Coca-Cola İçecek Growth Story Set To Continue


Turkey-based soft drink bottler Coca-Cola Icecek. (CCI) has been one of the great success stories in European food and drink over the past few years. Owned by Turkey's Anadolu Efes , which dominates the beer and soft drinks industries in Turkey , CCI looks very well placed to continue growing strongly over the next few years. I ts core business of carbonated soft drinks is growing well in Turkey where it is much less vulnerable to industry risks such as higher excise rates, which has been affecting beer sales .

What we particularly like about CCI from a growth point of view is that in addition to excellent exposure to a number of high-growth soft drinks markets, particularly in Central Asia and Pakistan, Turkey is still equally exciting so there are strong opportunities at home too. To 2017, we forecast carbonated soft drinks volume sales in Turkey to grow at a compound annual rate of 7.6%. In per capita terms, this will see consumption growing fro m about 60 litres to 78 litres. The demographic profile of countries such as Pakistan and Kazakhstan where CCI is actively present , and the fact that per capita consumption levels are so much lower than in Turkey , will continue to provide CCI with plenty of raw fundamental potential to work with. CCI represents one of the very few genuine food and drink consumer plays on Central Asia.

What we also like about CCI is how it has evolved its product line over the past few years. Over time there will be greater opportunities in higher margin areas of the soft drinks sector such as still beverages and ready-to-drink teas as the industry evolves, particularly in Turkey which has a much more developed soft drinks industry than the likes of Kazakhstan and Pakistan. Whereas carbonated/sparkling drinks accounted for 85% of CCI's volumes in 2005, this was down to 70% in 2012 with teas and still drinks accounting for 8% and 22% respectively. This proactive evolvement will stand the company in good stead going forward in our view.

As both the accompanying charts illustrate, CCI has made strong progres s diversifying its business geographically over the comparison period between 2005 and 2012. Two points stick out here: Firstly, the growing importance of foreign markets is particularly noteworthy given that Turkey has b een growing strongly over this period, which means that the foreign markets have had to work hard to grow in importance. Secondly, from an earnings standpoint, which is captured by the second chart, it appears that profit margins remain higher in Turkey, which contributes proportionally more to earnings than sales.

Between 2004 and 2011, sales by revenue and volume and earnings before interest, taxes, depreciation and amortisation (EBITDA) all grew at compound annual growth rates above 15%. In our opinion, CCI stands out ahead of the likes of Coca-Cola Hellenic as possibly the best placed Coca-Cola major franchise bottler for growth over the next few years.

This article is tagged to:
Sector: Food & Drink
Geography: Turkey