Ulker Biskuvi Sanayi AS
IST:ULKER.E
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
72.8
187.3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TRY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Ulker Biskuvi Sanayi AS
Earnings Call Analysis
Q3-2023 Analysis
Ulker Biskuvi Sanayi AS
Despite starting the year with unforeseen adversities, the company successfully navigated through and emerged stronger with improved quarterly results. The commitment to sustainable and profitable growth over the past five years — accentuated by investments in operational excellence and digitalization — is now reaping its benefits. The third quarter, in particular, demonstrated this with strong topline growth and an impressive 91% increase in gross profit. EBITDA skyrocketed by approximately 112%, signifying the effectiveness of the company's low-cost operating model. One of their foremost achievements is the reduction of the net-debt-to-EBITDA ratio to 1.9, reflecting the organization's financial health.
Encouraged by the strong performance, the company has uplifted its full year revenue growth outlook to TRY 42.5 billion, paired with an EBITDA margin forecast of 19.75%. These revisions are indicative of the management's confidence in the firm's ability to sustain growth and profitability.
The company maintained a formidable presence internationally, securing substantial market shares in key regions such as Saudi Arabia, Egypt, and Kazakhstan. International operations significantly contributed to revenue, with gross profit margins reaching 38.1% and EBITDA margins peaking at 22.7%. This showcases not only the business's global strength but also its adeptness at innovation and revenue generation from new products.
A disciplined approach to the balance sheet and capital management remained a priority. The net-debt-to-EBITDA ratio stayed below the 2.0 covenant level, aligning with corporate targets. Working capital management showed improvements, with inventory turnover increasing efficiency by 22 days compared to the previous year. To solidify their financial position against foreign exchange volatility, 71% of total open positions on the balance sheet have been closed, a testament to the company's strong hedging policies.
With a healthy cash position of approximately $350 million, the company's capital allocation strategy is under consideration. Management is evaluating options including possible mergers and acquisitions, further debt reduction, or other investments. Approximately 17% of the total debt is short-term, needing a strategic approach for upcoming maturities.
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to the Ulker Biskuvi Q3 2023 Financial Results Conference Call and Webcast. [Operator Instructions] This call is being recorded. I would now like to turn the conference over to Beste Tasar, Investor Relations Officer. Madam, please go ahead.
Thank you. Hello, everybody. This is Beste. Welcome to our third quarter financial and operational results webcast. Today here with me in the room are CEO, Mr. Buyurgan; and our CFO, Fulya Banu Surucu with me. Now I hand over Mete Buyu for the opening remarks and to start. Mete Buyu?
Thank you, Beste. Good afternoon. Welcome to our Q3 investors meeting. Today, I am very glad to announce terrific results, not only for this quarter but also for entire quarters despite the [ right chance ]. As you may remember we have started through the year the restating third week is [indiscernible] unfortunately, which impacted our business, of course, psychologically and financially, that we achieved to recover all the losses -- the financial losses and the slow start for the year. So we are having better results in almost in every quarter.As you know, we have a very sustainable and profitable growth, especially for the last five years. And we accelerated our growth efforts -- our efforts in terms of corporate governance and our sustainability efforts in the recent years. So we have invested for operational excellence and digitalization for a long time. And now I must say that we are enjoying the results of those investments and efforts in a great way. So this is a long-term journey, and we are happy about our progress in our business in such [ verities ] and such a difficult environment. In terms of if I highlight the performance of Q3.The highlights are the most important one was strong topline growth. This is one of our biggest important drivers for our business, especially driven by strong back-to-school campaigns, new launch and timely pricing, outperforming robust momentum in gross profit margin, which is 610 bps above prior years, showing very successful [indiscernible] and tactics. So almost 6% gross margin improvement is quite important. There are some impacts of sales mix, portfolio mix within this result. But at the end of the day, it's a huge increase and very healthy growth in terms of our profitability.In terms of EBITDA level with the bottom line grew significantly again almost 112%, 113%, outpacing revenue growth thanks to our low-cost operating model, which gives us exponential growth in the EBITDA level while we are -- while we keep growing at the top line. Net-debt-to-EBITDA is rather an important ratio for us, which we are very careful on that. Now it has been decreased to 1.9 multiple as of September 2023, which is another very healthy sign of our business impact. And lastly, we -- based on those in light with those achievements, results, we are going to revise up our full year revenue growth outlook to TRY 42.5 billion, and we are going to revise our EBITDA outlook into 19.75%.In consol numbers shortly, I can say that we are -- we have reached TRY 32 million which is quite sizable business. Our gross profit has been increased 91.4% and EBITDA increase is [ 91% ], which we are reaching TRY 6.9 billion at the end of third quarter. So those numbers are showing the strength of our business. And as I mentioned, our net-debt-to-EBITDA ratio declined from 2.2 to 1.9, which as I mentioned, we are very careful on that actually. If we look at Q3 results, I must say that this is the most strongest quarter for us in terms of top line growth, bottom line growth, volume growth as well. And also in terms of market share, we keep increasing our market shares in the last 2 months, 3 months, especially.So we keep performing in a great way. In terms of consolidation -- operational and financial performance, one of the most important thing for us was the volume growth in such a difficult year actually with the [ rice ] challenge. As you see that -- as you may see that the end of quarter to cumulative numbers we have -- we are outpaced the last year volume about 2,000 tons. And we keep the [indiscernible] growth actually in October as well. So we keep growing very fast and confident that we are going to have a higher volume than last year, which is, again, as I mentioned several times, showing the strength of our business.On the other hand, we said more than 650,000 tons of volume console business as the whole year, which means that there is a very complex and a very strong operation, which we are managing actually. Total revenue is TRY 32 billion, as we discussed, we've mentioned, gross profit rates are quite healthy and very high EBITDA margin, keep increasing and so net income level as of a cumulative level. Due to the very strong results in Q3, we reached positive net profit levels as well.Of course, we have some open position in total FX exposure, but as we are always presenting you, we have a consistent hedging policy, and we can see that our consistent hedging policy is working properly, which will protect us further -- against a further fluctuation. So thank you for listening. As I mentioned, I am confident for Q4 as well. So we are going to end up in a great way with great numbers. So right now, we are planning -- we started to plan our next year's [ ALP ] and our strategies, how we are going to fulfill, we are discussing our investment plans.So right now, Fulya Banu Surucu, our CFO, continue to present further details.
Thank you, Mete Buyu. Good morning, and good afternoon, everyone. Thank you for joining our call today. As our CEO, Mete Buyu shares outstanding results in all KPIs from operational performance, growth, combined with very strong financial performance, drives outstanding Q3 results. I think our clear strategies are proven resilience to [ prior ] conditions, macro time actions, high discipline on management and execution continues to pay off. So let me take you through the results of performance by each category for Q3. 7.9% volume growth for -- in total, in all categories.And in this biscuit by 6.5%, chocolate, 8.9%, cake by 12.8% volume growth versus prior year, which is a very important KPI that we have managed to deliver in Q3. So what are the drivers of this increase? Higher base impact, strong consumer demand, back with back-to-school campaigns, activities successfully implemented [indiscernible] spending activities and new launches drive this high volume growth versus prior year. And this volume increase translates to a 68% increase in revenue growth, above 55% growth in each category -- biscuit 58%, chocolate 76.5%, cake 78% approximately up versus prior year.So we had a very dynamic pricing model with effective mix management, proactive initiatives to mitigate risks, drive this robust revenue growth versus prior year. So when we take a look at domestic operations, I mean, which is also a very strong result and performance in Q3. We hold a very strong market leader position in Turkey are our base market, biscuits 39% market share, chocolate 39% market share, and cake 21% market share. And you can see the improvement in market share numbers versus prior quarters as well.In biscuits 1% increase in market share reaching to 39%; chocolate we kept our strong market leader position in chocolate and cake increased by 1% market share versus prior quarter. On the next page, you see the NPD sales contribution of 12% for Q3 2023. Innovation focus continues. Some of the pictures of our new products are shown on the deck on page 11. So next page please. So I want to take you through the results in Turkiye, which is our core market. So despite many challenges, volatilities and macroeconomic conditions and environment in Turkiye and uncertainty, high inflationary environment, we managed to navigate all these challenges with extraordinary headwinds, and we were able to deliver excellent results in Turkiye in our core markets.You see the volume increase of 8.5%, so which are mainly driven by back-to-school campaigns, effective marketing, new product launches with optimized trade spending activities, which also drove 68% almost 70% revenue growth in snacking sales. Gross profit margin, so we have been delivering gross profit margin increase on a steady basis each quarter this year. And I mean it was also the same last year as well. This quarter is also no exception. We were able to reach 12.8% gross profit margin in Q3 and EBITDA margin reaching to 20.7%.So these results are all driven by strong execution on pricing, mix management, cost management, supply chain, procurement and our operational innovation drive these excellent results in Turkiye. And on a year-to-date basis, the picture does not change. Volume growth of 2.5%. So on a year-to-date basis, our volume grew by 2.5% versus prior year. 76% revenue growth. And on a gross profit basis, we reached to 30.7% and EBITDA margin, which is a record EBITDA margin we have reached so far, which is 21.1%. Thanks to our agile decision-making model that transform all these challenges into opportunities for us.So when we take a look at our export and international businesses. So we sustained our solid very strong business presence in our international markets we operate in as well. So almost 24% market share in Saudi Arabia is kept and almost 19% market share in Egypt and 17% market share in chocolate in Kazakhstan are kept. Again, very strong presence in international markets and new innovation and new products are also very important for our international business. For Q3, they grow almost 5% of our sales in Q3. On a year-to-date basis, our international businesses, a slight decrease on volume, but we were able to increase our revenue by 53%.And gross profit margin reached to 38.1% and EBITDA margin reaching to 22.7%, which are very strong and healthy international business picture as well. I also like to take you through our international operations, M&A that we have gone through over the years. International operations are M&A in international markets drive 36% of foreign currency-denominated EBITDA as you can see which brings a natural hedge to our system. And when we take a look at the EBITDA percent development in years, Hi-Foods reaching to 14.7% as you can see from 2022, it increased to almost 15%, Middle East to 21.4%, and Central Asia, you see the over the years a success story here, reaching to 16.5% Central Asia EBITDA margin that we delivered in Q3.In terms of balance sheet disciplined prudent financial management priorities -- to be our key [indiscernible] as part of our capital strategy. We mentioned this before, but let me remind you what they were maintained and improved strong liquidity, strengthened balance sheet and drive company's leverage position to a half year level. Here you can see the results and the key focus and high focus on working capital continued this quarter as well. Net-debt-to-EBITDA is below 1.98 in terms of covenant [Technical Difficulty], so which is below 2, in line with our target.As management team, we aim to something and decrease this number over the coming quarters and years as well. You can see the working capital improvement versus prior year. It is 22 days efficiency versus prior year, mainly driven by inventory very, very focused and effective inventory management from 97 days reached to 80 days. We take the [indiscernible] accounts payable and accounts receivables we were able to decrease our DSO number by 5 days reaching to 71 days and in total 94 days. So closing the open position as part of strengthening balance sheet continues. As you can see on the page, we continue to hedge our [ food ] open position, which came to a very healthy level right now.As of September year-to-date, 71% of total position on the balance sheet is closed. So we are protected against any FX volatility and fluctuations that may come. We aim to sustain this number over the coming quarters as well. So we currently have a very healthy balance sheet, and we continue to have this very healthy balance sheet over the coming quarters and years as well. As Mete Buyu mentioned at the beginning, we updated our guidance. So next page, please. As you can see, we updated our numbers and increased our numbers each quarter.So we are -- what we are saying is we are very comfortable that we will reach by the end of year, TRY 42.5 billion by the end of 2023. And we will reach 19.75% EBITDA margin. As our CEO also mentioned, we continue to have a very strong quarter four as well. As the last page, we wanted to show you the progress of Ulker Biskuvi in the last 10 years, how we started with 11.5% EBITDA margin. Now it looks like we are going to close the year minimum at minimum 19.8% EBITDA margin reaching to TRY 42.5 million. And you can see the trend and improvement over the year as well.So that's all from my side. Thank you Verda.
Thank you, everybody. And now we are open for questions.
[Operator Instructions] Our first question comes from Ece Mandaci from Unlu Securities.
Congratulations on the strong performance, especially on the free cash flow side. So I was wondering if this very good performance in your working capital will continue in the fourth quarter and in 2024 as well? And secondly, should we -- or do you potentially see a potential dividend payment from the 2023 earnings next year with the strong figures.
Regarding your first question, the answer is yes. You have seen the working capital improvement and our focus to manage working capital in a much more effective and efficient way each quarter. And this quarter, we will continue the same strategy definitely, and it will continue throughout 2024 as well since it's in line with our key priority capital strategy that I have mentioned to you before. Dividend payment requires a board approval. We have not made any decision on that yet. And once we make the decision, we will let you know.
[Operator Instructions] The next question comes from Cemal Demirtas from Ata Invest.
My question is related to your guidance. When I look at your revenue guidance, if that's the number we are going to be reaching TRY 42.5 billion then in the fourth quarter we may have only 16% growth with that assumption. Don't you think that your assumptions are very cautious? That's my question because you mentioned that fourth quarter is also doing well. So I wonder the reason behind that conservative guidance I see. And I would like to congratulate with balance to be honest, after a very long time, they are much more comfortable and also about the visibility. And again, after this comment, I would like to understand -- could you give any indication about the raw material cost side for 2024? Maybe it's very early. But again, when we look for the future, especially for 2024 what might be the risk and potential reward ahead.
Demirtas, thank you very much for the questions. Regarding your first question about the top line growth in terms of Q4, you are absolutely right. There is some room in terms of further growth. This is the worst case scenario. But on the other hand, we are going to have some big maintenance studies in some of our factories. So we are going to make some maintenance study almost more than 10 days in some of our big lines.So that's why we affected this factor in terms of supply as well. But that this is going to be the minimum scenario for sure. Regarding your second question for raw materials, especially projections for next year, raw materials are, of course, much better in terms of supply, in terms of [indiscernible] we had huge increases, I mean, as of 2 years ago, 3 years ago, even last year. This year and next year, we are expecting more stable only excluding cocoa and sugar. Right now, cocoa prices are the highest prices as of 46 years.So and our 50% of our business is cocoa, as you know. But we are having long-term projections, long-term contracts. So we are trying to get our position. Of course, there's going to be some price increases in cocoa and cocoa related products, chocolates and others, but this is almost respective to all industry all around the world but also one of our biggest chances are competition in terms of adjacent categories like desserts, accessories and so on. Our prices are still very competitive. So excluding cocoa and sugar we are not expecting very high price increases, but cocoa and sugar, we need to manage in a proper way for next year.
The next question comes from Dmitry Ivanov from Jefferies.
Thank you very much for the presentation and congratulations about the results. I have three questions, if I may. The first question is about your capital allocation strategy. So basically, your cash position is quite decent, right, approximately $350 million. I just kind of wonder how do you plan just -- what's your plans regarding this cash position? Do you plan to accumulate more cash or you plan to use this cash for debt reduction or do you have other use of this cash, for example, any M&As in your pipeline? So any kind of thoughts on your capital allocation strategy going forward would be helpful.Second question, if I understand correctly, you have the slide with the total debt and approximately 17% of the total debt is a short-term debt. So 17% of TRY 1 billion is approximately $170 million to be repaid in the next 12 months. Could you kind of unpack this number for us? Like what's included in this 17% or $170 million of short-term debt maturities because it's quite material amount for the business. And second, sorry, and the final question. Again, like I understand it's a bit too early, but maybe could you kind of update us on your strategy with regards to your the upcoming maturity of the bond in the end of 2025. So what's your current like thought? What's your current thoughts on this current on the bonds? Three questions from me.
Let me get all of them one by one. Regarding your first question, capital allocation, I mean I'm going to link it with the third question. We have very important key milestones in front of us, one of them is Eurobond financing, which is approximately $600 million after the $50 million bond buyback deducted. So we have to accumulate cash to make sure that we will be able to refinance it. And based on our three key priority capital strategy, decrease leverage, and we plan to hopefully decrease the total amount, not fully refinanced the full euro bonds and decrease the amount with the accumulated cash we will have to decrease our leverage further to strengthen our balance sheet further so no any other plans in terms of capital allocation, approximately within the next three years, our capital allocation and strategy will be very clear, which I highlighted with three key priorities.So let me jump into your first question, which is Eurobond financing. Yes, it is going to mature in 2025, but we will start -- we have already started working on our plan and roadmap how to tackle it one by one. So we are going to start the studies in 2024. And definitely, it will be refinanced prior to 2025 before the maturity. So we are going to start to kick off the process pretty shortly, I can tell you. Regarding those short-term debt, it consists of mainly letter of credits and a short-term liability of [indiscernible] that is going to make sure in April 2024. The other one is letter of credit, which is part of our operations and part of our [indiscernible] business. So nothing significant and nothing we see as a risk within that context as well.
So basically, the majority of this short-term debt, 17% or $170 million is on debt and the letter of credit. So basically, it's $170 million.
Yes, letter of credits that we use to purchase cocoa, okay? And the credit that's going to mature in April, yes, definitely.
[Operator Instructions] Our next question comes from Hanzade Kilickiran from J. P. Morgan.
I have a follow-up question on your margins. I don't know, but I presume inventory may also play the role in expanding the gross margin, maybe I am wrong. And you are now running at a very high, very strong operating margin. Do you think that you can sustain this margin into 2024 if cost base is stabilized?And the second question is about your raw material contracts. Can you please remind us how much have you secured on the cocoa side for next year and also palm oil? And you -- I think you are worried about sugar prices, but I thought Turkey is a regulated market. I don't know if you have lower contracts here. So can you please elaborate this one? And the final question is about the consumption trends, particularly in Turkey. Have you started to observe any sort of slowdown or demand is still firm in Turkey?
Thank you Hanzade. Regarding your first question about the margins, gross margins and the net margins, we are confident with our having consolidated numbers and also year-end target, actually, for the next year as well because we prepared all our [ AOP ] plans based on this data. Absolutely you are right because for this year, especially, there was some inventory impact on the margins in the Turkish companies due to very fast FX rate increase. However, we are confident to sustain our margins accordingly based on our year-end numbers, year-end projections.Second question about the positioning with cocoa and sugar, especially cocoa, we are having a policy about last year's rolling -- to last month, sorry, to last month's rolling [indiscernible] position. This may change depends on the price trends. But right now, we are almost covered for 12 months. Of course, this increase in the prices are increasing, but we are at least -- we can foresee our next 12 months accordingly. In sugar, coming to sugar, you are right. Again, this is a regulated market. So -- and the interest rates are quite high right now.So we are always our procurement teams and finance teams are working together to choose the right strategy, balanced strategy, we are always covered like for two, three months. But we beyond two, three months, we are deciding based on the benefits versus interest rates. And the third question about slowing down all the markets. We don't expect any slowdown in our category. Right now, it is increasing very fast in terms of volume as well as growing.But maybe in the second quarter, third quarter, there might be some slowdown. But again, we are confident in terms of our category, as I mentioned in the beginning of my presentation, beginning of my presentation, our categories are having strong advantage, competitive advantage in social pricing, consumption habits versus adjacent categories. So we can expect some shift from adjacent categories to our snacking category, which is going to benefit for us.
There appear to be no further questions. I'll return the conference back to the speakers. Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.