Speaker #1: Seat.
Speaker #2: Thank you very much. Good morning and good afternoon, ladies and gentlemen. Welcome to our third quarter 2026 financial results webcast. This presentation contains the company's financial information prepared according to TFRS by the application of IS29 Inflation Accounting Provisions.
Speaker #2: Here are the highlights of the third quarter of 2026. The generated 139 billion Turkish lira in consolidated revenues reflecting a 13.9% real year-on-year decline as demand conditions remain soft, and competitive intensity persisted across several markets.
Speaker #2: Despite the top-line pressure, gross margin remained resilient at 29%, broadly stable year-on-year, supported by procurement actions, material improvement initiatives, and disciplined cost management. Adjusted EBITDA margin was 5.3%, broadly stable quarter-on-quarter but 1.7% points below last year.
Speaker #2: Beyond wage pressure and lower cost absorption, the ongoing regional conflict increased oil prices, oil-linked material cost, and freight and logistics expenses. We estimate the full-year impact of these war-related cost pressures on operating margin at around 1.5% points.
Speaker #2: Within our internal adjustment framework, roughly two-thirds of this impact is captured, excluding the benefit of material improvement projects. We continue to simplify and optimize our portfolio, doing the quarter non-core asset monetization generated 61.4 million dollars from the sale of our Coach Finance One stake, and 1.41 billion Turkish lira from the Taşdelen Properties sale.
Speaker #2: Starting from this quarter, we aligned the free cash flow bridge with our management reporting methodology to better reflect underlying operating cash generation. Under this presentation, free cash flow improved year-on-year to negative 5.7 billion Turkish lira in 9 months 2026, from negative 11 billion Turkish lira in 9 months 2025.
Speaker #2: Cash conversion and the leveraging nevertheless remained key priorities. Full MGL adjusted leverage stood at 4.1 times as of the end of the third quarter, while leverage remains elevated, reducing indebtedness and strengthening cash generation remain key priorities.
Speaker #2: The increase in leverage should also be viewed together with seasonal working capital requirements, which remain a key driver of balance sheet dynamics. At the same time, capital spending discipline continued.
Speaker #2: Capex to sales declined to 2.4% in 9 months 2026, from 2.9% in 9 months 2025. We're operating in a clear cash preservation mode with strict capex control, non-core asset monetization, and production levels aligned with demand to control both raw material and finished goods inventories.
Speaker #2: In the third quarter, consolidated revenues declined by 13.9% in real terms year-on-year, mainly reflecting weak demand, and unfavorable price and product mix, and intense international competition.
Speaker #2: Gross margin was broadly stable at 29%, down only 0.1% points year-on-year. Successful raw material management, a diversified supplier base, and material productivity actions helped absorb significant war-related pressure, including higher oil prices and oil-linked material costs.
Speaker #2: Adjusted EBITDA margin declined by 1.7% points year-on-year to 5.3%. The pressure reflected lower volumes and wage inflation, together with higher transportation and logistics expenses, and a broader cost impact on the ongoing regional conflict.
Speaker #2: For the full year, we estimate the combined war-related impact on operating margin at around 1.5% points. Within our internal adjustment framework, roughly two-thirds of this impact is captured, excluding the benefit of material improvement projects.
Speaker #2: Gross margin resilience, therefore, needs to be viewed together with the pressure from oil, oil-linked materials, freight, and logistics costs. Here you can see our third quarter revenue bridge on the left-hand side.
Speaker #2: In euro terms, consolidated revenues declined by 2.4% year-on-year. International revenues declined by 7.3%, while Türkiye revenues increased by 8.3%, with the difference between the euro and real Turkish lira performance mainly reflecting the currency translation impact.
Speaker #2: In real Turkish lira terms, international sales declined by 18.2% year-on-year, and Türkiye sales declined by 4.5%. On the right-hand side, Türkiye represented approximately 35% of third quarter revenues, compared with around 31% in the prior year quarter.
Speaker #2: Western Europe accounted for roughly 32%, while CIS and Eastern Europe represented around 15%. Asia Pacific represented approximately 8% of third quarter revenues, while Africa and the Middle East, together, accounted for around 9%.
Speaker #2: Overall, the regional mix reflects the relative resilience of Türkiye and Africa, while international revenues continue to face pressure from weak demand and competitive pricing conditions.
Speaker #2: On the left-hand side, you can see how our sales volumes in Türkiye performed relative to the market across our key product categories. In MDA 6, our volumes increased by 7% year-on-year in the first 8 months, while the market declined by 4%.
Speaker #2: The outperformance was even more visible in July and August, when our volumes increased by 16% compared with 7% market growth. In air conditioners, both the market and our volumes contracted significantly.
Speaker #2: In the first 8 months, our volumes declined by 4% compared with a 7% market contraction, and in July and August, our volumes declined by 20% versus a 21% decline in the market.
Speaker #2: The AC weakness was largely linked to the season, we entered the high season with inventory, but weather conditions were not as hard as expected, and the anticipated sales crew did not materialize.
Speaker #2: Sales teams, therefore, shifted greater focus toward the main appliance categories to compensate for this shortfall. TV performance remained relatively resilient. Our volumes increased by 3% in the first 8 months, while the market declined by 1%, and we continued to outperform in July and August.
Speaker #2: Türkiye revenues were 48.5 billion Turkish lira in the third quarter, down 4.5% year-on-year in real Turkish lira terms, but up 8.3% in euro terms.
Speaker #2: Pricing supported the revenue performance, while product mix continued to improve. Overall, Türkiye continued to outperform the market despite softer demand, supported by broad-based market share gains, discipline category management, and strong execution across channels.
Speaker #2: Looking ahead to the 2027 AC season, our intention is to avoid front-loading inventory and instead purchase more closely in line with actual needs as demand develops.
Speaker #2: This should reduce the preseason inventory buildup. Beyond the operational benefits, this approach could also support working capital efficiency and cash generation. Across Europe, we saw some signs of market stabilization, but year-to-date market value and our market shares remain under pressure.
Speaker #2: In Western Europe, MDA 6 unit demand increased by 1.6% year-on-year in the first 8 months, while market value declined by 0.7% in euro terms, reflecting continued pricing pressure.
Speaker #2: Growing markets included Portugal, Netherlands, Spain, Italy, and Great Britain, while Germany and Austria remained weak. August was notable as both unit demand and euro market value turned positive after an extended period of weakness.
Speaker #2: Beko Group maintained its market-leading position in Western Europe; however, both group and Beko brand unit shares remained below last year. We therefore continue to focus on execution, profitability, and reinforcing our market position rather than interpreting the market improvement as a share recovery.
Speaker #2: In Eastern Europe, MDA 6 unit demand was broadly flat in the first 8 months, Romanian remained the main drag on the region, while unit demand in Ukraine was also below the prior year level.
Speaker #2: Beko Group sustained its market-leading position in Eastern Europe amid continued market and pricing pressure. Beko brand unit share remained broadly stable year-on-year, supported by share gains in Romania.
Speaker #2: Europe remains our largest regional exposure, and competitive intensity and pricing pressure continue to weigh on revenues and operating profitability. Our commercial turnaround is focused on SKU rationalization, elimination of reactive promotional campaigns that undermine base pricing, prioritizing value over volume, including exiting nonprofitable OEM deals, reviewing service and warranty economics, and tighter alignment across commercial, supply chain, and product management.
Speaker #2: Africa and the Middle East showed greater resilience during the quarter, while the operating environment across APAC remained challenging. In Africa, Defy delivered 4.6% year-on-year volume growth and 9.8% revenue growth in euro terms.
Speaker #2: Local currency revenue was broadly flat and operating profitability remained under pressure. At the same time, Defy's MDA 6 market share reached 43.6% in January through August, up 2.4 percentage points year-on-year.
Speaker #2: Middle East sales improved by 31% quarter-on-quarter but remained 8% below last year, as demand stayed soft amid ongoing geopolitical tensions. Beko Egypt continued its strong recovery, with third quarter USD net sales up 119.8% year-on-year and operating profit turning positive versus last year.
Speaker #2: Market shares also improved materially in the first 8 months. Turning to Asia Pacific, regional sales remained under pressure, with the broader APAC region down almost 13% year-on-year in euro terms.
Speaker #2: Algeric Hitachi sales declined by 13% year-on-year and 8% quarter-on-quarter, reflecting continued weakness across several regional markets. Vietnam remained resilient with 26% year-on-year growth, while Hong Kong was slightly above last year.
Speaker #2: In Bangladesh, euro revenues increased by 7.1% year-on-year, but weaker volumes in several major categories and higher financing costs continued to pressure profitability. Pakistan delivered strong sales growth, with Thailand's volumes up 14.6% year-on-year and euro revenues up 34.4%.
Speaker #2: However, operating profitability declined due to air conditioner installation costs and higher freight costs. India also delivered strong growth, with volumes up 22% year-on-year and euro revenues up 23%, alongside market share gains in refrigerators and washing machines.
Speaker #2: Overall, strong sales momentum in Africa-Pakistan and India partly offset the pressure in the Middle East and broader APAC region. Raw material cost pressures remained elevated in the third quarter, but procurement actions continued to mitigate the impact.
Speaker #2: Average metal prices eased slightly quarter-on-quarter, with the market index at around 110 in three-quarter 2026 versus 111 in the second quarter of 2026. However, prices remained well above last year amid continued volatility in copper and aluminum and trade-related cost pressures.
Speaker #2: Steel agreements secured early, together with longer-term contracts, larger protected our third-quarter procurement costs from subsequent market price increases. Hedging alternative sourcing and material improvement initiatives also continued to reduce exposure to metal price volatility.
Speaker #2: Plastics showed a more visible sequential easing, with the market index declining to around 112 from 123 in the second quarter, but prices remained materially above last year.
Speaker #2: Earlier procurement actions and long-term agreements helped contain the increase in chemical input costs, since mid-year procurement has also shifted toward shorter positions to preserve flexibility and support inventory reduction.
Speaker #2: Feedstock pressures re-emerged toward the end of the quarter into October, so chemical raw material costs remained elevated. With that, I leave the floor to Milan for the summary financials.
Speaker #1: Thank you for the recorded 10039 billion Turkish lira in consolidated revenues in the third quarter, representing a 14% real decline year-on-year and a 7% decline quarter-on-quarter.
Speaker #1: Gross profit was 40.3 billion Turkish lira, with gross margin growing stable at 29% compared to 29.1% year ago. Cost discipline, material productivity initiatives, and spare bulk currency dynamics helped offset a more challenging commercial environment and regional conflicts related to pressures for oil and oil-linked material costs.
Speaker #1: Operating profits declined to 113 million Turkish lira, corresponding to 0.1% operating margin. Lower wins and continued pricing pressure were compounded by elevated operating expenses, including higher freight and logistics costs, linked to the ongoing regional conflicts, as well as weaker cost absorption.
Speaker #1: Net other income amounted to 1.6 billion Turkish lira during the quarter. Baseline includes the impact of coach financement state disposal and touched on property sale, executed as part of our ongoing strategy in non-core estate disposals.
Speaker #1: Net financial expenses were 10.3 billion Turkish lira, increasing by 9% year-on-year, mainly reflecting the prevailing interest rate environment and funding costs. Monetary gains amounted to 3.8 billion Turkish lira, compared with 4.8 billion Turkish lira in the prior year quarter.
Speaker #1: As a result, profit before tax was negative 4.7 billion Turkish lira and net loss was 6.2 billion Turkish lira, corresponding to a negative 4.5% net income margin.
Speaker #1: EBITDA was 5.9 billion Turkish lira, with a 4.2% margin, while adjusted EBITDA reached 7.4 billion, with a 5.3% margin. Adjusted EBITDA declined by 35% year-on-year, mainly reflecting weaker volumes, regional pricing pressures, and elevated operating expenses.
Speaker #1: Including higher oil and oil-linked material costs, as well as elevated freight and logistics expenses arising from regional geopolitical developments while the margin remained broadly stable quarter-on-quarter.
Speaker #1: For the full year, we estimate these geopolitically driven cost pressures to affect operating margin by around 1.5 percentage points roughly 2/3 captured within our internal adjustment framework, excluding the benefit of material improvement projects.
Speaker #1: For the first 9 months, revenues were 435.3 billion Turkish lira, adjusted EBITDA was 24.7 billion Turkish lira, and net loss was 5.8 billion Turkish lira.
Speaker #1: While profitability remains below our expectations, procurement actions and material productivity initiatives helped preserve gross margins. At the same time, we remain in a clear cash preservation mode, through strict CapEx controls, non-core estate monetization, and tighter alignment of production with the meant to control raw material and finished goods inventories and support cash generation.
Speaker #1: As of September, adjusted net tax stood at 211.8 billion Turkish lira, compared with 171.6 billion Turkish lira at the end of 2025. We posted leverage was 6.3 times.
Speaker #1: Inventory MGL adjusted leverage stood at 5.2 times, while full MGL adjusted leverage was 4.1 times. The full MGL adjusted measure has been calculated on an illustrative basis, reflecting the presentation principles of IFRS 18, which will be applied starting from 2027 onwards.
Speaker #1: Leverage remains above our targeted level, and de-leveraging continues to be a key priority. Our focus is on improving cash generation, releasing working capital, and reducing indebtedness.
Speaker #1: Our liquidity position remains supported by 77 billion Turkish lira of cash, equivalent to approximately 1.4 billion euros. Total debt stood at 288.8 billion Turkish lira, corresponding to 5.2 billion euros.
Speaker #1: Cash remains diversified across currencies, with 29% in euro, 14% in US dollars, 33% in Turkish lira, and the balance in other currencies. On the debt side, euro denominated borrowings represented 51% of total debt, while Turkish lira and US dollar borrowings accounted for 21% of 14%, respectively.
Speaker #1: 37% of the debt portfolio matches in 2026, and 38% in 2027, with the remaining mattresses extending into 2028 and beyond. The average duration of the consolidated debt portfolio was 0.9 years.
Speaker #1: Given the relatively short mattress profile, extending duration and managing refinancing requirements remain important priorities. At the same time, we continue to maintain access to diversified domestic and international funding sources.
Speaker #1: Average effective funding costs for Turkish lira, euro, and US dollar borrowings, including loans and bonds, were 34.9%, 4.8%, and 8.4%, respectively. Since December 2023, we have also been utilizing one year Chinese yuan swap-backed rediscount loans under the swap agreement between the central banks of Turkey and China.
Speaker #1: In 9 months, 26 total utilization reached approximately 164 million dollar equivalent at an average interest rate of 4.66%. Compared with US dollar borrowing cost of around 8.5%, this provided approximately 6 million dollars of interest cost savings.
Speaker #1: In May 2026, Beko BD also completed 225 million euro private placement issuances, with 2.3 years maturities. This proactive pre-funding boosted liquidity and preserved financial flexibility ahead of upcoming funding needs in a challenging environment.
Speaker #1: Strengthening the balance sheet, preserving liquidity and improving cash conversion remains central to our financial priorities. Starting from the top left, adjusted EBITDA margin declined from 7% in 3Q25 to 5.3% in 3Q26.
Speaker #1: Gross margin was broadly stable and had only unlimited negative effect on the bridge. The main pressure came from operating expenses, which reduced the margin by around 2 percentage points.
Speaker #1: One of adjustments and amortization provided partial offsets. At the top right, net working capital to sales stood at 21.9%, broadly unchanged from 21.8% at the end of 2025, and in line with our guidance of around 22%.
Speaker #1: Moving to the bottom left, CapEx to sales declined to 2.4% in 9 months, 26 from 2.9% in 9 months, 25, reflecting tighter investment prioritization and discipline capital allocation.
Speaker #1: Starting from this quarter, the free cash flow bridge is aligned with our management reporting methodology, starting from adjusted EBITDA and using core net working capital from CMB Financial statements.
Speaker #1: On this basis, free cash flow improves the negative 5.7 billion Turkish lira in 9 months, 26, from negative 11 billion Turkish lira in 9 months, 25, despite lower adjusted EBITDA as the core working capital's rate narrows to 19.8 billion Turkish lira from 27.4 billion Turkish lira.
Speaker #1: We still boast inventories and trade tables remained cash outflows, but each improved year-on-year. The receivables outflow narrowed to 8 billion Turkish lira from 11.4 billion; the inventory outflow to 0.6 billion Turkish lira from 3.5 billion; and the trade tables outflow to 11.3 billion Turkish lira from 12.5 billion.
Speaker #1: CapEx cash outflow declined to 10.7 billion Turkish lira from 14.1 billion. In short, stronger working capital management and disciplined CapEx, more than offset, lower adjusted EBITDA.
Speaker #1: We remain in a clear cash preservation mode, strict CapEx control, and core asset monetization, optimizing production levels to control raw material and finished goods inventories, working capital release, and de-leveraging remain our key priorities.
Speaker #1: With that, I will now hand it over to Barış Bey for our guidance. Thank you.
Speaker #2: Thank you, Milana. Considering continued pricing pressure, elevated operating costs, and uncertainty in the global demand environment, we are revising our adjusted EBITDA margin and CapEx guidance while maintaining our revenue and net working capital outlook.
Speaker #2: We continue to expect revenues in Turkey to decline by a single-digit percentage in Turkish lira terms, while international revenues are expected to decline by a low double-digit percentage in FX terms.
Speaker #2: We are revising our adjusted EBITDA margin guidance to 5.75% to 6%, reflecting softer demand, continued pricing pressure, and a higher operating cost base across several regions.
Speaker #2: We continue to target net working capital to sales of approximately 22%, improving cash conversion and releasing working capital through the final quarter remain key priorities.
Speaker #2: We are also lowering our full-year CapEx guidance to 200, 225 million euro from approximately 250 million euro, reflecting tighter investment prioritization and continued capital discipline.
Speaker #2: The sale of our shares in the Arçelik Hitachi joint venture remains subject to regulatory approvals and is expected to close within 12 months of the signing of the share purchase agreement on April 21, 2026.
Speaker #2: Accordingly, we have not reflected any related impact in our guidance. For the remainder of the year, our focus is clear: restoring profitability while remaining firmly in cash preservation mode.
Speaker #2: This means strict CapEx control, continued non-correlated monetization, production optimization to control raw material, and finished goods inventories, working capital release, and de-leveraging. While the operating environment remains demanding, we continue to take decisive action on the factors within our control.
Speaker #2: Now we can proceed to the Q&A.
Speaker #3: The first question is from the line of Hasan Bey. Yali Ceran, with JP Morgan. Please go ahead.
Speaker #4: Hello, good afternoon, Barış Bey. I'm Yali Ceran. Thank you very much for the presentation. I just want to make a follow-up on three points on the cash flow side.
Speaker #4: You highlighted that you made some adjustments on the free cash flow calculation. Which I didn't fully understand what type of adjustments you have done.
Speaker #4: Can you please repeat this? And I mean, I think you are looking into the trading working capital only, if I am not, I mean, if I didn't understand wrongly.
Speaker #4: And on your trading working capital, there doesn't seem to be any cash outflow because your working capital is around like 2.7 billion. Which is same with 2025.
Speaker #4: So what is that cash outflow is coming from? And on the Chinese competition, you have highlighted that there is still intense competition, but on the in the results of the Chinese companies, we saw that the Chinese manufacturers have started to adjust the prices.
Speaker #4: By around 5 to 10 percent across Europe, US, and also the MENA region. So they seem to be focusing more on pricing as well, but they are highlighting the demand that week.
Speaker #4: So I try to understand what the issue in Europe is. Is it the demand or the pricing, actually? And the third question is about the Hitachi sale.
Speaker #4: I mean, your leverage is still quite high. How much impact do you expect from the sale on your leverage? Because I think Hitachi also should have some EBITDA.
Speaker #4: Thank you.
Speaker #2: Sure. Thank you. As it relates to free cash flow adjustments, we have a detailed breach. I mean, we can take you offline in any case, but in summary, we stripped out non-operational items such as restructuring-related cash outflows, or cash outflows related to prepaid expenses, other working capital items that are not considered as part of the trade operating working capital.
Speaker #2: Litigation claims, etc. So we provided a fully sanitized view of operational free cash flows so that you understand how much cash is left to serve both credit holders and equity holders so the cash generation from the core operational activities.
Speaker #2: But as I said, we can take it offline to guide you through how we bridge actually the free cash flow as for the old method versus the new method.
Speaker #2: Secondly, it's totally a pricing issue. We also hear that in some other regions where prices can be passed through to the market, all players have increased, such as MENA.
Speaker #2: In Europe, we haven't seen that yet. But that's our anticipation in any case, given Chinese producers are also heavily impacted by raw material increases.
Speaker #2: Oil derivatives and oil prices increases. We understand that as per the anecdotal evidence, it's almost one-third of industrial companies in China operating at a loss, actually.
Speaker #2: But we haven't seen the impact on the European prices per se. But in any case, the easiest or the closest anticipation might be that the prices will be stabilized.
Speaker #2: And as I repeated in our previous sessions, we actually see some signs of stabilization. As per the price levels, having said that, when you consider it on a year-on-year basis, there is a remarkable decline in the average prices.
Speaker #2: In Hitachi, we expect around 200 million dollars of 206, to be precise, cash inflow as per the first installment. We have recovered interim dividends from the assets.
Speaker #2: We expect the transaction to be closed as I said, as I repeated, as part of the script within 12 months and it can be as near as towards year-end, to be very honest with you.
Speaker #2: So we expect this to reduce leverage, but this will depend on the consolidation of the net cash that is within Hitachi as well. So there will be a net impact given we already consolidate Hitachi as part of our net cash results.
Speaker #2: But it can be as near as this year-end as we progress through the closing of the transaction.
Speaker #4: So you are going to receive 205 million dollars by, I mean, and the rest is going to be in three years, I understand. And Hitachi is fully consolidated, so the leverage ratio can decline from, I mean, if it happened today, will it decline from 4.1 to, I mean, I try to understand what could be the impact on the leverage ratio after the sale.
Speaker #2: You can judge or guide from the EBITDA number and but as I said, the strongest quarter is the last quarter because October and November are quite high seasons for Europe.
Speaker #2: And we will be let's say geared towards year-end in terms of early collections, factoring, all sorts of financial instruments, plus organic collections. And inventory reduction, as we progress through year-end.
Speaker #2: So there will be a many mix of factors that will impact the leverage levels. And Hitachi, of course, will alleviate some of the leverage problem, but the majority of the improvement will come from the release of working capital towards the year-end.
Speaker #2: And let's say frozen capex, as I can label it, over the last quarter of this year.
Speaker #4: All right. Okay. Thank you very much.
Speaker #2: You're welcome.
Speaker #1: The next question is from the line of Evgeny Ambestrova with Barclays. Please go ahead.
Speaker #4: Hello. Good afternoon. And thank you very much for the presentation. I have two questions. So my first question is, you mentioned the impact of war-related impact on margins of 1.5 percentage points.
Speaker #4: And then you mentioned that two-thirds of it is captured, but I couldn't understand what you meant by that, if you could please repeat that point.
Speaker #4: Would be very helpful. And my second question is, now that you've introduced another kind of leverage metric with a full MGL adjusted leverage, could you please remind us what metric are covenants based on?
Speaker #4: Thank you.
Speaker #2: Sure. So starting with the war-related margin impact, I'm not sure whether we have screened the results of our competitors, but for example, Electrolux, they add back the entire impact of war.
Speaker #2: For example, I mean, if they budget a certain oil price, and if it ends up at a higher level, they just add it back straight.
Speaker #2: But we do not do that. So we don't add back the entire margin impact. But we strip out the positive impact of material improvement projects in particular, which negate some of the negative impact of the increases in raw material prices.
Speaker #2: So we put the net impact not to boost the margin artificially, so that the only adjustments remain the so-called one-off adjustments as it as much as it can get one-off under the abnormal macroeconomic conditions.
Speaker #2: So that's what I referred as capturing only two-thirds. Related to the full MGL adjusted leverage, as you would recall, we used to announce or present during our webcast the unadjusted leverage numbers.
Speaker #2: So without impacting the reported EBITDA, as you see, and then we sought waivers from the financial institutions and changed the EBITDA covenant definition as per the inventory adjusted.
Speaker #2: Only inventory adjusted monetary gain and loss-based leverage. And now, maybe you have also screened through Shishajam's results, etc., they entered into consent solicitation via changing their EBITDA definition as well.
Speaker #2: And as you probably know, starting from 2027, there will be a new reporting standard which will put monetary gain and loss line item above the operating line item.
Speaker #2: And hence, the entire reported EBIT number is going to change per se. Not only MGL, MGL is not the only adjustment as per the new IFRS 18 standard.
Speaker #2: There will be other line items that will be put above operating line item. But as it pertains to the EBITDA definition, the monetary gain and loss will be as part of the main operating line item.
Speaker #2: So therefore, as we progress towards year-end, and while we are seeking waivers or covenant change via our banks, we will be seeking full MGL adjustment as it will be compliant with the new IFRS standards per se.
Speaker #2: So that's we wanted to show it in advance so that the community investor community knows how we're going to approach leverage metrics going forward.
Speaker #2: Be it credit holders or be it equity holders going forward. So that's just the, let's say, pro forma adjustment. And we will guide the financial institutions towards that leverage metric as we progress through our compliance certificates, etc.
Speaker #4: Got it. Thank you very much. And maybe one final question. Given the environment of the market and the rates being higher now, and given that the bonds are maturing in 2028, which falls into potentially election year, in Turkey, which could potentially add to volatility, etc., what do you think or what are the other liquidity sources available to the company to potentially refinance the bond?
Speaker #4: Or would you prefer to stay in the bond market? Thank you.
Speaker #2: Sure. Given volatile macro environment, we've actually pre-funded significantly as we approach the year-end. Because we decided to keep a buffer and I'm sure you're able to chase this from our gross cash and gross debt levels.
Speaker #2: And for this year, in terms of new lines, be it at the majority of it is sourced via private placement without any covenants, but short-term in nature, two to three years, we managed to underwrite around 700 million euros of new facilities to bridge the next two to three years.
Speaker #2: Having said that, for the next year, we will have our syndication upcoming. And for this, we have already started to work with the banks, as you know, it's was run by Emirates NBD and it's a multi-bank facility.
Speaker #2: So we've already started to renew this. We have a bit more time for the Euro bond. And as you know, the markets are I mean, when you just enter the market right now, it's quite punitive.
Speaker #2: From a cost perspective. Therefore, we keep our options open but we will continue to revisit and scout the markets and if we find a window, we will always evaluate a Euro bond issues as well.
Speaker #2: In that respect, to be honest, we prefer sustainability-linked in the green or blue or transition bonds for that matter, which might be hybrid in nature.
Speaker #2: So from our standpoint, we will continue to apply our funding policy in line with our sustainability guidelines as well. So we keep all the options open, but I must repeat that we have managed to pre-fund a significant portion, maybe not for the next following five to seven years, but for the next two to three years, we've managed to refinance a significant chunk in advance.
Speaker #2: To keep some buffer in the liquidity.
Speaker #4: Got it. Very clear. Thank you very much.
Speaker #2: Welcome.
Speaker #1: The next question is from the line of Eren Erkis with Yapı Kredi Yatırım. Please go ahead.
Speaker #3: Hello. Thank you for the presentation, Barış Bey. First of all, please excuse me if I missed anything because I'm expressing now technical some technical issues.
Speaker #3: Could you share the general trends for October both in domestic and international markets? Also, and we are still seeing an increasing raw materials. Are you confident about the adjusted EBITDA margin for the last quarter and the full year?
Speaker #3: And considering the inventory adjustment effect, with your inventory reducing initiatives, what would the potential impact on the gross profit margin could be? And could you more elaborate a bit more on the inventory adjustment initiatives?
Speaker #3: Thank you.
Speaker #2: So on the raw material side, as you rightly pointed out, the trend is similar. The oil prices are hovering around high levels. Having said that, as you know, we have certain duration of our contracts.
Speaker #2: And the percentage of material from a project they trend at significantly higher levels. I mean, much higher than the historical levels. I can say that the gross margin picture, so we'll continue to be successful in preserving the gross margin, as we also continue to reflect price increases in Turkey.
Speaker #2: Both in October and towards December as well. In Europe, from a gross margin standpoint, these high season months are not particularly good. Having said that, from a fixed cost absorption perspective, given high level of revenues anticipated in Europe across October and November as compared to the historical months, we expect the EBITDA margin to be in line with our final guidance.
Speaker #2: Because this is the essence of the revised guidance, actually. We wanted to given the continuity of the abnormal macroeconomic conditions, we wanted to revise this and come up with a more realistic picture.
Speaker #2: So we do rely on the revised guidance in terms of margins. October from a trend standpoint, performs, of course, much higher than September in Europe.
Speaker #2: In Turkey, similar, from a revenue perspective. But let me reiterate one thing, especially in Europe, we do refrain from pricing competition as much as we can.
Speaker #2: So it's more value focused than volume focused from now on. Given the entry level and trade brands are like they're really depressing the prices.
Speaker #2: And we have enough products to compete across that price level. And I don't know whether you managed to hear, but I repeatedly talked about some operational levers especially in Europe.
Speaker #2: It's more about execution at this juncture rather than making diagnostics in Europe.
Speaker #3: Thank you. Thanks so much.
Speaker #2: Welcome.
Speaker #1: The next question is from the line of Cemal Demirtaş with Ata Invest. Please go ahead.
Speaker #3: Thank you for the presentation. My question is regarding your adjustments to EBITDA. One of could you further elaborate that and should we expect further adjustments at this magnitude during the next several quarters?
Speaker #3: And how does the reorganization and other things continue in Europe? Do you see some room for further productivity in the European side? Thank you.
Speaker #2: So we will follow the same methodology as we progress throughout the last quarter. From a percentage standpoint, you can actually consider the same trend to continue.
Speaker #2: We track the one of war-related impacts both from material and transportation logistics side in particular. Not only freight, but but also transportation expenses as it pertains to consumer care or after-sales services, etc.
Speaker #2: So it's a detailed analysis. But as I tried to explain, we do not put back the material-related war impacts because we managed to negate a considerable chunk of that impact to the EBITDA.
Speaker #2: If we would do advance the entire number, we would be close to 6%, so around 5.8% actually, when you do the math. Of course, in Europe, we've completed the majority of our reorganization.
Speaker #2: And as you know, we are bound by the commitments to the Italian government per se. Having said that, the continue to secure for alternatives, especially for industrialization, reindustrialization in some of the Italian plants, in particular in washing machine to reduce our washing machine capacity.
Speaker #2: But in some areas like cooking etc., the automation levels of Italian plants are pretty acceptable. And we will try to benefit from them as much as possible, especially in the upper price range products.
Speaker #2: There is still room for further productivity. That's for sure. But we have to do it in a period without major product transitions because if you do that in a hurry, it also hurts the relationship with your distributors.
Speaker #2: So it has to be done in order. But there is definitely room for further productivity. But it would be suitable to do this in an environment where we're not getting pressure from everywhere, including oil prices, etc.
Speaker #3: Thank you. And about the leverage side and the working capital side, how do you think we'll see some improvement and that in that front?
Speaker #3: And related to that, the competition from China, does it still hurt in terms of competitive pricing? Thank you.
Speaker #2: So luckily enough, we are entering let's say a relatively better month in terms of networking capital release and liquidation of inventories etc. And actual collections.
Speaker #2: The receivables that will be piled up from the high season across Europe will be highly instrumental for us to manage the year end as we always do.
Speaker #2: So the leverage, as we approach the year end, will decline definitely both from leverage and nominal amounts perspective. Networking capital management and the leveraging is like the most important focus item for the executive management at this juncture.
Speaker #2: And therefore, we put the statement of aligning the production levels in line with the anticipated demand. That's very important. And as far as the competition from China is concerned, it's at a stable level.
Speaker #2: I might say they are being hurt as well from price increases. From raw material price increases. But there seems to be an impasse to put it that way within the market.
Speaker #2: And we'll keep executing the operational levers as I mentioned at the outset of the call.
Speaker #3: And one last question about the tech side. In third quarter, we also see some taxes I don't know maybe it might be related to the third side.
Speaker #3: But for the for 2027, 2008, the for the producers production companies in Turkey, the corporate tax will decline to 12.5% from 25%. How should we expect that front going forward?
Speaker #3: Any positive contribution to your bottom line if BCN profitability? And again, in third quarter, despite your profit negative profit before tax, we see some taxes should you could you give some color on that trend?
Speaker #3: Thank you.
Speaker #2: Sure. As you rightly pointed out, the main reason or the root cause is related to deferred tax and so rather than current period tax.
Speaker #2: We've actually been quite prudent in the recognition of DTAs for this quarter. We will reevaluate as we approach the year end. In terms of recognizing the operating losses as part of different tax assets, especially in Europe, that's very important.
Speaker #2: But as you rightly pointed out, as we turn into profitability going forward, we will definitely benefit from the NOL's net operating losses, especially on the international side.
Speaker #2: And we will be able to recognize DTAs as we progress. But the anomaly between IFRS and Turkish tax procedural law as it pertains to deferred tax recognition continues as we speak.
Speaker #2: And therefore, there is as you know, we don't pay cash tax in the Türkiye for that matter. There are some subsidiaries who are profitable like Dolens Defy Hitachi etc., which pay cash taxes.
Speaker #2: And are being counted as part of the current period income tax. But as you said, as we turn into profitability, we'll be able to recognize more of the tax losses that we have incurred in the past.
Speaker #3: Thank you, Barış Bey.
Speaker #2: You're welcome.
Speaker #1: The next question is from the line of Maxim Nekrasov with City. Please go ahead.
Speaker #4: Yes. Good evening. Thank you so much for the presentation. Just want to clarify on your international growth guidance. And just wanted to make sure I understand it correctly.
Speaker #4: So you now guide for low double digit decline. And this is compared to, I think, around 7% decline we saw in the recent quarter.
Speaker #4: So just to confirm that you expect to see duration in the fourth quarter. And also just also another confirmation on the leverage, right? Because you presented several metrics.
Speaker #4: Just wanted to make sure which metric is in line with the covenants. Among all the adjusted numbers. Thank you.
Speaker #2: Sure. International growth guidance, we wanted to be prudent because of the ongoing macro conditions. And we tried to guide you as close as it is on the actual cumulative results.
Speaker #2: On the leverage side, currently the covenant definition takes into account the inventory-related monetary gain and loss. But as it progressed to the next year and in line with the new IFRS standards, where the reported financials will count monetary gain and loss as part of the operating section, we will be changing the applied to the financial institutions to change the EBITDA definition as part of covenant calculation.
Speaker #2: And as we present the compliance certificates to the financial institutions. We are already in the process of waivers in some of the DFIs. And two of our loans are subject to annual testing.
Speaker #2: So in 2026, we will be discussing with the banks to change the EBITDA definition as it will be compliant with the new IFRS 18 standards in terms of the treatment of the monetary gain and loss line item.
Speaker #4: Okay. Understood. Yeah. Thank you so much.
Speaker #2: You're welcome.
Speaker #1: We have a follow-up question from Hazadeh Kılıçkaran with JP Morgan. Please go ahead.
Speaker #5: Barış Bey, I just want to gather your opinion about your guidance on the EBITDA margin. Your guidance is still standing. Above the nine-month realization.
Speaker #5: So how comfortable are you for the fourth quarter? Because there is increasing cost inflation globally now after rising oil prices. And also Turkish demand may be hurt after all these post-fund crisis.
Speaker #5: Do you still see some downside risk on the EBITDA or you are very comfortable for the fourth quarter to meet this guidance?
Speaker #2: I'm fairly comfortable to remain within the revised guidance because especially in Europe, the two strongest months are October and November where the fixed cost absorption is at its highest level.
Speaker #2: We will focus on keeping the gross margin as much as we can as we have done so far. Therefore, the essence of revising harshly that guidance was to make it real as much as we can as we progress throughout the year end.
Speaker #5: Thank you very much. And can you please also let us know what was your leverage a quarter ago based on this new formula?
Speaker #2: We have to check this. We'll provide you.
Speaker #5: Is it declining or it has increased on a quarter on quarter basis?
Speaker #2: It's increasing from a directional standpoint. It has increased, but you would recall third quarter 2025, we were at 5.86, if I'm not mistaken, versus 5.2 this time.
Speaker #2: So there is actually an improvement year on year. On a leverage basis. Therefore, in the second quarter, the number was 4.4 times as we checked.
Speaker #5: So that's what I would like to ask because that 4.4 times is the potential new covenant base, right?
Speaker #2: Exactly. So you can keep actually the delta between this quarter's inventory-related versus full MGL adjusted number to calculate the proforma number based on the second quarter figure.
Speaker #2: So the delta shouldn't change that much.
Speaker #5: So I mean, no, if the second quarter 4.4 is the new formula, then your leverage has declined to 4.1 times.
Speaker #2: We on an LTM basis, we have to calculate it again. But the impact should be pretty high because the majority of the MGL adjustment is coming.
Speaker #2: So the MGL adjustment coming from the fixed assets and the other line items is much higher than the inventory-related MGL.
Speaker #5: All right. All right. Okay. Thank you very much.
Speaker #2: But we can do the calculation and provide you.
Speaker #5: No, but I understand the second two 4.4 doesn't include the MGL adjustment. It's only includes the inventory MGL adjustment, right?
Speaker #2: Yeah. That includes only inventory. This is the first quarter where we introduced the full MGL adjusted numbers.
Speaker #5: All right. Okay. Thank you very much.
Speaker #2: So 4.4 became 5.2.
Speaker #5: Okay.
Speaker #2: 4.1 as adjusted by the full MGL is a new metric that we will introduce and we've just done the, let's say, forecoming of events type of introduction.
Speaker #5: All right. Okay. Thank you very much.
Speaker #2: Thank you.
Speaker #1: 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.
Speaker #1: Thank you.
Speaker #2: Thank you very much for the participation and all the questions. And we hope to see you in our next session. Thank you very much.
