The main factors impacting the operation’s performance, important changes occurring in the environment, the policies implemented by the operation
in response to these changes, and the investment and dividend policy implemented by the operation to strengthen operational performance
The main factors impacting operational performance, important changes occurring in the environment, and the policies implemented by CCI in response to these changes have been addressed in the entirety of the integrated activity report, particularly in the sections entitled Financial Performance Assessment and Principles Governing the Presentation of Financial Statements. Being a company focused on growth, CCI keeps criteria such as the internal efficiency ratio being equal to, or above, a certain ratio, the payback period, while depending on the investment, generally being limited to a set period, and the return on invested capital (ROIC) being higher than the weighted average cost of capital (WACC) in view in the investments it makes.
Additionally, macroeconomic and demographic indicators and the Company’s medium- and long-term strategic targets are evaluated in all feasibility studies conducted at CCI, which operates across an extensive geography. The principles of the Company’s Dividend, Remuneration and Human Resources, and Risk Management policies have been given in the Additional Information on Corporate Governance section.
The operation’s sources of finance, and risk management policies
In order to finance its investments, CCI uses long-term foreign-currency loans (USD and EUR) made available by Turkish and foreign banks in addition to the cash and capital generated, and obtains long-term funds from domestic and foreign investors through Eurobond issues and earmarked securities. Also, CCI has had longstanding and strong credit relations in Central Asia and Pakistan with versatile development banks such as the European Bank of Development and Restructuring, and International Finance Corporation. Group risks are assessed, managed and reported by the ‘Committee for the Early Detection of Risk’ formed within the framework of the regulations within the scope of the Turkish Commercial Code, the Capital Market Legislation, and the Corporate Governance Principles announced by the CMB. In addition to
the adverse operational atmosphere and ambiguity caused by the COVID-19 pandemic that affected the entire world in 2020, some other priority risks identified for the group are instability in international policies and security, exchange rate risk, talent management, risks threatening the reputation of the corporation / brand, economic fluctuation, statutory restrictions and taxes, water management, sustainability and the environmental impacts of packaging, the shift in channel structure and changing consumer choices, talent management and development, cyber-security, environmental risks such as energy efficiency and climate change, changing consumer choices, economic stagnation, law and order, and industrial relations. Statutory changes and the regulations carried out by regulatory bodies are not expected to have a significant impact on the Group’s performance, and the Group is involved in no legal disputes that are in the nature of jeopardizing the Group’s existence or permanence.
The Group’s main financial instruments are bank loans, bill issues, and cash and short-term deposits. The main purpose of these financial tools is to finance the Group’s operations. The Group also has other financial instruments arising from direct operations, such as trade payables and trade receivables. The chief risks posed by the Group’s financial instrument are interest rate risk, liquidity risk, foreign currency risk, and credit risk. The Group management and board of directors review and accept the policies aimed at managing these risks. The Group also takes the market value risk for all of its financial instruments into consideration.
(a) Capital management
While managing the capital, the Company’s goals are to maintain the most suitable capital structure for providing proceeds to its shareholders and reducing the cost of capital, and to ensure the continuation of the Company’s operations. The Group manages its capital structure and makes corrections in light of changes in economic circumstances. In order to regulate and protect its capital structure the Group may identify the amount of dividends to be paid to the shareholders where it deems suitable, may issue new shares, or may return the capital to the shareholders and sell its assets to reduce indebtedness.
(b) Interest rate risk
The Group is exposed to the interest rate risk arising from the impact of changes in the interest rates to which its assets and liabilities having an interest rate limit are subject. The Group manages these risks by attempting to balance the interest rates of its assets and liabilities or shifting the fixed / variable interest weight in its portfolio where it deems necessary according to market conditions. Part of the interest rates relating to financial debts are based on the interest rates prevailing in the market. Therefore, the Group is affected by changes in interest rates at national and international markets. The Group’s sensitivity to the market risk arising from changes in interest rates is primarily related to its liabilities.
(c) Foreign currency risk
The Group is exposed to foreign currency risk arising from the transactions it performs. These risks stem from the Group’s purchase and sale of goods, indebtedness, its use of bank loans, and its keeping of time / demand deposits in currencies other than the functional currency. The Group manages its foreign currency risk by attempting to balance its assets and liabilities in foreign currency and using derivative transactions. The strategic foreign currency weight in
the management of assets and liabilities may demonstrate tactical changes according to market dynamics.
(e) Liquidity risk
Liquidity risk refers to the risk of a company’s failure to meet its funding needs. The Group aims at ensuring the continuity and variability of its cash inflows through short- and long-term bank loans, bill issues, cash, and short-term deposit management.
(d) Credit risk
Credit risk is the risk of suffering financial loss, to which a party is exposed as a result of the other party’s failure to perform its obligation in relation to a financial objective. The Group’s financial instruments that may give rise to a significant concentration of credit risk consist chiefly of cash and cash equivalents, and trade receivables. The maximum credit risk to which the Group may be exposed is equal to the amounts reflected to the financial statements.
The Group possesses cash and cash equivalents with various respectable finance institutions. The Group manages this risk by constantly assessing the reliability of the finance institutions with which it enters into a relationship. The credit risk attributable to trade receivables is limited to customer volume
and the Group management’s practice of limiting the credit amount applied to customers. The Group usually requires a guarantee to increase the amount of the credit applied to its customers other than its dealers.
(f) Commodity prices risk
The Group can be affected by changes in the prices of commodities such as sugar, aluminum and resin. The Company’s operations require the constant purchase of these commodities, and the Company management applies risk strategies towards managing the price risk related to these commodities. In keeping with applicable laws and legislation with respect to country operations, the Company performs derivative transactions directly with suppliers, or with finance institutions based on 12 - 24-monthly estimated box, sugar and resin purchases in order to protect itself against commodity price risk.
Research and development activities performed
Research and development activities are performed by The Coca-Cola Company (TCCC), and CCI benefits from TCCC’S knowledge and expertise.
Amendments made to the Articles of Association during the period, and their reasons
No amendments were made to the Articles of Association during the period.
Nature and amount of issued capital market instruments, if any
No capital market instruments were issued during the period.
Qualifications and capacity utilization rates of the Operation’s manufacturing units and the developments therein; general capacity utilization rate; developments
in the manufacturing of the goods and services covered by the area of activity, and comparison of the quantities, quality, versions and prices with the previous periods’ figures
The annual production capacity is calculated using a formula identified as standard for all bottling operations by TCCC. High-season capacity utilization rates (KKO) at plants are taken into consideration in the calculation. The value for the maximum unit case that can be produced is found by taking the hourly rates of the lines at the plants and the package distribution in production per plant into consideration. Since sales amounts and package distribution will change each year, the obtained annual capacity amount may vary even with the number of lines unchanged.
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Measures contemplated to be taken in order to improve the operation’s financial structure
The Company uses short- and medium-term loans to fund its working capital, as well as using long-term loans for financing its investments. Diversifying finance sources, planning debt maturities in the manner most suitable to their use, turning to diversification in currencies in order to reduce exchange rate risk, and following up on markets in the most effective manner by constantly keeping in touch with finance institutions are CCI’s priorities to the end that the financing structure is formed in the healthiest manner.
On the Collective Labor Agreement
The labor agreement negotiations held between Coca-Cola İçecek and the Tek- Gıda Labor Union resulted in an agreement, the outlines of which have been summarized in the following. The agreement covers the 01.01.2020-12.31.2021 period.
According to the agreement;
• The wage rise to apply to union-member employees as of 01.01.2020 shall be a monthly gross TL 995 for the first year of the Collective Labor Agreement. In the second year of the Agreement, a rise of CPI + 3% shall apply to monthly gross wages.
• The annual social benefits package shall be increased by 16% for the first year, and at the rate of the CPI for the second year.
Information on donations
As specified in our Company Articles of Association, part of the earnings before tax is set aside to be donated to the Anadolu Education and Social Aid Foundation, and to a foundation to be identified by a majority of the Group B shares. The Anadolu Education and Social Aid Foundation founded in 1979
is an institution that has been active in the fields of education, healthcare and social aid, and has completed over 50 projects from the construction and repair of hospitals, health-care centers, various educational institutions and sports complexes, to donations made in these fields. In 2020, donations amounting to TL 4,015,000 have been made to the Anadolu Education and Social Aid Foundation defined under Article 15 of the Company Articles of Association. Additionally, TL 2,428,320.61 in donations have been provided to other public benefit organizations and foundations exempt from tax.
Information on the existence of organizations
The headquarters of CCI, which conducts operations in 10 countries, is located in Istanbul. It has a total of 26 production plants in all of its countries of operation except for Syria. The related subsidiaries table has been given on page 74.
Remarks on the main elements of the Group’s internal audit and risk management systems in connection with the process of preparing the consolidated financial statements
The Internal Audit Department that operates within CCI audits all consolidated companies and units periodically every year. The Department’s work plan is approved every year by the Audit Committee and is revised according to the developments occurring during the year. At all CCI companies subject to consolidation, internal audit is performed according to the standards published by the International Institute of Internal Auditors.
Information on conflicts of interest arising between the Company and institutions from which it procures services in matters such as investment consultancy and rating, and on measures taken by the company to prevent such conflict of interest:
No issue giving rise to a conflict of interest has been observed during the term. The provisions of all applicable legislations, including CMB legislation, are complied with in the procurement of services such as investment consultancy and rating, and maximum care is taken to prevent any circumstances that may give rise to a conflict of interest beginning with the selection of such institutions by using internal procedures and reporting mechanisms prepared accordingly.
