Coca Cola Icecek Sanayi's (COCAL) CEO Burak Basarir on Q4 2017 Results - Earnings Call Transcript

Coca Cola Icecek Sanayi AS ADR (OTC:COCAL) Q4 2017 Earnings Conference Call February 28, 2018 8:00 AM ET

Executives

Yesim Tohma - Investor Relations Manager

Burak Basarir - Chief Executive Officer

Michael Coombs - Chief Financial Officer

Analysts

Cemal Demirtas - Ata Invest

Mark Smith - CRA Capital

Charlie Higgs - Redburn

Yesim Tohma

Good morning, and good afternoon ladies and gentleman. Welcome to our 2017 full year results webcast. Today our CEO, Mr. Burak Basarir, will briefly talk about our operations and then our CFO, Mr. Michael Coombs, will share with you the financial review. Following the presentation of guidance by our CEO, we will start the Q&A session.

Before we begin, please kind with the advised our cautionary statement. This conference call may contain forward-looking management comments, including projections. And these should be considered in conjunction with our cautionary language contained in the earnings release. And the copy of the release and financials are available on our Web site.

Now, let me turn the call over to Mr. Basarir.

Burak Basarir

Thank you, [Yesim]. Good morning, and good afternoon everyone. And thank you for joining our call today and thanks for taking the time. We’re pleased to deliver our 2017 guidance with accelerating quality growth and efficiency. In 2017, we achieved the highest net saving EBIT and EBITDA growth of the past five years.

Our full year results demonstrate accelerated momentum in volume, net revenue, EBITDA compared to previous years. This growth performance was also reflected in our profitability. Our continuous focus on revenue growth initiatives coupled with increased emphasis on efficiency enabled us to deliver 7 basis points expansion in EBITDA margin. Furthermore, it generated a record high free cash flow in 2017 supported by higher cash from operating activities and lower capital expenditures.

Yesterday, we announced that our Board of Directors decided to propose a record high dividend payment, which equals to dividends per share of TRY0.79 reflecting our commitment to return value to our shareholders. If you may move on to next stage, we’re also pleased to see that growth is broad based as all of our regions contribute to top line growth in 2017.

In Turkey, net sales revenue was up by 11.7%, mainly driven by pricing and successful promotion management and improving package mix. NSR per unit case maintaining its movement throughout the year, record an 8.1% growth as our revenue growth initiatives continue to deliver solid results. Our international operations also delivered robust revenue growth supported by higher revenue per case Pakistan and Central Asia. At CCI, we recorded the 9.8% revenue growth on an FX neutral basis, driven by both volume and revenue per unit case increases.

Let's move on to next page and talk about the categories. From the category perspective, our sparkling portfolio grew by 3.3% with a 4% increase in our Coca Cola trademark brands. The sparkling category posted growth in all of our major markets. Within that, a low end non-sugar segment continued to outperform the overall category with double-digit growth. The sales category grew by 8.5%, mainly driven by double-digit growth in ice tea in Turkey and Kazakhstan. Non ready to drink tea posted almost 21% growth, which was mainly supported by a new listing in one of our largest customers in the first half of the year.

Finally, the water category contracted by 3.2% in ’17. But the contraction was mainly attributable to lower volumes in Turkey in line with a conscious choice on enhancing categorical profitable fee through smaller packages. While overall water volume was down immediate consumption packs delivered 4% volume growth and our water portfolio continues to evolve in favor of immediate consumption packages.

On the next page now, let me briefly discuss the highlights of our major operations, starting with Turkey. We’ve achieved the highest growth of past five years in Turkey in almost all of our KPIs. Quality volume growth led by sparkling category and successful management of portfolio mix and promotions led to significant expansion in Turkey's profitability margins. The sparkling category posted growth for the first time in five years, increasing immediate consumption packages was primary driver of this growth.

We’ve reached 22% IC share in sparkling category as the share increased by 2 percentage points compared to 2016. Throughout 2017, the launch of one brand strategy, the transition to 330 ml sleek cans and the launch of Fanta Frontier contribute to sparkling growth in 2017. Improving consumer sentiment and rebounding tourism activity we also provided some tailwinds paved the ways for 9% increase in the number of sparkling transactions.

I also would like to touch base on the new 10% special consumption tax increase in Turkey on page eight. As many of you are aware, some additional categories, which is 26% of our total mix such as flavored and plain sparkling juices, juice ice tea, energy drinks, will be subject to 10% additional special consumption tax effective January 1, 2019, while existing 25% on cola tax will remain unchanged. Following the announcement of the tax back in September, we worked through a detailed action plan to mitigate the potential impact of the tax change.

Our revenue growth management initiatives will form the backbone of our action plan along with some cost saving and increased efficiency. We plan to leverage our full portfolio through smart pricing and optimum price back architectures with a continued focus on promotion and management. Besides, we’ve been focusing on efficiency measures, both concerning market execution and other savings through the formulation.

Finally, we will continue to invest in new technologies and capabilities that will drive higher efficiency in our operations. Being well positioned with our strong brand portfolio, we are confident to deliver volume and revenue growth in 2018, while expect to maintain our EBITDA margin in Turkish operations.

Let me move onto package side, which is our second largest market, as you know CCI. We continue to make substantial progress in driving value through a balanced growth in Pakistan in 2017. We kept our momentum in growing our net sales revenue despite some slowdown in the volume growth. Price increases we have taken in the first half of 2017 and further efficiencies led to more than 50% growth in EBITD in Pakistan. Successful consumer activation such as Coke Studio and lunch of new packs such as 750 ml PET contributed to sparking growth in 2017, while brand Coca-Cola outperformed overall sparking category growth.

Let me also mention that Pakistan was the second most significant contributors to global growth of the coke system in 2017 and brand Coca Cola has the highest brand love score globally. Given our strong brand love score and strong team recruitment in the country, we continue to gain market share in 2017. Pakistan continues to offer significant growth potential with relatively low per cap soft drinks consumption and favorable demographics. We expect accelerating volume growth as fundamentals in the country remains intact.

We continue our investments to capture strong demand and according our new plant in Faisalabad is planned to come on stream before high season. Actually, we’ve started a dry run of our existing PET lines in Faisalabad as of today, and the plants will size to 80 million unit case additional capacity for the Pakistan.

Let me turn to our other major international operations. Kazakhstan posted 17.5% volume growth, representing a record high volume in the aftermath of financial crises with all categories posting double-digits growth. Strong market executions, successful consumer activities, successful new pack and product launches and recovery in the economy mainly with the help of higher oil prices led to this strong double-digit growth in Kazakhstan.

In Iraq, volume, net revenue growth turned positive after two years, which was supported by strengthened market execution, improved security conditions and obviously higher oil prices. The sparkling category was the primary drivers of this growth, which resulted in improving operating profitability.

Now, I'll hand over to Michael to take us through the financial. Thank you.

Michael Coombs

Thanks, Burak. If I could take everyone to slide 12. Our full year results demonstrate solid financial performance, as we achieved the EBIT growth ahead of revenue and revenue growth ahead of volume. We're pleased with the strong top line growth, both in the last quarter as well as the full year, which translated into margin expansion. Our consolidated net sales revenue was up by 20.9% in 2017, mainly driven by double-digit revenue growth in Turkey and positive FX conversion impact of our international operation. Consolidated net sales revenue grew by 9.8% on an FX neutral basis.

The strong top line growth, coupled with the lower OpEx to sales ratio, was also reflected in operating profitability as both EBIT and EBITDA margin expanded. Finally, our EPS turned positive in 2017, supported by higher operating profitability coupled with lower net financial expenses.

If I can move you to the next slide number 13. Let me briefly touch on the drivers of our margin expansion. In Turkey, our net sales revenue per case was up by 8.1% in 2017, which was driven by pricing, successful promotion management and improving packaging mix. As our revenue growth initiatives continued to deliver encouraging result, Turkey's NSR per unit case maintained its growth momentum throughout the year, reaching 17.2% in the last quarter of the year.

In our international operations, NSR per case increased by 24.4%, translating into 2.8% growth on an FX neutral basis. Net sales revenue per unit case growth in Pakistan and Central Asia was primary drivers of this growth. Meanwhile, net sales revenue per unit case was up by 20.5% or 6.3% on an FX neutral basis in the last quarter of the year.

On a consolidated basis, our gross profit per unit case was up by 16.5% in 2017, translating into a 10 basis point improvement in our gross margin. In Turkey, stronger NSR per unit case more than offset higher packaging costs and pave the way for margin expansion. In our international operations, gross margin remained almost flat as margin expansion in Pakistan and Kazakhstan compensated for lower margins in Turkmenistan and in Iraq.

Moving on to page 14. If we look at the waterfall chart for our EBITDA margin, we see that the positive contribution of volume and revenue was able to more than offset the negative impact of FX and input cost in 2017. For the fourth quarter lower cost of sales as a percentage of revenues along with an improved OpEx to sales ratio, resulted in 3.3 percentage point rise in EBITDA margin.

On slide 15, moving on to our net income development. We’re pleased to see that major positive contribution to our net income growth stems from increasing EBITDA in 2017. If we look at the last quarter of the year, lower FX losses and positive EBITDA contribution supported the bottom-line growth.

Moving on to the next slide on page 16, where we have our debt breakdown. As of the year end 2017, our consolidated debt stood $1.1 billion, excluding the refinanced Eurobond, while our net debt was at $555 million. Here, let me mention about a recent hedging transaction, which we conducted. In early 2018, we completed a hedging transaction for $150 million through a participating cross-currency swap, which has decreased our FX short position. Following this hedging transaction, 61% of our consolidated financial debt is now in U.S. dollars with 23% in euros and the remaining 16% is now in local currency. Our net debt to EBITDA maintained its declining trend in 2017 due to lower net debt coupled with stronger EBITDA, which also resulted in further improvement in our net interest coverage ratio when compared with 2016.

Moving on to the cash flow metrics on slide number 17. Our net working capital, as a percentage of sales, maintained its declining trend in 2017. An improvement in our trade payables in Turkey and Pakistan were the main contributors to the continued decline in net working capital versus sales ratio. CapEx as a percentage of revenue was also lower in 2017. Of the total CapEx, 46% related to Turkey while the balance of 54% was for our international operations.

In 2017, our continued focus on active management of our working capital led to further improvements in operating cash, coupled with lower CapEx to sales and this resulted in the record high free cash flows, which we saw.

I will now hand the call back to Burak for a summary and for our 2018 guidance.

Burak Basarir

Well, thank you, Michael. Again, we’re delighted with the quality growth in 2017. I would like to underline the quality piece of the growth. Demonstrating the highest net revenue and EBITDA growth over the past five years, we delivered on our guidance with an accelerated growth momentum.

In Turkey, our revenue growth management initiatives continue to deliver strong results. Sparkling growth and favorable pack mix not only provided a healthy volume growth, but also led to significant margin expansion. In '17, we refinanced our Eurobond with the lower cost and longer duration, which further strengthened our readiness for future growth opportunities. In early 2018, we completed a hedging transaction of $150 million through participating in cross-currency swaps to mitigate the impact of FX volatility on our earnings per share to a certain extent. Meanwhile, we renewed our bottling agreement for a further 10 years with no major change in the terms.

Having closed 2017 with a record high free cash flow, we are on track to grow our business profitably and then going forward. Now let me share with you our expectations for 2018 with a little bit more precision in terms of guidance. We expect volume growth in Turkey to be at 2% to 4% and international at least 8% to 10%, and on consolidated basis at 4% to 6% in 2017 versus -- in '18 versus 2017.

We expect a 10% to 12% growth in consolidated net revenue on an FX-neutral basis with 8% to 10% in Turkey and 12% to 14% in international operations. On margin side, we expect a flat EBITDA margin in Turkey because of the reasons I've just explained recently, and a slight improvement in international operations leading to a modest increase on consolidated basis. Moreover, we expect CapEx to sales to be 7% to 8% of our net sales on a comparable basis. Finally, we expect net debt-to-EBITDA to be below 1.5 times on an FX-neutral and organic basis for 2018.

And now I think we can open up the floor for Q&A. Can we ask operator to take further questions. Before let me remind. I would like to say today for May 22, 2018, we're going to have a Capital Markets Day in London. All of you are invited and more than welcome, and we would like to see in our events in May 22, 2018 in London.

Now we can open the floor for Q&A. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question. Please go ahead. Your line is open.

Unidentified Analyst

I would like to ask couple of questions. The first one is about the volume estimates you have provided for 2018. Could you please also provide particularly for Pakistan your volume estimates? As you know, there will be the elections by mid-year and before that, should we expect a slower growth and a better performance by the second half with the initiation of your new capacity? This is my first question. Second question is about your margin guidance for 2018. You expect slight better international margins for 2018. What would drive that? That’s my question, because we have seen a depreciation of the local currency in Pakistan since December. And there is also higher packaging cost in dollar terms. What could drive that like, I would like to know? And thirdly, there was a sustainable improvement in your working capital over sales ratio in the last three years. So would it be possible to expect -- would it be wise to expect around 6% working capital over sales ratio going forward? Thank you very much.

Michael Coombs

Pakistan, the volume growth will be obviously higher than 2017. Unfortunately, we cannot disclose a country-by-country volume guidance but it will be higher than 2017. I mean, I can say that. So don’t be surprised to see a much better volume growth and healthier volume growth in Pakistan, that’s one. You also asked the margin expansion in the international operations. What will grow there, I mean you said there was currency devaluation in Pakistan, which was about 4% to 5%, which was like 105 in most of the 2017. Now, the currency is standing around 110. And actually we have made our business plan around 120 to 125 rupees to a dollar. So we’ve already priced our products. We have already taken all of the necessary precautions in terms of all of the efficiency and then the pricing decisions to mitigate any even further devaluation in the currency.

So we are pretty comfortable that any further depreciation on Pakistan will be managed internally without any problems. We’re seeing some of the commodity prices moving but fortunately in most of our countries, international countries those commodity prices are already priced in to our top line. So rather than seeing a risk, we’re seeing in most of our countries a positive impact to our raw material prices, i.e. in some of the countries sugar prices are going to better than what we have planned and which is going to more than offset some of the resin or aluminum price increases in international market. So that margin expansion in international operations will not be a big surprise.

And you’ve also asked the net working capital margin. So I think going forward, it’s fair to assume 6% but you’re going to see a slight increase in the coming -- you may see a slight increase in the coming years, because I think we’ve done a very good job in managing and taking down, lowering our net working capital margin. And 1 or 2 percentage point increase in the net working capital margin, because of some of the CapEx investment will not be a huge surprise, but that would be a temporary increase in our net working capital. But it's fair to assume around 6% going forward.

Operator

We will now take our next question from Cemal Demirtas from Ata Invest. Please go ahead, your line is open.

Cemal Demirtas

My question is related to your performance in fourth quarter. What do you think are the drivers for the actions you took behind success, especially in the domestic market? That's my question. And as far as I remember, couple of years ago you were think that it was one of the worse year it was in 2018 or 2016. So I would like understand how you compare this year with previous years in terms of operating platform and everything? That's my first question.

Michael Coombs

There is no magic behind the strong numbers. I think the Turkey, the domestic business, should have grown at this pace in the previous years in that. But we have a lot of headwinds back then. As you said in 2015 and '16, the currency devaluation is a lot of negative news on consumer side. We've had a lot of issues on the tourism side. How many incidences we’ve had back in 2006 within Istanbul in terms of terrorist bombings and everything. So 2016 in terms of consumer sentiment was one of the worse years. But what we have seen disciplined discount management and the strategic pricing of our products between east and west part of Turkey. And then the disciplined innovation pipeline also helps Turkish operations to grow. And on top of it, obviously, the weather conditions also helped us to tourism had a positive impact on our sales numbers. But I mean these are not tailwinds but we start to see lesser headwinds in 2017. So the business is performing on the right track, obviously. This is not the effect of certain tailwinds we've had in 2017. If that explains your question?

Cemal Demirtas

And the follow up second question. So how do you see the output into first quarter and second quarter? Some tax increases are just applied and the weather conditions were supportive so far. So I would like to understand how the picture looks? I think it's going to be another success here up for the year here? Thank you. And your initial thoughts as of the first quarter, because it's something that we are receiving -- in some food retail, we see some slow down signals, but possibly due to weather conditions your performance might be better. But I would like to understand how you see from your side in your sector. Thank you.

Michael Coombs

Actually, we've seen a positive momentum in the first couple and first two months of the year Cemal in domestic market. There are a couple of factors. One, as a system at the Coca-Cola Company, we have significantly increased our GIP, the TVCs, the marketing money spent starting from the last quarter of 2017 and it continued into year-to-date. So that helps the strong momentum. And also because of the tax increase, there is an -- we’ve also taken some proactive pricing decisions that also had some pipeline inventory build-up in the marketplace.

But when you look at the month February, we’ve seen -- still seeing the positive momentum, because the weather is helping. The consumer sentiment is relatively okay versus prior year. So despite other FMCG companies, I don’t know, I haven’t discussed the 2018 with many of them, but we’re pretty optimistic with what we see as of today. I think ‘18 will be a better year. The international markets are doing much better than what they did 2017. So I cannot complain on how we started the year.

Operator

[Operator Instructions] We will now take our next question from Mr. Mark Smith from CRA Capital. Please go ahead sir, your line is open.

Mark Smith

Could you talk a little bit about what’s changed in your thinking as regards the financial structure? Why you’re hedging now when the currency has depreciated so massively, and had such an impact over such an extended period of time. What’s changed to cause you to do this now when in the past, you’ve indicated it was too expensive?

Michael Coombs

We have continued to scan the market for suitable hedging opportunities over the years, but nothing has been able to catch our attention, nothing has been attractive enough for us to take to our Board. But we did see an opportunity in the market in January some very competitive rates. We ran the numbers. It was a window of opportunity, which is now closed. And we’re very -- as we look back on what we priced at, we’re very satisfied with the hedging that we did. We’ve managed to match the tenure of our new Eurobond.

And we also having done dozens and dozens of investor meetings and conferences and heard the feedback from our investors from various analysts about the anxiety around our debt structure, we wanted to send the message that we do take those concerns on Board. But when the right opportunity comes along only, in other words, we won’t hedge for the sake of being able to say we’ve hedged. We really did wait for the right opportunity and that’s what we’ve managed to capture. And it represents close to one-third of our net debt that we now have effectively shifted into local currency.

Mark Smith

Can you tell us what rate that was done at?

Michael Coombs

Treasury team can say that with you separately, if you like, the exact number.

Mark Smith

And in terms of taking advantage of other opportunities, was there any consideration given to actually not paying the dividend but using that to pay down debt?

Michael Coombs

We did look at various scenarios. But given the fact that we generated over TRY1.3 billion of free cash flow in the last two years, there was an expectation from our shareholders that we would pay out a higher dividend. We’ve also recognized that our dividend payout or dividend per share has been potentially one of the items laying down on our share price. So we took a decision that it would send the right messages and also will satisfy the right groups of stakeholders to payout. We believe that, especially given the refinancing cost of our recent Eurobonds, we will be paying down one of our private placements, the $100 million within the coming months. So we think that our allocation of cash is appropriate.

Mark Smith

I would certainly forego what I read is 1%, 1.5% dividend for a better capital share price return over multiple years, but there we are, that’s your decision. Thank you.

Operator

[Operator Instructions] We will now take our next question from [Gulsen Ayaz from Deniz Invest]. Please go ahead, your line is open.

Unidentified Analyst

I was wondering roughly you mentioned that you can’t complain about how you started the year in international markets. But can you elaborate a little bit more on Pakistan. As far as I can remember the volumes contracted in fourth quarter. Has this trend now reversed? And there was the high base in CIF markets again as far as I can remember. Is this contracting your potential growth now? And finally and I don’t know if you have an answer for this. But I’m curious about the like-for-like growth in Turkey, because the retailers store opening pace was full in Turkey over 2017 as well. So I was wondering I mean how much was your growth is coming from like-for-like sales points and how much from the new store openings? Thank you.

Michael Coombs

Let me try to answer your Pakistan, Central Asia and Turkey questions. Let me start reverse. Our like-for-like growth would be the same, because we have almost 100% available in terms of weighted distribution across all Turkey. So there is no -- nothing mainly accounts that we’re not actually in those accounts. So you can take Turkey’s growth on a like-for-like basis comparable in 2017. On the Pakistan, the fourth quarter was a negative rather contraction versus 2016, because the 2016 growth was pretty high and pretty strong when you look at it.

If I have numbers are correct, Pakistan was growing like 9% in 2016 versus 2015 and it contracted 4%. Then we look at the first quarter, the Pakistan is back on its track of strong growth on the year-to-date basis. So we started doing a lot of structural changes, a lot of group to market changes, organizational changes in Pakistan in the last quarter of the year, which also have resulted in much better profitable 50% EBIT increase on dollar terms is a very strong figure for a country like Pakistan. And I think we’re going to be seeing the positive result of that in 2018 as well. But the volume -- growth momentum is back in place in Pakistan so far.

Central Asia was contracting for some time, especially in 2016 and 2015. What we are seeing right now is strong comeback on Kazakhstan and Azerbaijan, which are the biggest two markets in the Central Asia business. Again, the minor problem let me put it that way, is Turkmenistan because of the conversion issues in Turkmenistan, which is basically limiting our growth -- consolidated growth numbers in Central Asia. But if you look at it in terms of country-by-country, each and every Central Asian country is doing well, and they started 2018 well as well. So we’re still maintaining our strong momentum in 2018.

Unidentified Analyst

Your top-line growth guidance of 10% to 12%. Is that compared both to the 9.8% FX adjusted revenue growth for 2017? I am assuming that you’re not assuming any FX impact in your guidance. Is that correct?

Michael Coombs

It is correct. It’s going to be FX neutral like-for-like, 10% to 12% FX neutral top-line growth.

Operator

[Operator Instructions] We will now take our next question from Charlie Higgs from Redburn. Please go ahead, your line is open.

Charlie Higgs

Two from me please. Firstly on, IFRS 15. Are you able to quantify at this stage what a rough impact would be to your net sales and potentially your distribution, selling and marketing expenses in 2018? And then secondly, can you just give a sense of input costs, how you’re seeing them develop so far in 2018 and your expectations for full year? Thank you.

Michael Coombs

Charlie, I’ll deal with the input costs first. On input costs, what was your question around ‘18 versus ‘17? Just to clarify.

Charlie Higgs

Yes.

Michael Coombs

Yes, clearly as we said in the past, we have three major input costs that take up most of our attention. The first is sugar. Most of our sugar is in regulated markets. So the price has not necessarily connected to sugar as a global commodity. But in those markets that are not non-regulated, we are seeing a favorable sugar prices versus what we had projected. Sugar prices, generally speaking, London number five sugar is down and we’re seeing savings there versus what we had projected.

The bigger concern for us is really on PET resin and aluminum. The price of resin is very strongly correlated with the oil price. And as we all know the oil price per barrel is going up around $66 per barrel at the moment, that’s significantly higher than we’d planned it to be. We are heavy users of raisin we use about 130,000 tons of resin per year. And to every increase in the price of oil per barrel is consist approximately $1 million. Having said that, we did plan for some increase in ’18, at the current level there is some exposure but we’re putting in place some mitigation measures. Our procurement is working with suppliers. We’re also working on taking the weights out of some of our packages and fixed price contracts with some of our suppliers.

So on the resin, yes it’s causing us some concern but we believe that we’ll be able to offset the impact of the higher oil price. And then the third commodity that takes up our attention is aluminum. Aluminum is also for a variety of reasons trending higher than we expected when we did our plans for ’18 we set to do with speculation more than anything else and we’re expecting that price to come down.

We have put some measures in place. Again, we’re going through a can and aluminum trend at the moment with our suppliers and we believe that through that process, we’ll be able to offset a lot of the unfavorable impact we’re seeing at the moment. So generally speaking, we believe we’re in good shape. This early in the year, we can take measures to effectively counter any impact on those. So we can definitely do that. Your first question on IFRS 15, there is very, very little, in fact I would even say no impact on our business in terms of how we recognize revenue with our customers. So I think there is a very simple answer to that, no impact.

Operator

[Operator Instructions] We will now take our next question from Ali [indiscernible] from AMC. Please go ahead.

Unidentified Analyst

I have two questions, first one is the rate at which the pricing in Turkey. When you’re guiding a flat margin for Turkey in 2018, considering the developments like the special consumption tax on juices, and also the concerns that you have on PET resin and aluminum. How much price increase should you do to keep the margin flat, this is my first question. Second question is I saw your OpEx control was very -- I mean it was very good frankly speaking in the final quarter. So how should we be pursue for this for the 2018 on your OpEx side, especially in Turkey. Thanks a lot and congrats for the results.

Michael Coombs

On pricing in Turkey, there is no simple answer. We have a calendar of price increases that we will be taking across our portfolio of packages and products at different points during the year. So all of that is aimed at recouping or mitigating the effect of the special consumption tax, while also keeping pace to some extent with inflation, which is always our intention to. So we have a package of increases scheduled for the -- those have already started. We put through a number of increases in the month of January, which are now out there in market and accepted by the market.

So from a pricing perspective, we believe that our ability to maintain margins is there. Bear in mind that we did a few things in 2017 that were very much incremental. One of them was increasing the share of our Immediate Consumption packages. So we were able to tweak our mix by 2 percentage points higher in Immediate Consumption. That is a big driver of incremental margin. To give you an idea that the gross profit margin on Immediate Consumption is 1.4 times what it is on future consumption pack.

But to the extent that we’re able to keep hedging up our Immediate Consumption mix, that is certainly helpful in maintaining, if not growing, our GP margins. Margins on sparkling again are also typically higher and therefore to the extent that we grow sparkling again in 2018, that’s going to help us too.

Unidentified Analyst

How much do you expect to gain margin via the mix effect in 2018? You said 2 percentage points in ‘17. So in order to keep the margins, you need to continue this pattern. And is it -- there is room for that to improve further and are you comfortable on that area?

Michael Coombs

We improved our GP margin in Turkey by 100 basis points in 2017 from a variety of different sources. One of which -- the key one of which was improving our Immediate Consumption mix. We intend to continue working on immediate consumption mix as a source of improved revenue per case and improved margin. We took it up from 20% to 22% of our overall mix in 2017. So I think you can probably conclude for that 22% now that there is room for it to go up further and we would certainly want to continue with that portfolio tuning in 2018 and beyond.

Burak Basarir

Yes I also would factor in the fact that some of our midsize future consumption packages, which are under, obviously, future consumption mix, also contribute to higher profitability. So I mean if you were to bet our gain only on the growth on the IC, we would have been -- the run rate would have been much limited. But within the future consumption pack mix, there's more profitable brands and pack sizes as well. So don’t assume if you can only improve the IC mix. We can increase or maintain our margins.

Unidentified Analyst

And I am assuming this margin -- to keep the margin flat, I am considering last year’s performance. Should we expect margins to improve gradually, right, not just starting from the -- because there is seasonality anyway in first and fourth quarter. So considering the season in second and third quarter, you are assuming to benefit in the third quarter rather than just having margin expansion starting from first quarter?

Michael Coombs

Absolutely.

Unidentified Analyst

And on OpEx?

Michael Coombs

On OpEx, we will continue to drive productivity and efficiency across our business. There are additional opportunities for us to do that. 2017, we had a few headwinds on distribution expenses, because we are obviously impacted by fuel prices. We were able to offset those in other areas of our operating expense base and we expect to continue to make progress in that area in 2018.

Unidentified Analyst

So Turkey OpEx is very -- I mean you were able to cut a lot compared to other fourth quarters in the past. I mean, in the third quarter and fourth quarter number came down like $30 million. And the full year is like you improved it almost $125 million, generally this was increasing earlier higher. So how should we foresee? I mean in 2018, should we expect OpEx to sales to increase as well with the marketing activities, or are you going to continue have -- because you have been lowering your OpEx to sales from 31% in Turkey to 39% in the last four years, and it is declining. Now, in the last three years, it is normalizing around 29. So how should we look into this Turkey’s OpEx number -- to create some further leverage…

Michael Coombs

There is obviously -- there are further rules study hopefully create leverage, but there is also some headwinds that we need to tackle with, i. e. the oil prices for example. Our deliver expense is a big ticket item on our OpEx. And so I wouldn’t be surprised to see a little higher delivery expense on the total OpEx. And also we’re going to be investing heavily, not heavily but higher than 2016 on the coolers, so which will obviously have the top line growth at a quality pace, but which will have a depreciation impact on the OpEx side.

It will obviously have no impact on the EBITDA but in terms of OpEx management in terms of giving a little sense. Again, we will try to maintain our OpEx to sales ratio flattish, but I wouldn’t be surprised a little higher OpEx to sales ratio in ’18, because of one the increased cooler investments second, the higher oil prices.

Operator

[Operator Instructions] There are no further questions in the queue sir.

Yesim Tohma

Thank you, Jenny. Thank you all for joining our conference call. And again, we would like to remind you that we will be having our Capital Markets Day on May 22nd and we are looking forward to see you there. Thank you.