UELKY (UELKY) Q2 2026 Earnings Report, Transcript and Summary

[Audio Gap] Beste, please go ahead, ma'am.

Hello, everybody. Welcome to Ulker Biskuvi's second quarter operational and financial webcast. Here with me in the room are CEO, Mr. Ozgur Kolukfaki; and our CFO, Mrs. Fulya Banu Surucu. Now I leave the ground to our CEO for the opening remarks and operational performance. Ozgur Bey?

Yes. Thanks, Beste. Good afternoon, good morning and good evening, everyone, and thank you for joining Ulker Biskuvi's Second Quarter 2026 Earnings Webcast. The first half of the year was characterized by a demanding consumer environment, increased promotions, elevated promotional activity and continued geopolitical volatility in some of our international markets. Against this backdrop, our key priorities remain consistent: Protecting the strength of our brands, maintaining consumer affordability, preserving market leadership and managing the business with financial discipline. There are clearly areas of pressure in our reported financial performance, particularly around revenue and margins. At the same time, we are encouraged by the resilience of our volume performance, the contribution from our international operations and new product launches and the continued strength of our market positions. Also, net income delivered the quarter's standout result with 45.5% year-on-year increase. Today, I will first walk you through the key highlights and operational performance. I will then hand over to our CFO, Fulya, for a detailed review of the financial results and balance sheet. I will come back at the end to discuss our updated outlook for the remainder of 2026. So we will structure today's discussion around 4 areas in the agenda. I will begin with the key messages from the quarter and some of the initiatives supporting the long-term strength of our business. I will then cover our operational performance, including our geographic portfolio, revenue mix and market positions. Our CFO, Fulya, will take you through the financial performance in detail, including the regional P&L, category dynamics and balance sheet. Finally, I will return to discuss our revised guidance and the key priorities for the second half of the year. Let me start with the key highlights from the second quarter. To start with the 6 key messages that we believe best characterize the quarter. First, volume remains resilient. Consolidated volume increased by 1.3% year-on-year to approximately 163,000 tons. This is important because it demonstrates that even in a higher promotion-driven and affordability sensitive environment, consumers continue to engage with our brands, with international operations leading at 6% growth, confirming strong and sustained consumer demand across all geographies. Second, our reported revenue declined by 11.4% to TRY 27 billion. We should view that performance in the context of IAS 29 inflation accounting, softer value growth in Turkey due to not having a price up parallel to inflation to remain competitive, less favorable category mix, significantly higher promotional intensity and higher cost base, mostly due to cocoa related net effects. So the volume and revenue trajectory should not be interpreted in isolation. Accelerated promotional activity across the Turkish market and an exceptionally high quarter 2, 2025 base, volume integrity was preserved throughout. Third, our international operations continue to provide meaningful volume support with international volumes increasing by 6% in the quarter. We see this as an important validation of the geographic diversification we have built over time. Fourth, despite the pressure at the operating profit level, net income increased by 45.5%, almost 46% year-on-year to TRY 1.4 billion. Our CFO will explain the bridge in more detail. Fifth, our balance sheet remains robust with covenant basis net debt/EBITDA at 1.17x. We continue to manage liquidity, FX exposure and working capital carefully. Net debt/EBITDA stood at 1.17 on covenant basis, reflecting a well-managed leverage profile that provides Ulker with ample financial flexibility to pursue growth investments while maintaining a robust and creditworthy capital structure. Ulker Biskuvi held its #1 position with a 34% market share in one of the most promotional quarters the Turkish confectionery market has seen. It's a powerful testament to the enduring strength of our brand equity and unwavering loyalty of our consumers. So while the environment remains demanding, the underlying message for us is one of consumer resilience, strong brand positions and disciplined execution. We are deliberately prioritizing the long-term health of our franchises rather than pursuing short-term value growth at the expense of affordability or market position. Innovation remains one of the most important structural growth drivers of Ulker. What you see on this slide is a broad pipeline of product launches across both our domestic and international businesses. Our approach to innovation is not simply to increase the number of SKUs. We are focused on innovations that address specific consumer occasions, price points and changing preferences. In Turkey, where affordability has become increasingly important, innovation allows us to offer consumers attractive products across different formats and pack sizes while maintaining the strength of our core brands. At the same time, we continue to premiumize selectively where consumer demand supports it. Internationally, we are leveraging both our established Ulker brands and strong biscuit platforms such as McVitie's to expand our presence across consumption occasions and geographies. This is particularly valuable in the current environment. When markets become more promotional, having a broad portfolio becomes a competitive advantage. It allows us to manage the balance between volume, pricing and mix rather than relying on a single product architecture. Innovation also helps us respond to changing consumer preferences without compromising our brand proposition. And importantly, this pipeline is already contributing meaningfully to the business rather than representing only future potential. On the next slide, you can see that new products are generating a meaningful share of our current snacking revenue. So although the current operating environment is challenging, we continue to invest behind the portfolio and maintain a healthy innovation engine, which we believe is essential for sustainable growth over the medium term. The commercial relevance of that innovation pipeline is visible here. New products represented approximately 9% of total snacking revenue in the second quarter. The contribution was particularly strong in Turkey at 10%, while new products represented around 6% of international snacking revenue. We consider this as an encouraging result for several reasons. First, it shows that consumers are responding to the products we are bringing to market. Second, innovation is helping us defend our shelf presence and brand relevance at a time when both retailers and consumers are extremely focused on value. Third, new products give us another lever to manage category and price point architecture. That is especially relevant in chocolate. The chocolate category has been working through an exceptional cocoa cost cycle and consumers have naturally become more price sensitive. Our response has, therefore, been broader than simply taking price. We are using innovation, pack architecture and targeted promotional activity to maintain affordability and consumer engagement. The same principle applies internationally, where consumer behavior and competitive intensity differ materially from one market to another. The contribution from NPD, therefore, gives us confidence that our portfolio continues to evolve with the consumer. Going into the second half, our priority is to maintain that innovation momentum while remaining very disciplined around execution, pricing and return on investment. Innovation is ultimately valuable only when it contributes to sustainable revenue, brand equity and profitability, and this is the framework through which we can continue to manage our pipeline. Alongside commercial execution, we continue to invest in the long-term relevance and trust of our brands. During this quarter, Ulker supported a number of initiatives across education, sports and community engagement. This includes our support for the Ministry of National Education's Children's project, our partnership with the Turkish Basketball Federation, our involvement with the National Paralympic Committee of Turkey and our participation in the Etnospor Culture Festival. For us, these activities have a clear strategic rationale. Ulker is a brand that has been part of the consumers' everyday lives for generations, maintaining that position requires more than product availability or advertising. It requires continuing to build relevance and emotional connection across different generations of consumers. Sports, education and community initiatives give us platforms to reinforce that connection in an authentic way, which is true to our brand purpose. These investments also support our broader corporate reputation and employee brand. We remain disciplined around how we allocate resources, but we believe maintaining strong consumer and community engagement is an important part of protecting the long-term value of our Ulker franchise. The same long-term approach applies to our people. Our business operates across multiple geographies and increasingly complex consumer and cost environments. Strong execution, therefore, depends on having the right leadership capabilities throughout the organization. During the period, we continued our leadership development architecture through programs such as Leadershift, which is a composition of owning the shift, leading the shift and driving the shift, covering different management levels. We also continued our Future Talent Program and employee referral initiatives while strengthening health care coverage and employee well-being programs. Our well-being activities reached more than 1,800 employees through 74 initiatives. Why is this relevant for investors? Because navigating markets like the ones we are operating in today requires speed, accountability and strong local decision-making. Pricing decisions, promotional architecture, working capital management and category execution increasingly need to happen quickly. Our investment in people and leadership, therefore, directly supports our ability to execute the strategy. We believe building leadership today improves organizational resilience of tomorrow, and that remains an important part of our long-term agenda. Moving on to our digital road map. I want to address a crucial driver of our future operational excellence, our AI transformation. For us, AI is not just another industry buzzword. It's a strategic lever to enhance our core business. Over the last quarter, we have transitioned from the vision phase to structured focused execution. We have consciously avoided a scattergun approach, choosing instead to build a disciplined foundation that ensures every AI investment we make is directly linked to shareholder value. Regarding the Q2 update, the foundation we established, our first AI steering committee, creating the necessary governance to oversee these initiatives. This is what we have done. Crucially, we activated a cross-functional task force. AI cannot exist just in one function. We have completed a comprehensive inventory of potential initiatives across all functions. And through that process, the steering committee has selected 4 high-impact priority areas of transformation. We have already initiated the review of potential technology partners, and we are currently in preliminary meetings. These collaborative efforts fully aligned with the broader expertise of Pladis leadership and the technical power of Yildiz Tech, our main parent company. We prioritize 4 main domains across our AI focus. First is RGM, revenue growth management, to drive smarter pricing and promotional mix. Second, supply chain management to optimize our inventory and logistics in a volatile environment. Third is field sales optimization and segmentation to increase our agility and effectiveness at the point of sale. And the last one is financial and strategic planning to improve our agility in forecasting and budgeting. These are not just tech projects. These are core business processes. That data-driven decision-making will directly improve our margin profile and top line efficiency. Let me now move to the operational performance and begin with our geographic footprint. Before looking at the financial performance by geography, I would like to spend a moment on our volume performance because we believe this provides an important perspective on the underlying health of the business and volume is a true KPI for us, which is a reflection of share of growth. Despite the demanding consumer environment, 4 of our 5 geographic business areas delivered positive volume growth in the first half. Starting with our international markets, Turkey exports was the strongest contributor with volume growth of 11.4% versus the last year, the same quarter. In Central Asia, volumes increased by 5.6% despite a highly competitive environment and elevated promotional activity, particularly in Kazakhstan. The Middle East delivered 4.6% volume growth even as consumer demand remains relatively cautious and regional geopolitical developments continue to affect market conditions. In North Africa, volumes increased by 4.4%, supported by solid commercial execution and continued consumer demand. Turkey domestic was softer with volumes declining by 1.7% year-on-year. However, we think it's important to look beneath that headline number. The domestic market remained highly promotion-driven and affordability sensitive, and there was also a meaningful shift in category mix. Biscuits remained relatively resilient, while chocolate continued to normalize. From our perspective, the key takeaway from this slide is the breadth of volume resilience across the portfolio. International markets are continuing to grow volume. Turkey exports are performing particularly strong. And even in our domestic market, we have been able to protect our leading competitive position despite a difficult consumer backdrop. This is important because our priority in the current environment is not to maximize short-term price realization at the expense of the consumer. We are deliberately balancing affordability, volume, market share and profitability. We believe maintaining consumer engagement and scale today gives us a stronger platform to improve revenue quality and rebuild margins as category mix, cocoa costs and market conditions progressively normalize. This slide provides another perspective on the diversification of the business. In the first half, consolidated revenue reached approximately TRY 63.3 billion, with 71% generated domestically and 29% internationally. Domestic revenue was approximately TRY 44.8 billion with international revenue of approximately TRY 18.5 billion. Within the international business, the Middle East remains our largest international region, while Turkey Exports, North Africa and Central Asia provide additional diversification. We view this portfolio structure as strategically valuable. Turkey remains the core of Ulker. It is our largest market, our strongest brand platform and the center of a significant part of our manufacturing and innovation capabilities. At the same time, our international operations provide access to markets with different demographic profiles, category penetration levels and economic cycles. The first half is a good example. While the consumer environment in Turkey was particularly promotion intensive, international operations have supported consolidated volumes. International markets are not immune from volatility as we have seen in the Middle East and Central Asia, but the portfolio gives us multiple growth engines rather than a reliance on a single geography. Over time, we believe this combination of a very strong domestic franchise and scalable international platforms remains an important competitive advantage for Ulker. Perhaps the clear demonstration of the strength of our brands is our market share position. Based on Nielsen data through June 2026, our relevant category positions translate into approximately 34% share in Turkey, 27% in the Middle East, 13% in North Africa and 14% in Central Asia. For us, market share is particularly important in the current environment. A period of elevated inflation and intense promotions can create a temptation to optimize purely for near-term price realization. We have taken a more balanced approach here. We want to protect profitability, but we also want to maintain consumer affordability, brand strength and shelf presence. That's why we have been selective with pricing and active with promotions. The consequence is that value growth can lag volume growth in periods such as this one in this quarter. But the benefit is that we preserve the consumer demand and consumer connection. Our 34% position in Turkey during one of the most promotional quarters is, therefore, an important indicator of underlying brand health. Similarly, maintaining strong positions across our international markets demonstrates that the strength of our portfolio travels beyond Turkey. Going forward, we will continue to balance 3 priorities: Market share, profitability and brand equity. We do not believe those objectives are mutually exclusive over the medium term, even if there can be temporary trade-offs quarter-to-quarter. With that, let me hand over to our CFO, Fulya, to take you through the financial performance in more detail.

Thank you, Ozgur Bey. Good morning, good afternoon, and good evening, everyone. Thank you so much for joining our webcast meeting call. So moving into financial performance, I would characterize this quarter as a period of resilient volume, but challenging top line and margin dynamics. Our consolidated volume increased by 1.3% year-on-year to 163,000 tons, which is important given the challenging demand environment. Revenue declined 11.4% to TRY 27 billion with inflation accounting adjusted numbers. And gross profit is at TRY 6.6 billion with gross margin at 24.6% versus 27.2% last year. EBITDA came in at TRY 2.8 billion, corresponding to a 10.4% margin compared with 14.6% a year ago. So inflation accounting continuing to create a challenging year-on-year comparison, plus category mix shift, promotional intensity and some demand sensitive difficulties created some challenges on net total revenue. But despite this pressure and very challenging environment at the operating level, net income increased 45.5%, reaching to TRY 1.4 billion and net income margin improved to 5.1% from 3.1%. So overall, in Q2, we continued to grow volume, while profitability was affected by a difficult operating environment, but we delivered a strong improvement at the bottom line. So when we take a look on the first half numbers. Volume remained again resilient with 0.7% increase versus prior year. I believe that it's an important starting point because despite considerable volatility in our markets, the business continues to grow overall volume. Revenue declined 7.2% to TRY 63.3 billion and gross profit is at TRY 16.7 billion with the margin moving from 30.7% to 26.5%. First half net income is at TRY 3.1 billion versus TRY 4.3 billion last year. So overall, first half results reflect a difficult operating environment, but the volume remained strong, and we continue to manage the areas under our control with strong discipline. So -- I mean, when we take a look at the breakdown between domestic and international, we see different dynamics. In Turkey, revenue declined by 13.1% to TRY 18.6 billion and gross margin at 24.1%, while EBITDA margin was 12.7% compared to 16.1%. International revenue was more resilient, declining only 7.4% to TRY 8.4 billion and gross margin came in at 25.6%, which was 30.4% last year. So the demand in Saudi Arabia region, highly competitive environment in Central Asia and the category mix shift and promotional intensity, especially in the domestic market, all impacted our numbers. So while international operations provided better top line resilience, they experienced also profitability pressure during this quarter. So -- I mean, when we take a look at on the total half 1 numbers -- first half numbers for international and domestic, we see that international diversification is helping our revenue resilience, although profitability normalization remains a priority. So domestic revenue declined 9% to TRY 44.8 billion, while gross margin is at 25.1%, EBITDA margin at 14.2%. International revenue was better since the decline is only 2.8% to TRY 18.5 billion and international gross margin remains relatively healthy, remaining at 29.7%, although slightly below versus prior year. So our geographic diversification is providing better revenue resilience across different demand environments, but at the same time, restoring profitability, especially international [indiscernible] management priority [indiscernible]. In terms of category mix, snacking volume increased by 1.2% year-on-year from 143,000 tons to 145,000 tons, supported by international operations and new product launches. At the same time, snacking revenue declined by 9.5%, so softer demand in Turkey snacking market and high comparison base [Technical Difficulty].

Ladies and gentlemen, please standby. We will shortly reconnect with the host. Beste, you are back online. Please go ahead.

Okay. I'll go through the category mix page from the start. So here, snacking volume increased by 1.2% year-on-year from 143,000 tons to 145,000 tons, supported by international operations and new product launches. At the same time, snacking revenue declined by 9.5% from TRY 28.6 billion to TRY 25.9 billion and softer demand in Turkey snacking market, a high comparison base, conflict in the MENA region, highly competitive Central Asia market and the deep correlation between FX and inflation, all drive these numbers. From a category perspective, biscuits increased their share of volume from 57% to 59% and their share sales value from 38% to 41%. Chocolate moved from 33% to 31% of volume and from 53% to 50% of sales value, while cake remained broadly pretty much stable. In terms of balance sheet, turning to our balance sheet numbers, we remain disciplined, comfortable with our financial position and we were able to sustain our very strong balance sheet position by the end of Q2 as well. So covenant based net debt/EBITDA is 1.17, which is significantly below than the average of the industry, which also indicates a very healthy balance sheet. In terms of our maturity, our maturity profile remains healthy. As you know, we have all finalized or completed our very important financing transactions and projects and 70% of all financial liabilities are long term and 30% is only short term. We also continued to actively manage our currency risk. As of June -- by the end of June, 64% of the open position was hedged using the derivative instruments amounting to $343 million and EUR 185 million. On working capital, inventory days increased to 123 days, receivables to 86 days, payables to 54 days. The inventory movement primarily reflects supply timing and it's only a phasing rather than a change in our underlying working capital discipline. Overall, our balance sheet gives us sufficient flexibility to navigate through the current environment while continuing to invest in business. In summary, cash generation improved, leverage remains manageable. FX exposure is actively managed and the main working capital pressure is inventory timing rather than a structural change in our cycle or strategy. Now I hand over to our CEO, Ozgur Kolukfaki, again.

Okay. Thank you, Fulya. Let me close with our updated guidance and the priorities for the second half of the year. As we look at the remainder of the year, we are taking a prudent approach to our top line expectations. We are still very confident on our volume growth expectation for the second half of the year. Having said that, with the inflation estimation in our main market, Turkey, increasing, as you followed from the last time we gave our guidance, the Central Bank of Turkey announced an official increase on the inflation estimation of minimum 2 percentage points. So with this increasing inflation estimation and given the heightened geopolitical uncertainty and softer near-term demand, we are revising our 2026 net sales outlook from flat to a low single-digit decline. At the same time, and this is important, we are maintaining our EBITDA margin guidance at 13.5%, plus or minus 1.5 percentage points. This reflects our confidence in the actions we are taking around productivity, pricing discipline, portfolio management and cost control. So I would like to summarize our outlook very simply. We are being more cautious on the top line because of the external environment, mostly driven by the inflation increased estimation, while pricing capability is limited in the current competitive environment, but we remain very confident in our volume and our ability to manage profitability within our guidance range. And we will continue to prioritize sustainable growth, profitability, cash generation and disciplined balance sheet. So despite a challenging operating environment, our underlying business remains very resilient as demonstrated by positive volume growth. This is my first message. Secondly, we are taking decisive actions to address profitability while maintaining financial discipline and a controlled leverage position. And thirdly, while we have prudently revised our revenue expectation given the external environment, we are maintaining our EBITDA margin guidance. Our focus for the remainder of the year is very clear, protect profitability and cash while positioning Ulker for sustainable growth. And we have very strong plans for the remaining of the year, which gives us the confidence about our future business. So year-to-go focus would be on accelerating growth in Turkey through our 5H Happiness Growth Compass and Growth Action Plan. Just to remind you, what we say is consistent happiness growth, competitive happiness growth, profitable happiness growth, sustainable happiness growth and people-centric happiness growth. And grow export and international operations, driving momentum in priority export and international markets. Protecting profitability and cash through productivity, lean programs, disciplined pricing and cost management. And finally, scaling AI and digital transformation across revenue growth management, supply chain, sales execution and planning processes, which will give us the capability in the year to go as well as in the long term. So thanks for listening to us, and happy to answer your questions you may have.

[Operator Instructions] We already have some questions in the queue. Our first one comes from [indiscernible].

My first comment or like the question is about the performance. As far as I remember, fourth quarter was a very negative surprise for us. And we asked this question, whether it was the worst or the level. But with the second quarter, we also see another terrible result in terms of margins. But the good news is the market already prices over the last 2 months and already the share price has been at historical levels and the management should take some lessons from the share performance so far. But now at least the market might be giving some credit for the future. So if I come to my questions, the first question is chasing for sustaining your market share, is it leading to the margin deterioration? Or do we have other factors like cocoa prices on the margins? So that could we say that weak margins in the second quarter temporary. I know that there are external factors, but we need more indication because over the many years, I haven't seen such a depressed margin. It's not surprising because throughout the quarter, we had the understanding of the market conditions. So I'm asking the management this question, are we going to see the recovery? Do you see any specific -- company specific problems to solve in that direction? And related to this, in second quarter international side, we understand the weakness there, but how could we just go with this 5.2% EBITDA margin with the company? Do you see any specific reason for that, except for the difference between inflation effect. So these are the areas that should be -- at least give some color for the future because even today, the market is giving some credit for the long-term history of the company. So that -- we want to hear more like indications from your side, are you comfortable with these numbers because this is not a good number for sure. So anything about the future about the international side and domestic side and even about your strategy going forward, do we see that the market share gain -- trying to get market share or the maintaining is the problem or the cocoa prices had some negative impact on you? So maybe they are long questions, but at least you can pick the one area that you just give us some comfort about the future sustainable of the company.

[indiscernible], thank you very much for your questions. Let me try to answer those. So first of all, as we have given our guidance at the end of quarter 1, we already reflected that in our EBITDA. After Q1 EBITDA, we already reflected that in our guidance estimation of 13.5%, plus/minus 1.5% guidance, which was already given for the Q2 expectation. So we have seen one of the most promotional intense quarters in our one of the key markets, Turkey, as you have been already observing as a consumer, most likely in the market context. And looking at our base of 2025 is one of the strongest bases as well. And where we had especially some global outlier innovations like Dubai. And also, we have seen the cocoa cost impact significantly in quarter 2. We feel extremely confident on the EBITDA for the year-to-go guidance. So that's why in quarter 3 and quarter 4, as I have explained -- as we have explained in our presentation, we feel confident about our plans in order to drive growth on the top line. We feel very confident on the volume. And also from the EBITDA perspective, we feel confident that we will keep our guidance on the EBITDA level. That's why we have kept our EBITDA intact in our guidance.

And on the international side, you see 5.2% EBITDA margin. It's a very significant drop that do you have an explanation for that side too?

Yes. So for the international side, of course, each market has their own dynamics. Especially, this came from Central Asia, which faced a stronger competition and aggressive promotions, while North Africa's solid performance was not enough to offset the pressure in the Middle East part, which was also impacted from the war context, which impacts also demand and increased freight, logistics and insurance and packaging costs, which is caused by the war impact. So this is the context that we have seen from the external international markets.

We are now going to move to the next question that comes from Evgeniia Bystrova from Barclays.

Just two quick questions on my side. First, there were some news headlines yesterday about the investigations into sugar companies. Just want to understand if there is any type of spillover for Ulker from this investigation or if maybe the related party that Ulker procures sugar from is involved in that? And my second question or more like a comment, you used to have a slide with EBITDA margins for international segments, I think, like in progression, but it's not there anymore in the presentation for a couple of quarters. I think it used to be very helpful to see the progression there. So it would be great if maybe you could consider returning that.

Thank you very much, Evgeniia. So two questions, starting from the first one. Yes, we have seen also this investigation in the news, and we also deep dive into that. And I can confirm that there is no relations and there is no risk, which is impacting Ulker from any partners that we are dealing with. It is not impacted with that investigation. So we don't see any risk in that -- regarding to that investigation. The second one is regarding the EBITDA contribution. Actually, our team can provide the details of what you require. Maybe because of the -- presentation wise, we might have taken some of the slides. But for those you have some questions, our team is happy to support you offline.

Our next question comes from [indiscernible] from Yapi Kredi.

I have three questions. The first one is a follow-up from the [indiscernible] question. When we look at the cocoa prices is decreasing, for example, it's decreased 60% nearly year-on-year in the second quarter of 2026, but margins are still contracting. We know it includes the purchasing inventory impact, but there is also pricing pressure on the margins. So when we will see any relief on pricing, which could also lift the EBITDA margins? That's my question. And my second question also regarding to EBITDA. Could you provide any breakdown regarding to [indiscernible] and the pricing impact on EBITDA margin? This is my first question. My second question regarding to tax. You booked a positive current tax line in this quarter. Where does that come from? Is that regarding the inflationary accounting initiative or a one-off? Could you more elaborate on that? And my third question regarding FX losses came down about 47% year-on-year, mostly from the financing line. Is that just a slower TL depreciation? Or have you changed the currency mix or your hedging strategy? Could you also more elaborate on that, please?

Okay. [indiscernible], thank you very much for your three questions. I will cover the first one, and I will leave the second and third, the details of the tax and FX to Fulya. So we are closely monitoring the correction in cocoa prices. And as you can imagine, we had some positive benefits of the cocoa prices in the past. And then we had significant increases as an outlier and volatile impact in the markets, which hit all the players in the market, which also impacted us transparently. And this is also one of the reasons in the quarter 2 -- EBITDA impact that we have provided in quarter 2. But we have also -- in average, our cocoa inventory and the benefit will come step by step. And by the -- in quarter 3 and quarter 4, we will have a more better pricing average of cocoa prices as per our estimations. And step by step, we will have the averaging impact of the cocoa stock impact. So that explains, I believe, your question, the first question. We cannot provide the details of it, as you can imagine, on the cocoa pricing, negative impact on the EBITDA. But I think my -- as a matter of competitive sensitivity, we do not disclose this specific cocoa inventory coverage levels or inventory days or hedge ratios. But having said that, I think overall, I have explained your question.

Let me continue with your tax and FX question. So let me start with FX first. FX gains and losses, FX losses is significantly lower. It's mainly more favorable FX environment compared to the prior period. There has been no change in our hedge strategy or the use of our derivative instruments. 64% of the open position is closed. The remaining open position after hedge is exposed to a lower FX increases versus prior quarter. Since 64% is closed and the remaining is exposed to lower FX increase versus year-end and prior year, that created a lower FX loss compared to prior quarter. There has been no change. It's mainly FX movement and the amount of the closed position. Regarding your tax question, yes, the tax rate applicable to income from manufacturing activities is reduced to 12.4%, but effective date is 1st of January 2027. In the second quarter, there are some impacts from this legislation change due to deferred tax asset and liability calculation. And going forward, we expect to continue benefiting from the lower corporate tax expense starting in 2027. That's all I can share right now, off the top.

We'll now move to our next question that comes from Hanzade Kilickiran from JPMorgan.

I have two questions. The first one, actually, this question was indeed asked, I mean, by one of our colleagues. But I would like to make a follow-up on the cocoa side and I want to understand the sensitivity of your margins against the prices versus your contract time frame. I know you can't provide details, but would you please guide me what could happen to your margins if cocoa prices settle again at around $6,000 because currently, the prices are again increasing. So I wonder if this increase in the prices, which is now very close to year-end '25 will have some adverse impact again on your margins? That's my first question. The second one is -- this is for Fulya actually. Fulya, can you please explain the interest expense fluctuation in the second quarter, which came substantially lower than Q1. I mean, is there a shift in the debt profile or that's an accounting difference?

Hanzade, thanks for your questions. Let me start with the first one. So as I already gave some reflections on the cocoa. While cocoa -- so we are closely monitoring the correction in the cocoa prices. But the benefit will not be immediate because of our long inventory cycle. But we have gone through a significant part of this cycle based on our current strategy and inflation accounting. So while cocoa prices have moderated, we see certain pricing and margin management risk throughout 2026 as the category gradually transitions towards a more normalized cost environment. So we have seen, I believe, the toughest part in the first half of the year. As per the latest price movements of the cocoa, we feel in a better context in the rest of the year. And as I said, step by step, this will be normalized in the total context of the market. As we have consistently highlighted, there is a natural lag between this procurement inventory consumption and the P&L recognition, which we started to see the impact and we estimate to see the impact in a more positive way in the upcoming months.

If the cocoa prices stand to stay as it is currently, again, nearly doubled from the bottom, is it easy for you to achieve like 15% plus EBITDA margin?

So Hanzade, thank you for your insistence. So as I said earlier, because of the competition sensitivity here, we naturally don't want to cover the details of our pricing and the current stock levels in the current context of the environment. I think you will be understanding that. Thanks for your understanding. But as I explained -- I think overall, as I explained, based on the current context of the market, -- so it is -- we have seen the significant impact in the first half. And in the current market estimation context, it will have some more positive impact in the year to go. This is at least what I can say to this question.

So following your second question, I think you are only asking interest expense line, right, Hanzade?

Yes. It's nearly kind of half. So I'm trying to understand what I'm missing here?

Sure. Interest expense is mainly driven by 2 things. First one is derivative contracts, which are creating a favorable impact in terms of the lower interest expense. And the second one is we completed our financing and we completed it with much lower interest rate, which also creates a lower interest expense burden on the company. Hope that helps.

So this is sustainable, right?

Yes. It is sustainable. The second one is 5-year, both financing we completed very recently.

[Operator Instructions] our next question comes from Ece Mandaci from Ak Yatirim.

In the presentation, you have already shared the growth rates in -- volume growth in your international markets versus revenue decline in real terms. On a country basis, how was your volume performance versus the market? And was there a significant change in the mix like possibly trading -- was it trading down effect or lower share of chocolate sales? What kind of effects have impacted your real revenue contraction in the international operations. But of course, it's in TL terms, you have better numbers, of course, in FX terms, but still compared to the volume growth, we see, I think, lower FX-based revenue growth in your international operations?

Thank you for your questions. So let me start. For Ulker, our performance was mixed by segment. In quarter 2, our total volume performance was supported by strong international execution, while Turkey remains softer due to continued market weakness, but we don't have a significant fluctuation versus the market. In Turkey, biscuits remains resilient with H1 volume up by 1.1% and quarter 2 up by 3.7%. So that's why, I mean, we have really significant growth here. And just to give you also from the market share performance from Nielsen, we have gained significant share both in sweet biscuits and salt biscuits. Chocolate was softer in half 1, reflecting both the category normalization after the exceptional cocoa environment and a high base effect of last year. As I mentioned earlier, including the very strong outlier, not only in Turkey, but also in the world, the Dubai chocolate effect we had last year. International, the picture was stronger with H1 volume up by 7.4%, so supported by solid biscuit and cake performance. So I think this is the answer to your first question. And for the second question, in terms of the revenue growth, the disconnect is mainly explained by the inflation accounting, category mix and higher promotional activity. And as rightly in the current context of the domestic market, especially in Turkey, the current competitive context, the market context didn't allow us to price up in line with the inflation. And in this inflationary accounting, which also was a reflection to the net sales growth, obviously. And this applies to Turkey, but not to international operations. The prior year base was inflated by roughly 32% annual inflation, which makes the year-on-year comparison less reflective of the underlying trend. So campaign-driven sales and value-focused offerings help maintain volumes and competitiveness, but reduced net revenue per ton and pressured margins. So overall, inflation and not being able to price up in line with the inflation in the economic and competitive context and also the war impact in the Middle East, which is affecting all our region in terms of the cost and also the promo pressure in most of the markets that we see, which increased in the quarter 2.

We are seeing no further questions in the queue. So I would now like to pass the line back to the team for their closing remarks.

Thank you, [indiscernible]. Ozgur Bey?

Yes. Thank you very much all for all your questions and the fruitful discussions that we had. So just to conclude, despite of a challenging operating environment, let me also highlight the key messages that I would like to give. The first one is our business remains really resilient as demonstrated by positive volume growth. Secondly, we are taking decisive actions to address profitability while maintaining financial discipline and a controlled leverage position. And thirdly, we have prudently revised our revenue expectation given the external environment. We are maintaining our EBITDA margin guidance, which we feel confident. And our focus for the remainder of the year is very clear, protecting profitability and cash while positioning Ulker for sustainable growth. So I think this is what we would like to conclude. Thank you very much.

Thank you so much.

Thank you. This concludes our call today. We are now closing all the lines. Goodbye.