Coca-Cola Icecek AS

IST:CCOLA.E

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, welcome to Coca-Cola Içecek Second Quarter 2023 Financial Results Conference Call and Webcast.

I will now hand over to your host Mrs. Çiçek Özgünes, Investor Relations and Treasury Director. Please, ma'am, go ahead.

[Çiçek Özgünes, executive]

Good morning and good afternoon, ladies and gentlemen. Welcome to our second quarter 2023 results webcast.

I'm here with Burak Basarir, our Chief Executive Officer; and Andriy Avramenko, our Chief Financial Officer. Prepared remarks will be made by Mr. Basarir and Mr. Avramenko accompanied by a slide deck. We will then turn the call over to your questions.

Before we begin, please kindly be advised of our cautionary statements 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 at www.cci.com.tr. Also, 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 Mr. Burak Basarir. Sir?

[Burak Basarir, executive]

Thanks, Çiçek. Good morning, and good afternoon, everyone. Thank you for joining CCI's webcast.

Andriy and I will take you through our second quarter operating highlights and turn straight into your questions. While the business environment continued to be challenging in most of our markets in the second quarter, we've managed to deliver our quality growth algorithm, delivering 3.4 percentage points EBIT margin expansion, reaching the highest-ever second quarter EBIT margin of 20%.

As you might recall from our previous quarter webcast, Turkey was hit by devastating earthquake in early February. The repercussions on the economy and consumer sentiment continued in the second quarter. In addition, the severe macroeconomic challenges have continued to impact consumers in Pakistan, with some refreshing news coming later in the second quarter regarding a $3 billion standby agreement with the IMF. While many of these challenges had already been included in our business plan, some turned out to be more severe than expected like Türkiye's earthquake. In this environment, CCI's business model proved its resilience and flexibility to adapt to rapidly evolving operating environment to continue creating value.

On an organic basis, CCI recorded TRY 23 billion net sales revenue with 56% growth, while FX neutral growth was 41%. Including the results of newly acquired Anadolu Etap in May and June, our reported NSR growth became 58%. On a USD basis, our NSR per case exceeded $2.5 per case, the highest level achieved in the last decade. Pricing was one of the critical factors as discussed in our quality growth, while improving price, package mix, commodity hedges and overall effectiveness and efficiencies also contributed. EBIT grew by 90% to TRY 4.7 billion with a 20% EBIT margin.

While the quality growth algorithm was intact, thanks to our proactive RGM initiatives and prudent OpEx management, volume was softer in our key markets, Turkey and Pakistan, which was offset by the double-digit growth of Central Asia and mid-single-digit growth of our Middle East operations. Consolidated sales volume was down by 8.9%, while cycling a very robust 25% from a year ago. In line with our effective mix management, the share of IC in the total mix increased by 80 bps to 26.3%, the highest second quarter IC mix since the COVID pandemic affected the on-premise channel 4 years ago. Net income grew by 94%, reaching TRY 2.4 billion, thanks to quality growth mindset in everything we do and establish financial management.

Our markets have significant organic growth potential. Our number one, capital allocation priority is to invest in our existing markets. However, since we have a solid balance sheet with low leverage, a strong talent pipeline, and operational know-how for low per capita markets development, we believe we are well positioned to expand our footprint to new geographies.

As a strongly aligned bottler, we have initiated discussions with the Coca-Cola Company regarding the potential acquisition of Coca-Cola Bangladesh Beverages as we recently announced. A binding decision has not been reached yet, but we believe that Bangladesh would be a perfect fit for our operating geography. On another front, we got one nice rating upgrade from Fitch Ratings to BBB. This recorded one of the highest spreads to sovereign rating globally and is a testament to our resilient financial and operational performance in a difficult macro landscape with ongoing challenges in our key markets.

We acknowledge the ongoing macroeconomic and our other external challenges in our geography. Global inflation remains elevated with exceptionally high readings in some of our key markets impacting obviously consumption pattern. Therefore, we keep our cautious stance on our full year guidance, reiterating the expectations, but highlighting that we know now anticipate volume growth towards the lower end of our initial guidance. In contrast, the [ topline ] growth and the EBIT margin will remain intact for 2023.

Next slide, please. We are happy that our growth strategy in high-potential energy category drives results. On top of the strong growth recorded in the previous years, we have doubled our energy volume again in the second quarter of the year. Iced Tea continues its steady improvement, while the total sales category remained flattish versus last year's due to softer performance in Juice. Furthermore, prioritization of multipacks of immediate consumption package is in the future consumption channels, robust on-premise channel execution and mix improvement strategy continued to yield positive results across all geographies of CCI, with more pronounced positive results recorded especially in Türkiye and the Middle East.

Accordingly, IC package share increased by 80 basis points and improved to 26.3% in the second quarter of the year. The share of the Sparkling category reached 84% in the mix. The Sparkling category declined by 9%, mainly due to Fanta and Sprite's lower performance, while the brand Coca-Cola decline was milder to 5.9%. In line with our value-focused strategy, we continue prioritizing more profitable packs in the water category, reducing water volume by 15%.

Next slide, please. Let's talk about on Turkey a little bit. While Türkiye has been recovering from the repercussions of devastating earthquake faster than anticipated, the elections held in the second quarter have shadowed the visibility of shoppers in their purchasing power along with the persistent food and beverage inflation. In addition, sales volume was negatively impacted, particularly in May and June by the lower second quarter temperatures recorded in the last 5 years. Cycling 2 consecutive years of high teens, second quarter growth, the sales volume of Türkiye operations declined by 9.4% in the second quarter of this year.

The Sparkling category volume declined by 8.1% on a year-on-year basis and stills category declined by 3.8%. Energy drinks sales volume doubled on the other hand versus last year, thanks to Monster and Predator brands. The Iced Tea segment was resilient with flattish performance. However, the Juice category experienced some headwinds. The water category was down by 18.8%, while more profitable IC pack share improved by 4 percentage points versus last year, in line with our value generation focus. Performance of on-premise channel and increased share of IC packs performance at-the-home channel resulted in 41 basis points expansion of IC share in Türkiye to 31.4% exceeding the pre-pandemic levels.

In the second quarter, we continued navigating historically high food and inflation, beverage inflation levels. Nevertheless, we managed our dynamic pricing discipline. As a result of our timely price adjustments, effective discount and mix management and record high share of on-premise channel, Türkiye recorded 82.2% net sales revenue growth in the second quarter and 101.1% improvement in the NSR per case. A slight decrease in the gross profit margin of Turkey operation was offset by the OpEx management. Türkiye's EBITDA margin, excluding the other income and expense, expanded by 116 basis points to 14.5%.

Next slide, please. Let me talk about the international operations. In the second quarter of the year, Central Asia continued its strong growth momentum, while the Middle East also grew overcoming the previous quarter's competitive pressures. Uzbekistan, Tajikistan and Iraq have posted a remarkable performance within the second quarter on the back of excellent improvement in the execution capabilities. Having dealt with one of the most economic crisis in the history, Pakistan registered a double-digit decline in the industry while the CCI's volume was also similarly impacted.

Central Asia's double-digit growth and Middle East operations mid-single-digit growth was partially mitigated this and total international operations volume was down by 8.7% on a year-on-year basis. The core sparkling category declined by 9.4% amid the lower performance of flavored Sparkling brands, while the brand Coca-Cola was relatively stronger. The sales category was up by 6% with double-digit Iced Tea and triple-digit energy drink performances. At the same time, cycling 21% stills growth from a year ago. The water category contracted by 6.2% in the second quarter of the year.

The share of IC packages in the second quarter was realized at 23.2% with 153 basis points expansion due to strong on-premise channel performance and an increase share of IC pack offerings at-the-home channel. In our international operations, NSR growth was recorded at 44.5% and NSR per case was up by 58.2%, thanks to the pricing adjustments in line with the inflation figures. Excluding the impacts of the currency conversion, NSR was up by 20.5% on an FX-neutral basis. Proactive pricing and effective hedges of commodities resulted in gross margin expansion of our international operations. Accordingly, the EBITDA margin, excluding other income and expense, was also strong, reaching 25.9% expanding over 4 percentage points.

Next slide, please. So some of the key international markets in Pakistan, the sales volume declined by 27.5%, cycling 2 consecutive years of solid second quarter performance. Inflation hit 50-year highs in the second quarter, eroding consumers' purchasing power on top of it, excise tax increases, which required higher than planned price increases impacting affordability. In the future, we believe the new marketing and consumer reactivation campaigns, and the improving economic outlook will reignite the consumers' consumption activity in the second half of the year.

Uzbekistan continues to be one of the fastest-growing CCI operation, reporting 25% year-on-year growth compared to 29.5% growth a year ago. This momentum is maintained by improving distributor structure, cooler investments into the market and better execution capabilities. The brand Coca-Cola grew by 28% in the quarter.

Kazakhstan continued to deliver strong results, thanks to the well-established execution capabilities and strength of our brands, we operate on the backdrop of a stable macro economy. The sales volume in Kazakhstan was up by 3%, driven by 7% growth in Sparkling category, which in turn grew on the back of 8% growth of brand Coca-Cola.

Now, I will leave the floor to Andriy for the financial review.

[Andriy Avramenko, executive]

Thank you, Burak. While navigating a challenging first half of 2023, we concluded the second quarter with sound revenue and profit growth at the consolidated level. Net sales revenue increased by 58% in the second quarter. Excluding the favorable currency conversion impact, FX neutral sales revenue increase was at 43%. This was primarily driven by strong execution in all operations, dynamic pricing actions across markets, proactive revenue growth management initiatives, improving on on-premise channel mix and higher IC mix across most of the regions. .

As Burak also mentioned, we have 2 months of top financials in our second quarter P&L. It's a profitable business at a small scale. But to provide like-for-like comparison, we also provide gross figures, excluding Etap. As such, organic net sales revenue growth was 56.3% in the second quarter and 41% on FX-neutral basis. In Türkiye, the gross margin decreased by 80 basis points to 33.4% in the second quarter 2023, due to the lower volume, weakening Turkish lira and timing of certain cost items, which will normalize during the year. We managed to mitigate this partially with timely price increases and favorable package and channel mix.

Our international operations gross margin improved by 565 basis points to 35.9%. This was achieved by disciplined price increases, tight cost controls and operating momentum in the majority of international markets. Accordingly, on a consolidated basis, gross margin expanded by 322 basis points to 34.9%, both on a reported and organic basis. Moreover, our consolidated OpEx as a percentage of NSR was realized at 14.9%, improved by 16 basis points year-on-year, thanks to frugal OpEx management.

We achieved 338 basis points year-on-year EBIT margin improvement, reaching the highest-ever second quarter EBIT margin of 20%. We had high interest expenses incurred mainly from Turkish lira borrowings. Accordingly, net financial expenses were higher compared to the last year. Despite that, our net income grew by 94% to TRY 2.4 billion in the second quarter.

Next slide, please. Our determined focus on per unit case metrics continue to yield positive results. In the second quarter of 2023, consolidated net sales revenue per unit case increased by 57% to TRY 47 on an FX-neutral basis. Cost inflation continued to be high in all key markets. However, we managed to contain COGS per unit case increase at 50% in this environment, thanks to prudent and proactive procurement measures. Successful hedging and prebuying of sugar in international markets as well as packaging materials, such as aluminum and resin across CCI, managed positive contribution to managing COGS per unit case in the quarter. Our effective RGM and frugal cost management of both the COGS and OpEx have paved the way for another record at EBIT level. Currency neutral EBIT per unit case growth has surpassed the NSR per unit case growth by a good margin this quarter and realized at 83% year-on-year.

Next slide, please. In this challenging environment, with extraordinary headwinds in our key operating geographies, we are equally proud of both delivering record high figures of per unit case efficiency metrics and the way we manage to do this. First, our effective mix management has been delivering results steadily over the years, and this quarter was no exception. We have recorded the highest IC mix of the last 4 years, reaching 26.3%. Second, our RGM measures to command the right pricing for optimum monetization of the value of the brands we operate have paved the way for a U.S. dollar-based record in NSR per unit case with $2.5, thanks to dynamic and database decision-making approach.

Finally, proactive cost management and commitment to Frugal OpEx mindset helped in further downsizing OpEx to NSR to 14.9%, which is the lowest figure in the last 10 years of CCI history. As a result, we have realized another record of EBIT per unit case at $0.5 and posted 20% EBIT margin in the second quarter, the highest ever second quarter performance. While these are new achievements within CCI's own history, we believe CCI has still ample room to grow its per unit case metrics and margins over the long term.

Next slide, please. In the second quarter, operating profit was up by 90.5% compared to the same quarter last year. The higher sugar prices in Türkiye and low base effect of second quarter of 2022 for all markets created a drag on the margins. However, we managed to navigate these challenges with strong operational performance, effective hedging of packaging materials, timely price initiatives and better channel mix. We also benefited from a favorable currency conversion. As a result, we reported TRY 4.7 billion EBIT in second quarter of 2023 with [ 20% ] margin.

On to the next slide, please. As a result of our tight financial policy, the balance sheet health is intact despite the challenging operating conditions. Our net debt is at $518 million, which is 0.75x of our EBITDA on a reported basis. The ratio was 0.68x excluding [ impact ] of Anadolu Etap acquisition. While Etap's debt is fully consolidated in our balance sheet, reported P&L includes only 2 months of EBITDA. Our balance sheet is fit to support our growth agenda. Even considering the planned cash outflows related to the Pakistan minority buyout, we expect net leverage to stay below 1x with positive free cash flow generation throughout the year.

Our short FX position before net investment hedge is $458 million, which is only 0.9x of our 12 months rolling international EBITDA. We feel very comfortable if that short position stays around 1x. The benchmark to international EBITDA is relevant since international operations are constant dividend payers to our Turkey legal entity that carries most of the debt. If we also consider the net investment hedges, our short FX position is only $129 million. Therefore, our P&L is quite resilient to the impact of TL devaluations through FX gains and losses. Thanks to the proactive debt management, the average maturity of our debt is 3.5 years, and 42% of our current debt is scheduled to be paid in 2029. This creates an additional comfort zone to manage and plan our liquidity in the globally tight monetary conditions. Prudent financial management, maintaining a healthy balance sheet and strong liquidity position, will continue to be our financial priorities going forward.

Next slide, please. Finally, a brief overview of our commodity hedging initiatives for the current year and 2024. Although we don't expect an uptrend in prices as severe as last year, we completed sugar procurement for 2023 for better visibility and planning purposes. On a consolidated basis, we have nearly 100% price visibility for 2023. In markets where the sugar can be hedged, namely Iraq and Jordan, we also covered 75% for 2024 calendar year. With the regulated market, where financial hedging is not meaningful due to local correlation, we are waiting for the crop to have market price visibility for 2024. On the aluminum, 2023 hedges give us 100% coverage, and we started looking beyond 2023 to lock in from favorable pricing levels for 2024. The aluminum hedging level for 2024 is around 40% now.

On the resin, our 2023 hedge coverage is around 86%. We are comfortable with this level for the moment. We have also hedged close to 20% for 2024 resin exposure and monitoring the market to increase the coverage at the reasonable price levels. In total, the relatively flattish pricing trends of packaging material in U.S. dollar terms year-on-year helped to cycle low base of sugar costs, particularly in Türkiye and mitigate margin pressures to some extent in Türkiye as well.

Now back to Burak for his closing remarks.

[Burak Basarir, executive]

Thank you, Andriy, with the mixed feelings today. I need to inform you that this webcast is going to be my last quarterly update on behalf of CCI as the CCI CEO. As announced previously, I will move on to Anadolu Group Holding as of September 1. And Karim, who has almost 20 years of diverse experience in the Coca-Cola system in multiple regions, will assume CCI's role contributing to its future success.

I have always been and will be a proud CCI citizen. We characterize CCI as a purpose-driven, customers focused and diverse ecosystem to create value as we are in everything we do. While acknowledging our geographies challenges, the opportunities to create value are far more significant. I am confident that our digitally-enabled omnichannel strategies, strong execution capabilities and innovative product pipeline will continue to accelerate in our quality growth under Karim's leadership in the coming periods.

Once again, I sincerely thank our people for having an agile mindset and being highly motivated in this journey as we strive to realize our vision to be the best FMCG execution player in our geographies. I would also like to thank you, our investors, committee and all of the stakeholders for sharing and supporting our vision for the future.

Now I can turn the mic to our moderator and open the floor for the questions. Thank you very much. Thank you.

[Operator]

Ladies and gentlemen, we will now start the Q&A session. [Operator Instructions] The first question comes from Ece Mandaci from Unlu Securities.

[Ece Mandaci Baysal, analyst]

First, I'd like to thank Mr. Burak for all his support and wish you success in your new role. Thank you for everything. And I have 2 questions. One is about the current outlook for the Turkish and Pakistan market, we see that there is some volume decline as of the second quarter, but you're also keeping your guidance, so we should assume some significant growth for the third quarter, right? And in terms of number of transactions, we are seeing even a better environment, I feel like. So could you please give an update on the demand outlook specifically for these markets, Turkey and Pakistan.

And second question is about the working capital. We are seeing an increase in the working capital in the last 2 quarters compared to sales, working capital over sales. So is that related to the Pakistan business? Could there be some normalization or a decline in this ratios? That would be very helpful.

[Andriy Avramenko, executive]

Thank you for the questions. First, Turkey and Pakistan outlook. Look, Turkey we know had a very difficult first half, right? So we are focused on normalizing and bringing business to growth. And there are some signs in July that started improvement. And so that's why we have confidence, and we have believed that we can hold our overall guidance for the total company for the full year. Pakistan, as we all know, the first quarter was very good. But then in the second quarter, there were some unprecedented events in Pakistan. And the situation is not easy.

And we worked on sort of stabilizing the -- what's happening with the business, with the category, with the industry and continue to make some gradual improvements. Pakistan may be a little longer story. We are in a more improvement path in Turkey. But overall, our goal and our plans call for rapid turnaround and coming back to growth in both operations. And that's why we are focused on holding the guidance for the full year.

Now in terms of net working capital, there are a few items that impacted that number. One of the important ones, as you all appreciate, is that driving top line and the way we drove it, particularly with significant proactive in many cases, price increases, anticipating the significant deterioration in some of the markets and protecting the business in some time involves some expansion of net working capital, and that's exactly what we did. There were some smaller items in net working capital, but that is not given a material impact.

We expanded for the season and now we are very much laser-focused on coming back to the numbers that we promised. I want to also underline that while we allowed some expansion of net working capital, particularly from the accounts revenue -- receivable perspective. Obviously, it's done in a very disciplined and secure manner, as we always do with the guarantees, pledges and so on, protecting collectibility of accounts receivable.

[Operator]

The first question comes from Hanzade Kilickiran from JPMorgan.

[Hanzade Kilickiran, analyst]

Thank you very much for the presentation and Burak, very congratulations for your new role and best of luck. I have 3 questions. The first one is about your guidance. Again, do you see any upside risk in your EBIT margin guidance post, I mean, very strong performance in the second quarter? And how was your pricing this year versus the inflation? Because I mean, you reached record high revenue per unit case, but I presume this is partially driven by the product mix. I'm trying to understand the pricing pattern and what are you expecting for the rest of the year? And the last one, I don't know if you can, is it possible to give some sort of information about your ongoing talks for the acquisition of Bangladesh operations? And how big is this operation?

[Andriy Avramenko, executive]

In terms of the guidance, I mean, with the event in, I think, in Turkey in the first half and then gradual recovery at this point and what is happening -- what happens in Pakistan, continues to happen in Pakistan. I think we will be very cautious in terms of guiding beyond the guidance that we just confirmed. And I think we sort of communicated that volume is sort of on the lower side of the guidance, the EBIT on the higher side of the guidance, but this is as much as we are comfortable to communicate today because there is so much uncertainty in the markets, and we are literally redoing the plans very often to make sure that we adapt in an agile manner to what's happening in our key markets.

On the pricing against inflation, I think from our numbers this should be fairly clear that we took some pricing at and above inflation in the markets and the U.S. dollar per case average expresses this very clearly. Yes, there is some mix effect, but fundamentals of this growth is also taking pricing in anticipation of -- in some cases, due to commodities in some cases, due to inflation and depreciation of the currencies that has been happening in the market in the existing -- in the reported and in previous quarter, but also in anticipation of what may happen, and so that's why we took pricing at that level. So I think it should be evident that we took pricing at an above inflation in nearly all markets.

In terms of Bangladesh, the discussions continue, and I think at this point, we disclosed as much as possible given the level of sort of discussions. And as soon as we have more, we will obviously inform you. In terms of what I'd like to underline, obviously, it's a really big country in terms of population. It's a country with very low per capita consumption of beverages, and I'm sure industry figures are publicly available. And that's why we see it as a very significant long-term growth opportunity. But in total numbers of CCI, it may not be at the beginning, a very large operation, but the growth opportunity is very significant.

[Operator]

The next question comes from Cemal Demirtas from Ata Invest.

[Cemal Demirtas, analyst]

My first question is about the cost base. How do you see the impact of minimum wage increase and fuel increases on your cost structure? And do you need further increases in the prices going forward, assuming that the current FX rates will remain. That's the first question. And the other question is about the summer trends you mentioned to [indiscernible] outlook. But I'd like that, how do you see the trends in the tourism side? Because in tourism times and the hot summer, did we see any momentum in July and August? That's my second question.

And congratulations Burak. It was very great to know you for a long time. And I also wish you the best. You are one of the best examples with consistent presentations. Thank you once again from the analysts and possibly from the investors perspective. Thank you. .

[Andriy Avramenko, executive]

Okay. Let's talk about cost base. I assume this is a question about Turkey. It's 35% of our business. So in terms of the minimum wage and fuel, let's kind of take it step by step. Obviously, with the inflation that is present, right, and also which means the prices in the market increased for FMCG products as well as compensation, salaries and benefits and so on increased in different companies, in different places or costs of people increase. This was something that we should forecast more or less. And so it's in our plans, and it has been sort of taken care of in our plans.

In terms of fuel, this was more surprise than a minimum wage increase, let's put it this way. But also, we are processing those and that's why the certain price increases that we have taken and so on. So we are focused on maintaining both return to growth and margins, obviously. So now on that side also, I would like everybody to think about what minimum wage increase does for the demand. And so from that perspective, it's actually a positive sign for us. So in terms of the minimum wage and salary increases, we're more focused on -- not on cost impact on us, but more on a demand potential that it creates for us. So for us, from our perspective, it's net-net positive news.

Fuel, obviously, is a significant item. And as I said, through our price policy and focus on the margins, we are managing that challenge. So we do not see it going forward as something that is materially sort of detracting us from achieving our goals for the year.

In terms of the summer trends, yes, there's a full -- tourists are here, it's very good. We -- it's good for Turkey. It's good for Turkey, good for economy. Therefore, it's good for us, too. I just want to emphasize, we consistently say this that while tourist consumption is a small positive for us, where we see a real positive from tourists is from general economic activity and general economic development and demand -- secondary demand for our products from people who actually earn tourism and support tourism industry and so on. So we see it as a net-net positive.

Tourism itself, yes, there is a good demand and -- but this is -- the primary impact is relatively smaller for us than the secondary impact from tourists, where we have a more broad-based demand for our products from Turkish population.

[Operator]

The next question comes from Antonio Gomez from Ninety One.

[Antonio Luiz Gomes, analyst]

I was just wondering if you could elaborate a little bit more on the working capital point that you made. Are you implying that there's been -- you've seen a slowdown -- a further slowdown in demand going forward and thereafter? And kind of how is your plan to get it back to what the guidance of low single-digit working capital to sales given that its -- even though Q2 is seasonally a more working capital intensive quarter, this quarter was exceptionally higher.

[Andriy Avramenko, executive]

Yes. Our net working capital and our sales and so on and sort of so-called sell-in, so what we sell to our distributors, to our dealers and so on, those who get some credit, it's at the peak of -- at the end of first quarter and slow in the second quarter, right? So we are going through right now -- we are reporting on a quarter where naturally our sales are highest. And as a result, our sort of net working capital if we -- when and if we choose to use it as a lever to support. And in this case, we did for the pricing that we wanted to realize and to maintain sort of high presence on the shelves and so on and throughout the value chain. We chose to do it.

So that subsides in the third quarter and then it will be wrapped up in the fourth quarter. So this is a natural cycle for us, and we are, as usual, in the third and fourth quarter, we start receiving cash from the market. And this is what will be happening and is happening right now. So we do not see, at this time, a significant issue in this area. We are working on bringing it to the numbers that we guided you in the past. It's all about collection from the market...

[Antonio Luiz Gomes, analyst]

Okay. Yes. No, that makes sense. It is seasonal, but it's substantially higher than the jump between Q1 and Q2 of this year was substantially higher than it was in previous years, even on a U.S. dollar basis, which is why I'm asking. The second question I had is on your financial strategy, you acquired ETAP in the second quarter. I'm just wondering what -- given that your leverage is already quite low, what are you using -- you're planning to use your free cash flow going forward?

[Andriy Avramenko, executive]

Yes. Our capital allocation, I think, is very transparent. First and foremost, we will continue to invest in our existing business. We grow the core, right? We have literally unlimited opportunity for our lifetime to grow business -- core business in our existing territories. And this is our primary focus. So whenever we see the opportunity to invest, we do invest. And that's why we ensure significant CapEx as we guided, and we will continue to invest in our existing business, while there is a temporary slowdown or even decline in Pakistan. Long-term Pakistan is a promising [ operation ]. We see high double-digit growth in Uzbekistan and so on. Kazakhstan continues to grow, and it's a large business and so on. So we continue to invest in our core. This is number 1 priority.

Second. We have capabilities, know-how in terms of operations and particularly commercial operations and people are best trend to expand the business. And this goes into different ways. In some cases, this is adding Monster energy drinks across our territories or starting cost of business in Turkey. In some cases, it's adding new territories. So on acquisition side, we have a pending closing of acquisition of 50% in Pakistan from the Coca-Cola Company that we intend to close as soon as possible this year. And this is -- this will require some deployment of capital, and we are in discussions with the Coca-Cola company to acquire [ Bangladesh Beverages ] as we communicated earlier. So this is another expansion opportunity and taking into account the tremendous growth opportunity, which is there. So going forward, we will need to invest into expansion to support that growth in that market.

So -- and we are always on the lookout for reasonable fit for our business, what we can add to our portfolio in terms of territories and businesses. But we are very prudent in terms of what we do as I think the track record shows. We are very choiceful. We make very few transactions, but with a very clear visibility on how we will create returns and that sort of -- returns above [ average ] cost of capital in the foreseeable future. So we will continue to look out for those, and we have an active dialogue with the Coca-Cola Company to make sure that we are within the consideration of their plans also on the territories that make sense and fit from our capabilities perspective and geographic adjacency perspective.

Now beyond the expansion, we obviously focus on returning capital to our debtor, to our sort of -- from a financial point of view, repaying our debt as well as spend dividends. And so this will continue going forward, deleveraging is important and whenever we make acquisitions or significant investments in expansion, we are laser-focused on keeping EBITDA or debt to EBITDA multiple to lower levels because as we always talk about it in our markets, it's very important to have a very strong balance sheet and relatively lower indebtedness to make sure that we can withstand any type of shock that can come in our markets.

And our dividend policy is very clear. We will continue to paying increased dividends going forward. So that's -- you know our historical trend.

[Operator]

[Operator Instructions] Your next question comes from Hanzade Kilickiran from JPMorgan.

[Hanzade Kilickiran, analyst]

Andriy, I have a technical question on FX gains, if I may. I see you have carried nearly TRY 0.5 billion from comprehensive income to P&L. Will this continue in the rest of the year in case of stable FX? I'm trying to understand the technical drivers of this move.

[Andriy Avramenko, executive]

I do believe this relates to our capital movements between the -- movements of capital between our subsidiaries. So this should not be a recurring item from that perspective. We financed it up, right? And this was the impact from that movement. We brought capital to our Turkish subsidiary and then investing in the top. So from beyond that, this is sort of a one-time impact. So I would not assume it as a recurring item.

[Operator]

Thank you. Ladies and gentlemen, there are no further questions. Dear speakers, back to you.

[Burak Basarir, executive]

Everybody, thank you very much for your kind words to me and your wishes. So I would like to once again thank you, each and every one of you, maybe we've known each other for a long time, since we did the IPO, and I'm sure we're going to be meeting again when I transition into Anadolu Group.

So once again, thank you for your interest in our company in CCI. And we would love to catch up with you in other webcasts and occasions. And wish you all a great day. Thank you very much for your interest. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.