Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your Chorus Call operator. Welcome, and thank you for joining the Arçelik conference call and live webcast to present and discuss the third quarter 2025 financial results. At this time, I would like to turn the conference over to Mr. Barış Alparslan, Chief Financial Officer, Ms. Mine Şule Yazgan, Finance and ERM Executive Director, Ms. Delal Alver, Capital Market Compliance Senior Lead, and Mr. Sezer Ercan, Investor Relations Senior Lead. Mr. Alparslan, you may now proceed.
Thank you very much. Good morning and good afternoon, ladies and gentlemen. Welcome to our third quarter 2025 financial results webcast. This presentation contains the company's financial information prepared according to TFRS by application of IAS 29 inflation accounting provisions. Let's start with the highlights of the first quarter. We generated TRY 124.4 billion revenues with a gross margin of 29.1% in the third quarter, reflecting at 11.4% decline in sales year-on-year in real terms, mainly due to weak international demand, the performance in Europe, unfavorable product mix, and pricing in the domestic market. In Türkiye, modest demand was supported by the sales promotions and discounts, and yet we observed a decline in real terms. International demand remained weak except for a few countries.
We delivered a substantial gross margin improvement both year-on-year and quarterly with the help of euro-dollar parity and easing raw material costs. Our OpEx sales ratio is 26.8% in the third quarter. Lower sales is the impact of the savings on operating expenses. We achieved a significant recovery on the EBITDA margin, exceeding 2.5 points year-on-year and over 1 point quarterly. Improving gross margin and restructuring efforts were the main contributors. Our rolling net working capital with sales ratio is 21.4%, slightly above the year-end level. With the MGL adjusted leverage at 4.2 x, deleveraging started in the third quarter with the help of EBITDA recovery, improving operational cash flow, and disciplined net debt . Please note that we're providing the breakdown of net monetary position for the period and adjusting the EBITDA for the monetary gain and loss in our leverage calculation.
After the adjustment for net monetary position items, our EBITDA margin is calculated as 7.8% in the third quarter. In Q3, our consolidated revenues declined by 11.4% year-on-year in real terms due to unfavorable price and product mix in Türkiye, weak international demand, and relatively poor performance in Europe. Our gross profit margin for the third quarter was 29.1%. Lower raw material costs and favorable euro-dollar parity supported the improvement. Pricing pressure and intensified competition remained the main headwinds. Higher gross profitability and lower OpEx in nominal terms, in line with the ongoing restructuring efforts, helped to achieve an improvement over 2.5 points on our adjusted EBITDA margin in Q3. In the third quarter, figures in euro terms reflect a decline around 9% year-on-year.
Domestic sales decreased by almost 6% in euro terms due to the negative price product mix impact despite slight volume increase in the third quarter. However, real figures for Türkiye's sales reflect 8.5% decrease in domestic sales year-on-year. This is simply because the growth in CPI for the period was higher than the change in the FX rate. In the same period, international sales revenue declined substantially by roughly 10% in euro terms due to the decrease in volumes, the negative impact of FX, along with pricing and product mix. Figures for Turkish lira show 12.7% decline in international sales revenue in real terms. On the right-hand side, you may see our regional sales breakdown. Türkiye's share in total revenues was 31% in the third quarter with a 1 point increase.
Europe's contribution exceeded half of the consolidated revenues in the third quarter as in the same period of last year. Western Europe share increased by 1 point to 35%, whereas CIS and Eastern Europe market share decreased to 16%. Revenues generated in the APAC region remained the same, corresponding to 9% of consolidated revenues, whereas the share of Africa and Middle East regions stayed at the same level in total, around 8% of consolidated revenues. In Türkiye, demand was under pressure in MDA 6 market in July and August. Despite the 5% decline in sales volume in the MDA 6 market in the period, we managed to keep our sales volume flat, over-performing the market. Yet year-to-date figures still reflect the decline in sales volume both for the market and for us.
Please note that the scope of the market data has changed for the A/C and TV segments, including last year's figures. Starting in July, the market data includes the sales of discount retailers and supermarket chains. With the change scope, our performance in the A/C category reflects significant growth, albeit underperformance. The toughest competition prevails in the A/C market with 45 brands, where some players are attracting price-sensitive consumers. In the TV category, revised market data reflects our over-performance substantially on retail volumes. Please note that the market data for the A/C and TV reflects retail sales. However, wholesale to the dealers has the lion's share in our consolidated revenues. In a nutshell, the MDA demand was moderate in the third quarter, supported by sales promotions and discounts.
We observed declining wholesale volumes in the A/C category, where the dealers have already stocked up for the third quarter in the first half of the year to serve promptly in the high season. Wholesale TV volumes remained flat. Overall, product mix and pricing had a negative impact on the top line in domestic market, while we recorded 8.5% decline in year terms, year-on-year. Türkiye is performing in line with the budget, supported by a successful air conditioning season, which is also conducive for strong collections. Last quarter were further supported by a powerful dryer season, which is a crucial product for households, especially for convenience, hygiene, and aesthetic reasons during winter period. Consumer demand recovery continued in European MDA market in the third quarter, while Beko underperformed the market.
In Western Europe, market volume growth was 1.8% until August, whereas growth in euro terms was limited due to pricing pressures arising from the intense competition. In key markets such as U.K., Italy, Spain, Netherlands, and Belgium, growth was sustained in volumes, whereas slowdown continued in France, Germany, and Austria. Beko preserved the market leadership despite underperformance and declining sales in the region. Meanwhile, the market volume growth in Eastern Europe declined to 3.4%, compared to almost 4% growth in the first half of the year. Demand remained solid in the key markets such as Romania and Ukraine. Despite the underperformance in the period, Beko preserved the market leadership. Overall, 51% of the sales revenue was generated in Europe with a year-on-year decline of 10% in euro terms in the third quarter.
When we deep dive into the growth of the market, we see that the low-end product group, which constitutes almost one-third of the total volumes, was the only segment where growth was observed. Note that Chinese players are particularly strong at the entry level. As part of the actions that have been taken to recover the market share losses to the maximum extent, over 2,000 SKUs were launched with lower costs owing to the synergies due to factory relocations. These lower cost SKUs outperformed in the third quarter with an increasing contribution to the sales in the European market, as all the categories are improving their performance with the progressive ramp-up of the new launches. We believe NPIs will play an essential role in increasing competitiveness in the region vis-à-vis Chinese players.
The revenues generated in Africa and the Middle East region constitute 8% of consolidated sales in the third quarter. Revenues in euro terms decreased by 6.5% year-on-year, mainly due to the slowdown in the Middle East market. In Africa, Defy sales volume growth was almost 20%, whereas sales in euro terms remained flat due to price decreases across several major categories. Demand in South Africa was steady, while the export market could not grow in euro terms compared to the same period of last year. In the Middle East, Arçelik Hitachi JV delivered 1% growth in USD terms despite the challenges in the region with the help of channel expansion effective sales promotions. As one of the key markets in the region, Egypt suffered from the slowdown in the market where demand was weak within the quarter.
Beko Egypt sales volume decreased by almost 20%, whereas the decline in USD terms exceeded 40% due to discounts in major product groups in the third quarter. With 9% stake in consolidated revenues, home appliances landscape remained challenging in APAC due to the rising cost of living, the influx from Chinese competitors, and severe natural disasters during the third quarter. Sales revenue in the region decreased by 9% in euro terms year-on-year. Substantial growth in Japan, Taiwan, and Hong Kong, besides the modest performance in Bangladesh, limited the decline in the third quarter, resulted by the poor demand in key markets such as Pakistan, Thailand, China, and Vietnam. In Pakistan, Dawlance sales volume decrease exceeded 8%, resulting in a decline in sales revenue in euro terms over 20% in the third quarter.
Severe floods due to the monsoon lasting longer than expected was the main reason for the weak consumer appetite during the period. In Bangladesh, Singer's net sales increased by almost 5% in euro terms despite the challenging environment. Due to the main factors such as weak global demand, slowdown in growth, and ample capacities, raw material prices continued to decline in the third quarter, both year-on-year and quarterly. On the metal side, market prices were slightly lower in the third quarter compared to the same period of the last year. Due to China's increasing exports in the market, slightly lower prices are expected in last quarter as well. On the plastic side, market prices were substantially lower both year-on-year and quarterly, and prices are expected to remain low in Q4 with the help of low oil prices. With that, I pass on to Mine Hanım for summary financial section.
Thank you, Barış Bey. Here is the summary of our third quarter 2025 financial results as per inflation accounting, both in yearly and quarterly comparison. Our consolidated revenues were TRY 124.4 billion in the third quarter, reflecting 11% and 5% real decline year-on-year and quarterly respectively. Gross profitability improved by 267 basis points year-on-year and 67 basis points quarterly. Improvement in the operating profit is substantial due to higher gross margin despite less supportive effects year-on-year. Operating margin improved by 190 basis points year-on-year and 82 basis points quarterly. Net financial expenses improved substantially in the third quarter, reflecting 37% decline year-on-year and 4% decrease quarterly. We booked TRY 3.7 billion of net monetary provision, showing a 14% decrease year-on-year on the back of decreasing inflation.
Consequently, we posted approximately TRY 0.7 billion loss before tax and TRY 2.3 billion net loss before minority in the first quarter, corresponding to -1.9% net margin for the period. Finally, with 7% margin, we recorded an adjusted EBITDA of TRY 8.7 billion in the third quarter with a substantial improvement both year-on-year and quarterly. We exclude transaction-related one-off expenses amounting to TRY 77 million due to the adjustment in the third quarter. The corresponding amount for the same quarter of last year was TRY 51 million . With the adjustment of net monetary position attributable to the income and expense items comprising EBITDA and EBITDA margin is 7.8% in the third quarter.
Please note that other income and expenses, profit before tax, and net income accounts are presented including the purchase price allocation gain recorded at the end of 2024 for comparative purposes as per IFRS 3 summary. In-year figures for the last year are also recalculated due to the reclassification of net monetary gains arising from the indexing of shares of foreign subsidiaries by the parent company. As of September end, our adjusted leverage is at 4.2 x, reflecting a significant improvement compared to the peak in the previous quarter. De-leveraging started from the back of EBITDA recovery, improving operational cash flow, and disciplined net debt sustained at EUR 3.1 billion. We utilized receivable factoring and earn-out collection tools in the third quarter as usual. The amount for factoring and earn-out collections were around EUR 537 million and EUR 80 million respectively, in line with the previous quarters.
As previously communicated, we are anticipating further improvements in the leverage as better operational performance continues to support EBITDA generation through the end of the year with disciplined net debt. You may find the details of the debt currency breakdown and effective interest rates of our loan and bond portfolio on the right-hand side. Total borrowing amount is TRY 221.7 billion, with average duration of 1.2 years. Our average effective Turkish lira, euro, U.S. dollar funding rates, including loans and bonds, are 34.5%, 4.3%, and 8.4% respectively. On the bottom left-hand side, you may see our cash currency breakdown with a total amount of TRY 71.4 billion, with well-diversified cash holdings amongst currencies. 46% of our total cash is in euro, 10% in U.S. dollar, and 23% in Turkish lira.
Euro-denominated borrowings constitute 52% of our total borrowings, while U.S. dollae and Turkish lira-denominated borrowings correspond to 15% and 23% respectively. On the debt maturity profile, our long-term borrowings correspond to 35% of our total borrowings. At the upper left corner, you may find our adjusted EBITDA margin, which higher gross margin and increased depreciation impact after transactions are the main drivers of the substantial recovery or 2.5 points in the margin, whereas higher operating expenses had a negative impact. At the upper right corner, you may see our net working capital to sales ratio. As of September- end, net working capital to sales ratio was 21.4%, slightly above the year-end level on 12-month rolling basis. At the lower left corner, you can see our CapEx to sales ratio at 2.8%, reflecting a significant decrease year-on-year, thanks to the tight focus on capital expenditure.
Finally, at the lower right corner, you may see our free cash flow figures. Improvement in the cash generation from operations within the third quarter, owing to reversal of working capital seasonality, our free year-to-date cash flow at the end of third quarter is TRY -12.3 billion. We are keeping our natural cash flow anticipation for the year end. With that, I'll hand it back to Barış Bey for the guidance update. Thank you.
Thank you, Mine Hanım. Here you may see our previously shared and revised guidance for 2025 based on our forecast and expectations for the year. Given the recent macro environment, both domestic and global, the underperformance in Europe and further uncertainties, we are revising our guidance for the year- end. We have revised our top-line guidance for domestic sales as approximately 5% decline in real terms and international sales as 5%-10% growth in euro terms. Having 6% EBITDA margin year to date, we have updated our EBITDA margin expectation as 6%-6.5% due to the downside risk for consumer demand and challenging pricing environment. We have also revised our guidance for our net working capital over sales slightly in between 20%-22% for the full- year.
Finally, we have lowered our CapEx guidance to EUR 250 million, considering the current amount and the limited capital expenditure anticipation. As we have disclosed in the previous quarters, we estimate savings of approximately EUR 140 million by optimization of office positions, roughly 2,000 roles to be affected across our global operations within three years' time. So far, we have completed almost 90% of planned role eliminations. We are expecting to finalize the remaining part by the end of 2026. Please kindly note that the completion rate refers to the agreements made for termination. Some of the actual cash payments might be postponed to next year, depending on the nature of the exit agreement. As a part of ongoing restructuring efforts, here you may also find the recent update on footprint optimization in production facilities. As stated earlier, we closed our factory in U.K. at the end of last year.
Within the second quarter, production has been terminated in three factories in Poland, in line with our footprint optimization plan. As the remaining step of the process, production will be terminated in one factory in Italy at 2025 year- end. Reindustrialization and right sizing will be continued in Italian operations next year. We continue to search for additional value creation initiatives to sustain additional synergies. We can proceed to the Q&A section.
The first question comes from the line of Hanzade Kılıçkıran with JPMorgan. Please go ahead.
Hello. Thank you very much for the presentation. I have three questions on your guidance. Regarding particularly on the downgrading profit margins, is this because that Q3 was lower your expectations or your view for Q4 has shifted on the negative side? That is the first one. The second one is that previously you have been expecting some positive free cash flow for the full- year, but you are still on the negative side as of nine months. Do you still keep your view that free cash flow will turn into positive by the end of this year? If that is the view, what will be the main driver behind this shift in the fourth quarter? Thank you.
Thank you, Hanzade Hanım. Q3, especially August and September, has been particularly strong as opposed to our expectations. We were much more carryover to the last quarter, especially August was particularly strong. Hence, we expect the same margins or the same performance relatively flat, both in gross margin and EBITDA margins to continue, which will carry us to the range that we just provided as guidance. Hence, as a point, 6.5% seems to be, let's say, less attainable on the back of a higher Q3. With regards to your next question, positive free cash flow. Yes, that's our revised budget for the remaining period as well, and for the whole year, especially on the back of destocking in inventories, on the back of continuing collection in receivables.
As you know, the last month of the year is especially conducive for factoring or early discount schemes on the back of balance sheets, clearance plans of distributors, and a high season in Europe across Q4. Also, it will be further supported by the increasing payables, by the European factories. This has been the case for the last year, given they are being prepared for the production season and we expect this to happen. CapEx is extremely disciplined at this point in time and hence our reduction in our guidance. That's why we expect and plan for a positive free cash flow for the total year.
All right. Okay. Thank you very much. That's very clear. Can I please make a follow-up on the margin side? Actually, you have a very strong Q3 in terms of profitability. We can see a shift in the margins now. Is it possible to quantify how much of this margin expansion is coming from the restructuring?
This year, we have been sharing a few numbers with you, but as we progress throughout the year, we are updating our synergy sources of value creation, especially on the sourcing side, it has been much higher than we expected. I can say that the synergy number that was shared in the past is a range between EUR 100 million to EUR 150 million, will most likely end around EUR 150 million to EUR 200 million for the whole year. For the last quarter, I can state that on a ballpark basis, around EUR 50 million from cost of goods sold savings will be there, probably compensated by some pricing actions, given it's a high season and a discount season for Europe in particular. A large chunk of this should come from the new drives, actually.
In particular, in Europe and in Türkiye as well, it is a dry season where we are going to attack with new campaigns. These will constitute a large chunk of our NPIs for the last quarter.
All right. Okay. Thank you very much. Finally, on the domestic market, what is your expectation for the fourth quarter? We have been observing now slower pace in the policy rates. Do you think that this may impact the demand in the fourth quarter? If that is going to be the case, do we have some sort of plan to improve the volumes in Türkiye?
October is performing much better than September, I must say. As you rightly pointed out, there is the subdued consumer demand that is prevailing in Türkiye, and apparently, the gradual phase out of interest rates will be coming in phases. Relatively, it will be a long trajectory. Having said that, given we own half of the market in general and we pioneer the campaign season around this period of the year, I see a very decent chance of beating our guidance, in Türkiye.
Okay. What type of campaigns are you going to hold? Is it price promotions, or are you going to offer better payment?
This is mostly on the back of, yes, special campaigns in installments and/or bundling across the products. But as I said, MDA will constitute a central part of our campaigns along with other major MDA product groups. So, as you know, MDA in particular offers much higher profitability than rest of the products. Hence, we expect a very strong period as compared to Q3 in Türkiye. But overall, this point, even if it will be stronger than Q3, I think, overall it points with year-on-year real decline in inflation index terms.
All right. Thank you very much, Barış Bey.
Welcome.
The next question comes from the line of Cemal Demirtaş with Ata Invest. Please go ahead.
Thank you for the presentation. My first question is related with the market share, both in domestic market and international markets. We see a decline in market share in domestic and also, I guess, in Europe, we see around 10% or more decline in the European revenues from the presentation. Who do you think are the winners in terms of market share? What might be the reason behind those market share losses, coupled with weak market conditions? That's my first question. The second question is about the financial expanse side. Going forward, we expect some normalization in your expenses, in 2026, assuming some recovery in the top- line. What is the base case scenario for you? The last one is about the taxes. I see that there is an increase in taxes in the third quarter, and that leads to some deviation from our estimates.
I would like to ask the trend for the, I know it's very difficult, but at least some color for the rest of the year. Related to that, nowadays we are talking about the possibilities of postponement of the inflation accounting in statutory accounts. But of course, in the TFRS or IFRS side, we are not expecting anything or there's a confusion in the market as far as I see. If this happens and in the statutory account, if they postpone the inflation accounting, and we go as it is in the TFRS or IFRS financials, what could be the impact on your financials? I don't know if you had any study on that. Thank you.
Thank you, Cemal Bey. Starting with the market share question. In fact, we see an increase in market shares in domestic market. Let's compare our notes if you want post call, because in domestic market, we don't see a decline. We see a market decline, overall in a number of units because of the peculiar situation in one of our peers or slash competitors. In Europe, as I mentioned before, especially competitors, Chinese competitors like Hisense, Haier, depending on the market are attacking with aggressive pricing campaigns, especially in washing machines, they are pretty strong. There is also the impact of trade brands, as I mentioned in our previous calls, especially in countries such as France. Pricing is the major fighting ground for the Chinese brands. Having said that, our market share loss around 1.5%-2% is now relatively stabilized.
We've seen ourselves, especially on the back of a strong Q3, around the same levels in terms of market share. The pricing erosion has also stopped as far as we can see. Q4 will be important, to continue to see the trend here. Second question on financial expenses. Yes, on the back of declining interest rate trajectory, we expect a decline in our financial expenses. As you know, FX volatility has been relatively balanced this year in terms of Turkish lira depreciation. We had a, let's say, tactical hedging policy on the back of the benign FX rate environment. Maybe you noticed we are also adjusting or we've adjusted our cash flow/net investment figures, and hence our P&L volatility that is coming from FX volatility is now relatively stabilized.
Hence, we expect for the next year, relatively better financial expenses as compared to the sales ratios. Lastly, on the taxes, yes, there are several factors impacting the deferred taxes calculation. Especially the impact, as you know, the inflation adjustments performed under the Turkish tax procedural law results in differences between the tax basis and the IFRS carrying amount of certain balance sheet items. Also items such as non-deductible expenses and tax-exempt income, they led to both temporary and permanent differences in the calculation of deferred tax. One of the, as you know, tax procedural law uses PPI, TFRS uses CPI for indexation of the assets. Especially on some of our subsidiaries, and mostly certain subsidiaries operating in Europe, they incurred tax losses during the period and were unable to recognize the tax assets due to the absence of probable future taxable profits.
In contrast, some of our subsidiaries are generating taxable gains from the sale of investments or operations. So they recognize current tax expenses in their local jurisdictions, and given there is no consolidation of tax expenses, the group recorded a net increase in income tax expense. This impacted our change in different taxes to a lesser extent as compared to the difference in indexation parameters between IFRS and tax procedural law. There have been some increase in corporate rates, especially in the Middle East region. This is impacting to a lesser extent. So these are more or less the factors that are impacting deferred tax. Lastly, yes, we hear the rumors about the elimination of inflation accounting in statutory accounts. But we know as much as you know in that respect.
Hence, as far as the impact is concerned, I think if inflation accounting is eliminated in one but continuing in the other, yes, our gap in deferred tax asset should be expanding because of the temporary difference calculation will be expanded more, to be honest.
Thank you. About the market share, I think I look at the Air Conditioner side, that might be it. But as you said in—
Yes, there is a change in the—
—in July and August, you have market share gain in the white goods side. How was the picture in September, in terms of the sentiment side?
Yeah
the consumption side? You gave some color on the October.
Yeah
Should we expect some changes in the behavior?
In Türkiye, it was relatively weak, to be honest with you, as compared to our custom in September. But as you know, there is usually a carryover between subsequent months, and hence October seems to be much better than September in Türkiye in particular.
Thank you.
You're welcome.
The next question comes from the line of Evgeniya Bystrova with Barclays. Please go ahead.
Yes. Hello. Thank you very much for the presentation. To start with, I have a few follow-ups. First of all, on the free cash flow, could you please confirm, because I was confused slightly. Do you expect free cash flow to be positive in Q4 but neutral for the entire year for 12 months? Or do you expect 12 months free cash flow to be positive?
Yes. We expect the entire year to be positive.
Okay. On the receivables monetization, Mine mentioned some numbers. I think it was EUR 537 million. Could you please just repeat because the connection was-
Yes. EUR 537 million in factory and EUR 80 million early discount. They are relatively similar amounts as compared to the previous quarter. As you know, we have expanded our capacity in these instruments. December is actually the month that we usually max out also in conjunction with our distributors.
So in December from EUR 537 million, for example, you will go up to which amount?
It depends on the accumulation of the receivables. We have limits up to EUR 750 billion, if I'm not mistaken. And we will maximize it as much as possible. But as I said, these two months, especially due to Black Friday of October and November, the accumulation of receivables becomes pretty strong. And we will be maxing out the limit as much as we can. But let's see. The discount rates offered are pretty low as compared to prevailing marketplace.
It's turning their credit to us.
Thank you. I have two more questions. On your debt strategy, I think you were planning to convert part of short-term debt into long-term debt. I just wanted to get an update on that. Also, how were you planning to achieve the leverage in Q4 just from the receivables and collections? Is that correct to assume?
Yes. For the entire year, we aim to be in line with our covenant, so 3.8 x. This is the numbers that is 4.2 x at this point in time. We are in discussion with several relationship banks, especially for relatively long-term, three- to five-year bilateral lending. That can come as a club loan, it depends. We also have some special ECA facilities, which will probably be discussed within 2026. But as you know, we only have one major redemption, which is EUR 350 million of euro bonds, May 27, 2026. We have already started to prefund this. This is the essence of actually shortening duration, because we are right now also just to be prepared and have a buffer with voluntary prepayment allowance. We're just prefunding that amount.
Once we get our long-term debt towards the end of this year or beginning of next year, we will adjust our duration of lending facilities accordingly.
Do you have a target, maybe, for total percentage of short-term debt compared to total debt?
Right now, we usually remain around half or 60/40 in terms of long-term to short-term debt, long-term to total debt, and short-term to total debt percentages. I think we should be mainly in line. Please look at this figure that is just before our euro bond defaults to current period, which is around May. I think these figures should be around 35% to 65% long-term, short-term to long-term debt percentages.
Mm-hmm. Thank you. My final question on the competition. In Q4, what is your expectation for competition in Europe, and how are you planning to tackle?
In Europe, the story is the same, and the tactics to tackle is the same as well. Right now, around 65%-70% of our NPIs are completed as of September year-end. We expect this to be carried around 85%-90%. There will be some lag, some carryover, especially on the cooling side to the next year, but we will be largely complete. We will be all in the market with our new products at this juncture, and this is our plan for the remaining quarter. The entire product spectrum will be almost complete towards the end of the year.
Do you expect to recover the loss in market share? Or do you think it will just help you to stay flat on your market share in Europe?
Yes. The latter, which is basically we will defend our position.
Mm-hmm. Okay. Thank you very much.
Thank you.
The next question comes from the line of Campos Gustavo with Jefferies. Please go ahead.
Hi. Hello. Yeah. Thank you very much for the presentation. Congrats on the results. Yeah, a few questions from my side. First, is my understanding correct, could you please explain how these receivables are being factored? Are they insured or do they have any recourse to the group, to the Arçelik group at this point?
They are non-recourse and they are insured. But I give the floor to Mine Hanim to provide further information.
Thank you, Barış Bey. All the receivables are under insurance of Coface, Atradius and Turkish EXIM . They are all non-recourse, off balance sheet. We might prefer to use some of the receivables to be factored depending on the pricing. We make sure that the factoring pricing is less than our average portfolio interest rates, to keep the interest costs under control as well.
Understood. In the way that bank lenders are looking at your balance sheet, do they include these off-balance sheet factored receivables in their debt calculations when they calculate the covenants or—
No.
—Apologies for the specific questions.
Yes. Good question. No, they are deducted from the receivables given they are non-recourse financing, which is blessed by the auditors as well.
Understood. Thank you. You were mentioning about refinancing some of your debt with bank lenders as well, in a more long-term format. Does that include the 2026 euro bond? What are your refinancing plans then? Are you also going to use bank debt for the bond or are you planning to come to the market? Sorry if I missed it.
No. Thank you. We are aiming to roll it over, mostly with bank loans or bank loan. So it will be a large chunk that will be renewed. We also have some existing cash at hand, to be honest. So it doesn't have to be fully refinanced by the leverage, further leverage. We don't want to come to euro bond markets unless there is a huge decline. To be honest, right now we don't want to lock in the relatively high interest rates at this juncture.
Understood. No problem. Thank you for that. Last question. A little bit more on the profitability side. EBITDA margins third quarter, roughly 7% now, but you still have some cost savings initiatives left to do. Is there some kind of run- rate EBITDA margin that you are expecting once all of these initiatives are materialized? If you have it, what would be that EBITDA margin run- rate, and when do you expect to achieve it? That would be my last question. Thank you.
Yes. That's a good question. As you know, there is this transition from inflation accounting in the sense that from a large chunk of our monetary gain line item is comprised of inventories. Hence there is, on the back of declining inflation rates, there will be some changes in the reported EBITDA figures which will feed into the gross margin. So that's one impact. Second impact will be the synergies. We expect a similar margin around last quarter. We are trying to balance a few things. One, keeping market share. Second, fending off the pricing competition. Thirdly, trying to keep the margins. The synergies are very helping on this front to a large extent. The parity as well, to be honest. So they are mixed up impact.
On a run- rate EBITDA margin, given our synergies are not completed as we speak, we expect further improvement as we progress throughout the next year because these, especially OpEx synergies, they come in an accumulated fashion. Whatever downsizing you are doing or headcount optimization you are doing is being accumulated. We have not stopped in our synergy extraction throughout the year. There are new sources. There are different market factors which are driving new sources of value creation. We expect furthermore, but these are being under further scrutiny. Let us see the last quarter and let us answer such questions, I think, the next year, once the margin is normalized. Whatever I will say, I might overshoot or undershoot, depending on the context, to be very honest with you.
Understood. No problem. Thank you. That was very helpful.
The next question comes from the line of Nekrasov Maxim with Citi. Please go ahead.
Yes, thank you very much for the presentation. A few questions on my side. First on the Turkish domestic volumes and pricing. As I understand, the volumes have stabilized, and you outperformed the market in the third quarter. Can you talk about the price increases? I assume they were below inflation, and whether you have made additional price adjustments in the fourth quarter so far, or you plan to do that? What is generally the environment in terms of the pricing competition domestically? Maybe in terms of the timing, when do you expect the volumes to start and real sales to start be positively impacted by the rate cuts? Are we talking early next year or maybe second half of next year? Any thoughts from that side would be appreciated.
Thank you. Central Bank continues on its path of tight monetary policy, as you see. It is apparent that they do not want to concede on the inflation target to the extent they can. There are some conflicting drivers which preclude them to reduce the interest rates fast enough. This has a profound impact on consumer sentiment that continues. To induce people to make a consumer discretionary procurement, the campaign and the pricing adjustments are very important. We will continue to reflect price increases in line or slightly higher than inflation in terms of gross pricing. But in terms of discounts and/or other back margin type discounts that we can do vis-a-vis our dealers, will be completely dependent on the market trajectory, which we expect to be slightly better than Q3. We have, as I said, a new season that is coming out of priors, plus bundling campaign.
As you know, we drive the market in that respect in Türkiye. Trying to make it as appealing as to the consumer as possible. The market situation, market dynamics are tough, but we are in Türkiye, in particular, we are much hopeful than Q3, I must say.
Mm-hmm. Understood. On the margin, just to follow up on the previous question. 7% in the third quarter, significant improvement. As I understand from your guidance, you are looking for a similar margin in the fourth quarter. Should we expect the 7% to be a certain bottom for in terms of margin of next year? Should you be looking for EBITDA margin over 7% next year? Also maybe if you can repeat, as I understood, if adjusted for inflation input, the margin will be closer to 7.8%. How does it compare to the previous year if we exclude the impact of inflation accounting? What would be the impact of the European acquisition versus underlying margin if we compare to previous years?
In terms of margin questions, they are very specific point questions, to be honest. As you know, we usually stick to our guidance here. Please try to back solve the numbers, especially for the Q4, in line with the guidance. It comes with a standard deviation, even given the market dynamics. For the next years, we expect to continue the synergies, not at the same speed, to be honest. But as I said, it is a dynamic process. Historically, without pre-inflation accounting period, our EBITDA margin has been around 10%, 10.5%, et cetera. Given the market conditions, that is not a very easy target to achieve going forward or in the terminal years. To be honest, I would expect a certain discount even if inflation accounting is completely abolished for the terminal year or for the run rate EBITDA margin.
So that actually answers the question of one of your colleagues a few minutes ago. But we will also, given the recent and new market dynamics, we will also learn as we progress through. As you can see, our clear aim is to try to keep our margins as much as we can in line with our market share gains. It's not an easy dilemma to solve or equation to solve, but I think in Q3 especially, we've been pretty successful in keeping our market share loss flat. But margins increasing. So this is almost a fight that we're pulling here in terms of market share and keeping the profitability. As I said, the synergies, parity, et cetera, are the most supporting factors in that respect.
Mm-hmm. Understood. Maybe just in terms of the guidance once again on the margin side, because we see third quarter EBITDA margin is a pretty decent improvement. But still you downgraded your full- year margin guidance. Is it more related to third quarter or more related to your expectations, the changing expectations regarding the fourth quarter, that margin? Yeah.
I responded to a similar question. Yes, in Q3, it was a much better August and September in Europe, but not in Türkiye. But in August, in both regions, it was a relatively strong period as opposed to our learnings from the last year. So that's why I think some of the margin improvement has been already done in that period, and hence we wanted to remain conservative in terms of our full- year guidance here. Mathematically speaking, like 6.5% is a point number will require a much higher margin uplift, as you can back-solve from the actual nine months so far.
Yeah. Thank you.
You are welcome.
The next question, it is a follow-up question from the line of Hanzade Kılıçkıran with JPMorgan. Please go ahead.
Thank you. Barış Bey, I have a follow-up question on Türkiye. In the discretionary sector, we start to observe some positive development because of the wealth impact after gold price appreciation. Auto sales are up, and we start to observe housing sales are also going up. Do you see some upside in the appliance sector as well coming from this positive wealth impact happening currently in Türkiye? Do you think that if Türkiye can return back to nine months installment sales in appliances soon? Thank you.
Thank you. Honestly speaking, that has been my expectation as well, the wealth impact from gold, but we do not see a tangible spending spree that is coming out of perceived wealth effect from increased gold prices. I do not think people are still in a saving mode. I could not quite catch your second question. Apologies.
Do you think that Türkiye can also return back to nine-month installment sales in appliances? Because I think now you can buy the appliances with four or five months installment. But nine months will make a big impact on the demand. Is there any chance that the second installment—
Yes. We believe, unless there is an extra cost to the consumer, which is the case in our campaigns, it is a major trigger as far as we can see. And we have seen that supports implementation, that implementation to support top line in the domestic market. Also we mentioned that before, that has a very minor financial impact to our P&L, a couple of million euros for the, let us say three to four months. Hence, we aim to keep it, depending on the product suite.
I could not understand. Do you aim to keep the longer term duration in some sales? Or maybe I missed the answer because you are currently selling in four or five months installments, right?
We have started the nine installment campaign as of October.
Oh, okay. This has been already active. All right.
Yeah. I thought that you saw this campaign ad and asking that question.
No. I didn't see it. I just wonder if it's going to be on or not. Okay. It is already on, so I didn't—
Yes, it's on.
Okay. But the interest cost is covered by you, right, not by the consumer?
It's a very minor impact to the P&L, I must say. It definitely won't
But it will make a big—
Yes, absolutely.
All right. It's going to make a big impact on the consumer side, probably.
Yes. That's been our experience here so far.
All right. That could be one reason why you are optimistic also for Q4, I understand.
Yes.
All right. Okay. Thank you very much.
Ladies and gentlemen, there are no further audio questions at this time. We will now move on to our webcast questions. The first webcast question comes from Serhat Kaya with YF. I quote, Hi, thank you for the presentation. What is the level of price erosion in Europe in euro terms? Do you think planned steel tariffs could reverse the downward trend in pricing? How it could affect your position in EU markets? That was the first question.
For the first question, I think the question is on a year-to-date basis, right? The price erosion. If that's the case, it should be around, it depends on the product line, but it should be around 4%-5% as far as working bulk. Honestly speaking, there are many pricing levels in the market, in terms of net sales price is very different than the recommended retail price, et cetera. I can say it's around 4%-5% in euro terms. We haven't observed. To be honest, the tariffs are so chunky and hectic, it's very hard to decipher a direct link or correlation to pricing. It's just, first of all, the consumer sentiment is relatively low, and as we mentioned before, Chinese competition is pretty high. As I said, there's been a stabilization in the pricing levels around third quarter.
Second question, do you expect any incentive in domestic market in Q4 for white goods such as tax cuts and/or change in credit card installments?
We do not expect, or we have not budgeted anything like this for the last quarter.
The next webcast question comes from Can Ozguzel with Franklin Templeton. I quote, Hi, thank you for your time. Two questions. First question, can you elaborate performance or more affordable white goods product line offered in Europe? When did you launch this product segment in EU? Is this launch gradual or all product lines are currently being sold? That was the first question.
I couldn't quite get the question in terms of what Can actually refers to as affordable white goods product line. If it's related to the 2,000 SKUs, they're not affordable per se. There are some mass plus segment products there as well. These are new product lines. These are the product lines that are cross-sourced from Türkiye factories, which are relatively low cost, but the same quality as before, like either Whirlpool or Hotpoint products. So high- margin, I must say, not affordable. Yes, this launch has been gradual, and in the third quarter, the increase has been from, let's say, 50% to 70% of the line product. We expect a similar increase in terms of percentage points in terms of incremental new product introduction. The performance of this product line is particularly conducive to our gross profit margin.
These are operational data that we can see on a daily life, but I must say they are in particular, especially in the dry goods, they are very promising. Second question?
As a continuation of the first question, what is your initial assessment for the performance of this product line, especially compared to Chinese products?
Yeah, I think I respond to that.
Okay, thank you. The next question, the second question. Do you consider any external remedies to lower net debt in nominal terms? Remedies such as asset or brand divestiture, et cetera. Thank you.
Yes, as mentioned before, we are constantly reviewing from a strategic standpoint our non-core assets, be it brands and/or our real estate and/or some CGUs as well. Yes, we do consider, but it should come with the right price and right buyer.
Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Alparslan for any closing comments. Thank you.
Thank you very much for all the questions. We can follow up if anything is missing, and we hope to see you in our next webcast. Thank you.