom left, as of June, we had a net loan FX position of USD 71 million. With Uzbekistan acquisition, this figure will turn into a net short position. We are considering expanding the net investment hedge amount in line with the U.S. dollar-denominated borrowing amounts in our balance sheet. However, there will still be some decrease in the net loan position.

With our commitment to keeping a large portion of our cash in hard currency as well as our prudent risk management discipline, we are comfortable with the short position we might have at the end of the year, which will certainly be below our international EBITDA figure in U.S. dollar terms.

Finally, I want to briefly talk about the cost pressures amid the commodity price increases, and this is one of the hottest topics these days.

Our cost structure is simple, [ 1 short concentrate ] which mainly in local currency and linked to sales prices, 20% sugar, mostly regulated markets where prices are not suitable to hedge and totally dependent on crop, 1/3 is packaging. Here, we are taking proactive approaches to hedge our future exposure predominantly in resin and aluminum. As our current favorable hedges roll off this year, we are working to find attractive levels to lock in commodity prices for 2022 and beyond. We do not rush to build hedging position in the current prices and monitor better opportunities with a proactive approach to increase our hedging levels for the next year.

In the same time, we have other tools to manage significant cost pressure such as passing it to consumers with timely price increases, better managing customer discounts with strategic RGM, and improving channel package product mix with premiumization going forward.

Using these top line growth tools and our supply chain productivity levers, we believe we can manage the commodity cost volatility. Having said that, we came to the end of the financial section.

I now hand the floor to Burak for his closing remarks. Burak, please.

[Burak Basarir, executive]

Well, thank you, Andriy. Following our solid results in the first half of the year, we are again encouraged by our businesses' strong fundamentals. Despite continued headwinds ahead, especially around the new variants of COVID-19 and the possible impact of recent fires on tourism, we still feel confident that we can outperform our initial guidance at volume and revenue in the full year 2021.

Therefore, we revised our full year guidance on volume from 4% to 6% growth to high single-digit growth and our consolidated FX-neutral net sales revenue growth from high teens to low-to-mid 20s. We repeat our profitability guidance as it is, considering the ongoing cost pressures, particularly commodity prices and our successful of OpEx management.

Let's also remember that the profitability margins we achieved in 2020 and first half of 2021 are beyond pre-pandemic levels. Our prudent CapEx, tight net working capital management and focus on delivering free cash flow remain unchanged.

On the next slide, please. As we emphasize frequently, our business is resilient and built on solid fundamentals. Our excellent brand portfolio, agile people, winning culture, excellent execution capabilities with a customer-centric focus and strong strategic alignment with the Coca-Cola Company are the key trends of our company.

By leveraging our learnings from the pandemic to set strategies led by digitization and continuous adaptation of our business to evolving consumer preferences, channels and occasions, we continue creating value for all of our stakeholders. While prioritizing our consumers, customers, communities and people, we continued accelerating our quality growth while focusing on transforming our way of doing business with a sustainable and responsible mindset.

Now we are ready to take your questions, and we can open the floor, please. Thank you very much.

[Çiçek Özgünes, executive]

[Operator Instructions] Our first question comes from Ece Mandaci from Unlu & Co.

Congratulations on robust performance. Could you please provide information regarding your short-term plans and prospects regarding Uzbekistan operation? Would it be fair to assume double-digit volume growth, 17% EBITDA margin and similar CapEx to sales for Uzbekistan in 2022? Is the cost model similar to Kazakhstan operations?

[Andriy Avramenko, executive]

Thank you for the question. Yes, Uzbekistan. Exciting development for CCI. And in terms of our immediate plans, immediate plans, obviously, to get all necessary regulatory approvals, complete the pre-closing steps and within 30 to 60 days to complete acquisition. This is our immediate focus as well. We continue preparations for integration and taking control of the business and integrating this exciting business and a very skillful and experienced group of people are working in Uzbekistan operation into CCI. We look forward to welcoming them to our business.

In terms of going beyond the day 1 integration, obviously, we built long-term plans. I would like to say that if we look at the fundamentals of Uzbekistan in terms of large populations, 34 million people, lower per capita consumption, high growth in terms of the industry. Pretty much the only category that is being developed now meaningfully is sparkling and the rest is nascent stage.

From that perspective, we see the long-term potential of Uzbekistan sort of virtually unlimited in terms of at least our lifetime. And we are very excited to add Uzbekistan to our portfolio of operations once the deal closed in 30 to 60 days.

In terms of the economics, obviously, I like everybody to understand that this was a very fairly long, very competitive and very complex process as this was a competitive tender -- privatization tender, right, run by Uzbek government and their advisers, Rothschild and Dentons, in a very sort of professional, very transparent way. And as a result, it was very competitive with fairly limited information provided. So we did due diligence and so on. So we have the plans.

But we will focus and we will talk, I think, more in terms of more specifics of how Uzbekistan will grow and how this comes together with the CCI potentially at the later stages.

As I said, the growth potential is very, very significant. The EBITDA margin that they delivered last year, I think it's a public knowledge. We published it. And it's a fairly well maintained and managed operation in terms of the infrastructure. So we look forward to bring it in.

And in terms of the references of what Uzbekistan could be or would be or what we can do in Uzbekistan, I think I would like to draw your attention to Kazakhstan as it is a much more developed story for us, but it takes a few years to get there.

And also, I would like to draw your attention to developments at Burak Basarir was talking about in Pakistan and how we continue to grow our business there. So I think these are the good references for you to understand what we are planning for Uzbekistan. But more information to come on this.

[Burak Basarir, executive]

Let me add a couple of words following Andriy's comments. I think at CCI, we have proven track record of managing the emerging markets, frontline markets in our geography. So there are many good examples that what we've done in the geographies we are operating in. And the Uzbekistan was a long target for us. For a long time, we've been waiting Uzbekistan to join our portfolio because Uzbekistan is a huge country within the overall Central Asia, as I said, now close to 30 million people. And there's a good amount of trade in Uzbekistan. That's a good thing.

So whatever you do, whatever you implement, Uzbekistan market is open to receive all of the good feedback. So that's a good news. And our #1 priority will not be obviously the margin side of it. But obviously, we're going to build the infrastructure.

Again, the good news is that I visited all of the plants in Uzbekistan. Their shape is at CCI standards. So we will obviously have to build the capacity in Uzbekistan to capture the great opportunity in the country. So we are all very excited and very positive about the Uzbekistan opportunity, and it's a perfect fit to our portfolio. And then we have all of the capabilities and all of the know-how from our previous experiences to implement in Uzbekistan market. So we're very excited. And then Uzbekistan will clearly be #3 operation in a pretty short time within our existing portfolio.

[Çiçek Özgünes, executive]

Okay. We have a new question from Ruchir Desai from Asia Frontier Capital. Congratulations on your results. Can you please discuss more on the outlook for Pakistan since you have announced another capacity expansion plan in the country?

[Andriy Avramenko, executive]

Thank you. This is another exciting topic on Pakistan. Pakistan, as Burak Basarir said, we build the fundamentals, we really continue to perform in this market very well. And finally, the growth that we planned we built for is coming through. So our goals for Pakistan continue to grow, obviously, continue to grow both the category itself. And continue to build our participation in that category.

I would like to say that there is -- there are important achievements in Pakistan this year, as you know that we were able to improve price realization after many years. So we -- while we grow with a very high speed, so to speak, we also focus on quality growth despite of this incredible growth opportunities there in terms of volume. So it looks like from our perspective that this is a very balanced situation or situation becomes more and more balanced. And it calls for additional capacity as we communicated. So we are very optimistic in terms of growth in -- profitable growth in Pakistan.

[Çiçek Özgünes, executive]

The next question comes from Paul Whitburn, Uzbekistan, why would you pay 14x EV/EBITDA when CCI business trades at 7x EBITDA, unless you think margins move towards your international margins?

[Andriy Avramenko, executive]

Good question. From our perspective, Uzbekistan has multiple opportunities for us and for a very long time. As you know, that the opportunities to add Coca-Cola franchises do not come by very often. And particularly with the country of 34 million people, this was a really exciting opportunity. Yes, there was a very competitive, absolutely transparent and open tender process. And we had to pay relatively higher multiple than maybe in some other situations. But looking at the growth opportunity, both in terms of volume overall in NARTD, particularly sparkling volume, which the category is well established. Then all other categories that are really in the nascent stage that we can add. This is a market leader in Uzbekistan in terms of NARTD.

However, the market share overall is only 20% -- 25%, sorry, significantly lower than in our other markets. Plus 17% EBITDA margin for the long term is not the kind of margins that you can see in our operations.

So with all of that, we see a very significant potential to both grow top line very significantly and with very high speed, but also over time to continue improve margins in that operation. So we see ample of opportunities to deliver value. And that's why the multiples that we pay, we are comfortable. We are very comfortable with the price that we paid.

[Çiçek Özgünes, executive]

Next question comes from Hanzade Kilickiran. What's your inorganic growth plans, particularly after the surprise acquisition of Egyptian operations by CCH?

[Burak Basarir, executive]

Let me take that question, Andriy. Apologies, ladies and gentlemen. So we're not in the same room with Andriy, so that's why we're having a small word to catch up.

So Unfortunately, I mean, you all know we were interested in Egypt for a long time. And we met with existing local partners a couple of years ago, and then we've expressed our interest and then we met and et cetera. But unfortunately, we couldn't meet in a mutually workable level with the local Egyptian partners.

And I wish our friends in the Coca-Cola Hellenic and Zoran best of luck with Egypt. Egypt is a great market. It's a sizable big market, but it's a tough market. I think it's a perfect fit for their portfolio since they have an operation in Nigeria, and I wish them all the best with their acquisition.

We also have our interest. We've already communicated it to the top management of the Coca-Cola Company, including the James and the John Murphy and Brian Smith. So now the first step is to make sure we quickly integrate the Uzbekistan business as soon as possible. And whenever and wherever a new opportunity, which makes sense for us, comes up, we're going to obviously raise our hand and go for it.

[Çiçek Özgünes, executive]

Thank you, Burak Basarir. We have a question from Metin Esendal from Renaissance Capital. Given premium deal multiple that you agreed to pay for Uzbekistan operations, would it be a fair assumption to expect similar deal multiples in your future potential M&A targets.

[Andriy Avramenko, executive]

Every deal is different. As you know better probably than I do. And so it really depends on the circumstances. And we are looking at it on a case-by-case basis and evaluating in terms of what kind of value creation potential the business will have in our hands, first and foremost. And second is what it takes to win the business, right? And if we see a significant upside between these 2 numbers, then financially, that's our very simple logic of approaching deals.

So from this perspective, Uzbekistan more of an exception than the rule. And as I said, this is a very significant growth opportunity. It's pretty much untapped market. The business that we are buying is in a very strong position in the market. It has fairly good developed infrastructure. It adheres to the standards of the Coca-Cola Company and what CCI would expect from the well managed infrastructure. So put it all together, and the fact that it was a very competitive bidding process administered by the government and their international advisers, this is the price that we agreed to pay to add it to our portfolio.

With all that said, other deals may be very different. And obviously, we are not setting it as a benchmark for ourselves as a something that we would normally pay. So it will depend on circumstances. However, as Burak Basarir just mentioned, this is a good step, a good first step in terms of building out our business inorganically and expanding our footprint. We hope this is not the last step, and we look forward to more opportunities.

[Çiçek Özgünes, executive]

We have a new question regarding Uzbekistan a follow-up question from Paul Whitburn. If you assume the Uzbekistan opportunity reaches Kazakhstan metrics, what revenue can we expect in 5 years compared to currently? Will the government take part in its share of CapEx going forward? Or will you increase your stake over time?

[Andriy Avramenko, executive]

I wouldn't speculate in terms of how this will look if we reached Kazakhstan sort of metrics. It's -- Kazakhstan took quite a few years to build. And this is one of our most successful operations and probably one of the most successful bottlers anywhere. So -- but definitely, we see that potential in terms of going where Kazakhstan is now over time. And potentially beyond this, we don't see Kazakhstan is a mature market or a market that reached its potential. So there is definitely growth and margins beyond of what Kazakhstan is doing over time.

Now in terms of the CapEx, if the deal is concluded, as it is signed right now, which is a fully binding deal and it's just we are waiting for a few approval steps from regulators, in Turkey, primarily, since Turkey projects the sort of global reach for the company's domicile in Turkey.

If it is closed as it is right now signed, the government will completely exit the business. And this will be a joint venture between us, holding 57% approximately, and the Coca-Cola Company holding their historical 43%. And so this will be our joint venture with them. And so the government will not play any further active role in this business after completion of transaction.

[Çiçek Özgünes, executive]

Thank you, Andriy. We have a question from Selim Kunter from Ak Investment. Could you give some color on volume and cost evolution on a quarterly basis given the strong domestic tourism activity during third quarter so far and the high base of fourth quarter?

[Andriy Avramenko, executive]

So this is about the third quarter, if I understand the question, in terms of the cost and volumes. Yes. As you know, the third quarter for CCI last year was a very strong quarter, right? And in Turkey, I think some of the months and potentially the entire quarter was historically highest quarter ever. So that creates a very strong base for us to bid. We are confident that we will continue growth across our markets. And as Burak Basarir mentioned already today, we -- that gives us confidence to increase our guidance for the year. However, obviously, Q3 last year, since it was the most -- the highest quarter of CCI history, it will be very difficult to bid. And so I wouldn't expect as an easy breathing as it was happening in Q1 and Q2. But we -- our job is to grow, and that's what we will continue doing.

Now in terms of the cost, yes, the cost pressures are building, particularly in commodities with all the commodity inflation and disruptions in the supply chains globally. So -- and our incredibly well priced hedges that we made last year, sort of we are exhausting them this year. By now, in third, fourth quarter, depending on commodity and dependent on the country. So there will be a buildup in the cost.

And therefore, we take some proactive steps in this regard from completing coverage whenever opportunity presents itself. And as you have seen from one of the slides I presented, we are pretty much fully covered by now. So we know we can predict fairly well in terms of how we will end up in cost. That's why we were pretty confident on our guidance, updated guidance that we shared.

And also, we are taking steps on other fronts. As again, I mentioned in our markets, it's very important to make sure that we realize value of the brands we operate regularly and through the price increases through mix management, RGM initiatives. So we are focused on that to make sure that we continue to deliver reasonable margins.

Although I want to sort of preempt the question about EBITDA last year. I believe we were at 28% something in the third quarter, about 28-something percent. That's a very high mark. And so we may have on a quarter a little bit of relaxation from that. But as you know, this is high by any standard of any bottler. But on a yearly basis, I think we are very comfortable to continue with the guidance that we just updated.

[Çiçek Özgünes, executive]

There's an anonymous question asking, can you please comment if your guidance includes Uzbekistan volume and margins? We can say this organic guidance, organic assumption, there is no inclusion of Uzbekistan in our existing guidance.

We also have another question from Nirvan Dabee. Can you please share some color on the financing of the Uzbekistan transaction? Are you raising new debt? If so, how much? What is the maturity of the debt? And is it in U.S. dollars?

[Andriy Avramenko, executive]

Okay. There is no direct debt raising for Uzbekistan deal. We are buying it 100% for cash. However, indirectly, obviously, as I talked about it, our net currency position will be increased in terms of -- we will go from small net loan position in foreign currency to some short position, which will be below our -- significantly below our annual international EBITDA, which we are very, very comfortable with. So that's in terms of Uzbekistan financing.

And therefore, if we came to debt markets, in the near future, it would be for other reasons. Then Uzbekistan, it would be to secure a very long-term financing because right now, we have a pretty good structure for the next 2.5 years, 3 years. But what happens beyond if we look at something to secure for much longer term, we obviously may tap the markets. And second, if we, again, continue expansion plans, then it may call for extra financing considerations. But within the footprint we have today with Uzbekistan, this doesn't require any additional financing because if anything, our debt-to-EBITDA margin, even debt-to-EBITDA ratio even after Uzbekistan is fairly low. It will be less than 1x EBITDA.

[Çiçek Özgünes, executive]

We have no further questions at this time. [Operator Instructions] We have no new questions. Burak Basarir, over to you.

[Burak Basarir, executive]

Well, thank you, everyone. So we're proud that we're reporting another strong quarters back to back. And we're pretty confident that the third quarter will be another successful quarter for us. That's why we wanted to revise our guidance for the full year 2021.

We're also very excited about finalization of the Uzbekistan deal finally, working on it for a long time. And we believe that Uzbekistan will be a great add-on to our existing portfolio, and we'll add a lot of value to our existing business. So I would like to thank each and every one of you. And once again, thanks a lot for your interest in our company, and thank you for joining our call today. So take care of yourself and stay safe. Thank you very much. Bye-bye.

[Andriy Avramenko, executive]

Thank you. Bye-bye, everyone.

[Çiçek Özgünes, executive]

Bye-bye.