Ulker Biskuvi Sanayi AS

IST:ULKER.E

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, welcome to Ulker Biskuvi Fourth Quarter 2022 Financial Results Conference Call and Webcast.

I now hand over the word to Beste Tasar, Investor Relations Officer. Madam, please go ahead.

[Verda Tasar, executive]

Thank you, Dennis. Hello, everybody. This is Beste. Welcome to Ulker Biskuvi fourth quarter and full year results webcast. Here with me in the room our CFO, Mrs. Fulya Banu Surucu. Now I'm leaving the ground to her, Fulya ma'am.

[Fulya Surucu, executive]

Thank you, Beste. Let me start with expressing my deepest sadness for the loss of many lives and destroyed lives of many thousands due to the most devastating, one of the most devastating earthquakes in the world that happened in 11 cities of Turkey. As Ulker Biskuvi have taken immediate actions and one of the immediate actions was the manufacturing of a special biscuit for only earthquake survivors and aid teams, enriched with the extra vitamins ingredients to strengthen the immune system. This took us a very short amount of time to manufacture an approximately 190,000, 200,000 packages delivered so far.

So over 20 trucks and 2 million in care products delivered to the region and we collaborated with Turkish Red Crescents and we also collaborated with Yildiz Holding. Ongoing collaborations with Yildiz Holding to increase the accommodation areas in that region. And also with Turkish Red Crescents, our collaboration is ongoing on various projects. We worked together, and we continue to work together.

For Ulker, since we did not have any production facility. There has been no financial impact on damage and no disruption on supply chain. As Ulker Biskuvi, we will continue to do our best to support the [Indiscernible] in the region as best as we can.

So returning to the business results. I have excellent news to share with you. So overall, excellent performance, Q4 positive performances and excellent outstanding full year results, thanks to our outstanding operational performance and stronger balance sheet due to the actions that we have taken.

Refinancing completed. I'm sure you have all seen our public announcement that took place on March 8, which is the first sustainability-linked loan of Ulker Biskuvi with 5 international banks in the amount of approximately $195 million, EUR 150 million and $35 million. First sustainable-linked loan and approximately 20% of the financing is murabaha financing. And a very recent news, which we have shared with public like 20 or 15 minutes ago, we were also able to close the deal syndication loan, renew this syndication loan with EBRD. The first sustainability linked loan with EBRD who is a very important business partner for Ulker Biskuvi. So the total ticket size is EUR 75 million on top of what we had renewed last week. So in total, I can share with you the good news that the refinancing process is complete for Ulker Biskuvi.

Let's take a more detailed look at our numbers. So we continue with our market leader position, 35% snacking category market leader and also #1 in macro snacking business. Full year results, we delivered 19.4% consolidated EBITDA margin, which is higher than what we have estimated and also approximately 125% top line growth on a full year basis. So as you can see, revenue, gross profit, EBITDA all grew by more than 125%. Revenue, we delivered TRY 28.2 billion revenue on a full year basis, which is 125% growth versus prior year.

Gross profit, we delivered TRY 8.4 billion and 133% growth versus prior year approximately. And EBITDA growth is higher than the gross profit growth, 125% approximately. We closed the year with TRY 5.5 billion EBITDA in local currency, Turkish lira.

Gross margin percentage 29.8%, which is 100 basis points higher and better than versus prior year. And what all these numbers show us, we were able to have an effective and outstanding pricing strategy, we were able to reflect any price changes to our prices of our products and both in terms of cost management and a very effective supply chain management, we did a great job. In terms of net debt EBITDA, you see the decreasing trend from 3.54xto 2.26x. And you will be also able to see the covenants basis calculations on our balance sheet number as well. And operating cash flow TRY 27 million by 2021, the total number reached to TRY 2.6 billion by the end of this year on a full year basis.

So consolidated P&L, all circles are green. So on the last 4 consecutive quarters, we reported net loss due to some various reasons. But here, this quarter, we almost reported TRY 1 billion net income positive, where we reported TRY 1.1 billion loss on the last quarter of last year. So overall, in Q4 only, again, the volume was flat despite all these challenges that we faced in the market. It was flat, and we reached 31.5% gross profit margin, 1.5 points higher than versus prior year, and we reached an EBITDA margin of TRY 20.3 million. And on a full year basis, these numbers consolidated on a lower net income loss versus prior year due to mainly the first 3 quarters' net income losses. But in terms of EBITDA, 135% and EBITDA margin of 19.4%, which is 0.8 higher than versus prior year.

And again, volume increased by 3.2% despite all these inflationary environment and extremely challenging environment, we were able to deliver outstanding results in all KPIs.

Quarterly outlook. Again, this was the full year story, but the story does not change when we take a look on a quarter 4 only basis. So revenue grew by 119%, gross profit, 130%, EBITDA 120%. Again, operating cash flow from a minus cash flow to TRY 2.1 billion, and gross margin is 31.5% this time, Q4 only 150 basis points higher than versus prior year.

And in terms for snacking sales volume and sales value pretty much flat volume. Biscuit was slightly down by 5.4%. Chocolate and cake was up by 1.4% and 1.5%, respectively, in terms of snacking sales volume. Snacking sales volume increased by 113%, biscuit by 107%. Chocolate 116% and cake sales increased by 138% versus prior year.

Again, let me take a look on the full year results. We see the same trend. Again, volume increased by almost 2% in '22 on a full year basis. And all of our biscuit chocolate and cake category spot volume and sales value increased significantly. In terms of sales value, total sales value increased by 122.8% and biscuit sales are up by 127.7%, and chocolate is up by 114% and cake is up by 158%. Delivery fees are offsetting full year and Q4 results for Ulker Biskuvi.

Market positions, we were able to sustain our market leading position in all categories, biscuit 40% market share, #1, chocolate 40% market share #1, cake 21% market share #2. And in terms of new product. As we have shared before, innovation is at the heart of Ulker Biskuvi, so we are a very iconic brands, market leader in Turkiye for more than 80 -- almost 80 years. However, innovation is extremely important for us. And you can see that 15% of the total revenue is driven by new products. And on the page, you see some of the new products that we introduced in the market in 2022. I hope you all taste it.

When we take a look on Turkiye numbers only, Turkiye business delivered outstanding results in this year and also in this quarter. Snacking volume in Q4, pretty much the same, right, but snacking sales increased by almost 150%, snacking sales. Gross profit record growth by almost 200%, 198.2%. But I'd also like to take your attention. In Q4 2021, we delivered 25% gross profit margin in Turkiye business. However, we delivered this time this year in Q4 only 29.4%, 4.4% higher gross profit margin versus prior year.

And in terms of EBITDA, a significant increase by almost 190%, as margin is up by 260 basis points, delivering 20.2% EBITDA margin in Q4 2022, whereas the number was 17.7% for Turkiye business in Q4 2021.

When we take a look on our full year numbers of Turkiye business. You see a 4.4% volume growth. Again, needless to say, you all know despite many challenges that inflation and macro, global, all the impacts that we had this year, 4.4% total snacking sales volume increased. Snacking sales revenue increased by total revenue 136.7% and gross profit from 24.2% gross profit margin, we were able to deliver 26%. And overall EBITDA margin reached to 18.4%, whereas the total full year number was 16.9%, and we were able to deliver 3.2% EBITDA number on a full year basis for our Turkiye business.

So that was all for Ulker Biskuvi in Turkiye. Let's take a look on our export and international operations, how we delivered in those regions.

International, we again maintained our strong position, very strong #1 position in Saudi Area in biscuit, we were able to maintain that. And very strong biscuit business, market leader position in Egypt. And chocolate numbers are now, I think a couple meetings just ago. You might have seen that it was #3. Now I think last time, in the last 2 meetings, we are now reporting #2 position in our Central Asia Kazakhstan region.

Again, innovation is at the heart of our international businesses as well. You can see that 5% of our new product sales is coming from innovation. And you also see some of the pictures of our new products in our international businesses as well.

We also wanted to share with you the full year numbers for our international businesses, a slight decrease on volume. However, we were able to increase our sales by total revenue by 108% on a full year basis, and gross profit reached to 36.1% margin, whereas it was 35.4%, and the gross profit increased by 112% on a full year basis. EBITDA margin reached to 21%, a slight increase versus prior year, however, the total number on net gross value turns increased by almost 109% versus prior years.

We also wanted to give you a heads up on our international businesses and acquisitions highlights and updates and the latest update on our Onem acquisition, which happened very recently, like 1 year ago in Q4 2021. Onem contributed on a full year basis, 330 basis points EBITDA contribution to our total numbers. So the 20%, 18.4%, 19%, EBITDA margins would have been less than by 330 basis points if we did not have Onem acquisition. So that also shows that this acquisition brought a vertical integration and a huge contribution to our numbers.

And with all the acquisitions that we made in the prior years, we were able to maintain a 41% of our EBITDA in foreign currency denominated, which is a natural hedge that we were able to sustain over the years via these acquisitions we have performed.

And then we take a look on the EBITDA margins on North Africa, with the coverage decrease with more COVID impact that decreased EBITDA margin to 9.8% in 2021, you see an increase in the recovery of our EBITDA margin, which leads to 11.5% in full year.

Middle East, we were able to pretty much keep the EBITDA margin in Middle East region around 23%. And Central Asia, you see the success story here, which stands at 6.7%, and we were able to reach 18% in just like a very short amount of time, and we keep growing and growing in that area as well.

So balance sheet highlights. So our balance sheet is getting stronger, definitely, as a management team, we have the objective to make our balance sheet stronger and stronger over the coming years as well. From covenant basis calculations, December 2021 3.67x. September, it decreased to 2.84x. We ended up the year at 2.3x net debt to EBITDA number.

And in terms of working capital days, we ended the year last year with 142 days. And this year, we ended up the year at 97 days. You see the huge focus on working capital management in terms of inventory management from 108 days to 82, an account receivable from 103 days to 75 and 71, and this working capital focus will continue, especially in 2023 as well.

As you all know, we have taken some actions this year to strengthen our balance sheet and to strengthen our treasury policies as well. One of them was we established a hedge committee by the end of the year, almost 50% of the open position is closed, and this will also continue throughout the 2023 as well and over the coming years as well. This is -- I mean, strengthened treasury policy that we have established.

And one other very important treasury policy that we have established in Q4 2022 is converting mutual funds into deposits. This is -- we have the total mutual short-term investments converted to deposits, all of them. It was 90% by the end of last year, by the end of last quarter. Now I can tell you that -- I can tell to you very comfortably that 100% of them is converted to cash and deposits, no more short-term investments. It's also another strategy policy we have implemented to be in line with international markets and which will also continue in this format.

So again, refinancing, I have shared with you, let me go through that again, in a very turbulent environment, both globally and locally, we were able to complete the first chunk of refinancing, and we made it public last week on March 8 on a special base for women. So EUR 150 million and $35 million, first sustainability linked loan of Ulker Biskuvi with 5 international banks JPMorgan, Rabobank, Bank of America, the NBD Emirates and also Sharjah Islamic Bank and ultimately almost 20% of the total refinanced package is by murabaha financing. Again, it is the first time that we had murabaha financing as well.

And today, just like a 1 hour ago, we also announced another refinancing with EBRD, the first sustainable linked loan with EBRD. Again, a very important business partner for Ulker Biskuvi. We continue to strengthen our relationships with EBRD as well. Ticket size, EUR 75 million. So I can tell it to you right now that all the refinancing this year is completed.

So again, we wanted to share with you what was the guidance that we shared with you this year and last year, we ended up 2021 with TRY 12.5 billion net sales, EBITDA margin was 18.6%. Overall, throughout the year, we had that EBITDA margin of 18.6%, and the total net sales, even though we changed it each quarter, the last one was TRY 26.5 billion, but the realization is TRY 28.2 billion, and the EBITDA margin ended up higher than what the latest guidance was at 19.4%.

So again, on this graph, we want to share with you how our volume, you see the volume increase on top of the page. And the net revenue, this is net revenue, and the EBITDA evolvement over the years, how much it increased? So we reached in TRY 28.2 billion. And you see the development over the years, both in terms of EBITDA, net revenue, both amount growth and margin growth as well. So we had started in 2012, 9.3%, and this year ended up at 19.4%.

And key roadmap for 2023, we have the pretty much similar strategies. Robust performance continues -- this robust performance is continued excellent operational performance that Ulker Biskuvi has, for many, many years, revenue growth, EBITDA growth. We did with a high focus on balance sheet strengthening and the cash -- preserving cash, so they go hand in hand, as you know.

Securing growth. So this is something that we can never take any priority. This will be another big priority for us. We will continue to invest our brands and ESG. So as you can see, sustainability linked Ulker Biskuvi has a very strong sustainability agenda, which is ongoing forward in the last 9 to 10 years. So we have closed our first sustainability link launch this year and the ESG sustainability will be at the heart of all of our operations that Ulker Biskuvi has. And we will be sharing our first guidance in Q1, when we share with you the Q1 results.

Thank you, Beste, and thank you, everyone. We are ready for questions.

[Operator]

[Operator Instructions] The first question comes from [ Erica ] [indiscernible] from MetLife.

[Unknown Analyst]

The first one is that -- it's about the refinancing. So you managed to refinance around, I think, $150 million syndicated plus the EBRD. But you had originally I think $110 million to refinance, it's only EUR 244 million to refinance. So shall I deduct that you will use part of the cash that you monetized to reduce debt? This is my first question.

[Fulya Surucu, executive]

Thank you for your question. Let me answer that. So in total, when we call out dollar to dollar, we had approximately $450 million outstanding loan, which was going to mature early this year, which is April 2023. And we refinanced in total dollar to dollar terms $275 million to $280 million, which is less than what we had originally. So the remaining will be covered from the cash that we currently have, which is converted from short-term investments to deposits. And this is also in line with our strategies to decrease leverage and strengthen balance sheet.

[Unknown Analyst]

And in terms of the interest payments, considering you're reducing debt, but I guess you will have refinancing at a higher rate. Do you -- for 2023, for this year, do you expect a similar level of interest payments or lower?

[Fulya Surucu, executive]

Pretty much similar, maybe a little bit lower because we decreased our leverage.

[Unknown Analyst]

Sorry, can you repeat?

[Fulya Surucu, executive]

Pretty much similar, most probably lower because we decreased our leverage amount.

[Unknown Analyst]

Excellent. And then finally, a really very basic question. In terms of -- what's the difference between snacking volumes and total volumes because that changes?

[Fulya Surucu, executive]

Yes. The total volume includes the third-party sales that Onem company performance has. But it's taking excludes the third-party sales of our Onem company performance [Indiscernible].

[Unknown Analyst]

[Indiscernible] have a complete picture, I should look at total volumes.

[Fulya Surucu, executive]

Yes, please take a look at the total volume, which is the total volume of Ulker Biskuvi, yes.

[Operator]

And the next question comes from Hanzade Kilickiran from JPMorgan.

[Hanzade Kilickiran, analyst]

I have a question about refinancing of the bonds. Is it possible to share the cost of the refinancing because I can't see in the news flow? And second, I mean, you don't provide much guidance for this year. I mean is it possible to share some sort of soft guidance on potential revenue growth? And how comfortable are you in maintaining this payer margins this year as well?

[Fulya Surucu, executive]

In terms of margins, we prefer not to disclose it. But as you can guess, it's definitely higher than what we had 3 years ago, but not significantly higher, and pretty much in line what the other refinancing of the other companies in the market, that's all I can share. So nothing significant, not a significant variation amongst the other refinancing from the other companies that have done refinancing this year.

In terms of 2023, we will share our guidance when we publish our Q1 results, but what I can say is we started the year very strongly in terms of, again, from many financial KPIs. And based on our first estimate and plan looks like this year is going to be another strong year. I do not have any doubts in terms of margins, but we will share with you our first guidance in Q1.

[Hanzade Kilickiran, analyst]

Sorry, if I don't misunderstand, you are not providing the cost of the refinancing, quite interesting. Is it similar to other Turkish corporates, you mean?

[Fulya Surucu, executive]

Yes, that's what I can share, but I do not want to disclose, but it is similar what the other companies has done.

[Operator]

The next question comes from [ Igor Federer ] from ING.

[Unknown Analyst]

First of all, this cash you disclosed in your statements, is it, well, consolidated cash for the group in total or it's distributed across domestic entities and international entities? This was the first question. Another one is, how actually are you going to distribute this cash this year, well, given that you have net losses for the 2022? Any plans for dividend payments year ahead? And also a question on the working capital improvements. Any -- should we expect, well, the further working capital expansion this year or last year, I think you -- working capital changes took around TRY 3.8 billion from cash flow. How can you comment on this?

[Fulya Surucu, executive]

Total cash flow, you see the total cash flow from operations on a consolidated basis, which includes our domestic and international business. But if you request further details, we will be happy to share with you all the details in terms of cash flow.

Regarding your second question, dividend. Dividend distribution requires a board resolution. We have not made our decision on that yet. But as soon as we make our decision, we will share with public what our decision will be.

In terms of working capital. Working capital management is crucial and very important for us. We made a huge improvement versus prior year. Our focus and priority on working capital will continue throughout this year as well. And we will make improvements as much as we can, but I do not have any number that I can share with you right now in terms of working capital.

[Unknown Analyst]

Okay. And well, regarding this first question. I think I asked about the cash and equivalents and yield balance and how you distribute it actually. The consolidated number, TRY 9.2 billion and where this cash is actually, well, located?

[Fulya Surucu, executive]

Most of our cash is in foreign currency denominated and as in overseas banks foreign currency and not kept in a Turkish bank, it's in overseas. That was your question. If you need any further details, we will be able to -- happy to share with you.

[Operator]

[Operator Instructions] The next question comes from [indiscernible] Capital.

[Unknown Analyst]

I have 2 questions, but probably you want to answer the first one, like we were -- where do you see your optimal working capital? Because it used to be around 12% 5, 6 years ago as a percentage of growing after the merger with Onem, it should be at a higher level, but why should we consider it at the normalized level in the working capital side? And my second question will be regarding the cost inflation in the first quarter in the first half of the year, where do you see your cost inflation?

[Fulya Surucu, executive]

In terms of working capital, so upon the acquisition of Onem, our working capital cycles increased due to the Onem business cycles like Coco. It is a long cycle. It is imported from Ivory Coast and takes a long time to have it in Turkiye and then we just stock it. And it's the nature -- due to the nature of the Onem business, our working capital cycles increase. We definitely have objectives and priorities to optimize our working capital as much as possible.

What we ended up the year, I feel comfortable that we are very close to optimum levels.

[Unknown Analyst]

I asked about the cash and equivalents and yield balance and how we distributed actually. The consolidated number, TRY 9.2 billion and where this cash is actually, well, located?.

[Fulya Surucu, executive]

Most of our next target is to sustain this optimum levels and to decrease this program further. But I cannot tell you that this is the amount -- number of amounts that we will reach because it depends on many parameters and there might be many changes in the market, both locally and globally. But overall, what we ended up the year close to optimum level, but we will do everything to optimize it as much as possible.

In terms of cost inflation, as you all know, commodity prices kind of started to stabilize, some of them also started to decrease. So again, we are preparing our strategies and actions according to our cost numbers. There is nothing specific that we expect in terms of like extraordinary cost inflation in any other commodities. But like energy prices pretty much stabilized and some of them decreased, but they're still very high compared to 2 years ago.

So what I can share is nothing specific or extraordinary cost inflation we do expect but we follow up the market and all the commodity prices and all the raw material prices very closely and perform our pricing strategies and cost management and supply chain strategies accordingly.

[Unknown Analyst]

Okay. And maybe a final one. Did you make any price adjustment to Turkiye so far this year? And if you did, how much was that?

[Fulya Surucu, executive]

No, not this year.

[Operator]

The next question comes from Dmitry Ivanov from Jefferies.

[Dmitry Ivanov, analyst]

Hello, can you hear me?

[Fulya Surucu, executive]

Yes, we can hear you.

[Dmitry Ivanov, analyst]

Configurations on the refinancing activity. I have 2 questions. The first one, maybe on this cash position and the refinancing. So like if I understood correctly, you also sold [indiscernible] the year-end. So I guess like [indiscernible] should be around USD 510 million, USD 520 million, and you will repay approximately USD 170 million of the syndicated loans in April. So kind of you will still have like a significant cash position of above USD 300 million. And like my first question is what is your minimum like comfortable, acceptable cash position for [Indiscernible] going forward? So in your financial like strategy, what is like minimum cash position you see as a comfortable level for you [Indiscernible]?

And the second question, if I may, on this guarantees issued to the parent level. Just correct me if I'm wrong, I think you still have approximately 230 million of guarantees issued to guarantee parent-level loans. Could you give us a bit of color on these guarantees? Like when do we -- when should we expect these guarantees to go down in the absolute amount? I think like rating agencies include this debt. So this amount in the total debt calculation, which is very important as well.

And apologies. The last question on the refinancing. Correct me if I'm wrong, but both syndicated loan and EBRD will mature in April 2026, right? And you will also have maturity of the bond in October 2025. So you will have some kind of roll off maturities in this period. So my question is like a concern for you that like there will be like a bullet -- almost bullet repayments of loss of maturities around these days?

[Fulya Surucu, executive]

I'd like to answer all your questions one by one. But if I skip one, please go ahead and remind me. So in terms of cash position, so what we have refinanced and in fact, what we went out to the market for the refinancing amount. And what the total loan that is going to mature in April, we made all the calculations according to that. So strategy was decreased leverage, strengthened balance sheet. And we also -- based on these 2 priorities, we performed and we prepared a capital structure strategy.

And based on that, we went out to the market for a much lower number than what our original loan was. And we were really successful to get what we wanted to get. So we are not concerned in terms of, I mean, paying the remaining amount and we made all the calculations, and I feel very comfortable.

The second question was in terms of guarantees. The guarantees that you see on the balance sheet are the Ulker Biskuvi companies guarantees. I mean Ulker Biskuvi consists of many legal entities and companies, the guarantees that are given for Ulker Biskuvi companies that all are not to Yildiz Holdings, okay, or parent.

And the third one is eurobonds. Yes, our eurobonds will mature in 2025, October, but we will start working on it by the end of this year, and we prepared our 3-year, 5-year projections in terms of P&L, balance sheet and cash flow according to that. As of today, with all of the assumptions and with all the forecast, which has worked on different scenarios and with different [Indiscernible] analysis. I feel comfortable that we will be able to have another very successful eurobond refinancing and another refinancing that will mature in March 2026.

We make all of our plans, strategies according to that, and I feel very comfortable.

[Unknown Analyst]

Understood. Just on the first question, in terms of your cash position, right, I understand that in my own calculations, you're comfortable with the refinancing. But what was like you're comfortable like cash position like as a business, you see like minimum levels like 200, like 150, are there any kind of estimates you can share with us in terms of like minimum comfortable levels of the cash?

[Fulya Surucu, executive]

So with all the estimates and reconciliations or any other projections, we can get back to a bit more details with the tables and breakdowns, if that's okay for you.

[Operator]

Thank you very much. There are no more questions. Dear speakers back to you for the conclusion.

[Fulya Surucu, executive]

Thank you so much for your attendance, and we closed the year very successfully in terms of many, many areas. And I believe that we will have another very successful year for 2023, but we will get back to you with some numbers in our Q1 closing. Thank you.

[Operator]

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