Ulker Biskuvi Sanayi AS

IST:ULKER.E

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to Ülker Bisküvi Fourth Quarter 2021 Financial Results Conference Call and Webcast. I now hand over to Beste Tasar, Investor Relations Officer. Madam, please go ahead.

[Verda Tasar, executive]

Thank you, Denise. Hi, everybody. This is Beste. Welcome to our full year results and operational results webcast. Here with me with in the room are CEO, Mr. Mete Buyurgan; and our new CFO, Mrs. Fulya Banu Surucu, here with me.

Mete Bey, please go ahead. Thank you.

[Mete Buyurgan, executive]

Hello, everybody. Let me have an introduction for our presentation before our CFO is going to give some detailed information about our operational performance. As you may know very well that Ülker is the leading snacking company with it's great and strong brands and through a strong operation in the region. Of course, our main heritage as you know that is basically in Turkey, but we keep increasing the share of our international business in a consistent play in our other operations.

As of today, we are operating in Kazakhstan, Egypt and KSA, Saudi Arabia with our factories, but also we are having, too, many operations in different countries in our region, including Central Asia, MENA and Middle East and North Africa, actually through our sales and distribution activities.

As you know very well, it was very, very hard and difficult year in 2021. Before 2020, as you may remember that the COVID had a disruptive impact on many markets. And on our consumption methodology of our consumers as well. But despite there are still many and heavy challenges all around the world, we are on track with our targets. So we are confident that we are delivering our target and we closed the year in a successful way again.

And finally -- and yes, finally, as you know that in the last 2, 3 weeks, as of this year, we are having some war in Ukraine, in our region. So it is also creating some pressure on commodity prices and some other impacts on the consumer on the market trades business, but we are trying to get all the precautions. However, our strong operational capabilities allow us to operate in a sustainable way through our mid- and long-term strategy.

We closed the year with very strong operational results in -- as of 2021, especially in the second half of the year. As you remember, in the first half because of the lockdowns in the country in many other markets, the consumption was quite low. But in the second half, we were expecting that -- this time as well, we were expecting to increase the consumption. So in the second half, we had a great performance and we recovered the loss of sales in -- from the first half, and we closed the year in a great way.

The EBITDA level has been reached -- has been [ plus ] 18.6%, while we keep our strong market share position, especially while we were having the same -- almost same market share in Turkey. We have increased, we keep our strong presence and leadership in bakery categories in Saudi, in Egypt as well and also, in Kazakhstan in Central Asia, we have increased our market share significantly. So in all means, I must say that we had a very good and strong performance -- operational performance in 2021.

As the structural export international operations versus domestic, as you may see on this chart that the share of domestic space is 59% while international business is 41%. And in terms of EBITDA level, it is 46% share in -- from international operations, while it is 54% from domestic. So we are always saying that our aim is to make this EBITDA level and net income level shared 50%, 50-50 versus Turkey operations versus international operations, which is going to give us a strong natural hedge in our business.

We have too much headwinds ahead of us, as our competitors have said, in different geographies all around the world. I think commodity prices, commodity input prices such as edible, sugar, wheat and many other commodities will have a disruptive impact on many markets, almost all around the world. In markets, FX volatility is another major issue, but we are very confident to deliver strong operational performance despite all else, through our low-cost base operational model and through our 80-year experience on those challenges.

Now, I would like to introduce you our new CFO, Mrs. Fulya Banu Surucu. I think Fulya, you will continue for the detailed operational performance.

[Fulya Surucu, executive]

Thank you, Mete Bey. Hello, everyone, good afternoon. Fulya Banu Surucu, new CFO of Ülker Bisküvi. I joined the company at the beginning of January this year, so approximately 2 months ago.

So let's take a look how we performed in 2021 in terms of key financial KPIs versus prior year. Net sales increased by 29%. Both -- net sales, gross profit, EBITDA, they all increased significantly double digits versus prior year, despite the COVID crisis and despite the macro dynamics and key challenges. Net sales increased by 29%, gross profit, 23% and EBITDA, 21%, strong growth versus prior year.

Gross margin, despite we had very huge challenges and COVID crisis, we were -- maintained to sustain our gross profit -- gross margin, and there was only a decrease of 140 basis points versus prior year. Despite the huge commodity price increases and the challenges we faced in terms of consumer behavior change as of Q4 2021.

And in terms of net debt-to-EBITDA due to FX volatility in Q4, we ended up with a higher net debt EBITDA in 2021 versus prior year. And in terms of operational cash flow, it decreased versus prior year. However, it is mainly driven by our effective procurement strategy we posted in Q4 in terms of supplying key raw materials by the end of the year. So net-net, I can conclude that operational performance financially is very strong.

So let me take a look in terms of value and how we performed in Q4 2021. Again, very strong top line performance, strong top line performance that beat the market expectations. There was a market consensus in terms of both sales and EBITDA, but we overbeat that market consensus both in minimum and maximum levels and volume increased in total by 1.4%. Biscuit contributing 0.7%, chocolate by 0.8% and cake a significant increase of 9.7% in terms of volume. However, net sales increased significantly higher than the volume increase by contributing approximately 50% -- 51% versus the prior year. All of our categories increased 48.5% in biscuit, 51.3% in chocolate and 60.1% in cake sales.

So international markets, strong contribution from international markets and also, very strong growth in terms of value from Turkey market. The new product launches, effective pricing strategy, with the increase of commodity price strategy drove these results in Q4 2021.

In terms of full year -- so in terms of full year results, we again see the same momentum in terms of full year, even though our volume had a slight decrease versus prior year. As mentioned, we had COVID crisis and macro dynamics that impacted us, especially in the first half of the year, COVID impact that drove the negative volume versus prior year. And in the second half, huge commodity prices also impacted our total volume versus prior year. But again, we managed to end up the year with a very slight decrease versus prior year in terms of volume.

In terms of net sales, all of our categories grew significantly. Again, as I have mentioned a few minutes ago, effective pricing strategy as new product launches and innovation all continued throughout the year, which drove a very high net sales, which was above the market expectations that ended up by the end -- by year-end.

So let me take a look on the total P&L. This, we already reduced volume, revenue, gross profit and EBITDA margin, a strong Q4 performance, and that also translated to total full year performance. In terms of net income, due to the FX short position that was created in Q4 2021, we ended up a big net income loss in Q4, and we ended up having loss on net income as of full year. Again, this is really mainly driven on the open position that we had in Q4. Until then, our balance sheet position was in a long FX position until the end of July and August. However, we see FX volatility that we had in Q4 and with a short position that was created in our exports in Q4, and we ended up the year with a loss on full year basis.

So again, this open position and net income will be a key priority and important factor throughout 2022. So what we have to do is we need to sustain excellent operational performance to drive higher sales, higher cash flow streams and generating stronger cash flows, which I believe we will do, taking into consideration that we had a very good, strong start of the year of 2022. And in the meantime, we also started using risk mitigation tools. I'm happy to share with you that 20% of our open composition is closed as of today. And we also had -- we also used forward to hedge an important chunk of Önem purchases denominated in foreign currency, mainly in Europe. This priority will continue throughout 2022 and whenever we see an opportunity, we will continue to use hedging risk mitigation tools and in the meantime, sustaining our excellent operational performance in terms of sales and EBITDA.

Here, I'd like to share with you some highlights in communications. So Ülker Bisküvi really cares about -- healthy passion to add value to the community and the stakeholders that we work with. You can see that Ülker has been chosen as a Lovemark of Turkey in its category as #1, which we value great -- which we value greatly. And we have also won 3 awards at Stevie International Business Awards post that you can see. Sustainability is at the heart of everything. So I am so proud to state very clearly that we are the first and only Turkish company listed in sustainability yearbook of 2021 in 2 years, in consecutive 2 years last year and this year, in food industry based on the S&P Corporate Sustainability assessment. So this is extremely important for us, and we give great importance to ESG items and highlights. And we are very proud to have this award as the only Turkish company listed in the yearbook.

So we talked about the total company performance overall as Ülker Bisküvi. Let's break it down by region, and let me share with you how we performed region by region in terms of volume and financial performance. Now, we take a look at Turkey market. So this is a picture of the total Turkey market. So there are -- I mean, in terms of volume, we had some pressures in terms of total snacking pretty much flat volume and a slight decrease versus prior year. However, the value terms, in terms of value, it increased by 26.5%. And we see a similar trend in biscuit. In fact, a more -- a higher decrease versus prior year in terms of the value in the biscuit category, again, a 21.7% increase in value terms. And chocolate and cake, slight increases versus prior year, but a better increase in terms of value terms. And you will see over the coming slides that we were able to drive a higher value increases than the market. That's how we kept our market -- #1 market share leader position as well. So that's the market in Turkey overall.

How do we position in that market? We were, again, #1 in biscuit and chocolate and #2 in cake category, and we were able to maintain our market leader position in terms of market share. Biscuit, 41% market share as #1 player in Turkey despite these big challenges and despite heavy -- fierce competition, both locally and globally.

So market share development, you see our market share development month-by-month. We wanted to share with you last 3 months impact, and we expect to continue this momentum as well. October, November, December increased from 40.3% to 41.5% in market in biscuits category. You see the picture of our #1 biscuit brands on our biscuits category.

Chocolate, again, the same, #1 market leader, 41% market share. You see that increasing trend from October to December from 43.4% to 43.8%. And again, 4 out of our top 5 chocolate covered are #1 in Turkey. And cake 19% market share, it's #2. However, we see an increasing trend in terms of sales and value share of the cake category despite, again, fierce competition, especially from the local competitor #1 in family cake and #2 in portion muffin coated cake and you see our market share development at -- it increased again in December versus November, and we were able to maintain that 19.4% October market share by the end of December.

And again, synergy products, we made use of these synergy products. They approximately contributed around less than 10%, around 7% to 8% revenue to our portfolio, and we were able to utilize our synergy products in throughout 2021 as well.

The next topic, NPD innovation, new products are very important for us. Ülker Bisküvi continued to produce, to come up with new ideas and focused on innovation in the last year as well. And you see that NPD sales, new product sales contributed 14% of our total domestic sales in 2021. And again, this focus on innovation and new products will continue in new year as well. When we take a look of how Turkey performed financially. In terms of volume, we see a slight downside versus prior year. We had huge challenges. And I mean, based on the sizing and pricing activities that we faced mainly by higher commodity prices, there is a slight decrease in terms of volume versus prior year. However, both -- sales, gross profit and EBITDA increased significantly versus prior year. Mainly we were able to sustain our profit margin, and thanks to our effective pricing strategy and top line achievement successfully that created our gross profit and EBITDA.

We continued to perform in this challenging environment. Again, snacking volume, a slight decrease versus prior year. We see the same scenario of -- in total on a full year basis. Snacking sales increased gross profit from 1.4 to 1.8 and EBITDA increased from TRY 1 million to TRY 1.3 million. Again, mainly effective pricing and value-added launches in terms of new products and innovation and positive contribution starting here from the second quarter of the year. So all in all, very strong performance in terms of domestic business then in Turkey.

So when we take a look in international markets, again, as shared by Mete Bey, 41% of our revenue is driven from our international markets. Saudi Arabia, we were able to maintain our position, #1. We had some challenges in Saudi Arabia for the last 2 years, schools in Saudi Arabia have not been fully and physically open. This was one of the challenges that we faced in Saudi Arabia. COVID-19, COVID impacted Saudi Arabia -- COVID has the great -- one of the greatest impacts on the decrease in trade and population of this region. And again, EBITDA decreased -- one of the impacts also was the VAT increase that was affected in Saudi Arabia from 5% to 15% that also changed the consumer behaviors and impacted the consumer behaviors throughout 2021. And as a result, again, we were able to maintain our #1 leadership position in Saudi Arabia. However, we have seen some challenges in terms of sales and EBITDA, which we expect to cover with the normalization of COVID impact and the change in consumer behaviors.

IBC operation, again, there has been some challenges in IBC operations as well, some slight decreases in sales and net sales and EBITDA. Slowdown in KSA market driven by partial restrictions, pandemic extension of online schooling, change in product mix and increase of VAT impacted this market as well.

In Egypt, we achieved #1 position in biscuit, and we again aim to be the #2 in cake and top 5 in chocolate. Net sales grew and we were able to maintain our biscuit market share as #1. However, there has been some slight impact on EBITDA in terms of profitability. Again, very challenging environment, increasing competition, mainly COVID impacts that impacted this region significantly. And continuous market de-growth in Egypt also impacted this region.

And very shortly, in UI MENA operations, volume declined. Again, the same story here applies. COVID-19 reshaping the trade strategy, the fact is we were able to increase the EBITDA margin by 260 basis points as McVitie's SKUs are performing very well in this region.

In Kazakhstan, you see all the numbers in terms of sales, net sales and EBITDA increased significantly. We are #3 in Kazakhstan. However, we are making great progress. Russia, Kazakhstan and Azerbaijan are all drivers of revenue and volume growth, and we were able to gain share in Kazakhstan. And Albeni's or Ülker product visibility is increasing day by day and return on investment of star brands and Hamle started to manufacture for Azerbaijan market as well. And Kazakhstan, in general, in most categories, even though 2021 Kazakhstan's economic vulnerabilities after post-pandemic. We achieved rate growth in all categories in 2021 in Kazakhstan.

Overall, when we summarize our international businesses, we were able to maintain our #1 position -- market share position in Saudi Arabia, KSA, in biscuit, 25% and 19% market share in Egypt, and chocolate, #3, 14% in Kazakhstan, #1 in biscuit with filling and #2 in countline in Albeni. And in terms of value share, 25%, we were able to maintain the 25%. And in Egypt, we were able to increase it by 1% our market share. And in Kazakhstan, we were able to increase our market share by 1% from 13% to 14%.

And NPD, new product development, is also very important in our international businesses. We continue to deliver -- introduce new products within the region. And also, they contributed 5% of our total international sales in 2021. We, again, will continue to focus on new products and innovation in international markets throughout this year as well.

As a result, in Q4, we were able to achieve strong results that contributed to Ülker Bisküvi's performance in Q4 as well. In total, our sales increased to 1.8, with the volume increase of from 51 to 56 and gross profit increased to TRY 676 million, and EBITDA increased to TRY 437 million. And pretty much, we were able to maintain the EBITDA margin at 23.2%, which is in line with what we delivered last year.

On a full year basis, again, the story does not change. Slight increase in terms of volume versus prior year in our international markets. We were able to deliver a higher revenue, higher EBITDA and higher gross margin. In terms of versus prior year, in our international markets as well, and we expect to continue this momentum. And in fact, we expect to strengthen this momentum with the normalization of COVID impact in this region, especially -- in our international regions, especially.

When you come to balance sheet highlights. In terms of net debt, as you see, our net debt increased to TRY 8.2 million local currency TRY. That's mainly driven by the FX volatility that we faced, especially in Q4 2021. And net debt to EBITDA increased to 3.5%. And then we take a look of our maturity of our breakdown of our loan structure, you can see that 84% of that is long term. And as you know, our bonds that was issued at Irish Stock Exchange in October 2020 has a 5-year maturity, which will expire in 2025. That makes up most of 84% of our loan portfolio.

In terms of average working capital days, it's 140 days. However, I pursue (sic) [ perceive ] that -- it is mainly driven by our very effective procurement strategy, we pursued proactively in Q4 in terms of supply and key raw materials. So that's mainly driven because of that impact. And operating cash flow is a reflection of our effective procurement strategy that we pursued in Q4. That's also reflected as part of our operating cash flow that decreased versus prior year.

On a net-net basis, overall, we believe that we had a very strong operational performance in 2021, TRY 12.5 million in sales, 5% CAGR, net sales increased 22%. Despite COVID, despite change in consumer behaviors, despite shift to discounter channel, we were able to maintain 18.6% margin, EBITDA-wise margin, very slight decrease versus prior year, and EBITDA increased significantly versus prior year and in terms of a CAGR of 5 years, 28%. And we were able to maintain our #1 market share position in Turkey and international markets in most of our categories.

Thank you, and we'd like to have your questions.

[Verda Tasar, executive]

Thank you, everyone. Thank you, Fulya. We will be happy to answer for your question. Denise, please.

[Operator]

[Operator Instructions] The first question comes from Daniel Zaczkiewicz from Barclays.

[Daniel Zaczkiewicz, analyst]

So just on the leverage, do you have any targets for leverage reduction this year? And maybe, where you expect to be by the end of the year? And on the open FX position, you mentioned that you closed 20% of the open position. Do you intend to -- do you have a target on where you would like that to be by the end of the year?

And then, if I could also just ask on cash flow. So we had quite large working capital outflows, which consumed all of the cash from operations. How much of that do you think we'll see unwind in Q1 or Q2, as you get the benefit from the procurement that you talked about?

[Fulya Surucu, executive]

In terms of financing, we have very good relationships with our banks, and we continue to sustain this very strong and good relationships with our banks. And we do not have any target to reduce our debt by the end of the year. And our current leverage ratio is around 3.5%, and we do not expect any leverage issues throughout the year, with increase of our sales and net income that we project as of today for the whole total 2022.

In terms of working capital, yes, I mean, with the increase of EBITDA, net sales, we expect that our leverage, net debt-to-EBITDA leverage will not be an issue over the next year or within this year.

In terms of working capital and inventory, as I have shared, I think we made very strategic moves by the end of Q4, which we do not see any big issue in terms of supply of raw materials within this year, which we expect to benefit over the coming months. And in order to sustain the performance of the company and to eliminate any global supply chain issue. So I believe that we made the right decisions, and there will not be any supply chain issue as well.

[Daniel Zaczkiewicz, analyst]

Okay. Just maybe, to follow up on that. Do you think that margins -- you might actually see margins improve then, because of the actions you took in Q4?

[Fulya Surucu, executive]

Commodity prices continue to increase and looks like it is going to increase. We -- in terms of -- to sustain the profitability of the company and the sustainability of our performance within the year, we will continue to control our costs, both OpEx and CapEx, and we will continue to have the effective pricing management as well. So I cannot say that okay, this will decrease our margin or increase our margin. With the increase of commodity prices and increase of any other prices that might affect us, we will sustain our margin.

[Mete Buyurgan, executive]

Yes. Daniel, this is Mete. I would like to add up some few words on Fulya's comments. Actually, in fact, one of our biggest strength is that we are having wide range of portfolio. So different categories, especially chocolate categories is more balanced than bakery in terms of raw material price increases and so on. So we are very strong, and we are a very strong leader in chocolate category as well. So we are able to manage our -- reflect the cost increases into our prices on time. And also, our strong RGM, revenue growth management initiatives, are helping us a lot to create better margins despite all [ sections ] -- despite all the commodity price increases.

And also, we are having -- we are operating in different markets. So this is giving us another opportunity to balance our portfolio with different pricing strategies in different markets.

[Operator]

Thank you. The next question comes from Cemal Demirtas from Ata Invest.

[Cemal Demirtas, analyst]

My question is regarding the guidance. Could you give us some guidance for the growth in domestic and international markets? That's my first question.

The second question is, do you plan any other acquisition this year, within group or outside? That's my second question. And could you give us some, at least, indications or color about the position of Yildiz Holding? Because we have very arm's length relations with the group and the position of the group is having some impact on the company and the share performance. And I believe, that's further indications about what's going on in Yildiz Holding could be very helpful for the re-rating of Ülker. That's why I'm repeating that question. Thank you very much.

[Mete Buyurgan, executive]

Cemal Bey, this is Mete. I will take your questions. Thank you very much for the questions. First, for your -- regarding your first question about the guidance, we are not able to give a very detailed guidance as of now. But I must -- I can easily say that we had a very strong start of the year in January and both February, despite all the challenges that we discussed in the presentation. So you are going to be -- you can see a very good first quarter results versus Q4 -- versus last year Q1. So we are having a very promising performance, which is really motivating us in terms of starting the year is a very good performance. It's a very good performance. Your second -- regarding your second question, M&A. We are always looking for some M&A opportunities. But of course, there are lots of volatilities in the environment, globally, from oil prices to other raw material prices, logistic prices, and there are lots of confusion, political issues in the region, all around the world. So I think we are very conservative on this M&A options. So we don't see any opportunity. And in Yildiz Holding, we don't have any plan to -- for this year to have M&A internally, throughout our internal organization.

And lastly, regarding Yildiz Holding, of course, we cannot talk on behalf of Yildiz Holding because we are separate organizations. But as we know that they are in a good shape versus the previous years in terms of the syndication issue, payments, everything, they are performing very great. Their other companies are doing a great performance as of last year. So this is giving us -- giving to Yildiz Holding, another opportunity to deliver their commitment in an accelerated way.

And also, as far as that we know, that they had a huge payment on the banks which was showing their strong commitment to the partner, financial partners. And lastly -- that's all I think.

[Cemal Demirtas, analyst]

And maybe, as a follow-up. The share has been very much under pressure for a very long time. And I always mentioned in my notes that there's a negative perception from the outside, in the investment community. So that's just -- I'm trying to understand, as the CEO of the company, what could be the catalyst for this year, from your perspective? We are searching for what could be some positive thing that will change this sentiment? Because really, this company doesn't maybe, deserve this much deflation when you look at the fundamentals. But because of the earlier transactions, there were many things and really, in the market, nobody was really in a position to be positive and there's a negative perception. At least from your perspective as the CEO of the company, maybe we are missing something or we are looking for some catalysts. Could you just tell us some catalysts that could at least give us a help to be more positive about this very depressed valuation? Thank you very much.

[Mete Buyurgan, executive]

Sure, Cemal Bey. Regarding your previous question, I will start with your previous question about arm's length position of Ülker with Yildiz Holding. As you know very well, the structure of the company, Cemal Bey, we are having a very good progress in terms of arm's length position versus last previous years, actually. First of all, there was a big criticism on Önem Gida because they were the biggest suppliers of us, and it's kind of very important know-how part of the organization. So there was a lot of criticism on Önem Gida that this is owned by Yildiz Holding. So this is -- there is a very big arm's length position in terms of transparency as well. But once we acquired Önem Gida, I think it's very -- much more clear that the financials for Önem Gida is very clear right now, very transparent.

As a second -- progress, Cemal Bey. We changed -- we restructured our Board, for example. Right now, even our Chairman of the Board is an independent Board member. We are having more independent Board members, now, very professional CFO has just joined to us, I am -- from our side of the organization. So we are having, too, many diversity and inclusivity management kind of actions in the company in the last few years. But on the other hand, you are right. For example, despite we are delivering great performance in the past years and also, last year as well, it never reflected to our share price. So we are working on this together with our CFO right now. We are going to have some road shows. We are going to consult to our big investors how -- what is missing or what is missing, what will be -- we should improve? Because despite the very strong performance, it is not reflected to the share prices, not only for this year, but also, in the last 4, 5 years, actually.

We are always increasing our profitability, market share. All our M&A process has been greatly done, which increased the profitability and top line performance. But all those efforts were not reflected in the share price. We are still hopeful that our share is very undervalued. So we are still believing strongly that we are going to have a very better share price increases in the next coming months and years.

So we are trying to -- we had a Eurobond for example. We issued -- we issued Eurobonds and we had a huge demand at that time 2 years ago. So I think this is there all -- because of our transparency in the organization, strong financial results. Now, we are going to work on this share price separately together with our CFO.

[Fulya Surucu, executive]

Just to add on that, Mete Bey. As you know, our share price is around 50% to 60% discount when compared with our European and global peers. And as Mete Bey shared, both Mete Bey and myself will have a road show, and you will be hearing from us pretty soon, and we'll consult our investors. And we'd like to talk with you more in detail what we can do just to get your point of view as well.

[Operator]

The next question comes from Josefina Rodriguez from Morgan Stanley.

[Josefina Rodríguez Duran;Analyst;Morgan Stanley, analyst]

Thanks for your presentation. I have some questions. The first one is you mentioned you procured raw materials in the fourth quarter. How much have you procured of your raw material needs for 2022? And are you seeing any disruption in the supply chain or any issues procuring the raw materials this year?

My second question is how are you thinking about inflation in Turkey and your ability to pass through the prices given that, I think, now, inflation is about 50% in Turkey? And my third question is related to refinancing. If I'm not mistaken, you have some loans -- bank loans maturing in 2023. Are you in talks with banks to refinance that? Or are you planning to start talking about refinancing soon?

[Mete Buyurgan, executive]

Thank you, Josefina. Regarding the first question of procurement in the Q4, yes, we have seen that there might be further disruption on the markets in terms of sourcing, consistent sourcing. So what we did is for wheat, for example, one of our biggest raw materials, cocoa, we had some physical stocks. So we are going to be covered for the next -- almost through the end of this year, actually. For some other raw materials like cocoa, we are almost covered till to end of 2023. And we are well covered right now in the most important raw materials. But of course, there is a fixed rate impact also.

As you mentioned regarding your second question, inflation is reality right now. We are operating in this country, in this market in the last 80 years. So we are really very experienced on this. So we are never compromising to reflect all those challenges to our prices. So this is important for us. But on the other hand, this is not only a problem in Turkey, but also all around Europe, in U.S., in Far East as well. For example, especially through oil prices right now. Logistics cost is increasing. Sugar prices are increasing in Europe crazily, both in Turkey as well. So this is -- those are the challenges all around the world right now for our competitors as well. It is for sure, those challenges will create some disruptive impact on the consumers, especially on pricing. And hence, because of the local price -- high pricing, it's going to create some low consumption.

So -- but one of our biggest chance to lessen this is our low cost base operating model. So we restructured the company 3, 4 years ago. Right now, all our SG&A ratios, production ratios are quite better than our all-global competitors. For us, we are adding sustainability efforts as well, which is very successful in the global markets. So we are going to get all those advantages versus our competitors. So we are -- yes, we are right, this is going to be a very challenging environment, but we are far better than our competitors to deal with all those challenges.

And regarding for the third question, Fulya, you may answer this.

[Fulya Surucu, executive]

Yes, refinancing. Yes, we have a syndication loan that's going to need to be refinanced in April 2023. I have already started working -- talking to our lead bank, Bank of America related to that. And we will organize a roadshow. And I will -- I will get in conversations with our old syndication banks and introduce myself as the new CFO and get connected with them, and it should happen pretty soon. A roadshow with our lenders in Middle East and in all around the world, and start talking about it and introduce myself. And we definitely try to plan everything proactively in advance and have a detailed plan related to our refinancing of our syndication in April 2023.

[Josefina Rodríguez Duran;Analyst;Morgan Stanley, analyst]

Great. Great thanks. Mete, my last question is, you mentioned several times, competition being strong in Turkey and some international markets. What are the dynamics that are you seeing? Or is this -- are you seeing like a stronger level of competition than, for example, in the previous quarters?

[Mete Buyurgan, executive]

This is not a new competition, actually. The environment -- competitive environment is almost same. But because of the price increases, commodity increases, especially, there are some confusion on macro snacking, not only for our existing categories, but also, for chips, for example, for nuts and seeds and so on. So there might be some transition on the macro snacking market overall.

This is not just for Turkey, but also for all the markets, not only our region. But as I mentioned, in Europe, in U.S. right now. There is a very harsh inflationary pressure on European retailers and European competitors as well, as of today.

[Operator]

The next question comes from Hanzade Kilickiran from JPMorgan.

[Hanzade Kilickiran, analyst]

Congratulations. I have a follow-up question on leverage. I think this is going to be an important topic. You don't provide guidance, but since you are going to be on a roadshow, you may have some sort of target leverage for 2022. So I wonder about this target and is this based on the current TRY dollar rate? And could it be challenging to secure extra financing since you are already over your covenants? I mean -- so what is the plan here to take the leverage below the covenant?

And Buyurgan, you mentioned about some sort of demand resiliency against the price increases so far. Is it also true in Turkey? I mean, do you see demand being positive after the adjusted price increases to cover the cost inflation? Thank you.

[Fulya Surucu, executive]

Thank you. So in terms of covenants, as I have mentioned, so there is not -- I mean, there is not detailed number that I can share with you right now. But definitely, in parallel, we are working on different scenarios, with various scenarios, with FX, net sales and EBITDA scenarios. But based on our analysis that we performed on different scenarios and different targets, as of today, I feel confident that with increase of our sales and operational performance and cash flow, we should not have any issue in terms of covenants throughout the year.

Definitely, this is something that I will be monitoring very closely over the months and which I have already started. And during the roadshow, so once we have our Q1 actuals and Q1 estimates, we will be able to share with you more exact numbers. But as of today, EBITDA, our scenarios that we performed, we do not see any issue in terms of waivers in bank relations. I think you can answer the second question, Mete Bey.

[Mete Buyurgan, executive]

Hanzade, thank you for the question about the demand increase. As I mentioned in the previous questions, there might be some slight decrease on volume demand. But as I mentioned again, throughout our different categories and wide range of portfolio, we are able to balance these actions actually. We are able to manage this problem. By the way, we are always pricing our products, not only for our existing profitability level -- based on not only existing profitability, but also for the alternative product, alternative categories. So we are always trying to be the best option in terms of quality, in terms of pricing for the consumer for snacking occasions. So we keep our strong position throughout our snacking propositions.

So I think we are not going to have a big impact -- negative impact on the demand loss, actually. And the first 2 months is showing that we have seen that despite the problems, we had a great growth in terms of volume as well.

[Hanzade Kilickiran, analyst]

Okay. And so it looks like that, you previously -- I mean, last year, you mentioned about like that 18% EBITDA margin is sustainable for Ülker and you exceeded it this year. So it will be more realistic for us to keep the margin at around 18%, right? I mean, given this cost inflation.

[Mete Buyurgan, executive]

Yes, this is realistic for us. Around 18% margin is our target, always. So we are confident to keep -- maintain the same level for the next coming years, while we keep our growing -- growth ambition.

[Operator]

Thank you next question comes from [ Hari Mito ] from Waha Capital.

[Unknown Analyst]

I had 2 questions, but the first question was regarding the leverage. As you guys have -- like my colleague from JPMorgan has already asked that, you guys have already crossed your covenant of 3.5x. So I just wanted to know that have you got any waiver or how are you able to manage that?

And secondly, you have some amount of financial investments with you parent, I think, Yildiz Holding, which is a significant amount in liquid investments. Do you plan to withdraw some amount of it to repay your debt? Or you would like to maintain the same level of debt? Thank you.

[Fulya Surucu, executive]

Thank you for the question. So we were slightly above our covenant target by the end of 2021. And we were able to receive a waiver from the banks based on our December numbers, and we received that waiver from our syndication banks and the problem has been resolved as of today. But again, as I have shared, with where I am standing right now with the forecast in terms of sales, EBITDA and FX scenarios, we do not see any covenant breach issue throughout the year for this year.

[Mete Buyurgan, executive]

And [ Hari ], this is Mete. Hello, again. Thank you for the question. As Fulya mentioned that we are having a long-term relationship with our financial partners, with banks, for many years. So we are very, very -- we are working with them very transparently, and we are working with them together, in fact. So we are -- they are supporting us. We are very clear, we are very committed on our targets. And all our past year records are showing that we always delivered what we told them.

[Fulya Surucu, executive]

What we promised.

[Mete Buyurgan, executive]

What we promised. So we are very confident. And as we mentioned, we -- our growth ambition is showing that we are going to reduce the covenant numbers sharply in the next coming -- even this year, actually.

[Fulya Surucu, executive]

In this year and coming years.

[Mete Buyurgan, executive]

And also, our Önem Gida acquisition M&A is giving us another opportunity to increase our profitability level in a fast manner, actually.

[Fulya Surucu, executive]

And EBITDA, Önem Gida provides that incremental 3% EBITDA on top of our numbers and contributes an additional 3% EBITDA to Ülker Bisküvi consolidated level. So -- which shows that -- which was a very strategic right decision that we had taken last year.

[Unknown Analyst]

Okay. Just a follow-up. On the waiver, do you have any upper limit and the time period for the waiver? Or it's just for the current period? That's it.

[Fulya Surucu, executive]

Apologies. Can you repeat the question?

[Unknown Analyst]

Yes, sure. So I'm asking you got the waiver of 3.5x -- some 3.5x. Is there any upper limit that they have reduced -- increased the covenant to 4x or 4.5x? Or they are just right now -- I don't know, something like that.

[Fulya Surucu, executive]

No, the covenants have not been increased or changed or amended. So we just received a waiver for the year-end numbers since we slightly delivered above 3.5x in terms of net debt EBITDA. Our covenants' numbers did not change as of December.

[Mete Buyurgan, executive]

And please note that normally, we didn't have any covenant problem as well. But at the end of last year, the exchange rate -- FX rate has been boosted very sharply despite -- it was not expect -- we expected like that. So even though we had an M&A and also, almost 75%, 80% increase on the FX rates, we were very slightly on the covenant levels, above the covenant levels. But even within 2, 3 months, it is now in the good shape versus our covenant numbers. So this is not the only problem of Ülker, but also, this is the problem of all the companies operating in Turkey because of the 80%, very sharp and short-term FX rate increases. But now, it is much more settled, and we are confident on that.

[Fulya Surucu, executive]

It was 3.54x, as you have seen on the presentation, net debt-to-EBITDA ratio.

[Verda Tasar, executive]

Thank you for having us here, ladies and gentlemen. Thank you Fulya, thank you Mete Bey.

[Fulya Surucu, executive]

Thank you, everyone.

[Operator]

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