Edited Transcript of ARCLK.IS earnings conference call or presentation 7-May-20 4:15pm GMT

In quarter 1, on the production side in quarter 1, the production has stopped in China initially due to the Chinese New Year than the virus outbreak. In April, production stopped in Pakistan, Bangladesh and South Africa due to country-wide lockdowns, which you all know. And also, currently, our facilities, except Pakistan and South Africa, are running with lower capacity utilization ratio. And also, our South African factories have started working with according to the rules that is giving us the opportunity to run our factory with a lower capacity utilization in Jacobs and Ezakheni in South Africa. The measures that we have taken within this period was strict social distancing and hygiene measures in operational factories, in dealers, in after sales networks in Turkey. 3% to 4% of the dealers are closed in the domestic market, mainly the ones which are in the shopping malls. But other than that, the business is going on for our dealers.

Most of our office employees of more than 75% are working home office right now all over the world. And SKU optimization to prevent any inventory buildup has been implemented. And we are trying to cut down the number of SKUs within this period in order to increase the efficiency in the production and sales. And we are prioritizing all our capital expenditures and operational expenditures and trying to be as efficient as possible on spending money. Also, we have been — I mean, most of you have seen that all our factory, all our companies all around the world has been serving the communities of the related countries. In Turkey, under a co-joint project, which is supervised by Ministry of Industry and Ministry of Health, we have started mass production on medical ventilators, which are critical in treating the virus. We started the production in our TV plant in Cerkezkoy. Also through the Health Workers Support Movement, Arçelik Group brands are making a pledge to support health care professionals donating major domestic appliances and small domestic appliances to hospitals in many countries, almost all the countries. As Arçelik group, we are trying to support the elderly people also in various countries by prioritizing the service requests and offering free services to those people.

I would like to also mention about the competitive edge during and post COVID-19. I’d like to start with the operational advantages that Arçelik has. Most of the production facilities are still operational, Turkish and Romania, which is already accounting almost 75% of our total capacity. The impact on the domestic demand was relatively lower. In the first quarter, as I told, there wasn’t any loss in the Turkish market. But in April, it was a little bit more harsh, but still, the selling units were 15% less. The sell-out units in April was 10% less than last year, which is also decreasing the level of inventory in the dealer side, which is helping them to manage their net working capital more efficiently.

There’s strong global after-sales service during the COVID-19 lockdowns. We see — we take a lot of positive response from the customers — end customers. We are living — our market position in Europe is there for the recovery of the demand that’s lost in this time period. We see tailwinds on the raw material prices within this period. And also, we see lower interest rates, especially in Turkey for Turkish lira loans that we have. Digital transformation efforts of the company has been accelerated tremendously in order to help both online sales and daily business operations within this time period, which is going to also help post COVID churn.

On the balance sheet and liquidity terms, there is TRY 7.8 billion of cash in the first quarter of 2020 and 80% of this is in hard currencies. We have sold in the beginning of May, Token the company that we have spined out a while ago for TRY 310 million which is going to be supporting our liquidity as well. I mean, the sale, the reason of the sale was not liquidity. It was more of a focused decision from Arçelik side, but also it helped for the liquidity as well. 70% of our total uncommitted Turkish Lira lines are still available. So we still have uncommitted lines on the bank — in the banks. There is no covenants on bonds or commercial bank loans. There is enough room in terms of leverage covenants in the investment loans. We have successfully rolled our redemptions in quarter 1. And also, we have done some prefinancing at very convenient rates. The hard currency FX debt service is very limited with Eurobond coupon payments. And also our insurance coverage for our receivables, especially on the international sales side is still — it’s strong. And also in the domestic operations, our collaterals are strong as well, and we do not really see any negative effect until now.

So I’m going to be handing over to Orkun now for going through the sales and key factors on the margins. And then Hande will take over on the financials.

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Orkun Inanbil, Arçelik Anonim Sirketi – IR Manager [3]

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Good evening, everyone. I would like to start with the key factors affecting our sales and margin in the first quarter. As Mr. Sen mentioned, our top line growth was around 13%, supported by the acquisition of Singer. Singer has been consolidated into our financials since April 2019. On top of that, Turkish markets had a strong growth in quarter 1 and also Arçelik started growth also in Turkish market in the major appliance category and also in TV category. But on the other hand, there has been organic decline on the international sales, largely stemming from this COVID issue. And when you look at the gross margin, increasing share of Turkey, obviously had a positive impact on the overall margin. But we should also stress that the recent Turkish lira devaluation, I mean, the Turkish lira devaluation in Q1 had some dilutive impact also in the Turkish profitability. We were planning to make some price adjustments by the beginning of April, but within the current market environment, obviously, we postponed these price adjustments.

When you look at the raw material prices, we have more detailed slide, as you know, in the coming pages. They have been stable in Q1, both for the metal and the plastic side. One negative factor has been the USD appreciation against many currencies, especially for us, it’s critical for rand, Turkish lira, rupee and also pounds, which has a negative impact on the margin. When you move to the EBITDA line, we posted more than 11% EBITDA, but there has been obviously strong contribution from the one-off items, as Mr. Sen has given provided some details about it. When you look at our OpEx sales ratio, it seems — it’s higher than previous quarters, but we should stress that especially the decrease in sales in March had a negative impact on this ratio. Obviously, we have been taking some measures for — both for the CapEx and OpEx but obviously, we will see the impact starting in the second quarter. We didn’t feel the impact in Q1 because it was very new.

When we move to the market performance in Turkey you can also follow from the local manufacturers association, the market was up in the major appliances major product categories. The market was up by 11%. Arçelik growth was a bit lower than that. As you may remember from last year, we had gains over the huge market share. So in this first quarter, we were a bit underperformed to market, but that was also a deliberate decision because the management largely let our dealers to sell from their own inventory, in order to give some relief in terms of managing their own working capital. And when you look at other categories, obviously, it is not a major season for air conditioners, but we have been — we have seen some sell in sales through the dealer network in Turkey, it was around 36% in unit terms. Also, we increased our sales, but I can say that our sales was a bit lower than that. These 2 figures for MDA6 and air conditional are all solid figures. When you look at the TV segment, these are sell outs, these are retail figures. So it really shows the end consumer demand. In the first quarter, the market was up by 14% in unit terms. And also at Arçelik, we continue to increase our market share, which is now standing around 26%, and we were second player in the market. So briefly, the first quarter for Turkey was a strong quarter and Arçelik also performed strongly in its own market.

When we move to the international market. Unfortunately, we have only the 2 months retail data because also, there has been some problem with the information flow from the market research company in this environment. But as you can see also see from our own sales, there has been huge disruption in March figures, that’s probably what we’re going to see also on the retail side. When you look at the first 2 month figures, there has been strong growth, especially in Eastern Europe markets. As you can see, close to 10% unit growth was achieved in Eastern Europe. West Europe was also positive, especially Germany, Italy and Spain, the countries which were most hit by the virus, I mean, Italy and Spain, the demand was very healthy in the first 2 months. South Africa, again, it was a positive picture. There was a positive picture, but the market developments, especially the negative GDP growth in the announcement of GDP negative growth in the fourth quarter — for the fourth quarter of last year. So officially, this is a second recession in the last 2 years for South Africa. And also, they also based on downgrade by rating agencies. And on top of that, the COVID obviously had a final impact on this negative scenario on the negative picture. So it was not a very good — it was a very bad picture for South Africa, especially the March figures that we will also share in the coming slide.

Pakistan, we were already expecting decreased sales in our original budget for Pakistan due to the macroeconomic issues they have been living through. On top of these problems, obviously, COVID-19 had another — brought another obstacle for us, and the demand was weak. In fact, all these countries, I mean South Africa, Pakistan and Bangladesh, there is already a shutdown, countrywide shutdown and there has been limited sales, obviously, in these countries. Similarly, Bangladesh is a similar case. It had a strong start, but obviously, this was also diluted by the virus issue. So these are the retail picture. When you look at Arçelik performance in these markets, in fact, we had a very good start, maybe much better than the market. As you can see, in the first 2 months, our growth — I mean, revenue growth in West Europe was around 3%. And on East Europe, it was around — it was close to 10%. But as you can see from the March figures, Western Europe, we see around 15% revenue decline in March when you look at the European market, and again, 3% decline in East Europe.

When you look at all quarters, I mean, when you look at, for example, U.K. market, we achieved single-digit revenue growth in the U.K. in the whole quarter in pounds. So it was also — it was a good quarter for us in the U.K. market, our leading market there. And as we performed better than the market, this was reflected into market share gain in the European market. And there has been also some improvement in our price index, especially in Western European markets. When we look at Africa, obviously, most of the sales, our sales in Africa are coming from South Africa and Sub-Saharan countries. Again, similar to the market, we had a strong performance in the first 2 months. But in March, we see our sales almost halved. So it was the worst month in the quarter naturally.

In order to offset the ZAR devaluation, there has been some price hikes. And thanks to these price hikes, we were able to keep our gross profit margin in our subsidiaries. In addition to the domestic decline, we have seen also a decline in the export sales of Defy, which was around 40% in Q1. And as the demand — as there was negative demand both in South Africa and neighboring countries, obviously, due to the operational leverage, our EBITDA margin was a bit weaker compared quarter-on-quarter.

When we move to Asia-Pacific, obviously, as this is the starting point of the outbreak, it was the most impacted region in our portfolio, especially in China and ASEAN region, our sales was hit as you can see, even in the first few months, there has been around 15% decline in our Asia-Pacific sales. And with the virus issue in March, it reached almost 45%. When we look at the companies individually, Pakistan, there was around 40% revenue decline in Pakistan, as I said, due to both macro issues and the virus issue. When you look at Singer Bangladesh, we will also have a specific page for Singer. There was, again, a period of double-digit top line growth for Singer so it was able to report growth. And when you look at our ASEAN investments, the revenue coming from this region was around USD 21 million, which was also lower than last year’s figure.

A few words on our Singer Bangladesh, which is our only listed subsidiary. As I just said, they also announced their financials on the 28th of April, they recorded around 12% topline growth. And when you look at the gross profit, their gross profit was in line with the last quarter of 2019, but there is some decrease when you compare with the same period of last year. And this decrease is also reflected to other profit lines as well. And behind this decrease, there are some factors like the new customs duties on refrigerators and air conditioner raw materials, this is one of the factors. And this is why we are trying to increase the local production in the country because these duties really affect our margin in the countries. And we are very — therefore, we want to increase our local production in Bangladesh. And besides that, the marketing campaigns to revive the demand or push the brand, it also impacts on the EBIT margin as well. There is a negative impact on the margin as well.

When you look at the raw materials, as you can see, in the first quarter, it was quite in line with the last quarter of 2019. So I can’t — therefore, we said neutral. But in the coming, especially for Q2, probably we will see a better picture because the global growth is depressed due to this virus issue. We are seeing much better raw material prices, especially for the plastic-based components. Probably in the coming quarters, we will see a much better picture, and it’s going to be a tailwind for us. Now I would like to hand over to Hande for the sales and the financial performance.

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Hande Saridal, Arçelik Anonim Sirketi – Former Finance Director [4]

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Thank you, Orkun. Let me start by the sales by region slide. First very broadly, when you look at Turkey and International components. Turkey revenue has increased by 26%, which is a significant income after 2 years of consecutive contraction in the market. And the international revenues were quite weak mainly because of the COVID impact, which started between around February. There’s an increase of only 6% in the international revenue. When we dive deeper into the regional breakdown, the Turkish revenue has started accounting for more than 35% because of the strong performance in Q1. Western Europe has lost around 1.5% sales, it accounts for 32.5%. Eastern Europe is more or less the same. Africa had contracted down to 5% of sales from 7.4% in the past year. And Pakistan, actually, it used to account for around 5%, it is now at 2.8%. So the markets where the COVID impact was quite strong and in terms of the government shutdowns, et cetera has taken the most severe hit in this respect.

On the next slide is the evolution of the sales coming from 2019, first quarter. The contribution by the organic growth in the Turkish market is around TRY 566 million. The organic part in the international revenue evolution is actually taking it down by TYR 361 million, which is offset by the FX impact of around TRY 440 million. And Singer Bangladesh revenue, which wasn’t present in the first quarter of 2019, has an impact of around close to, let’s say, 5% by TYR 220 million, which brings us to this TRY 7.7 billion of Q1 revenue.

Let’s take a look at the financial statements to start with on the income statement. The gross profit margin is around what we have recorded in the past quarter, but below what we had recorded in the same quarter of last year, it stands at 31.8%. The operating profit, on the other hand, mainly because of the one-off incomes that Polat Sen mentioned at the beginning are comparably higher, the OP margin is at 7.6%. The PBC is at 4%, and the net income margin is at 3.3%. So all in all, at the EBITDA level, we have trended 11.2%. If we were to strip of these one-off impacts, the EBITDA margin would have been 8.4%.

When we look at the gross margins by segment, as I have mentioned, the consolidated level is at 31.8%. The white goods was quite flat when compared with the final quarter of last year, it is at 33.6%. There’s an improvement in the consumer electronics side mainly because of the contribution from the Turkish market because we sell at a better profitability level in the Turkish market compared to our international and the TV sales in the first quarter have contributed to the gross margin in this segment. And the other segment is slightly higher compared to the previous quarter. It is slightly above 30%.

Next is the working capital evolution. You can see that despite all the difficult economic conditions in the first quarter, we have been quite successful in terms of our working capital to sales performance. We have recorded 26.4% ratio at first, and it is well below our corporate KPI of 30%. This, as you know, also is despite a weaker Turkish lira. So if the Turkish lira had remained at Q4 levels, at the year end level, let’s say, then this ratio would have been even better at slightly above 25%. The domestic market, I mean, the Turkish market working capital has parallelly — parallel to the revenue has increased, but there is no difference in terms of the net working capital base. Whereas because of the contraction in the international markets, the working capital contribution by the international market was quite weak.

On the next slide is the cash and the financial debt details. As you can see, we have closed the first quarter at a cash level of close to TRY 8 billion equivalent and the net leverage of 2.33x. The gross debt stands at slightly above TYR 15 billion at TRY 15.2 billion. The loan portfolio amount is TYR 8.2 billion and the amount coming from the bond portfolio is close to TRY 7 billion in this gross portfolio. Of course, the main item that we always talk about here is the Turkish lira borrowings. You may remember that at the end of the year, the effective interest rates on the Turkish lira loans were close to 19%. In the first quarter of this year, we have been both borrowing at more convenient levels as the interest rates came down. Plus, we have been taking advantage of the Central Bank’s regulation which actually gave flexibility to the company to restructure their loans or early terminate their loans, even an early termination clause did not exist in their original loan documents. So we also took advantage of this regulation and restructured our loans at lower rates and the average came down to this level. For the rest of the year, if we assume that the interest rates, at least the loan interest rates will remain around these levels, we will probably be closing the year slightly below 14%, and the average borrowing cost on TYR will be around 16% overall.

And in terms of the maturity, you can see that we have a very little portion left until the end of the year, 27% of the portfolio is due in the remainder of the year. And 42% is due next year. The longer tenors are mainly the bonds and some borrowings at subsidiary levels for investment services. And when you look at the cash breakdown by the currency, there is a very different picture compared with the previous quarters. The dollar holdings still accounts for more than the cash portfolio, around 64%. The euro accounts for 23%. The only major difference, maybe the Turkish lira deposits that we have, which is mainly because of the prefinancing that were done for the dividend payment, which was originally be due at the beginning of April, but was canceled at the — was canceled by the main shareholder at a General Assembly towards the end of March, I think it was the 25th of March. So all the pre financing that was done for the dividend is actually now left as further liquidity in our bank balance.

On the FX hedging side, our strict hedging policy, this quarter was no different. There’s a short position, of course, around, let’s say, 3% of the equity which in line with our KPI. The Arçelik AS Turkish company was actually in strong position at the end of this quarter. But there is a short position coming from the subsidiaries where hedging is not available, I mean the Pakistan, Bangladesh, Ukraine, so the — and Vietnam. These more — these 4 major subsidiaries were adding to the short position on a consolidated basis.

And finally, when we look at the cash flow evolution, we have started the year with a cash of close to TYR 7 billion. We have generated TYR 769 million net operational cash flow, around TYR 90 million of the operational cash flow comes from the settlement income that Polat again mentioned at the beginning as the one-off income. So the cash impact is TRY 90 million. There is a bank borrowing adding by TRY 500 million, TYR 342 million from FX conversion is the other positive factors. And on the negative side, there will be CapEx spending in the first quarter, TRY 274 million. And the other, which is a basket of all the early payments, penalties that I have mentioned and restructuring the [fixture] loans, the interest rates, coupons, et cetera, all of them added together. They have taken away around TRY 444 million of cash, which brought us to the EUR 7.8 billion that we have at the beginning of the first quarter.

Now I will hand it over to Polat Sen again for the expectations.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [5]

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The actually, we have discussed about providing the guidance for the remainder of 2020 a long time. First of all, I would like to tell that in this global pandemic, the first priority of the company management is to ensure the health and well-being of the all employees and their families all over the world. The second critical issue that we have been keeping was the high liquid position to keep the high liquid position of the company to be prepared against any scenario that may come up, and which we have been able to sustain until now. Of course, we are expecting a very tough second quarter. And that is going to be affecting weaker results in the second quarter. But we are expecting some normalization in quarter 3 and more stable market conditions in quarter 4. But those are all expectations, and those assumptions are really very — it’s not really depending on very powerful insight, let me say. That’s why we have been very — due to this uncertainty in the global economy and our industry, we decided that our February 2020 guidance is no longer valid. And at this point, we prefer not to provide a guidance as the visibility on the economic activity is very low, and it may really change very quickly. Instead of guiding you with something that we can’t really see right now, we decided not to guide until we see a clearer picture in the coming months. And we have actually operational competitive advantages and strong balance sheet. And we think that there are going to be a lot of opportunities in the market after the COVID crisis. And Arçelik is going to be ready whenever things get more clearer. And until now, I think that we have managed it quite effectively. But we’ll see what happens in the coming phases. Thank you very much. So that’s all for our presentation. So we can go on with the questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions). The first question comes from the line of Kurbay, Berna with BGC Partners.

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Berna Kurbay, BGC Partners, Inc., Research Division – Director [2]

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My question is about your 2020 expectations. You mentioned that you see more opportunities in the market in the aftermath of the pandemic. Can you perhaps give a bit more insight as to what that means? Do you see competitors weakening? Or what sort of opportunities do you mean by that?

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [3]

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What we are meaning is, first of all, we think that there is going to be a very high pent-up demand in most of the markets. Whoever is going to be ready with the right supply chain and with the right precautions that is taken is going to be exploiting this after COVID, and we think that the market is going to be changing as well. The structure of the market is, as you may expect. People are more getting used to buying online more and more, especially in the international markets, especially in Europe. And we think that being ready in terms of infrastructure, IT infrastructure and being ready in terms of supply chain is going to be a — could be a game changer for the coming period. That was the main factor. And in one of the slides in the beginning, I’ve also mentioned about our competitive advantages over the others, over the other competitors that we have especially having 30% — the first quarter was even more than that of our business in Turkey. And the turkey business is not really getting affected as it is getting affected in the other countries. That is also giving us a positive — an advantage, let me say, compared to the other competitors. And our liquidity is very strong as well. And I think that we are going to be using all those advantages in favor of winning some more market share and profitability of course.

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Operator [4]

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The next question comes from the line of Kilickiran, Hanzade with JP Morgan.

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Hanzade Kilickiran, JP Morgan Chase & Co, Research Division – Analyst [5]

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Polat, you have a very good working capital management in the first quarter. And how should we be looking into it in the rest of the year? I have also 2 other questions. The second question is, when we look at your EBITDA margin, excluding this one-off, it is actually quite low, it’s 8.4%. You mentioned it in the presentation. But your volume for the quarter 1 is, in general, looks okay, despite the downturn in later part of March. So would you please explain what drives these margins lower in the first Q? Is it purely COVID specific, I mean, COVID-related restrictions or is there any other factor that we are ignoring at the moment? And you don’t provide guidance here. I understand. But is it possible for you to share at least what type of margins you are seeing in April lower than first Q or not? Really I wonder because I try to understand your OpEx saving compensation here. And the final question is on South Africa. I mean as they go to lockdown as far as I know by the end of March, but this 50% volume decline in March is pretty high. Is this a company issue or a general weak demand following the market on downturn in macro.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [6]

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Thank you. I’ll start with the working capital management. Yes, you’re right. The beginning of the year has been really strong. And we are really focusing on collecting money, collecting receivables. Of course, the first quarter was easier to do that. Quarter 2 is going to be harder. In terms of collection. We are getting some requests from our off-line retailers, mainly in Europe for some postponements. And we are negotiating with them. But we do not really see right now any bad debt issue. And we are trying to restructure some of the receivables that we have, but that is not very significant right now, which is going to be affecting our working capital. It’s a very limited number of customers I’m talking about here.

In Turkey, the collection was very, very strong. Actually, even we have been able to decrease the receivable base in Turkey compared to last year. Even I just looked at the April numbers today, and there, I have seen some more positive influence there. In the remainder of the year, of course, it’s going to be getting harder and harder to keep that working capital and we are expecting some deterioration, especially in quarter 2 and 3 maybe. But after Q4, we are expecting to get back there. But I think that we are going to be somewhere around 30% net working capital to sales ratio. And this is if the expectations are going to be in line with what I told in the last slide.

Your second question about EBITDA margin, yes, when we take off the one-off items. There is a — the EBITDA margin is lower. But our Q1 results are generally lower than the other quarters. So other than COVID effect, we do not really have much impact, I have to say, especially the second half of March, was not — was — has affected us negatively, and it also impacted the OpEx-to-sales ratio to get a little bit higher than expected. But in the coming to your third question, which is about guidance on OpEx and EBITDA. Yes, we didn’t give any guidance. But of course, we are expecting a lower EBITDA than last year. That is the expectation for 2020. But I do not know how much is going — it is going to be. Because some of the countries are critical to us, like Turkey, South Africa, Pakistan, U.K. Those — I mean the way that the governments are really responding to these COVID cases in all those countries, is really affecting our results positively or negatively.

Coming to your questions on the — question on the South Africa. Yes, 50% is high. But I have to say that most of the sales in South Africa or most of the invoicing is done at the end of the month. This is kind of I have to say that the last week is almost like 50% of all our sales in South Africa. It’s generally like that in all of the countries. So that’s why South Africa has been affected a little bit more than that because all the — we had a lot of orders in hand, but we weren’t able to deliver them. But whenever it’s going to be open, we are going to be delivering those in South Africa. Now they are under — they have decreased the level of alert from Degree 5 to Degree 4. When it comes down to Degree 3, we are going to see also the retail is going to be open, and some economic activity is going to be there as well. Same in Pakistan also. We also have the retailers closed there. And in April, in those countries, for example, we didn’t have any sales at all, almost no sales in those 2 countries. But we see that, I mean, our interaction with the government, what we see is, they are also looking at the situation very — in different perspectives in different countries, but everyone is trying to find a way — find the reasons, let me say, to get back to a normal economic activity as soon as possible because this is hurting not only our industry, also the whole economy in those countries as well.

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Operator [7]

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The next question comes from the line of Demirtas, Cemal with Ata Invest.

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Cemal Demirtas, Ata Invest Co., Research Division – Head of Research [8]

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Thank you for the presentation. Regarding The guidance, do you think you would be able to give some guidance for second quarter end? Or it’s an open end like expectation for the future. And do you expect any one-offs in — again in second quarter. And maybe like do you see any seasonality that at least you will see some light by June. Do you see any chance that we are going to see early signals of any opening at least in your plans, do you see any light or any indication we should follow to get more optimistic about the opening of your sales in international markets?

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [9]

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That is just an expectation. That’s what I can tell. We expect to come back with the new guidance, hopefully at the end of quarter 2, hopefully. And I think that we should be able to — when you look at the numbers in all the countries on the COVID outbreak. If there is no second outbreak, let me say, which is also some scenario that the people are talking about. But the likeliness of this is low at that point. We do not really expect a one-off in quarter 2. The one-offs are finished due to this settlement in the first quarter of this year. And there was some little amount — less amount in the last quarter of last year as well. And in terms of seasonality, we are expecting, as I told, actually, the second quarter is going to be tough, but we are expecting a normalization in the quarter 3. And more stable or let me say, very close to normal market conditions in quarter 4. That is the expectation that Arçelik has right now for all markets. But as I told you before, all markets are different than each other. And it can really change very quickly from one market to another. But what we see in China right now, which is a good case, I have to say, all our offices are back to work right now. Everybody is working from the office. And the economic activity has started. And it’s getting better, but normalization will take a little bit more time. But if we think that China was the first country and the others are going to be following China, we should be expecting the normalization in quarter 3. That’s what we think actually.

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Operator [10]

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The next question comes from the line of Jacks Michael with Bank of America.

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Michael Shawn Jacks, BofA Merrill Lynch, Research Division – Director and Head of SA Research & Industrials [11]

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Could you perhaps give an indication of where current production capacity is relative to 2019? And how you see this evolving over the next few months based on requirements around social distancing and the different regulations, as you mentioned, in the different countries. And what sort of impact is this likely to have on EBITDA margin? And perhaps you could just give us a sense for the degree of operating leverage that you see in a social distancing type scenario.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [12]

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For the production capacity, it’s really different in different countries. There’s no one number. In Turkey, we are running around 30% less than 2019 capacity utilization, in Turkey and Romania. But in the other countries, in South Africa, we are running as of this week, we are running around 30%, but before that, it was 0. Pakistan is still 0. Bangladesh has just started. But I do not have the number in my — top of my head right now. But we will see what happens with the production capacity. As long as the demand is there and the demand that we are missing right now is mainly from the Europe and MENA region. If it comes back, whenever it comes back, we are going to be increasing our capacity utilization ratios as well. On the social distancing side, there are a lot of scenarios on that. How it is going to be implemented. In the offices, yes, we are going to make some changes. But in the life, in the retail, in the economic activity, I do not know how is it going to be — how is it going to be executed in all the countries. And it’s really hard for me to give you EBITDA margin impact on this issue to be honest. And that’s why I can’t really comment on this easily.

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Operator [13]

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(Operator Instructions) Our next question from the line of Dhaloomal, Ali with Bank of America Merrill Lynch.

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Ali Dhaloomal, BofA Merrill Lynch, Research Division – Emerging Markets Corporate Credit Analyst [14]

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I have just a good question regarding your undrawn facilities. Can you remind us how much these are? And when you’re saying that 70% is available, does it mean that you have drawn on the 30% over the first quarter. And also for the Token transaction, is it expected to close in second quarter?

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [15]

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Orkun?

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Hande Saridal, Arçelik Anonim Sirketi – Former Finance Director [16]

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Let me take this one. When we mentioned about the availability on the credit facility, as you know, in the — as you may know, in the Turkish market, we do not have any committed facilities, but we have what we call the dedicated bank lines, which are governed by the general loan agreements. And as part of the Koç group, we, of course, have ample limits with the banks. So our current usage of these limits under these general loan agreements is still very limited, and our access to liquidity is quite comfortable at this point. This is actually what we mean by the headroom that we have in these credit facilities.

For the Token case, I mean, as Polat Sen mentioned during the presentation, this function of the company, I mean, the cash register business and the service income business. On the cash register spinned off in mid-June — in June 2018, sorry, as a separate company. But as the evolution of the payment technologies and the payment systems are evolving very fast, it is really shifting away from our main focus area, which is actually production. That’s why we decided to sell our stake, we sold 100% of the company, but we decided to sell the company, it still remains in the group. It is now owned by Koç Holding and Koç Family. And Arçelik will be acting as a partner in terms of production, sales and service side, but we decided it would be a better decision in terms of focusing into our main operations, which is production.

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Ali Dhaloomal, BofA Merrill Lynch, Research Division – Emerging Markets Corporate Credit Analyst [17]

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Okay. So it will close in second quarter, right?

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [18]

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It is.

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Hande Saridal, Arçelik Anonim Sirketi – Former Finance Director [19]

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It is, yes.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [20]

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Actually, it’s already closed, actually. First of May, it’s already done deal, and the payment is going to be on…

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Hande Saridal, Arçelik Anonim Sirketi – Former Finance Director [21]

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On the 8th.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [22]

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On the 8th.

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Hande Saridal, Arçelik Anonim Sirketi – Former Finance Director [23]

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Tomorrow is going to be the payment.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [24]

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Tomorrow is going to be the payment.

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Operator [25]

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(Operator Instructions). Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Polat Sen for any closing comments.

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Polat Sen, Arçelik Anonim Sirketi – CFO and Assistant GM of Finance & Accounting [26]

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Thank you. I would like to thank everybody at this time in the evening, who is listening to us. I think there has been some problem on the web in the beginning of the presentation, which has been solved after 10 minutes. Sorry about that. But you can listen to the recording on our website from tomorrow. And if you have any more further questions, please do not hesitate to contact our IR department. I would like to thank everybody who has attended the call. Thank you. Bye.

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Operator [27]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.