Arcelik A.S. (BIST:ARCLK) Q3 2025 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your Chorus Call Operator. Welcome and thank you for joining the Archivik conference call and live webcast to present and discuss the Third Quarter 2025 financial results. At this time, I would like to turn the conference over to Mr. Baris Alparslan, Chief Financial Officer, Mr. Minesh Ule Yazgan, Finance and ERM Executive Director, Mr. Delal Alvar, Capital Market Compliance Senior Lead, and Mr. Sezer Erkan, Investor Relations Senior Lead. Mr. Alparslan, you may now proceed. Thank you very much. Good morning and good afternoon, ladies and gentlemen. Welcome to our Third Quarter 2025 Financial Exams webcast. This presentation contains the company's financial information prepared according to TFRS by application of IS-29 inflation accounting provisions.

0:49 Let's start with the highlights of the first quarter. We generated 124.4 billion TL revenues with a gross margin of 29.1% in the third quarter, inflecting an 11.4% decline in serve year-on-year in real terms. Namely due to weak international demand, the performance in Europe, unfavorable product mix and pricing in the domestic market. In Turkey, modest demand was supported by the sales promotions and discounts and yet we observed a decline in yield terms. International demand remained weak except for a few countries. We delivered a substantial growth margin improvement both year on year and quarterly with the help of Eurodollar parity and easing raw material costs. Our open sales ratio is 26.8% in the third quarter. Lower sales ease the impact of the savings on operating expenses.

1:37 We achieved a significant recovery on the BTA margin exceeding 2.5.0 on year and over one point quarterly. Improving gross margin and restructuring efforts were the main contributors. Our rolling net working capital over sales ratio is 21.4%, slightly above the year-end level. With the MGL adjusted leverage at 4.2 times, the leveraging started in the third quarter with the help of EBITDA recovery, improving operational cash flow, and disciplined MedSec. Please note that we're providing the breakdown of net monetary position for the period and adjusting the EBITDA for the monetary gain and loss in our leverage calculation. After the adjustment for net monetary position items, our EBITDA margin is calculated at 7.8% in the third quarter. In Q3, our consolidated revenue declined by 11.4% year-on-year in real terms due to unfavorable price and product mix in Turkey, weak international demand, and relatively poor performance in Europe.

2:30 Our gross profit margin for the third quarter was 29.1%, lower raw material cost and favorable Eurodollar purchase for the team crewmen. Pricing pressure and intensified competition remained the main headwinds. Higher growth profitability and lower rotation nominal terms in line with the ongoing refraction effort help to achieve an improvement over 2.5 points on our adjusted gain margin in Q3. In the third quarter, figures in Euro terms reflect a decline around 9% year-on-year. Domestic sales decreased by almost 6% in Euro terms due to the negative price-product mix impact despite slight volume increase in the third quarter. However, real figures for Turkish trade reflect 8.5% decrease in domestic sales year-on-year.

3:16 This is simply because the growth in CPI for the period was higher than the change in the FX rate. In the same period, international sales revenue declined substantially by roughly 10% in Euro terms due to the decrease in volumes, the negative impact of FX, along with pricing and product mix. Figures for Turkish trade showed 12.7% decline in international sales revenue in real terms. On the right-hand side, you may see our regional sales breakdown. Turkish share in total revenues was 31% in the third quarter, with a one-point increase. Europe's contribution exceeded half of the consolidated revenues in the third quarter, as in the same period of last year. Western Europe's share increased by 1.35%, whereas CIS and Eastern Europe market share decreased to 16%. Revenues generated in the APAC region remained the same, corresponding to 9% of consolidated revenues, whereas the share of Africa and Middle East regions stayed at the same level in total, around 8% of consolidated revenues.

4:13 In Turkey, demand was under pressure in the MDA6 market in July and August. Despite the 5% decline in sales volume in the MDA6 market in the period, we managed to keep our sales volume flat, over-performing the market. Yet, year-to-date figures still reflect the decline in sales volume both for the market and for us. Please note that the scope of the market data has changed for the AC and TV segments, including last year's figures. Starting in July, the market data includes the sales of sit-down retailers and supermarket chains. With the chain's scope, our performance in the AC category reflects significant growth, albeit underperformance. The toughest competition prevails in the AC market with 45 grand, where some players are attracting price-sensitive consumers. In the TV category, revised market data reflects our overperformance substantially on retail volumes.

5:02 Please note that the market data for the AC and TV reflects retail sales. However, wholesale to the dealers has the lion's share in our consortium's revenue. In a nutshell, the MDA demand was moderate in the third quarter, supported by sales promotions and discounts. We observed declining wholesale volumes in the AFC category, where the dealers have already stocked up for the third quarter in the first half of the year to start promptly in the high season. Wholesale TV volumes remained quiet. Overall, product mix and pricing had a negative impact on the top line in domestic market, while we reported 8.5% decline in year-on-year. 2K is performing in line with the budget, supported by a successful air conditioning season, which is also conducive for strong collections.

5:47 Last quarter will further be supported by a powerful dry season, which is a crucial product for households especially for convenience, hygiene and aesthetic reasons during winter periods. Consumer demand recovery continues in the European day market in the third quarter, while better on the Fusonta market. In Western Europe, market volume growth was 1.8% until August, whereas growth in Euro terms was limited due to pricing pressures arising from the intense competition. In key markets such as UK, Italy, Spain, Netherlands and Belgium, growth was sustained in volume, whereas slowdown continued in France, Germany and Austria. Beko preserved the market leadership despite underperformance and declining sales in the region. Meanwhile, the market volume growth in Eastern Europe declined to 3.4% compared to almost 4% growth in the first half of the year.

6:38 Demand remained solid in the key markets, such as Romania and Ukraine. Despite the underperformance in the period, Beko preserved the market leadership. Overall, 51% of the sales revenue was generated in Europe, with a year-on-year decline of 10% in Europe during the third quarter. When we deep dive into the growth of the market, we see that the low-end product group, which constitutes almost one-third of the total volumes, was the only segment where growth was observed. Note that Chinese plays out particularly strong at the entry level. As part of the actions that have been taken to recover the market share losses to the maximum extent, over 2,000 SKUs were launched with lower costs owing to the synergies due to factory relocation. These lower cost SKUs outperformed in the third quarter with an increasing contribution to the sales in the European market, as all the categories are improving their performance with the progressive ramp-up of the new launches.

7:34 We believe MPI's will play an essential role in increasing competitiveness in the region vis-à-vis Chinese players. The revenues generated in Africa in the Middle East season constitute 8% of consolidated sales in the third quarter. Revenues in Euro terms decreased by 6.5% year-on-year, mainly due to the slowdown in the Middle East market. In Africa, DeFi sales volume growth was almost 20%, while sales in Euro terms remained flat due to price decreases across several major categories. Demand in South Africa was steady while the export market could not grow in U.S. terms compared to the same period of last year. In the Middle East, Ateli Kitachi JV delivered 1% growth in U.S.T. terms despite the challenges in the region with the help of channel expansion, effective sales promotions. As one of the key markets in the region, Egypt suffered from the slowdown in the market while demand was weak within the quarter.

8:27 Bekut Egypt sales warning decreased by almost 20%, whereas the decline in U.S. heat terms exceeded 40% due to discounts in major product groups in the third quarter. With 9% stake in consolidated revenues, home appliances landscape remains challenging in APEC due to the rising cost of living, the influx from Chinese competitors, and severe natural disasters during the third quarter. Sales revenue in the region decreased by 9% in U.S. terms year-on-year. Substantial growth in Japan, Taiwan, and Hong Kong besides the modest performance in Bangladesh limited the decline in the third quarter, resulted by the poor demand in key markets such as Pakistan, Thailand, China, and Vietnam. In Pakistan, Dow Jones' sales volume decreased the exceeded 80%, resulting in a decline in sales revenue in Euro terms over 20% in the third quarter.

9:16 Severe floods due to the monsoon, lasting longer than expected, was the main reason for the weak consumer appetite during the period. In Bangladesh, Singha's net sales increased by almost 5% in Euro terms despite the challenging environment. Due to the main factors, such as weak global demand, slowdown in growth, and ample capacity, raw material prices continued to decline in the third quarter, both year-on-year and quarterly. On the metal side, market prices were slightly lower in the third quarter compared to the same period of the last year. Due to China's increasing exports in the market, slightly lower prices are expected in the last quarter as well. On the plastic side, market prices were substantially lower both year-on-year and quarterly, and prices are expected to remain low in Q4 with the help of low oil prices.

10:03 With that, I pass on to Minam for summary financial section. Thank you for today. Here is the summary of our first quarter K-25 financial results as per existing accounting, both in yearly and quarterly comparison. Our Consolidated Revenues were a $124.4 billion profit during the third quarter, deflected 11% and practiced a real decline year-on-year and partially inspectively. Growth Profitability improved by 267 basis points year-on-year and 67 basis points quarterly. Improvements in the operating profit is substantial due to higher growth margin despite less supportive effects year-on-year. Operating margin increased by 190 basis points year-on-year and 2282 basis points quarterly. Net financial expenses increased substantially in the third quarter, reflecting 37% decline year-on-year and 4% decrease quarterly. The e-book's $3.7 billion official net monetary position showed a 14% decrease year-on-year on the back of increasing inflation. Consigo only reported approximately 0.7 billion loss before tax and 2.3 billion Turkish Lira net loss before minors in the third quarter, corresponding to minus 1.9% net margin for the period.

11:28 Finally, its 7% margin is recorded and adjusted at the scale of 8.7 billion Turkish Lira in the third quarter, with a substantial improvement of 4.0 Lira in quarterly. We exclude transactions related to runoff expenses amounting to 77 million Turkish Lira due to the adjustments in the third quarter. The corresponding amount for the same quarter of last year was 51 million Turkish Lira. If the adjustment of net monetary position attributable to the income and expense items comprises EBITDA or EBITDA margin is 7.8% in the third quarter, Please note that other income and expenses, profit before tax, and net income accounts are being censored, including the purchase price allocation gain, recorded at the end of 2024, for comparative purposes, as per IFRS 3.0. Injury attributes for the last year are also recalculated due to the reclassification of net monetary gains arising from the investing of shares of foreign subsidiaries by the parent company.

12:35 As of September end, our adjusted leverage is at 4.2 times reflecting a significant improvement compared to the peak in the previous quarter. Deal Averaging started from the back of the Bitcoin recovery, including Operational Cash Flow and Discipline Method, Sustained at 3.1 Billion Euro. We used largely single-factoring and orange collection tools in the third quarter as usual. The amounts of factoring and orange collections were around 537 Million Euro and 80 Million Euro respectively, in line with the previous quarter. As previously communicated, we are anticipating further improvement in the leverage as value operation performance continues to support this generation through the end of the year if discipline lets us. You may find the details of the debt currency breakdown and affected interest rates of our loan and bond portfolio on the rising side.

13:32 Total borrowing amount is $221.7 billion with average duration of 1.3 years. Our average effective Turkish lira in Europe, US dollar is on increase, including loans and bonds are 34.5%, 4.3%, and 8.4% respectively. On the bottom left-hand side, you may see our cash currency breakdown with a total amount of 71.4 billion Turkish lira, with well-diversified cash holdings among currencies. 46% of our total cash is in Euro, 10% in U.S. dollars and 23% in E.S. dollars. Europe's denominated borings constitute 52% of our total borings, while U.S.

14:19 dollars and Turkey's denominated borings correspond to 15% and 23% respectively. On the debt measure to profile, our one-time borings correspond to 35% of our total borings. At the upper left corner, you may find our just digital margin group. High growth margin and increased depreciation effects after transactions are the main drivers of the substantial recovery or 2.5 points in the margin, whereas high rotation expenses had a negative impact. At the upper right corner, you may see our annual social capital to sales ratio. As of September end, net worth to capital to sales ratio was 21.4%, slightly below the year end level on 12-month rolling basis.

15:09 At the lower left corner, you can see our social capital to sales ratio as 2.8%, reflecting the significant decrease year-on-year thanks to the five-point zone capital expenditure. Finally, at the lower right corner, we may see our three cash flow figures. Improvement in the cash generation from operations given the third quarter, holding full reversal of working capital seasonality, are three years today. Cash flow at the end of third quarter is nearly 12.3 billion Turkish Lira. We are keeping our neutral cash flow anticipation for the year end. I move that I'll hand it back to Boşkay for the guidance update. Thank you. Here you may see our previously shared and revised guidance for 2025, based on our forecast and expectations for the year. Given the recent macro environment, both domestic and global, the underperformance in Europe and further uncertainties, we are revising our guidance for the year end. We have revised our top line guidance for domestic sales as approximately 5% decline in real terms and international sales as 5-10% growth in Euro terms. Having 6% EBITDA margin year-to-date, we have updated our EBITDA margin expectation at 6-6.5% due to the downside risk for consumer demand and challenging pricing environment. We have also revised our guidance for our net working capital over sales slightly in between 20-22% for the full year.

16:36 Finally, we have lowered our capex guidance for Euro 250 million, considering the current amount and the limited capital expenditure anticipation. As we have disclosed in the previous quarter, we estimate savings of approximately 140 million euros by optimization of office positions, roughly 2,000 roles to be affected across our global operations within three years time. So far we have completed almost 90% of planned role eliminations. We are expecting to finalize the remaining part by the end of 2026. Please try to note that the completion date refers to the agreements made before termination. Some of the actual cash payments might be postponed to next year depending on the nature of the existing agreements. As a part of ongoing destruction efforts, here you may also find the recent update on footprint optimization in production facilities.

17:24 As stated earlier, we closed our factory in UK at the end of last year. Within the second quarter, production has been terminated in three factories in Poland in line with our footprint optimization plan. As the remaining step of the process, production will be terminated in one factory in Italy at 2025 U.N. The industrialization and rightsizing will be continued in Italian operations next year. We continue to search for additional value-creating initiatives to sustain additional synergies. We can proceed to the Q&A section. The first question comes from the line of Khanzadeh Kilkuran with JP Morgan, please go ahead. Hello, thank you very much for the presentation. I have a few questions on your guidance. And regarding, particularly on the downgrading profit margins, is this because that Q3 was below your expectations or your year four Q4 has shifted on the negative side? So that's one, the first one.

18:23 The second one is that previously you have been expecting some positive free cash flow for the full year, but you are still on the negative side as of nine months. So do you still keep your view that pre-cash flow will turn into positive by the end of this year? And if that's the view, what will be the main driver behind this shift in the forecast? Thank you. Thank you Hamzah Ali Hanım. So Q3, especially August and September has been particularly strong as opposed to our expectations. So we were much more carry over to the last quarter, especially August was particularly strong and hence we expect the same margins or the same performance relative to the flat both in growth margin and A margins to continue, which will carry us to a similar range that we just provided as guidance. And hence, as a point, 6.5% seems to be, let's say, less attainable on the back of the higher Q3.

19:26 With regards to your next question, positive peak cash flow, yes, that's our revised budget for the and the remaining period as well. And for the whole year, especially on the back of deep stocking in inventories, on the back of continuing collection in receivables, as you know, the last month of the year is especially conducive for factoring or early discount schemes, on the back of balance sheets, clearing clients of distributors and a high season in Europe across Q4. and also it could be supported by increasing payables by the European factories. This has been the case for the last year, given they are being prepared for the production season and we expect this to happen.

20:13 CapEx is extremely disciplined at this point in time and hence our reduction in our guidance. That's why we expect and plan for a positive free cash flow for the remaining, for the total year. All right, okay, thank you very much. That's very clear. Can I please make a follow-up on the margin side? Actually, you have a very strong Q3 in terms of profitability. We can see a shift in the margins now. Is it possible to quantify how much of this margin expansion is coming from the restructuring? So, this year, I mean, we have been sharing a few numbers with you, but as we progress throughout the year, we are updating our synergy sources of value creation, and especially on the sourcing side, it has been much higher than we expected.

21:02 And I can say that the synergy numbers that were shared in the past in the range between 100 to 150 will most likely end around 150 to 200 million euros for the whole year. And for the last quarter, I can state that on a bullfight basis, around 50 million Euro from Kosovo savings will be there, probably compensated by some pricing actions, given it's a high season and a discount season for Europe in particular. And a large chunk of this should come from the new driers actually. So it's a, in particular in Europe and in Turkey as well, it's a drier season where we're going to attack with new campaigns and these will constitute a large chunk of our NPI's for the last quarter.

21:59 Alright, okay, thank you very much. And finally, on the domestic market, what is your expectation for the fourth quarter? Because we have been observing now slower pace in the policy race. So do you think that this may impact the demand in the fourth quarter? And if that is going to be the case, do you have some sort of plan to improve the world in Turkey? October is performing much better than September, I must say, but as you rightly pointed out, there is the subdued consumer demand that is prevailing in Turkey, and apparently the gradual phase-out of interest rates will be coming in phases, so it relatively will be a long Having said that, given we own half of the market in general and we pioneered the campaign season around this period of the year, I see a very decent chance of beating our guidance in Turkey.

23:06 What type of campaigns are you going to hold? Is it kind of price promotions or are you going to offer better payments? This is mostly on the back of, yes, special campaigns in e-mail installments and or bundling across the products, but as I said, Denae will constitute a central part of our campaigns along with and other major MDA product groups. So as you know, MDA in particular offers much higher profitability than the rest of the products and hence we expect a very strong period as compared to Q3 in Turkey. But overall, this point, even if it will be stronger than Q3, I think overall it points to a year-on-year real decline in Thank you for the presentation.

24:01 My first question is related with the market case both in domestic market and international markets. We see a decline in market share in domestic and also I guess in Europe we see around 10% or more decline in the European revenues from the presentation. Who do you think are the winners in terms of market share and what might be the reason behind those market share losses coupled with the weak market conditions? That's my first question.

24:52 The second question is about the financial expense side. Going forward, do you expect some normalization in your expenses in 2026, assuming some recovery in the top line? What is the base case scenario for you? And the last one is about the taxes. I see that there is an increase in taxes in the third quarter, and that leads to some deviation from our estimate. I would like to ask the trap for the you know I know it's very difficult but at least some color for the rest of the year related to that nowadays we are talking about the possibility of postponement of you know the inflation accounting in statutory accounts but of course in the TFRS or IFRS Act we are not expecting anything There is a confusion in the market as far as I see.

25:51 But if this happens and the statutory account, if they postpone the inflation accounting and we go as it is in the TFRS or IFRS financials, what could be the impact on your financials? I don't know if you have any study on that. Thank you. Thank you Cem Ali. Starting with the market share question. In fact, we see an increasing market share in domestic market. Let's compare our notes if you want, Postol, because in domestic market we don't see a decline. We see a market decline overall in a number of units because of a peculiar situation in one of our peers or slash competitors.

26:36 In Europe, as I mentioned before, especially competitors, Chinese competitors like Hisense, Haya, Indip, depending on the market, are attacking with aggressive pricing campaigns, especially in washing machines, they are pretty strong. There is also the impact of trade brands, as I mentioned in our previous calls, especially in countries such as France. So pricing is the major problem. Fighting Ground for the Chinese brand. And having said that, our market share lost around 1.5% to 2% is now relatively stabilized. So, we've seen ourselves, especially on the back of this phone, Q3, around the same levels in terms of market share. The pricing erosion is also stopped as far as we can see. So, Q4 will be important to continue to see the trend here.

27:30 Second question on financial expenses. Yes, on the back of declining interest rate trajectory, we expect a decline in our financial expenses. As you know, FX Volatility has been relatively balanced this year in terms of Turkish Lira depreciation and we had a tactical hedging policy on the back of a benign FX rate environment. and maybe you noticed we are also adjusting or we've adjusted our cash flow slash net investment hedge figures and hence our P&L volatility that is coming from this volatility is now relatively stable and hence we expect for the next year relatively better financial expenses as compared to the sales ratio And lastly, on the taxes, yes, there are several factors impacting the deferred taxes calculation, like especially the impact, as you know, the inflation adjustments performed under the Turkish Tax Procedural Law results in differences between the tax basis and the IFRS carrying amount of certain balance sheet items. So, also items such as non-deductible expenses and tax exempt income, they led to both temporary and permanent differences.

28:49 In the calculation of each vertex. One of here, as you know, Pax Procedural Law uses PPI for indexation of the answers. Especially on some of our subsidiaries and mostly certain subsidiaries operating in Europe, they incurred tax losses during the period and were unable to recognize the taxes due to the absence of probable future taxable profits. In contrast, some of our subsidiaries are generating taxable gains from the sale of investments or operations. So they recognize current tax expenses in their local jurisdictions, and given there is no consolidation of tax expenses, the group recorded a net increase in income tax expense.

29:37 These impacts are changing different taxes for a lesser extent as compared to the difference in indexation parameters between IFRS and tax procedural law. There has been some increase in corporate rates, especially in the Middle East region. This is impacting to a lesser extent. So these are more or less the factors that are impacting the first test. And lastly, yes, we hear the rumors about the elimination of We know as much as you know in that respect. And hence, as far as the impact is concerned, I think if inflation accounting is eliminated in one but continuing in the other, yes, our gap in deferred tax assets should be expanding because of the temporary difference calculations will be expanded more, to be honest.

30:36 Thank you. About the market share, I think I look at the air-conditioning side, but as you said, in July and August, you have market share gain in the white goods side. How was the picture in September in terms of the sentiment side, the consumption side? And you gave some color on the October. Do we expect some changes in the behavior? In Turkey, it was relatively weak, to be honest with you, as compared to our customers in September. But, as you know, there is usually a carryover between subsequent months. And hence, October seems to be much better than September, in Turkey in particular.

31:37 Thank you. You're welcome. The next question comes from the land of Bistrova, Evgenia with Barclays. Please go ahead. Yes, hello. Thank you very much for the presentation. To start with, I have a few follow-ups. So, first of all, on the free cash flow, could you please confirm, because I was confused slightly, Do you expect free cash flow to be positive in Q4 but neutral for the entire year for 12 months or do you expect 12 months free cash flow to be positive? Yes, we expect the entire year to be positive. Okay, and also on the receivables monetization Nina mentioned some numbers. I think it was 537 million euros.

32:26 Could you please just repeat because the connection was... Yes, 537 in fact and 80 million in early discount. They are like relatively similar amounts as compared to the previous quarter. As you know, we have expanded our capacity in these instruments and honestly December is actually the month that we usually max out. Also in conjunction with our distributors. So in December from 5.37, for example, you will go up to which amount? It depends on the accumulation of the receivables. I mean, we have limits up to 750, if I'm not mistaken, and we will maximize it as much as possible.

33:12 But as I said, these two months, especially due to Black Friday of October and November, the accumulation of receivables becomes very strong. and we will be maxing out the limit as much as we can. But let's see, I mean, the discount rates offered are pretty low as compared to prevailing market cases. It's turning the credit plus. Thank you. And I have two more questions. So, on your debt strategy, I think you were planning to convert part of short-term debt into long-term debt, so I just wanted to get an update on that. And also, how were you planning to achieve the leverage in N24, just from the receivables and collections? Is that correct?

34:03 Yes. For the entire year, we aim to be in line with the covenant, so 3.8 times. This is the number that is 4.2 times interest point in time. And we are in discussion with several relationship banks, especially for a relatively long term, 3 to 5 years bilateral lending. That can come as a club loan, it depends. We also have some special ECA facilities, which will probably be discussed within 2026. But as you know, we only have one We have already started to pre-fund this and this is the essence of actually shortening duration because we are right now also just to be prepared and have a buffer with a voluntary repayment allowance we're just pre-funding that amount once we get our long-term debt towards the end of this year and or beginning of next year so we will convert so we will adjust our duration of lending facilities accordingly and do you have a target maybe for total percentage of short-term debt I mean, right now we usually remain around half-half or 60-40 in terms of long-term to short-term debt, long-term to total debt and short-term

35:35 to total debt percentages. I think we should be mainly in line. Please look into figures that is just before our Unibond defaults to current period, which is around May. I think these figures should be around 35-65% short-term to long-term debt percentages. Thank you. And my final question on the competition. So in Q4, what is your expectation for competition in Europe and how are you planning to tackle In Europe the story is the same and the tactics to tackle is the same as well.

36:21 Right now around 65-70% of our MPIs are completed as of September event. We expect this to be carried around 85-90%. So there will be some carryover, especially on the cooling side for the next year, but we will be largely complete. So we will be all in the market with our new products at this juncture. And this is our plan for the remaining quarter. And the entire product spectrum will be complete, almost complete, towards the end of the year. So, do you expect to recover the loss in market share or do you think it will just help you to stay flat on your market share in Europe?

37:08 Yes, the latter, which is basically we will defend our position. Okay, thank you very much. Thank you. The next question comes from the line of Campos Gustavo with Jefferies. Please, go ahead. Hi, hello, yeah, thank you very much for the presentation. Congrats on the results. Yeah, a few questions from my side. First, if my understanding is correct, could you please explain, like, how these receivables, like, are these receivables being factored?

37:56 Are they insured or do they have like any recourse to the group, to the archivist group at this point? They are non-recourse and they are insured, but I give the floor to Minal. to provide further information. Thank you Boris. All the receivables are under insurance of COFAS, Atradius, and Turkish Exxon. So they are all non-recourse. So we might prefer to use some of the receivables to be factored depending on the pricing. And we make sure that the factoring pricing is less than our average portfolio. Interest rates to keep the interest close under control as well.

38:45 Understood. And in the way that, you know, bank lenders are looking at your balance sheet, do they include these off-balance sheet factor receivables in their debt calculations when they calculate the covenants or... No, no, they're... yes good question no they are deducted from the receivables given they are non-recourse banking which is blessed by the auditors as well understood thank you and would you have any you were mentioning you about refinancing some of your debt with you know bank lenders as well you know more long-term format does that include the 2026 Euro Bond.

39:39 What are your refinancing plans then? Are you also going to use bank debt for the bond or are you planning to come to the market? Sorry if I missed it. No, no, thank you. We're aiming to roll it over mostly with bank loans or bank loan. So it will be a large chunk that will be renewed. We also have some existing cash at hand, to be honest, so it doesn't have to be fully refinanced by the leverage, further leverage. We don't want to come to euro bond markets unless there is a huge decline, but to be honest, right now, we don't want us to lock in the relative high interest rates at this juncture.

40:29 Understood. No problem. Thank you for that. Last question, a little bit more on the profitability side. EBITDA margins, third quarter, roughly 7% now, but you still have some cost savings initiatives left to do. Is there some kind of run rate EBITDA margin that you are expecting once all of these If you have it, what would be that EBITDA margin run rate and when do you expect to achieve it? That would be my last question.

41:17 Thank you. That's a good question. As you know, there is this transition from inflation accounting in the sense that a large chunk of our monetary gain line item is and many others. And hence, on the back of declining inflation rate, there will be some changes in the reported M&T figures, which will feed into the gross margin. So that's one impact. Second impact will be the synergy. We expect a similar margin around the last quarter. But you know, you're trying to balance a few things. One, must keep in market share. Second, fending off the pricing competition.

42:02 The synergies are very helping on this front to a large extent. and the panoply as well, to be honest. So they are mixed up impacts. And on a run rate and exchange margin, I mean, given our synergies are not completed as we think, we expect further improvement as we progress towards the next year. Because these, especially OPEC synergies, they come in an accumulated fashion. So, Whatever downsizing you're doing or headcount optimization you're doing is being accumulated and we haven't stopped in our synergy extraction throughout the year. So there are new sources, there are like different market factors which are driving new source of value creation.

42:55 so we expect further more but these are like being under further scrutiny let's see the last quarter and let us answer such questions I think the next year once the margins normalize whatever I will say I might overshoot or undershoot depending on the context to be very honest with you understood no problem thank you that was very helpful The next question comes from the line of Nekrasov, Maxim Musiti. Please go ahead. Yes, thank you very much for the presentation. A few questions on my side. So, first on the Turkish domestic volumes and pricing, right? So, as I understand, the volumes have been stabilized and you have performed the market in the third quarter.

43:48 But can you talk about the price increases? The price increases and they were below inflation and whether you have made additional price adjustments in the fourth quarter so far or you plan to do that? And what's generally the environment in terms of the pricing competition domestically? and maybe in terms of the timing maybe when do you expect the boardrooms to start and you know real sales to start be positively impacted by by the rate cuts we took in like early next year or maybe second half of next year yeah any any thoughts on that time could be appreciated thank you central bank continues on its path of tight monetary policy as you see so It's apparent that they don't want to concede on the inflation target to the extent they can. There are some conflicting drivers which preclude them to reduce the interest rate fast enough.

44:53 And this has a profound impact on consumer sentiment that continues and to induce people We will continue to reflect Price increases in line slash slightly higher inflation in terms of gross pricing, but in terms of discounts and or other back margin time discounts that we can do, these are we are dealing with, will be completely dependent on the market trajectory, which we expect to be slightly better than Q3.

45:38 We have, as I said, a new season that is coming out of Trias Plus, a bundling campaign. So, as you know, we drive the market in that respect in Turkey, so trying to make it as appealing as to the consumer as possible. The market situation, market dynamics are tough, but we are, in Turkey in particular, we are much more hopeful than Q3, I must say. understood and on the on the margin just to follow up on the previous question so 7% in the third quarter significant improvement and as I understand from your guidance you're looking for a similar margin in the fourth quarter should we expect the 7% to be a certain bottom in terms of you know margin of next year and should you be looking for if the margin over 7% And also, maybe if you can repeat, as I understood, if adjusted for inflation impact, the margin would be closer to 7.8%.

46:49 How does it compare to the previous year, if we exclude the impact of inflation accounting? And what would be the impact of the European acquisition versus underlying margin, if we compare to previous year? So, in terms of margin questions, they are very specific point questions, to be honest. As you know, we usually speak to our guidance here. Queen tries to back-solve the numbers, especially for the Q4, in line with the guidance. So, it comes with a standard deviation, even given the market dynamics. For the next year, we expect to continue the synergies, not at the same speed, to be honest, but as I said, it's a dynamic process.

47:39 I mean, historically, without like pre-inflation accounting period, our EBITDA margin has been around like 10%, 10, 10.5%, etc. Given the market conditions, that's not a very easy target to achieve going forward or in the terminal years. To be honest, I would expect a certain discount, even if inflation accounting is completely abolished. for a terminal year or for a run rate in the MTA margin. So that actually answers the question of one of your colleagues a few minutes ago. But we will also, given the recent and new market dynamics, we will also learn as we progress through. As you can see, our clear aim is to try to keep our margin As much as we can in line with our market share gain.

48:33 So that's not an easy dilemma to solve or equation to solve but I think in Q3 especially we've been pretty successful in keeping our market share low spot. but margins increasing so this is almost a fight that we're pulling here in terms of market share and keeping the profitability and as I said the synergies parity etc are like the most supporting factors in that respect understood and maybe just in terms of the guidance once again I responded to a similar question.

49:40 Yes, in Q3, it was a much better August than September. September in Europe, but not in Turkey. But in August, in both regions, it was a relatively strong period, as opposed to our learning from the last year. So that's why I think some of the margin improvement has been already done in that period, and hence we wanted to remain conservative. in terms of our full year guidance here. And mathematically speaking, like 6.5% as a point number would require a much higher margin of risk as you can bestow from the actual nine months so far.

50:27 Yeah, thank you. You're welcome. The next question comes from the land of... It's a follow-up question from the land of Hanra. They click around with JP Morgan. Please, go ahead. Thank you. I have a follow-up question on Turkey. In the discretionary sector, we start to observe some positive developments because of the wealth impact after the gold project. So, the auto sales are up and we start to observe housing sales are also going up. So, do you see some upside in the appliance sector as well coming from this positive wealth impact happening currently in Turkey? And do you think that if Turkey can return back to 9-month installment sales in appliances? Thank you.

51:15 So, thank you. Honestly speaking, that has been my expectation as well, the wealth effect from gold, but we don't see a tangible spending spree that is coming out of perceived wealth effects from increased gold prices. I don't think people are still in a saving mode. I couldn't quite catch your second question, apologies. So, do you think that Turkey can also return back to, like, nine-month installment sales in appliances? Because I think now you can buy the appliances, like, with four or five months installment, but nine months will make a big impact on the demand, so is there any chance that...

52:01 Yes, yes, we believe Unless there's an extra cost to the consumer, which is the case in our campaign, it's a major intruder in our, as far as we can see. And we always, and we've seen that that supports implementation, that implementation to support the top line in the domestic market. And also, we mentioned that before, that has a very minor financial impact. So, I couldn't understand, do you aim to keep the longer term duration in some terms or, I mean, maybe I missed the answer, because I just want, because you are currently selling in four or five months, right?

53:06 We started the online installment campaign as of October. Okay, so this has been already active. I saw that you saw this campaign ad and asking that question. No, no, no, no, I didn't say it. I just wondered if it's going to be on or not. So, okay, so it is already on. Yes, yes, it's on, it's on, it's on. Okay, but the interest cost is covered by you, right? Not by the consumer. It's a very minor impact to the P&L, I must say. But it's going to make a big impact on the consumer side, probably. Yes, that's our experience so far. Alright, so that could be one reason why you are optimistic also for Q4, I understand.

53:55 Yes. Alright, okay, thank you very much. Ladies and gentlemen, no further audio questions at this time and we will now move on to our webcast questions. The first webcast question comes from Sehat Kaya with YF and I quote Hi, thank you for the presentation. What is the level of price erosion in Europe in Europe terms and do you think planned steel tires could reverse the downward trend in pricing? and how it could affect your position in EU markets. That was the first question. So, for the first question, I think the question is on a year-to-date basis, right?

54:44 The price is on June. It depends on the product line, but it should be around 4-5% as far as we can talk. But honestly speaking, there are mean pricing levels in the market in terms of like net sales price is very different than the recommended retail price, etc. But I can say it's around 4-5% in human terms. We haven't observed, I mean, to be honest, the tariffs are so chunky and hectic, it's very hard to decipher a direct link or correlation to pricing. It's just, first of all, the consumer sentiment is relatively low, and as we mentioned before, Chinese competition is pretty high.

55:35 But, as I said, there's been a stabilization in the pricing level around the third quarter. Do you expect any incentive in domestic market in Q4 for white goods such as tax cuts and or change in credit card installments? We do not expect or we have not budgeted anything like this for the last quarter. The next question, the next webcast question comes from Chan of Grusel with Franklin Templeton and I quote Hi, thank you for your time. Two questions. First question. Can you elaborate performance or more affordable white goods product line offered in Europe?

56:26 When did you launch this product segment in EU? And is this launch gradual or all product lines are currently being sold? That was the first question. I couldn't quite get the question in terms of what Jan actually refers to as affordable white goods products. If it's related to the 2000 SQs and not affordable per se, there are some mass plus These are new product lines. These are the product lines that are cross-coursed from Turkish factories, which are relatively low cost, but the same quality as before, like either Whirlpool or Hardpoint products, so high margin, I must say, not affordable. Yes, this launch has been gradual, and in the third quarter, the increase has been from, let's say, 50% to 70% of the client products.

57:27 and we expect a similar increase in terms of percentage points in terms of incremental new product introduction. The performance of this product line is particularly conducive to our gross profit margin. These are like operational data that we can see on our daily lives, but I must say they are in particular, especially in lines, they are very, very promising. And second question. And as a continuation of the first question, what is your initial assessment for the performance of this product line, especially compared to Chinese product? Yeah, I think I respond to that. Okay, thank you. The next question, the second question, do you consider any external remedies to lower net debt in nominal terms and remedies such as asset or brand divestiture, etc.?

58:24 Thank you. Yes, as mentioned before, we are constantly reviewing from a strategic standpoint our non-core assets, be it brands and our real estate and those subsidiaries as well. And yes, we do consider, but it should come with the right price and right buyers. Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Alparslan for any closing comments. Thank you. Thank you very much for the questions. We can follow up if anything is missing and we hope to see you in our next webcast. Thank you.