2024 H1 Webcast Transcript

Operator

Hello and welcome to Şişecam H1 2024 Consolidated Financial Results Audio and Webcast Call. Throughout the call, all participants will be in a listen only mode and afterwards there will be a Q&A session. Please note, this call is being recorded and a replay option will be available for a full year after the event.

Today I am pleased to present Sisecam CEO, Mr. Görkem Elverici. Please begin your meeting.

Görkem Elverici

Thank you. Good afternoon, ladies and gentlemen, and welcome to the review of our 2024 First Half Earnings Results Webcast. I hope everyone is well since we last spoke. Today, I'm together with our CFO, Gökhan Güralp and our IR Director, Hande Özbörçek.

I would like to hand over to our CFO Mr. Güralp for the review of full year results.

Gökhan Güralp

Thank you very much Mr. Elverici. Good afternoon, ladies, and gentlemen. I would like to thank you all for joining us today.

In today's webcast, we will be first walking you through our 2024 First Half financial and operational results by presenting business lines' individual performances. Afterwards, we will be providing details regarding our cash position and capital allocation. Operational and financial review will be followed by Şişecam's approach to sustainability where we will update you about the recent developments.

As always, we will be pleased to take your questions at the end of the presentation. Please be reminded that the presentation and the Q&A sessions may both contain some forward-looking statements. Our assumptions and projections are based on the current environment and thus may be subject to change.

Before we start presenting our Company's 2024 First Half results, it is necessary to note that pursuant to the Capital Markets Board Decision, our Company is subject to IAS 29 inflationary accounting provisions, starting from 2023 year-end. Thus, 2024 First Half and comparative 2023 First Half financial results stated in this presentation contain the financial information prepared and audited in accordance with Turkish Financial Reporting Standards by the application of IAS 29 inflation accounting provisions and are finally expressed in terms of the purchasing power of the Turkish lira as of June 30, 2024. At the end of the operational and financial review section, you may see a display of our key financials without IAS 29 impact. While reviewing our audited figures, we will provide our unaudited key financials without the impact of IAS 29 as well.

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Slide Four displays our key financial results.

As can be seen on the first graph, we ended the reporting period with 86 Billion TL topline. In volume terms, sales went back to a rather normalized state, particularly in our domestic operations, and overperformed the levels recorded in the same period of the prior year across almost all business lines excluding Glassware. In spite of efforts to drive growth through strategic pricing and sales mix, product prices continued to move in a declining trend on the back of subdued demand and lower energy pricing environment. The discrepancy between the inflation rate and the changes in the value of reporting currencies in international operations relative to the Turkish Lira, caused by the implementation of inflationary accounting, adversely affected the revenue growth. Accordingly, consolidated revenue growth stayed behind the inflation rate, recorded at 72% based on period-end CPI indices and moved south by 17%. Excluding the impact of IAS 29, consolidated revenue grew by 41% year-on-year in Turkish Lira terms.

While navigating an extremely challenging environment characterized by limited global macro growth and escalating geopolitical tension, we continued to execute our investment plan. During the reporting period, we brought a new glass packaging furnace online in Eskişehir, completed the cold repair process of our glassware furnace and re-ignited it in the same region. To meet the demand in our production regions as well as in our expanded catchment area through international operations, we worked on aligning our sales mix with the evolving preferences of our client industries through dynamic inventory management techniques. These efforts led to an improvement in per ton cost of goods sold. However, this improvement did not suffice to offset the inflation rate we faced. Additionally, the rise in direct labor costs given wage increases implemented against the continuous erosion in the purchasing power, combined with the decline in global per ton product prices, negatively affected our gross profit margin. As a result, our gross profit margin was 23% compared to 28% in the same period last year. Excluding the impact of IAS 29, Gross Profit margin came down by 400bps year-on-year to 29%.

Operating expenses, which are composed of two-thirds selling and marketing expenses and one- third general administrative expenses, rose by 5% year-on-year, primarily due to increases in indirect labor costs. More specifically, transportation costs included in the selling and marketing expenses account for nearly 40% of our consolidated operating expenses. This is because our incoterms as our clients prefer us to deliver their orders to the final delivery point rather than collect them from our facilities. This sales model results in a higher proportion of selling and marketing expenses in our overall OPEX and leads to elevated nominal figures compared to a similar scale company operating under the ExWorks principle. Additionally, indirect labor costs, recorded under general administrative expenses, represent nearly 30% of our consolidated OPEX. This is attributed to our extensive operations, with production facilities in 14 countries and a presence in 21 countries, including sales offices. Despite a 5% nominal increase in OPEX, our OPEX to Revenue ratio ended up at 25%, higher than the previous year. This is because the year- on-year change in consolidated revenue was less than the inflation rate of the Turkish Lira. This discrepancy is due to a combination of inflation and changes in the value of reporting currencies for international operations, as well as a declining product pricing environment. Depreciation expenses to revenue ratio was 8%.

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EBITDA for the period amounted to 7.8 Billion TL, resulted in an EBITDA margin of 9%, down from 22% in the prior year. This decline was primarily due to lower reported net other income from main operations and net income from investments, largely impacted by fluctuations in FX rates on trade receivables and payables and on fixed income securities investments. As you may recall, in the first six months of 2023, Turkish Lira depreciated by 40% against the basket of hard currencies based on period-end FX rates, whereas this year the depreciation was only 16%. Excluding the impact of IAS 29, consolidated EBITDA decreased by 19% year-on-year with a margin of 15%.

Parent-Only Net Income was 4.9 Billion TL, down by 54% year-on-year, resulting in a net profit margin of was 6%, down by 450 bps from the previous year. We recorded a monetary gain of 7.5 Billion TL, up from 4.8 Billion TL due to an increased portion of debt used for working capital and tangible asset investment financing. This year, we recognized nearly 1 Billion TL deferred tax income, compared to a deferred tax expense of 5.4 Billion TL in the first half of 2023. The shift from a deferred tax expense to income was due to a change in accounting methodology with the implementation of inflation accounting effective from the end of June on the statutory accounts as well. Deferred tax assets related to investment incentives were utilized to offset income taxes for 2023. However, the change in accounting methodology led to a lower profit before tax, resulting in additional deferred tax assets in 2024. The effective tax rate for the period was 15%. Net income for the period with and without IAS 29 impact was 5 billion TL and 6.4 billion TL, respectively.

The limited increase in the exchange rate relative to the inflation and substantial rise in both production and operating costs have not only narrowed Turkish companies' competitiveness in export markets but also coupled with the subdued demand as well as decline product price trends have squeezed our profit margins. It is noteworthy that this situation has been intensified by Turkey's annual inflation rate of 72% and the Turkish Lira's annual depreciation of 26% based on period-end rates against the hard currency basket.

Moving onto Slide Five, we will review the segmental breakdown of our consolidated topline and

EBITDA.

Our portfolio of operations has remained balanced over the years yet the significant role of Chemicals business line, stemming of it being a pure hard currency play was further supported following our acquisition of a controlling stake in US natural Soda operations in 2021. Chemicals business line led in both revenue and EBITDA, contributing 23% to the former and 48% to the latter.

Architectural Glass operations was the second highest performer with 15 production lines in Turkey, Europe, India, Russia as well as a line in Egypt with partnership with Saint Gobain. This segment contributed 22% of total revenue and 30% of EBITDA.

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Among our five core business lines, Glass Packaging was the third largest contributor, accounting for 18% of both consolidated revenue and EBITDA. In contrast, Glassware operations contributed minimally to both consolidated topline and EBITDA this year.

Industrial Glass operations had a negative impact on both the consolidated revenue and EBITDA levels. This was primarily due to difficulties in passing through cost increases in our LTA-based Auto Glass operations with OEM clients and local currency depreciation lagging the cost inflation considering the pure hard currency nature of Auto Glass operation.

Energy segment, which includes our electricity trading operations, contributed 11% of total revenue but had a minimal impact on EBITDA.

On Slides Six and Seven, we aim to present the key takeaways regarding the first six-month performances of our main business lines individually. This will provide a concise summary of how our Glass and Chemicals operations have performed in comparison with the prior year from both operational and financial perspectives.

In the first half of the year, our Architectural Glass business line demonstrated resilience despite ongoing economic uncertainties, including widespread inflation, limited client access to external financing, and geopolitical tensions. We successfully navigated these challenges through strategic initiatives aimed at seizing opportunities in both construction and renovation markets domestically and internationally, leading to notable improvements in operational performance. Total production reached 1.37 Million tons, marking a 15% increase year-on-year. This growth was driven by the introduction of a new auto glass production line and strategic inventory balancing. Turkey remained our primary production hub, contributing 62% of our flat glass output, while EU-based facilities accounted for 22%. Production from Russia and India made up the remaining share. The combined production utilization rate improved to 83% from 78% in the same period last year.

Sales performance also showed positive trends, with consolidated sales volume rising by 16% compared to the prior year. Turkey led with 60% of the total sales volume and a 20% increase in sales, supported by heightened renovation activities and two additional import restriction measures effective from November 2023 and January 2024. Exports surged by 42%, driven by market expansion in Latin and North America with client portfolio expansion and the resolution of logistical issues from last year's earthquakes. The EU region experienced a 13% increase in sales volume, with growth driven by resilient renovation activities despite a general downturn in new construction. The EU's share of consolidated sales rose to 23%. Sales from Russia and India grew by 9% year-on-year, maintaining a combined share of 17% of consolidated sales.

Pricing pressures persisted throughout the first half of the year. EUR-based product prices declined by an average of 17% across all regions, due to the availability of low-cost products, decreased energy pricing, and subdued market demand.

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As a result, revenue from the business line decreased by 11% year-on-year to 18.5 Billion TL, and the EBITDA margin fell to 12%.

Industrial Glass Business Line, which includes Automotive Glass, Encapsulation and Glass Fiber experience a mixed performance with both growth and challenges across its sub-segments.

Automotive glass and encapsulation operations, which constitute majority of the division's revenue, saw a 4% year-on-year increase in sales volume. This growth was driven by the continued recovery in automotive industry and order-booked aligned purchases from OEM clients. Auto Glass Replacement channel, contributing 15% to the divisions' revenue in the reporting period, supported this positive performance.

In our Glass Fiber operations, we recorded 16% surge in sales volume compared to the same period last year, thanks to mainly portfolio extensions and acquisition of new customers in export markets. However, pricing pressures remained a consistent challenge with both domestic and regional markets facing downward pricing trends due to intense competition and low-cost imports. Glass Fiber operations have a relatively limited impact on Şişecam's consolidated performance, contributing 11% to the Industrial Glass business line revenue.

As a result, the revenue recorded by the business line decreased by 1% year-on-year to 9.6 Billion TL yet it had a negative EBITDA margin of 5%.

Sales performance was mixed in our Glassware business line. Domestic sales remained flat year- on-year due to mainly lower performance in the retail wholesaler channel, which accounts for 50% of domestic operations in unit terms. Contributing factors included a slowdown in new business openings, high interest rates, and difficulties accessing credit. Meanwhile, targeted marketing strategies, such as Ramadan and Mother's Day promotions, effectively boosted sales in national retailers and store channels. The Horeca sector performed as expected seasonally and customized B2B campaigns provided a lift despite a generally sluggish global beer industry.

International sales varied by region, ending the reporting period with a 5% decrease in sales volume compared to the prior year. The MEA region saw increased sales, with markets such as Egypt, Iraq, and Morocco benefiting from successful campaigns. Conversely, Russia faced constraints; although Horeca and B2B channels remained active, overall sales were limited by declining consumer spending on non-essential products and overstocked retailers. The broader European market also faced challenges, with cost-of-living issues impacting retail channel sales, though growth in the discount sector partially offset these declines.

Production levels remained stable throughout the first six months, reflecting a cautious approach amid ongoing uncertainties. The decline in consolidated sales volume was limited to 3% year-on- year. Pricing strategies were adjusted dynamically in response to regional inflation and

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production costs. Mid- to high-teen price increases, particularly in the domestic market, were implemented to address cost pressures and sustain revenue.

Glassware business line achieved a topline of 11 Billion TL, while the EBITDA margin decreased to 0.4%.

In the first half of the year, we effectively leveraged our increased Glass Packaging production capacity and adapted our pricing strategies to sustain growth despite external challenges. Strong domestic performance and resilient international sales underlined the business line's ability to navigate a complex macroeconomic environment and set a strong foundation for continued success in the remainder of the year.

With an average CUR of 93%, our Glass Packaging production capacity expanded, achieving a total output of 1.18 Million tons, a 7% increase year-on-year. This growth was driven by the introduction of our 5th furnace at Eskişehir Plant in Turkey, the successful reignition of a furnace at Kirishi Plant in Russia, and last year's capacity increase at Mina Plant in Georgia. These enhancements, coupled with a low base, allowed us to meet glass packaging demand efficiently. The production mix was balanced with Turkey-based facilities contributing 57%, Russia 41%, and Georgia the remainder.

Sales performance mirrored these positive production trends with consolidated sales volume growing by a robust 10%, supported by strong domestic demand and strategic market adjustments. 20% year-on-year surge in domestic sales was driven by increased demand in non- alcoholic beverage sector. Despite challenges in international markets, including weaker demand in Europe and competitive pricing pressures, we achieve a solid volume rise of 5% in international operations. This growth was particularly notable in Russia, where the negative impacts of higher taxes on wine and champagne were offset by increased demand for beer, thanks to a higher mobility, a shift in consumption preferences, and the existing can shortage.

We implemented strategic price increases to address cost pressures, resulting in a moderate rise in average per-ton prices. While prices were slightly elevated compared to the full year 2023, they remained below the levels of the same period last year due to ongoing competitive dynamics and limited consumer appetite.

As a consequence, Glass Packaging business line reported 15.8 Billion TL revenue, a decrease of 13% year-on-year and 9% EBITDA margin.

Lastly, Chemicals segment, which includes soda ash and chromium chemicals operations, achieved net external revenue of 19.8 Billion TL and an EBITDA margin of 18%.

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In the first half of the year, the business line experienced a complex and evolving market environment for both soda ash and chromium chemicals, characterized by mixed demand trends, regional variations, and ongoing pricing pressures.

In Mainland China, which is a net importer, soda ash demand improved towards the end of the first quarter and continued to strengthen into the second quarter. This growth was driven by increased activity in electric vehicle and solar glass projects, although the region faced supply constraints due to maintenance work and low-capacity utilization. Conversely, demand in Europe remained weak, and subdued in other regions. However, we saw strong domestic growth driven by heightened demand from the flat glass and glass packaging industries. As a result, our consolidated soda ash sales volume increased by 1% year-on-year. Despite temporary tightness in some regions, pricing for soda ash continued to be under pressure compared to the elevated price levels of the prior year through which the market moved south from the peak of 2022 where the energy prices had skyrocketed, and the seller market conditions were fully visible in global sense. The normalization trend led to approximately 30% lower average global USD prices year- on-year.

Despite slower domestic sales, due to currency and interest rate challenges, chromium chemicals operations benefited from the end of logistical constraints and a recovering sector outlook, resulting in significant growth in sales volume, especially in international markets. This growth was driven by an expanded client portfolio and favorable market conditions. Pricing remained relatively stable, with lower energy costs offsetting fluctuations caused by changes in the sales mix. Although sales prices decreased year-on-year, the pricing environment remained balanced, reflecting a recovery from the prior year's volatility.

Moving onto Slide Eight, with our production facilities located in 14 countries, diversified operations portfolio, and wide range of products, we continue to cater to our clients across the globe. In the first half of 2024, international sales corresponded to 61% of our topline. Export revenue, 56% of which was recorded on sales to Europe, stood at 492 Million USD. Including revenue generation of Şişecam facilities located in the region, Europe accounted for 31% of our topline. US market exposure through sales from US soda ash facility as well as exports, stood at 12%. Accordingly, our developed markets' exposure came in at 43%.

On Slide Nine, our strong liquidity position was sustained in the reporting period. Following the Eurobond issuances executed by our fully owned subsidiary Sisecam UK Ltd. and the tender of 328 Million USD worth Sisecam 2026 Notes in the second quarter, we ended the reporting period with 2.1 Billion USD cash and cash equivalents. This total includes nearly 100 Million USD financial investments, primarily consisting of a Turkish corporate Eurobond and the Eurobonds from a Turkish and a foreign financial, maturing in 2024 and the subsequent two years. Outstanding debt increased to 4 Billion USD, with a term structure of 75% long-term to 25% short-term. The interest rate structure comprised of 92% fixed to 8% variable, with 80% of debt denominated in hard

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currency. The hard currency share of cash and cash equivalents, including financial investments, stood at 88%. Our net debt position amounted to 1.9 Billion USD, resulting in a leverage ratio of 2.6x. While this leverage is slightly above our comfort zone for high capital expenditure periods, it remains within the limits of our covenants. On the other hand, based on non-IAS 29 results, which provide a more accurate data to follow the trend in our business' operational performance and financial position, reporting period-end net debt indicated a leverage ratio below 2x. Our net long FX position was 927 Million TL with 465 Million long in USD and 298 Million short in EUR as of the end of June.

Moving onto Slide Ten, we recorded 10.8 Billion TL CapEx compared to 13 Billion TL in the prior year. The distribution of CapEx across business lines is as follows:

• Glass Packaging business line led the capital expenditures with a 35% share of the total. Key investments included the greenfield facility project in Hungary and the payments for the planned cold process in Turkey, scheduled for this year.
• Architectural Glass segment's capital expenditures accounted for 27% of the total. Investments primarily focused on the new greenfield flat glass facility and furnace, as well as a new patterned glass furnace in Tarsus.
• Chemicals segment represented 12% of the total CapEx, with investments aimed at operational efficiency and maintenance at our plants in Turkey and USA.

We ended the reporting period with a cash inflow from operating activities of 7.4 Billion TL compared to 17.8 Billion TL in the prior year mainly due to lower reported net profit for the period and a significant reduction in adjustments on tax (income)/expenses given the accounting methodology change on statutory statements. When adjusted for the monetary gain on cash and cash equivalents, we recorded a negative free cash flow of 21.2 Billion TL.

On Slide Eleven, you may see our key financials without the impact of IAS 29, which we have already walked you through at the beginning of this webcast, while we were providing details on our audited financial results. Yet we would like to add that our total assets and total equity have grown by 23% and 6%, respectively compared to 2023 year-end.

In the following section, we will update you with some key developments in our sustainability agenda.

On Slide Thirteen, we may have a quick look to our 2030 Sustainability Strategy .

Moving onto Slide Fourteen, We would like to share with you some key developments from the first and second quarters of 2024 that support our sustainability agenda:

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• We held the Şişecam Global Supplier Summit with the theme "United to Collaborate" where we met with our partners. The summit prominently featured the theme of sustainability. The sustainability-focused session comprehensively covered topics such as reporting and disclosure requirements related to sustainability, digital solutions, and the critical role of supply chain collaboration.
• We have rejoined Glass for Europe, the trade association representing the flat glass sector in Europe. Glass for Europe brings together multinational companies and thousands of SMEs across Europe to represent the entire building glass value chain.
• In addition, during the "ESG Emerging Markets Corporate Days" organized by Barclays in
  June 2024, we engaged with 13 investors across four sessions. At this event, we shared
  Şişecam's sustainability strategy, 2030 and 2050 targets, ongoing projects related to these targets, developments for 2022-2023, performance on ESG platforms, key components of our glass decarbonization roadmap, and the anticipated environmental benefits of our US soda ash projects with the investors.
• The 15th European Society of Glass Technology Conference took place in the United Kingdom from July 15-19. At the sustainability sessions of the conference, our teams presented on "Sustainability at Şişecam: Glass Recycling with Its Fundamental
  Requirements" and "Recycled Glass Integration: Fundamental Research for Optimal Batch Composition".
• In April 2024, we became a member of the European Industrial Alliance on SMRs (Small Modular Reactors), a platform established by the European Commission to support the deployment of the first SMR units in Europe by the early 2030s.
• We are pleased to announce that our 2023 Sustainability Report, themed "Together For A Sustainable Future," has been published on our corporate website. In this 11th edition of our report, you will find detailed information about the projects and solutions we have implemented under our CareforNext strategy. Our GRI-compliant Sustainability Report includes third-party assurance for 10 environmental and social parameters. I would like to share highlights of the prominent projects and progress made in 2023 as featured in our report.

Moving onto Slide Fifteen, Our CareforNext sustainability strategy, with its three main focus areas, guides Şişecam's sustainable transformation. In 2023, under our Protect the Planet pillar, which focuses on energy consumption, reduction of greenhouse gas emissions, water management, waste management, and renewable energy usage, we achieved the following:

• We completed our work identifying the risks and opportunities related to climate change, based on the framework of the Task Force on Climate-related Financial Disclosures (TCFD).
• We kicked off our Low-Carbon Roadmap project for our glass production processes.

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