Ladies and gentlemen, thank you for standing by. I would like to welcome you to Coca-Cola İçecek's conference call and live webcast to present and discuss the fourth quarter 2025 financial operational results. We are here with the management team. Today's speakers are the CEO, Mr. Karim Yahi, and CFO, Mrs. Çiçek Uşaklıgil Özgüneş . Before we start, I would like to kindly remind you to review the disclaimer of the webcast presentation. After the call, there'll be an opportunity to ask questions. I would now like to turn the call over to Mr. Burak Berki, the Head of Investor Relations. Sir, the floor is yours.
Good morning and good afternoon, ladies and gentlemen. Welcome to our full- year 2025 results webcast. As the moderator said, I'm here with our CEO, Karim Yahi, and CFO, Çiçek Uşaklıgil Özgüneş . Today's remarks will be accompanied by a slide deck. We will turn the call over to your questions. Before we begin, please kindly be advised of our cautionary statement. The conference call may contain forward-looking management comments, including projections. These should be considered in conjunction with the cautionary language contained in our earnings release. A copy of our earnings release and financials are available on our website. In addition, in accordance with the decree of the Capital Markets Board, our 2025 financials are reported using TAS 29, Financial Reporting in Hyperinflationary Economies.
The financial figures in this presentation and all comparative amounts for previous periods have been adjusted according to the changes in the general purchasing power in the Turkish lira in accordance with TAS 29, and are finally expressed in terms of the purchasing power of the Turkish lira as of December 31, 2025. Certain items from our financials are also presented without inflation adjustment for information purposes. These unedited figures are clearly identified as such. Following the call, a full transcript will be made available as soon as possible on our website. Let me turn the call over to Mr. Karim.
Thank you, Burak. Good morning and good afternoon, everyone. Thank you for joining CCI's 2025 full- year results webcast. 2025 was a year marked by geopolitical tensions, natural disasters, and a complex macroeconomic backdrop. Despite these challenges, our disciplined execution anchored in long-term value creation enabled us to exceed volume growth expectations, deliver our EBIT guidance, and significantly expand free cash flow year-on-year. Against this backdrop, we adopted a deliberately phased approach to balance growth and value creation throughout the year. In the first half, we prioritized volume and affordability to sustain consumer demand and protect momentum. In the second half, we progressively rebalanced towards value creation, supported by right pricing and disciplined discount management. This balanced execution ultimately delivered a healthy combination of volume growth and value creation, fully aligned with the strategic priorities we set out at the beginning of the year.
We delivered strong consolidated volume growth in 2025, with sales volumes increasing by 8% year on year to 1.6 billion unit cases, supported by broad-based momentum across our international operations, led by Central Asia and Iraq. Growth was well balanced across categories, with the sparkling segment growing by 9.2% and the stills category significantly outperforming with 19.2% growth. While affordability pressures weighed on immediate consumption leading to a 92 basis points decline in immediate consumption mix to 28.3%, the on-premise channel continued to strengthen with its share increasing by 140 basis points to 31.2%. Net sales revenue increased by 3.9% year on year, surpassing TRY 187 billion.
Excluding the impact of inflation accounting, net sales revenue per unit case reached $2.8, the highest level achieved over the last decade. In 2025, our consolidated growth margin expanded by 27 basis points year-on-year to 35.6%, reflecting disciplined pricing and cost management. EBIT margin came in at 13.4%, down 28 basis points year-on-year. Excluding the TRY 211 million competition board fine in Turkey recorded in November, the decline would have been limited to 16 basis points, with EBIT margin at 13.6%.
Net income amounted to TRY 14.1 billion, a 27.4% year-on-year decrease, mainly driven by the reversal of inflation accounting of approximately TRY 870 million, lower monetary gains, and a one-off tax accrual of around TRY 1 billion in Uzbekistan. Despite these headwinds, free cash flow generation remained strong, supported by improved net working capital efficiency and disciplined CapEx investments, reaching TRY 2.8 billion or TRY 7.1 billion on a pre-inflation accounting basis. Excluding TAS 29 adjustments, our 2025 results highlight our commitment to long-term value creation. Over the past five years, disciplined execution across various cycles of volatility has delivered sustained growth with 7% volume CAGR growth and 17% top-line revenue growth and 19% EBIT growth CAGRs in USD terms. Next slide, please.
In 2025, consolidated sales volume increased by 8% year-on-year to 1.6 billion unit cases. International operations recorded a strong 13.5% year-on-year growth with broad-based momentum across markets and double-digit growth delivered by Central Asia, particular Uzbekistan and Kazakhstan. In Türkiye, while total volume declined by 1%, volumes excluding water grew by 3.8%, reflecting the resilience of our core categories and our disciplined balance between affordability and value creation. The sparkling category delivered a strong 9.2% year-on-year growth with Coca-Cola trademark closely tracking overall category performance. The stills category grew by a robust 19.2%, driven primarily by the strong 13.9% growth of Fuze Tea. Energy drinks also posted a solid performance, growing by 20.9% year-on-year.
In contrast, the water category declined by 10.7%, reflecting our deliberate strategic decision to reduce exposure to lower value categories. Our strategic focus on smaller packs, the on-premise channels, and no sugar products remains firmly intact and continues to be a key pillar of sustainable long-term value creation. Closely monitoring consumer trends, we are progressively reinforcing this focus through targeted initiatives aimed at improving mix quality fully aligned with our long-term strategy. Next slide, please. In 2025, Türkiye sales volume saw a modest 1% year-on-year decline to 562 million unit cases, primarily driven by a deliberate choice to optimize our portfolio in the water category. Excluding water, Türkiye delivered solid 3.8% year-on-year volume growth, reflecting growth in higher value categories.
Right pricing and effective discount management, supported by strong daily in-store execution, remain critical to both protecting margin and supporting volume growth. Türkiye operations net sales revenue declined slightly by 0.1%, while net sales revenue per unit case increased by 0.9%, marking a steady improvement trend since the beginning of the year. Excluding TAS 29, net sales revenue in Türkiye grew by 35.5% in 2025, with net sales revenue per unit case reaching 131.3 TRY, representing a strong 36.9% year-over-year increase. Türkiye's gross margin decreased by 71 basis points to 40.4% in 2025. The pressure was largely front-loaded, driven by raw material phasing and softer net sales revenue growth early in the year.
As guided, gross margin improved sequentially on a quarter-on-quarter basis throughout the remainder of the year, supported by strengthening net sales revenue momentum in the second half. Excluding the impact of inflation accounting, Türkiye's gross margin slightly declined to 14.4% in 2025 versus 41.1% in 2024. On the profitability side, EBITDA margin, excluding other items, declined to 10.8% in 2025 from 12.8% in the prior year, while delivering sequential improvement in each quarter, supported by right pricing, cost normalization, and mix optimization initiatives. Next slide, please. International operations delivered a strong 13.5% year-on-year volume growth in 2025, reaching 1.06 billion unit cases, with broad-based momentum led by Central Asia and Iraq, both posting robust double-digit growth. Despite ongoing geopolitical sensitivities. Excuse me.
Despite ongoing geopolitical sensitivities impacting Jordan, Pakistan, and Bangladesh, these markets continued to deliver positive volume growth, supported by agile consumer-focused execution and localization initiatives. In international operations, Net Sales Revenue increased by 7.5% year-on-year to TRY 106.3 billion. Net Sales Revenue per unit case declined by 5.3%, mainly reflecting foreign exchange translation effects under inflation accounting. Excluding the impact of TAS 29, Net Sales Revenue grew by 40.7% year-on-year, and Net Sales Revenue per unit case improved by 24%. Importantly, strong volume growth was accompanied by improved profitability, with EBITDA margin expanding by 63 basis points and EBIT margin increasing by 72 basis points year-on-year in 2025, highlighting the strength of our execution and cost discipline across international markets.
Next slide, please. At a country level, Pakistan's economic environment showed further signs of stabilization. Inflation moderated to more normalized levels, supported by tighter monetary policy and an improving macroeconomic environment. Elevated energy prices, tax burdens, and ongoing affordability pressures continue to weigh on consumer sentiment. The increasing competitiveness of local brands across key affordability segments continued to pressure category growth. Despite these challenges, Pakistan returned to volume growth in 2025, posting a 1.3% increase versus last year, cycling a 14.2% decline, with volumes reaching 314 million unit cases. Uzbekistan delivered an impressive 33.7% year-on-year volume growth in 2025, with total volumes reaching 220 million unit cases, driven by consistent strong performance across all quarters.
This performance was underpinned by two key drivers, an improving macroeconomic backdrop marked by broad-based year-on-year improvements across major indicators and strong competitive execution, along with innovations that enabled us to outperform the industry. Kazakhstan sales volume increased by 15.5% year-on-year in 2025 and reached 250 million unit cases driven by strong innovations. All categories delivered solid growth, with the stills category standing out on the back of strong performance by Fuze Tea. While the sparkling category grew by 11.7%, stills volumes increased by 32.1%, driven primarily by Fuze Tea, with sales volumes surged by 41.3% year-on-year.
Iraq continued to deliver solid 12% year-on-year growth, with the total volume reaching 140 million unit cases in 2025, building on the strong base of 12.1% growth recorded in the previous year, and marking the third consecutive year of volume growth in the market. Now I will leave the floor to Çiçek for the financial review.
Thank you, Karim. Hi, everyone. Thank you for joining us today. At the beginning of the year, we committed to disciplined growth in a volatile macro environment. We guided for balanced top line expansion, slight EBIT margin pressure, and we emphasized our commitment to cash discipline. Our priority was clear, protect affordability, sustain volume growth, and gradually pivot toward value. This is broadly what we delivered. During the course of 2025, the macro backdrop remained challenging. Turkey saw margin pressure while international operations delivered strong expansion. The year was intentionally phased. In the first half, our priority was volume. We leaned into affordability to protect consumer demand, and in the second half, as visibility improved, we pivoted toward value. Pricing discipline strengthened, discounts normalized, and mix improved.
This balanced execution enabled us to end 2025 broadly in line with our initial expectations while sustaining healthy volume momentum. Our net sales revenue increased by 3.9% year-on-year, reaching TRY 187 billion. NSR per UC declined by 3.9% year-on-year during the period. This decline was primarily driven by international markets, while Turkey delivered growth in NSR per unit case, supported by timely and right pricing actions in a favorable mix. The decline in NSR per UC in international operations is due to inflation accounting technicality as the average Turkish lira devaluation against US dollar is in the quarter, remained below the inflation indexation coefficient, resulting in a translation-driven contraction in consolidated NSR per UC. Otherwise, local currency NSR per UC increased in majority of our international operations.
Excluding the impact of inflation accounting, NSR and NSR per unit case increased by 38% and 28% respectively. Our year-long focus on affordability and pricing discipline, supported by disciplined discount management and effective mix management was a key driver of our 2025 performance. Consolidated gross margin increased by 27 basis points to 35.6% in 2025. While international operations delivered a 70 basis points expansion, Turkey experienced earlier pressure, followed by sequential improvement in the second half in line with the guidance. Excluding inflation accounting, international gross margin reached 34.4%, supported by cost discipline and volume growth across almost all major markets. Our consolidated EBIT margin declined modestly by 28 basis points year-on-year to 13.4% in 2025.
Excluding the one-off competition board fine, EBIT margin would have decreased by only 16 basis points, broadly in line with our guidance for a slight margin pressure in 2025. Since the last three years, we have been reducing the fixed share in our total borrowing. This strategy implies higher borrowing costs in local currency terms in exchange for lower foreign exchange loss risk. Nevertheless, the overall benefit is clearly visible at the net income level. Net income was TRY 14.1 billion in 2025. The decrease in net income from TRY 19.4 billion in 2024 was driven by three main factors. First, lower inflation levels led to a 47.6% year-on-year decline in monetary gains.
Second, following the tax authority's decision not to apply inflation accounting in local statutory books in Turkey, the inflation accounting impact recognized in the first nine months was fully reversed in the fourth quarter through the deferred tax liability, resulting in an approximately TRY 870 million of negative impact. Third, tax audit in Uzbekistan led to an additional accrual of around TRY 1 billion, while the litigation process is still ongoing. Excluding TAS 29, net income reached TRY 12.4 billion, representing a strong 32.2% year-on-year increase. In short, we protected the top line when needed, strengthened profitability when possible, and delivered the result in line with our guidance and long term strategic priorities. Next slide, please. Let me also briefly talk about our per unit case metrics, which provide a clearer picture of the underlying dynamics.
On a consolidated basis, NSR per UC declined by 3.9% in 2025 year-on-year. This was largely driven by the conversion of international operations as a fixed depreciation-led inflation indexation, as I mentioned earlier. Turkey delivered a 1% increase in NSR per unit case. Excluding the impact of inflation accounting, NSR per unit case reached TRY 110.6 in 2025, representing a strong 28% year-on-year increase. In USD terms, NSR per UC reached $2.8 in 2025, the highest level recorded in the last 10 years. Supported by proactive contracting and timely hedging, cost of sales per unit case declined by 4.3% year-on-year ahead of revenue decline, leading into margin expansion. EBIT per UC shows the clearest evidence of our second half pivot.
There was significant improvement in the metrics in the second half, and this confirms that our value restoration in the second half translated into per unit profitability recovery. In short, per unit economics remain fundamentally healthy, and once adjusted for inflation distortions, they show clear value expansion in the second half of the year. Next slide, please. Let me also turn to our dynamic hedging framework, which remains a key pillar for our margin resilience. Our cost base breakdown is simple as we discussed many times before: 30% packaging, 30% concentrate, 20% sugar, and 20% overhead. Given the structure, disciplined commodity risk management is critical to having visibility and protecting per unit case profitability. Our hedge policy is not opportunistic.
It's more systematic, aiming to secure visibility. This allows us to focus management attention on growth and on our core business and not volatility. We have already built meaningful coverage for 26 and beyond, with hedges in place for approximately 80% of our resin, 50% of our aluminum, and 80% of our sugar requirements. We have also begun hedging for 27 to have early visibility into next year's cost base as well. For now, we are comfortable with our existing hedge positions while continuing our disciplined approach to support cost efficiency and margin stability. Next slide, please. Net income for the year was 14.1 billion TRY versus 19.4 billion TRY in 2024. As inflation levels were lower compared to the prior year, monetary gains declined by 47.6%, which limited net profit growth.
Bottom line was supported by improved operating profit and tight financial expense management. In addition to lower monetary gains, net income was impacted by a set of non-operational one-off items, as I mentioned before, the tax authority's decision not to recognize inflation adjustments and the tax audit case in Uzbekistan. The share of hard currency denominated debt in our total portfolio was flattish compared to last year. However, some of the higher interest rate Turkish lira borrowings were replaced with relatively lower cost local currency debt in our other markets, which does not create additional FX open position. Also, the average borrowing rate in 25 was lower than 24. Therefore, in the net income bridge, we are seeing positive impact of financial expenses. On to the next slide, please. Yes, my favorite.
Let me turn to the cash generation because ultimately this is where our strategy really translates into shareholder value. Reported free cash flow generation was strong in 2025, reached TRY 2.8 billion, a significant turnaround from negative TRY 2.9 billion in the prior years. This improvement was driven by three things. First, strong operating profitability. Second, much tighter net working capital discipline, which enables us to improve cash conversion and demonstrate that growth and cash generation are not mutually exclusive. Third, prudent CapEx spending. We continue to invest behind growth, but with clear prioritization and phasing. Excluding TAS 29 inflation accounting, underlying strength becomes even clearer. Free cash flow increased to TRY 7.1 billion in 2025 from TRY 1.6 billion in 2024, with a free cash flow yield tripling year-on-year.
This was underpinned by the sharp improvement in net working capital over NSR ratio to 4% from 1.1% a year ago. To 1.1% from 4% a year ago, sorry. This performance strengthened our balance sheet resilience and strategic flexibility. Following the strong performance also and in line with our capital allocation priorities and dividend distribution policy, our board of directors yesterday resolved to propose a cash dividend of 1.43 TRY per share, subject of course to the approval of the general assembly. Next slide, please. Financial discipline remains one of our core competitive advantages, especially in times of elevated volatility and limited visibility. In 2025, this discipline enabled resilience and agility across the organization while maintaining a strong and flexible balance sheet to navigate uncertainty and support sustainable long-term value creation.
At the end of 2025, our net debt remained at very comfortable levels and further strengthened with net debt standing at only $595 million. Our net debt to EBITDA ratio, which was already low, declined further to 0.8 times from one time in the prior year, reflecting an even more conservative leverage profile. This improvement was driven by strong free cash flow generation in 2025, supported by tighter working capital management, improved profitability and lower interest costs, as explained before. As of December 31, 2025, 57% of our consolidated financial debt is in $ and 5% in EUR, and the remaining is in either TRY or other local currencies. While our lower FX exposure has naturally led to higher interest expenses, as I explained before, the overall cost of funding, including devaluation impact, has improved meaningfully over the past three years.
Moreover, our diversification strategy extends beyond Turkish lira to include Uzbek som, Pakistan rupee, Kazakhstan tenge, and Azerbaijan manat. This is also what I explained in the net income bridge when I was talking about the improvement in financial expense. We have a short FX position of the net investment hedge at $38 million, and before net investment hedge of $373 million. We consistently monitor our short position by benchmarking it against our international EBITDA, ensuring it remains within prudent and manageable levels. The reason is that we repatriate hard currency developed from international operations and use this to serve our FX liabilities. The majority of our scheduled debt payments in 2026 consists of local currency loans or short-term portions of long-term facilities. We do not anticipate any refinancing risk in this context.
Before handing over to Karim, I would like to make one remark around the escalated tension in Middle East. Unfortunately, volatility in our geographies is not an exception, it is the norm. Over the years, this organization, CCI, was built assuming macro, currency and geopolitical fluctuations will be the part of the operating environment. Because of that, we focus relentlessly on what we can control. Our priority is to keep our resilience strong and balance sheet strength is a critical part of that equation. Liquidity headroom, disciplined leverage, prudent hedging and cash focus are not reactive measures. They are structural choices we have to make over time. If you ask what would be the impact of the conflict to CCI's financials, I would say that it is still too early to quantify the exact impact. Oil, US dollar and inflation dynamics will determine the magnitude.
One point is important. The impact is asymmetric for our countries and our footprint is designed exactly for such asymmetry. We operate across both energy importing and commodity exporting markets. Higher oil prices create pressure in Turkey and Pakistan, while potentially expanding fiscal capacity and purchasing power in Kazakhstan, Azerbaijan and Iraq. A stronger USD challenges some currencies while simultaneously supporting commodity-linked economies within our portfolio. This geographic diversification provides natural hedging across cycles. Apart from countries dynamics, we also have a good coverage on our commodity exposures for 2026, as I showed before, and very low leverage that makes us comfortable that wouldn't create a refinancing risk. Now I will hand the floor back to Karim, who will walk you through our outlook for 2026. Thank you.
Thank you, Çiçek. Looking ahead to 2026, we expect the operating context to remain broadly as volatile as in 2025. Our focus will continue to be on disciplined daily execution, right pricing to keep our products affordable across our markets and quality mix management to support margins. Today's events in the Middle East show that volatility in our geography remains high. As of today, our people are safe and our assets are secure, and we do not see any disruption in our operations. Going forward, should the conflict continue, we'll closely monitor local consumer sentiment as well as macroeconomic disruptions, and we will leverage our country portfolio to mitigate risks. Our focus will continue to be the safety of our people and assets and the continuation of our operations.
Regarding volume, we plan for low to mid-single digit growth in Turkey with single digit growth across all international operations. Sorry, let me repeat that. Regarding Turkey, regarding volumes, we plan for low to mid-single digit growth in Turkey, high single digit growth across our international operations, and mid-single digit growth on a consolidated basis in 2026. For revenue, we expect net sales revenue per unit case to deliver flat to mid-single digit growth under inflation accounting.
Excluding the impact of inflation accounting, we expect low to mid-teens% FX neutral growth in NSR per unit case to grow with the local currency revenue increases that balance cost inflation while preserving price affordability to support volume growth. On the profitability side, we plan to maintain our EBIT margin flat in 2026 through disciplined execution and a continued focus on right pricing, affordability and quality mix management, with the same expectation under both inflation accounting and non-inflation adjusted metrics. Last but not the least, we will continue to invest in our business ahead of demand with our CapEx over sales ratio remaining at high single-digit levels, supporting our long-term value creation agenda while preserving capital allocation discipline. You may have seen an update also in our announcement yesterday.
After three incredible years at CCI, I have decided to step down from my role as CEO to relocate back to the United States. As indicated in yesterday's release, our business is strong and I'm proud of what we have achieved together with our teams. As of July first, Ahmet Kürşad Ertin, currently Chief Operating Officer of CCI, will take over as CEO. Ahmet's appointment is yet another testimony to the quality of our leaders. With his more than 25 years of experience at CCI, Ahmet will undoubtedly take CCI into the next chapter of growth and value creation. Now, we will be happy to answer your questions. Dear closing agent, over to you please.
Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you're dialed in via the telephone, please press star two on your keypad. That's star two on your keypad. If you're dialed in via the web, you may also ask a voice or a text question. Thank you very much. Our first question comes from Miss Hanzade Kılıçkıran from J.P. Morgan. Please go ahead, ma'am. Your line is open.
Thank you. Before I jump in, Karim, thank you very much for your insights and also transparency on these calls and also in our meetings. All the best in your next chapter. I have two questions. The first one is regarding our margin guidance. For 2026, I presume you may not be including, but I just want to be sure, whether the guidance include any regional risk or is it a clean margin guidance? If it is not including any regional risk, what is driving this caution stance, given sequential improvement that you have observed in Turkey in the second half of the year? I mean, I thought that you may have some room to improve the margins.
Second, in Pakistan, are you still seeing protests affecting the US branded products? What was your market share in 2023 and where is it now? At what threshold would the conflict, I mean, trigger heightened alerts for you? Do you see any risk in Iraq? Thank you.
Hanzade, thank you. Thank you for your kind words of encouragement. Thank you. On your three questions, number one on margin guidance, you know, let's go back to 2025 for a second. You know, 2025 was a year where there was no margin in the first half with a lot of volume growth and then the other way around, you know, strong volume growth and, you know, strong margin in the second half. This year we plan to be a little bit more stable, right? Why? Because last year, if you go back to last year's calls, we were talking a lot about the cycling that we had versus 2024 this time, where we had a very high cost base and high discount environment to support volume growth.
This year, you know, fortunately, you know, we're not planning for that much swings within the year. You know, we will just be impacted by the natural seasonality of our business, where Q1 and Q4 are, you know, always traditionally lower in margins, right? And, you know, Q3 and Q4 have a higher margin and the weighted average, you know, goes to the full- year 16%, you know, EBIT margin. But on the margin guidance, you know, what you can expect this year is again, a more normalized, you know, margin profile, you know, quarter- on- quarter versus what we had last year, for instance.
Regarding your specific question about regional risk, if you are alluding to what we are seeing right now, we are tracking the situation very closely, but right now we do not have a specific regional risk moving forward, you know, in 2026. What we had in 2025, you know, we consider that we will still have in 2026. In other words, if you consider 2025 was risky, then consider 2026 is going to be risky. Because of that same context, you know, we actually are guiding for the same margin. We do not have an increased risk profile for 2026, you know, in our plans. On your second question regarding Pakistan market shares, you know, 2023 versus today.
Look, we track market share for sure, we track something more important that is Leadership Ratio. The Leadership Ratio is, you know, our share versus the second one in the market. In Pakistan, we are always around one point one, right? Consistently, you know, I don't have the 2023 numbers in front of me, consistently we are around one point one . The new phenomenon in Pakistan is the top two are the same and we are still one point one . There is a new development with regional players and regional brands that have played on two fronts. One, affordability and second, you know, a lot of exploitation or sensitivities towards the conflict in the Middle East, you know, from last year. Number three, your third question about Iraq.
What we see right now in Iraq, you know, we're tracking the situation, you know, hourly. Again, as I said, fortunately, our people are safe and our assets are secure. We have different level of security protocols, obviously, in our operations, and we're taking the highest level of caution now. Regarding the business side of the equation, as we were expecting a conflict in the Middle East to start at some stage, we did not know when, but we were expecting it to start. We actually built inventory ahead of time for raw material, for key ingredients, as well as for finished product. As of now, Hanzade, we do not see a risk in our operation in Iraq and in others.
You know, should the situation change, escalate, et cetera, we will obviously quickly take action to mitigate risks. As of now, we don't see a risk right now.
Thank you very much, Karim. In Pakistan, you highlighted that leadership ratio is same, but the regional players are gaining some market share, I think in the past few years. Do you think that, I mean, they can gain more market share or, I mean, it is now a stabilized market, I mean, excluding all these regional conflict?
Uh-
Sorry, Hanzade, the line was somehow bad. The question is about how the regional players are doing.
I can repeat it. Can you hear me properly?
Yes, go ahead.
All right. In Pakistan, you have highlighted that leadership ratio is same, stable, but I think this is comparison with Pepsi. The local brands have been gaining some market share, I think, in the past few years. That's what I understand from your comment. Do you think that this market share gained by local brands are now at a peak level, and now it is a bit more stabilized market in terms of competition, if you exclude the regional conflict, okay?
Clear now. Thank you for repeating the question. Hanzade, yes. You know, I think you understood the situation. Yes, we believe that they have stabilized. As a matter of fact, you know, I cannot tell you that it is one player or two players. It is a lot of players that together in an aggregated fashion, you know, constitute, you know, 10% of the market, you know, approximately. We believe that they have stabilized. We see a silver lining, you know, to be very honest with you know, that the regional areas that are pretty much on top for us in Pakistan right now, you know, have the potential for, you know, beverage consumption. You know, now, as the leader in the market, it is our duty to go grow there and capture the opportunity.
We actually see a silver lining that, you know, communities are thirsty, and now it's our job now to go and offer them, you know, quality beverages.
Okay. Thank you very much, Karim.
Thank you, Hanzade.
Okay. Thank you very much. Our next question comes from Eren Erciş from Yapı Kredi. Please go ahead, sir. Your line is open.
Hello. Thank you for the presentation, and congratulations for the results. My first question is related to impact of geopolitical tensions. Çiçek already touched on this to some extent during the presentation, but could you elaborate a bit more on whether tensions involving Iran could pose a risk for the business, particularly in terms of a potential boycott activities in Türkiye? My second question regarding your pricing activities, could you elaborate a bit more on your pricing activities, both in Türkiye and international markets? On the year-over-year margin development in the quarter, especially how much of the margin improvement was driven by price hikes or product mix? Thank you. Thank you.
Thank you for the question. You know, I'm gonna start on the first one, you know, regarding the impact of geopolitics, and I will turn it over to Çiçek to complement. I think as you know, CCI is made of a diversified portfolio of countries. As Çiçek explained very well earlier, some countries, you know, are oil exporters, some countries are oil importers, some countries are commodity exporters. Why does it matter? It's because all our countries do not react in the same fashion when the oil price goes up and/or when the dollar appreciates, right? What it means for us is that the current conflict in the Middle East right now is not going to impact us in a linear fashion.
It also means that the geography offers us opportunities because some countries will naturally benefit. As Çiçek explained, there will be economic growth, there will be fiscal surplus, and therefore, there will be private consumption expenditures. Some countries will actually need to, you know, manage their current account deficit better and, you know, will see a rise in inflation, and that will be an impact on the overall dynamics of the market, right? All this to say that, you know, the best we can tell you right now regarding the impact of geopolitics on our business is that it's a mixed impact. And we are monitoring the situation very closely.
Whenever we see that, our financials and our operations will be impacted, you know, we will take the corrective measures that we will need to take in order to protect our performance. With that, I'm gonna turn it over to Çiçek to complement.
What I can add is that, I mean, it will all depend on how long it will last, how expensive it will become. It is very difficult to estimate what the consumer reaction will be. It's anything we say on this will be speculation, and we certainly don't want to do that. What we can control right now is our short term FX liabilities, which is almost negligible for 2026 in terms of debt payments. As I mentioned, majority of our debt payments in 2026 is hard local currency. We do not see any refinancing risk or a realized FX loss because of this. Second, we are holding enough hard currency cash in our international operations, and that provides us a certain advantage as well.
Third, as I showed you, our commodity hedges, especially resin, will be the most likely to be impacted from this volatility due to oil linkage. For resin, we have 80% coverage. For the remainings as well. For sugar, we have 80% coverage. For aluminum, we have 50% coverage. As Karim explained, we have built enough inventory to continue running our operations smoothly. Right now we do not see any business interruption in the, you know, in terms of transportation, logistics, anything like that, thank God. Anything beyond this will be pure speculation, so we cannot comment on it. If the tension does not escalate further, maybe the impact will be even negligible.
Thank you, Çiçek. You had second question regarding pricing strategies. You know, our plan regarding pricing is always balanced. You know, we always look more at revenue management instead of pricing management, because revenue management has, yes, pricing, but it has also mix management. It has SKU rationalization, it has discount management. Within mix management, we have product management, product mix, channel mix, pack mix. All this to say that our pricing strategy is more about a revenue strategy, because at the end of the day, what matters is to create revenue, to absorb cost in order to create margin. Pricing is one component, but not the only component. Now, double clicking on pricing, every operation locally looks at the pricing in two ways.
One is if you need to price, always price right behind food and beverage inflation in order to be competitive in the store, and always price to be affordable versus disposable income, right? The big picture again is that we want net revenue per unit case to be always higher than cost of goods sold per unit case and OpEx per unit case, you know, consolidated so that the margin is protected. That is our approach on pricing. Your third question, I think, was more about what is the, y ou know, how do you measure the improvement coming from pricing versus coming from mix in margins, right?
Overall, I would say again, going back to the earlier comment, you know, it's not about pricing, it's about net revenue per unit case, right? I'm gonna give you some metrics. When you sell more unit consumption versus future consumption, you have a 1.5 times higher gross profit per unit case, you know, for a small pack unit consumption versus future consumption. All right. That's an important metric for us. That's how we look at the improvement on mix with unit consumption as a good proxy for what's happening between channels and packs. But overall, you know, the improvement in margin coming from, you know, how much comes from revenue realization and how much comes from, sorry, pricing and mix. We don't really look at it that way.
You know, I want to be very clear about that. Again, we look at net revenue per unit case, that's the total, right? It has to go above cost of goods sold per unit case plus OpEx per unit case so that the unit metrics, the unit economics work and the margin is protected.
Thank you. Thank you so much.
Thank you.
Thank you very much. Our next question comes from Ece Mandaci from AK Investment. Please go ahead, sir. Your line is open.
Hi. Thank you for the presentation. Dear Karim, thank you for your support in the last three years, and I wish you all the best ahead. Regarding the presentation, I got a couple of questions, some follow-up questions as well. In the last couple of years, we have seen a change in the composition of your international sales. While Pakistan was declining in terms of volumes and capacity, we have seen increase in Central Asia, in Uzbekistan and Kazakhstan, and currently they are operating at almost full capacity. I understand that you're investing in those regions, via introducing new lines and new capacities. Would it be fair to assume that this strategy will continue for the next couple of years as well?
Maybe we will also see the support of the oil pricing as well in, particularly in Kazakhstan, Azerbaijan, going forward. Would it be fair to assume a smaller level of growth in Pakistan as in 2025, for 2026, given the concerns you have mentioned and probably better growth metrics, continued growth metrics for Uzbekistan and Kazakhstan. Would it be fair to assume like that? In years, international margins also grew with the support of higher, I believe, a higher portion of Central Asia revenues. The higher margin levels, would it be sustainable for these regions, and will it continue to support your consolidated margins for 2026 as well? Also, I have a follow-up regarding your cost base.
You have hedged 50% of your aluminum costs, but we are seeing an increase recently in the spot aluminum pricing. Compared to the spot levels, what is the pricing or how lowered, how much lower is your pricing in aluminum compared to spot levels? Since you have hedged half of the aluminum and most of sugar and resin, would it be possible to say that first half margins still we can see some year-over-year improvements, but maybe we could see some normalization in the second half and the year with flattish EBIT margin. Would it be fair to assume like that? Thank you.
Ece, thank you Ece for your kind words. First, I'm gonna cover question one and two. I will ask, you know, Çiçek, you know, our CFO to cover question three and four. One and two, last couple of years, you know, change of our geographical mix in international operations. Yes, you are correct. Yes. You know, in the first two years, you have seen, you know, our international operations really, you have seen two things happening, you know. Less dependency upon, you know, Pakistan and more dependency upon Central Asia. In other words, yes, you know, Central Asia growing way faster than Pakistan. You know, you may recall that, you know, Central Asia in the past years has been from a macroeconomic standpoint, relatively stable, right?
You know, when on the other side, you know, Pakistan has unfortunately, you know, experienced one of its worst economic crisis, with, you know, highest historical inflation, et cetera. Right now what we see, and that's also part of our guidance, is that Pakistan, it has stabilized, right? I know that right now there is tension in Pakistan. Nevertheless, when you look at the trending information, the trending data, we can all acknowledge that the IMF driven program, although it is painful in the short term, is actually really going to help Pakistan stabilize economically. That is, you know, what we hope for as well. You know, that is also how we see the market, you know, restart growing.
All is to say that Pakistan has, if you draw a line, you know, has gone down in terms of, you know, economy category and our business, right? Has gone down over the past three years and has restarted growing at 2025. That was a +1%, you know, growth in 2025, which for us meant that our affordability focus without pricing, et cetera, has really worked to stabilize the volume. Now we are planning to grow volume again in Pakistan, right? On the other side, Central Asia, clearly years of very high growth, right? Uzbekistan, 33% growth is remarkable. But you know, it's going to stabilize, right? Clearly.
All is to say that the international operation is going to continue growing in the future, and that's why you see the guidance for 2026, you know, has a higher growth in 2026. You know, the guidance shows that we're planning for a higher growth in international operation versus Turkiye. Again, supporting the fact that, yes, you know, we have growth in international operation, you know, planned for 2026. Again, it is gonna be based on a relative stabilization in Central Asia, right? At the same time, a higher growth than prior years in Pakistan. You know, we think that that is how we're going to continue growing in the future, right? That is on the international, you know, volume side.
What comes with it is naturally, you know, how the margin profile is evolving, right? In Pakistan, because we are mostly focused on affordability, we do not have the same margin expectations as in Central Asia. That is a higher per capita region. You know, I mean the big markets, if you look at, you know, Kazakhstan for example, it has the highest per capita in our territory. As a result, you know, the revenue per unit case is higher, and as a result the margin is higher. All is to say that Central Asia is going to continue with a relatively higher margin than Pakistan, and as a result is going to continue contributing to the international margin. What you see right now, you know, as margins is yes, relatively high. Don't expect it to grow too much in Central Asia, right?
Expect that, you know, international margin, you know, will basically stay, you know, where it is right now, but the composition of it will be with a little bit more coming from Pakistan, not too much, and a stabilization, you know, coming from Central Asia. Hopefully I explained, you know, this in a comprehensible way. Otherwise just follow up with questions. One point to have in mind is regarding our capacity in Central Asia. We're not at capacity in Central Asia. That's why we continued investing. We're growing fast, but we invested even faster. And that's why we have invested, you know, in Uzbekistan, in Kazakhstan. In Azerbaijan, and we have new lines also coming in the smaller countries.
Overall, we're not at capacity yet, and that is what excites us because we see a lot of potential there. Now I'm going to turn it over to Çiçek for the cost base and the H1 H2 margin profile for 2026.
Okay. First of all, starting with aluminum, yes, you're right. The current prices are higher. We did our hedges last year, early last year for 2026. Therefore, the hedge rate of that 50% is $400-$500 below the current spot rate. We are enjoying some benefit from it. Now the rest, 50% is of course, exposed to the spot market. We do not think that right now the prices are, you know, justified in terms of underlying supply and demand dynamics. Therefore, we are not hedging any further, but we are looking at the market. The thing is that aluminum is not a very big portion of our cost base anyway.
In Turkey and Iraq, can is an important package, but in the rest of the markets, it's primarily resin is the main package or returnable bottles. In the case of Uzbekistan and Pakistan, they are also growing. Can is not a huge package for international markets. Therefore, the cost of the share of aluminum is rather limited. That answers your, I think, question on aluminum. For the first half and second half, as Karim mentioned, I mean, this year we are aiming for a more balanced phasing throughout the year. We don't want to have as much volatility as last year.
Having said that, of course, because of the first quarter's base was lower, first half was base was lower and second half base was higher, we will see some base effects, but we don't expect the deviation to be as severe as last year.
Thank you very much.
Okay. Thank you. Thank you very much. We'll be now moving to a text question. This is from Mr. Tore Fangmann from Bank of America. There are three questions. Going into 2026, will you continue to concentrate on value growth with selective promotional activity? If so, why does this not translate to a higher EBITDA margin year on year? Second question, to some extent probably answered, how significant does the current Iran situation impact boycotts, et cetera? Together with that, could you please describe your current trading and demand? The third question from Tore is, can you quantify the expected impact from the water exit on 2026 volume and margin?
Thank you, Tore. Question number one, going into 2026, we will not concentrate on value growth. We will continue to work on sustainable value creation. That is as usual, you know, creating volume growth, being affordable in the geographies where we need to be affordable, working on the mix management so that we can create margin, recruit the next generation of consumers with a small packs, diversify the portfolio with the product mix, going to the different channels so that we are present everywhere. Again, you know, I'm hesitant to qualify the year of 2026 as a value year or a volume year. No. At CCI, you know, we believe that, you know, sustainable value creation comes from both. As history has shown at CCI, we have always been balanced.
You know, we want to create volume growth, and we want to create value growth, and we want to do it in a sustainable fashion, right? Çiçek, please add to this.
I would like to add that a flat EBIT margin guidance should not be interpreted as a shift away from our profitability discipline. We will continue to work on revenue growth. Even a stable margin translates into meaningful absolute EBIT expansion. Please don't ignore this. Strong cash generation ultimately supports shareholder value creation. Our what it replaces our decision to keep investing ahead of demand, whether in capacity, route to market or other capabilities in markets where we see demand developing and long-term returns, does not mean that we are shifting away from value focus. Value focus is always there. Whether it is, it's in the form of creating more demand or sustainable more demand or creating higher cash returns is interchangeable. It's a long-term strategy rather than a short-term focus.
Tore, on your second question, how significant does the current Iran situation impact us? I think we discussed it earlier, but you know, again, you know, just to repeat, you know, we have priorities at CCI and, you know, our people are safe, our assets are secure, and our operations are not disrupted right now. Should things change, we will obviously work on all the levers we have in our hands to make sure that we create the performance that we need to create. On your third question, can you quantify the expected impact from the water exit? I just want to re-qualify, we're not exiting water. Not at all. Absolutely not at all. You know, we believe in the Beverage for Life strategy. We believe in offering choice to consumers.
Water has a significant role to play in the portfolio that we offer for hydration. Nevertheless, you know, because we want to create sustainable value, we want to focus on the segments of water where there is value creation, right? It means that we're intentionally not pushing and not going after the large water volume packs that naturally have less margin per liter or per unit case, you know, or margin. We are absolutely not exiting water. I want to make that clear. You know, we are just balancing, you know, the value and the volume of water in our portfolio.
Okay, thank you very much. Our final question today will be from Selim Tulu, individual investor, please go ahead. Your line is open.
All right. Hello, this is Selim from Istanbul Technical University. As a student, I am grateful for the opportunity to ask this question. I want to focus on structural threat posed by local brands and private labels. In inflationary periods, we often see a forced consumer trial of cheaper local alternatives. My concern is the stickiness of the shift. Beyond your standard revenue growth management tactics, how CCI managing the risk of the local players becoming a permanent part of the consumer's baskets? Especially, are you seeing a significant gap in your share of trials within the traditional channel? What is your specific counter effect strategy to prevent these local brands from dominating the lower income consumer segments? Thank you.
Thank you for the question. Look, you know, we welcome competition everywhere we operate. Why? Because we believe that competition makes us better and ultimately create an environment where consumers can enjoy more choices. Now, within this context, we always respect, you know, local brands, and we actually learn from local brands as well, right? Our objective as leaders in every country where we operate, as leaders, our job is to grow the category, grow the industry. That's why for us, again, as I said, we welcome competition and, you know, we have tools in our hands also to make sure that, you know, we continue winning and we continue doing the right things and offering choices to consumers and partnering with customers. We always welcome competition in every market where we operate.
Thank you very much. Our next question is from Mr. Maxim Nekrasov from Citi. Please go ahead, your line is open.
Yes, good afternoon. Thank you for the presentation. just to follow up on many questions about the margins. I just want to understand that, do you see, basically 16% EBIT margin as something that, is sustainable, medium term, and you wouldn't see necessarily upside to those levels, so that's your kinda target margin? Or the second question on the capital allocation and, considering the balance sheet is very strong, what are the key priorities, and whether you would potentially consider any M&A if, you know, if it's on your list or, continue an organic expansion or, maybe if you consider higher dividend? Thank you.
Thank you for the question, Maxim. I will start, and I will ask, you know, our CFO, Çiçek, to complement. Regarding margins, 16% margin, you know, I'm gonna go back to maybe an earlier comment that was made about, you know, is our 16% margin for 2026 too low. I think that Çiçek has explained very well that, you know, at the end of the day, the 16% margin combined with volume growth and revenue growth, multiplication of both, you know, creates, you know, a good bottom line. On the other side, you know, improvement on net working capital and therefore free cash flow ultimately translates, you know, into good economic value creation for the, you know, for shareholders and investors. That's how we look at the business.
That's why to answer your question about is 16%, you know, is there upside of 16%? I think that 16% is a good level of margin. It's a very solid level of margin. Even if you benchmark, you know, our margin versus other global peers that work in our industry, you will actually notice that we are really at the top end, you know, in terms of comparison. Again, what matters to us is creating sustainable value for our shareholders and our investors. That means that, you know, we look at the P&L not only with, you know, high margin, but we want 16% margin as a guidance.
That's our plan for 2026, we want the volume and the revenue that will make sure that the multiplication translates into higher absolute numbers and that the good cash management that the treasury team does, you know, is then ultimately then ending up with a good economic profit and, you know, enterprise value growth. That is how we look at the business. Within this, I'm going to let Çiçek cover the capital allocation side.
Hi, Maxim. On capital allocation side, actually our priorities are very stable, not changing. We will keep investing, as we said, on the organic growth in capacities, new lines, new plants, et cetera. This is already taking up like currency, as we guided high single digit percentage of our net sales revenue for this year as well.
We have a clear commitment to deliver positive free cash flow generation. Therefore, you know, paying a higher dividend was not discussed.
We have a stable dividend policy of paying up to 50% of our distributable profits, and our dividend yield has always been around somewhere between 1.5% and 2.5% levels. This year is again, with this, you know, capital discipline, we declared a similar dividend. Going forward, yes, if there is no inorganic acquisition target and if our free cash flow improves, deleveraging and dividends are interchangeable for us. Depending on the cash flow expectations, we can increase dividends. Right now, this is what the board of directors resolved to do. We are more focused on our organic and inorganic growth opportunities with a stable and predictable dividend policy. In terms of margins, I would also like to make a comment.
Yes, as Karim said, 16% is a comfortable margin. It is already a good level in the, you know, bottling industry. What we are also aiming is more on a long-term focus is our return on invested capital, not necessarily short-term focus of EBIT margins, but also we want to make sure that the value we generate in comparison to all the investments that we make are actually creating value for our investors, shareholders, and you know, employees, everyone. Therefore, you know, having a ROIC target is a more, you know, realistic thing for us. We wanna improve our ROIC, not necessarily by improving our margins. Let me put it this way.
That's very clear. Thank you. On the M&A question and inorganic opportunities, is it still on the table, and what kind of opportunities you might be looking, if any?
It's always on the table. I mean, we want to make sure this fits within our operating geography and not necessarily adjacent territories, but some, you know, that would make sense to in our operating footprint. Also, our number one criteria is similar fundamental dynamics, like low per capita consumption, because that is where our strength is. We know how to create demand, increase household penetration, frequency. We are not a developed market partner, therefore, our core strength is our execution capabilities in creating demand by, you know, growing the industry. We are continuously discussing with The Coca-Cola Company, of course, to for new markets that could be value-adding for us.
If there is anything on the pipeline, you would hear, of course, but, it's never off the table, but there is nothing imminent, I can say.
Understood. Thank you so much, Çiçek . Thank you, Karim, for your work and good luck in your new chapter. Thank you.
Thank you, Maxim.
Thank-
Thank you very much. Looks like there are no further questions at this point. I'll pass the line back to the management team for the concluding remarks.
Well, thank you very much for today. It was a pleasure to be with you again. You know, thank you for your belief in CCI. As you see, we have delivered a very strong 2025 results, and we are excited about 2026. We hope to see you soon. Thank you again.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you and goodbye.