Earnings Call: Q2 2026

Jul 29, 2026

Summary

Q2 revenue fell 11.9% in real terms, while gross margin improved and net income returned to profit, partly on a one-off Whirlpool-related gain. 2026 revenue guidance was cut; margin and cash priorities remain unchanged.

Ladies and gentlemen, thank you for standing by. I am Constantinos, your call operator. Welcome, and thank you for joining the Arçelik conference call and live webcast to present and discuss the second quarter 2026 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, Mr. Burak Şimşek, IR and Capital Market Compliance Senior Lead, and Ms. Seçkin Aymak, IR and Capital Market Compliance Lead. Mr. Alparslan, you may now proceed. Thank you. Good morning and good afternoon, ladies and gentlemen. Welcome to our second quarter 2026 financial results webcast. This presentation contains the company's financial information prepared according to TFRS by the application of IAS 29 inflation accounting provisions. Here are the highlights of the second quarter of 2026. We generated TRY 141.3 billion in revenues, reflecting an 11.9% real year-on-year decline amid challenging demand conditions across most of our key markets. Nevertheless, our disciplined focus on controllable factors continued to support operational resilience and deliver tangible results. Gross margin improved by 0.94 percentage points year-on-year to 29.3%, supported by procurement savings and material improvement projects. Net income returned to positive territory, with net margin improving by 4.4 percentage points year-on-year and 3.7 percentage points quarter-on-quarter. This improvement was supported by a stronger below-the-line performance owing to positive contribution from the derecognition of certain obligations associated with Whirlpool transactions. Ongoing footprint optimization efforts continued while strategic decisions were disclosed regarding the Hitachi and Whirlpool joint ventures. Free cash flow improved significantly both year-on-year and quarter-on-quarter, reaching negative TRY 18.1 billion in the first half of 2026 versus negative TRY 31.5 billion in the first half of 2025, despite the seasonal working capital buildup. This progress underscores our continued focus on cash generation and disciplined working capital management. Leverage remained elevated at 4.4 times on an MGL adjusted basis as of the second quarter of 2026, primarily reflecting seasonal capital requirements. Deleveraging remains a key priority, and our continued focus on capital discipline contributed to a reduction in the CapEx to sales ratio to 2.2% from 3%, demonstrating a more selective investment approach and disciplined capital allocation. Alongside our operational improvement initiatives, we continue to capture synergies and simplify the organizational structure following the Whirlpool transaction, supporting our medium-term profitability and cash generation objectives. In the second quarter, our consolidated revenues declined by 11.9% in real terms year-on-year, primarily driven by subdued demand across our key markets, intensified competitive dynamics, and unfavorable price and product mix. Gross margin improved by 0.94 percentage points year-on-year to 29.3%, supported by successful management of raw material costs despite ongoing conflicts as well as material improvement projects. While we successfully managed the raw material impact of ongoing conflicts through procurement actions, war-related disruptions continued to create pressure on operating expenses. Adjusted EBITDA margin declined by 0.7 percentage points year-on-year to 5.2% as the benefits of a stronger gross margin were more than offset by wage inflation and continued pressure from operating expenses. Net income improved significantly to TRY 2.8 billion, resulting in a 2% margin compared with a loss-making base in the prior year. Here you can see our revenue bridge for the second quarter on the left-hand side. Consolidated revenues declined by 3.1% year-on-year in euro terms in the first half of 2026, primarily driven by challenging demand conditions and unfavorable price and product mix dynamics across several markets. International revenues were down by 6.5%, while Turkey delivered 3.8% growth in euro terms. In real Turkish lira terms, international revenues declined by 15% year-on-year, while Turkey revenues were down by 5.6%. The decline was less pronounced in euro terms, supported by favorable currency translation impact. On the right-hand side, you can see our regional sales breakdown. Turkey represented 36% of second quarter revenues and 35% of revenues in the first half of 2026, slightly higher than the 34% contribution recorded in the first half of 2025. Western Europe accounted for 31% of total revenues, maintaining its share from the same quarter last year. CIS and Eastern Europe represented 13% of revenues, broadly in line with historical levels. Asia Pacific accounted for 11% of consolidated revenues, compared to 12% in the prior quarter. Africa and the Middle East together represented 8% of revenues, remaining broadly stable year-on-year. On the left-hand side, you can see how sales volumes across our key product categories in Turkey have evolved relative to the overall market. In MDA6, we outperformed the market through volume growth and market share gains despite a challenging demand environment. Although price and product mix continued to weigh on performance, the quarter reflected a gradual improvement in both areas. Air conditioning demand remained moderate while TV volumes outperformed the market during the period. Turkey revenues declined by 5.6% year-on-year in real Turkish lira terms in the second quarter. Despite the top-line contraction, Turkey's share in total revenues increased to 36% from 34% in the prior year quarter, reflecting the relative resilience of the domestic business. Overall, price and product mix headwinds eased progressively throughout the quarter, supporting the resilience of domestic performance. Across Europe, demand conditions show gradual improvement with market volumes returning to modest growth. However, intense competition continued to weigh on market value in euro terms. Despite these pressures, Beko maintained its market leading position. In Western Europe, MDA6 market volumes increased by approximately 1.5% year-on-year in the first five months of 2026. Despite the recovery in unit demand, market value declined by around 1.2% in euro terms, reflecting continued pricing pressure across the region. Growth was broad-based across Great Britain, France, Italy, Spain, Portugal, and the Netherlands, while demand remained subdued in Germany, Belgium, and Austria. In Eastern Europe, volume growth remained limited at around 0.8% year to date, while euro-denominated market value continued to face pressure. Romania remained weak, whereas Ukraine returned to modest growth. Despite ongoing market and pricing pressures, Beko sustained its leadership position across the region. Europe remained our largest regional exposure, accounting for 44% of consolidated revenues, although revenues declined by 7% in euro terms year-on-year. Overall market demand continued to recover gradually across Europe, but pricing pressure and competitive intensity remained elevated. Despite these headwinds, Beko successfully preserved its market leadership position across both Western and Eastern Europe. Africa and the Middle East accounted for almost 9% of consolidated revenues in the second quarter. Despite ongoing conflicts and continued volatility in the Middle East, euro-denominated revenues increased by 4.2% year-on-year, supported by resilient demand across Africa. Africa remained the key growth driver in the quarter, supported by resilient demand in South Africa and continued momentum across sub-Saharan markets. Defy sustained its positive momentum, delivering double-digit revenue growth in euro terms, supported by volume growth and favorable FX translation effects. In South Africa, Defy strengthened its MDA6 market share by 3.7 percentage points year-on-year, while targeted promotions supported pricing discipline and reinforced its clear market leadership position. In the Middle East, sales improved versus the previous quarter, supported by a gradual normalization in demand following earlier shipment disruptions and softer market conditions related to regional conflict. While market conditions remain challenging, the region continued to deliver low single-digit growth. Egypt maintained its recovery trajectory in Q2, with revenues increasing by nearly 20% sequentially and more than 80% year-on-year. Performance was supported by improving market fundamentals, stronger demand, and continued gains in competitive positioning across key MDA categories. Consumer demand across Asia Pacific remained uneven in Q2. While China, Taiwan, and Singapore continued to face pressure from cautious consumer spending and weak demand, several markets, including Hong Kong, Malaysia, Indonesia, and Vietnam, showed signs of recovery, supported by focused commercial actions and seasonal demand. Regional sales remained broadly stable sequentially, although they continued to trail prior year levels. Pakistan remained the standout performer in the region, delivering resilient growth despite geopolitical uncertainty and competitive pressures. Dawlance increased revenues by 44.6% quarter-on-quarter and 5% year-on-year in euro terms, while volumes grew 21.5% versus Q1 and 11.1% versus last year, supported by strong primary sales momentum and robust category performance. In Bangladesh, macroeconomic conditions remain challenging, weighing on consumer demand, particularly in refrigerators and air conditioners. Nevertheless, selected categories performed strongly, with TV volumes increasing by 56% year-on-year and EUR revenues rising by 63%, supported by FIFA World Cup-related demand and targeted commercial execution. Overall, Africa continued to be the key growth engine, supported by South Africa, Egypt, and sub-Saharan markets. In contrast, trading conditions across APAC remain mixed, although Pakistan continued to deliver strong growth and several Southeast Asian markets showed early signs of recovery. Raw material inflation pressures were largely mitigated through procurement actions in the second quarter. Metal prices eased slightly quarter-on-quarter, with the composite metal index declining from 105 in first quarter of 2026 to 103 in the second quarter of 2026. However, copper and aluminum markets remain volatile due to supply side disruptions and geopolitical uncertainties. Strategic sourcing, hedging, and supplier negotiations should help reduce our exposure to aluminum and copper price volatility going forward, while early and long-term steel agreements have largely offset increases in market prices. Plastics became the main raw material pressure point in the quarter, with the index rising sharply to 106 from 91 in the first quarter of 2026, driven by supply constraints, force majeure declarations, and localized production disruptions linked to geopolitical developments. Early procurement secured most of our first half requirements and helped limit near-term exposure. That being said, plastics prices remain elevated and normalization is now expected to take longer than previously anticipated, suggesting that some pressure may persist in the coming months. With that, I leave the floor to Mine Hanım for summary financials. Thank you, Fatih. We recorded 141.3 billion TRY in consolidated revenues in the second quarter, representing a 12% real decline year-on-year, while revenues remained broadly stable quarter-on-quarter with around 1% growth. This year-on-year decline mainly reflects continued demand softness, pricing pressure, and unfavorable price and product mix dynamics across several key markets. Gross profit reached 41.5 billion TRY with gross margin improving by 94 basis points year-on-year to 29.3%. These improvements were supported by disciplined execution, proactive procurement actions, carefully managed input costs, and material improvement projects, despite ongoing pricing pressure in several markets. Core operating profit stood at 1 billion TRY, corresponding to 0.7% operating margin. Operating profitability remained under pressure due to lower revenues and elevated operating expenses, including wage inflation and continuous cost pressure. Below the operating line, other income and expenses made a positive contribution of 5.1 billion TRY in the second quarter. Net financial expenses also improved to 21% year-on-year to 7.4 billion TRY, supporting the recovery in bottom line performance. Monetary gain amounted to 4.6 billion TRY, broadly in line with the same period last year, although lower on a sequential basis. As a result, profit before tax came in at 3.3 billion TRY, while net income before minority reached 2.8 billion TRY, corresponding to 2% net income margin. EBITDA was 5.9 billion TRY with a 4.1% margin, while adjusted EBITDA reached 7.4 billion TRY with a 5.2% margin. Although adjusted EBITDA declined year-on-year, gross margin resilience and the improvement in below-the-line items helped net income return to positive territory. For the first half, revenue stood at 280.7 billion TRY, adjusted EBITDA reached 16.6 billion TRY, and net income before minority was positive at 444 million TRY. Overall, the quarter confirms that while top line and EBITDA pressures remain visible, management continues to protect the areas within its control. Gross margin improved year-on-year, net income returned to positive territory, financial expenses improved, and capital allocation remained selective. This is why our priorities remain focused on cash generation, de-leveraging, disciplined cost management, and selective capital allocation. As of June, adjusted net debt stood at 187.5 billion TRY, broadly stable compared to the previous quarter. MGL adjusted leverage improved to 4.4 times from 5.2 times, reflecting the benefit of stronger rolling EBITDA despite a seasonal buildup in net working capital. While leverage remains elevated, de-leveraging continues to be one of our highest priorities. As sales volume and collections accelerate throughout the second half, we remain focused on cash generation, disciplined working capital management, and selective capital allocation to strengthen the balance sheet over time. We continued to utilize receivable factoring and early collection tools within the quarter. The amount of factoring and early collection stood at EUR 580 million within the second quarter. Our liquidity position remains solid with total cash reaching TRY 71 billion, equivalent to approximately EUR 1.3 billion, providing continued financial flexibility in a volatile operating environment. Total debt stood at TRY 258.4 billion, corresponding to EUR 4.9 billion. Cash remains well-diversified across currencies, with 35% denominated in euro, 23 in Turkish lira, 20 in US dollars, and the remaining 22 in other currencies. On the liability side, euro-denominated borrowings represented 53% of total debt, while US dollar and Turkish lira exposures accounted for 15% and 19%, respectively, maintaining a broadly balanced funding structure aligned with our operating footprint. Short-term borrowings represented 58% of total debt, while 42% remained long-term. Excluding the notional cash pool and company credit card balances, the share of short-term borrowings stands at 49%. Following the redemption of EUR 350 million green bonds and the utilization of private placements, the maturity profile improved gradually. The average duration of the consolidated debt portfolio is 1.3 years. We continue to actively manage our maturity profile to balance liquidity, funding costs, and financial flexibility. Average effective funding costs remained at 36.9% for Turkish lira borrowings, 4.6% for euro, and 8.4% for US dollars, demonstrating the continued benefits of geographic funding diversification. Overall, while leverage remains above our desired level due to seasonal working capital requirements, the quarter demonstrated continued progress in balance sheet management, improving leverage metrics, disciplined capital allocation, and a sustained focus on cash generation remain central to our de-leveraging journey. Starting from the top left, adjusted EBITDA margin declined by 0.7 percentage points year-on-year to 5.2%. While gross margin improved by 0.9 percentage points, this benefit was more than offset by elevated operating expenses, particularly wage inflation and operating cost pressures. One-off items provided a partial offset during the quarter. At the top right, net working capital to sales stood at 21.9% as of June, remaining well controlled and fully consistent with our guidance of around 22%, despite a seasonal increase in working capital requirements. Moving to the bottom left, CapEx to sales declined to 2.2% in first half from 2% in first half 2025, reflecting tighter investment prioritization, disciplined capital allocation, and an increased focus on return-oriented spending. Finally, free cash flow improved materially year-on-year despite continued seasonal working capital pressure, reaching negative TRY 18.1 billion, compared with negative TRY 31.5 billion in the first half of last year. This nearly TRY 13.5 billion improvement reflects tighter working capital management, lower CapEx intensity, and a stronger focus on cash generation across the organization. Overall, while profitability remains under pressure in the current demand environment, the quarter demonstrates clear progress in the areas we can directly control. Working capital remains within guidance, CapEx intensity declined, and free cash flow improved significantly, reinforcing our focus on cash generation, deleveraging, and disciplined capital allocation. With that, I will now hand it over to Barış Alparslan for our guidance. Thank you. Thank you, Mine Hanım. Based on the trends we have observed in the first half and the increased geopolitical uncertainty across several key markets, we are revising our revenue outlook for 2026. We now expect single-digit revenue declines both in Turkey in real Turkish lira terms and in our international operations in FX terms, compared to our previous expectation of a broadly flat performance in Turkey and internationally. While inflation continues to moderate across several of our key markets and monetary easing has gradually progressed in Europe, consumer demand remains subdued. Households continue to prioritize essential spending, while pricing pressure and competitive intensity remain elevated across most markets, limiting the pace of value recovery despite gradual improvements in volumes. Compared to the beginning of the year, geopolitical uncertainty has increased further. Regional conflicts, supply chain disruptions, and volatility in commodity and energy markets continue to affect business visibility. Foreign exchange movements, particularly euro-dollar parity, also remain important variables for both of our cost base and profitability. In Turkey, domestic demand continues to be shaped by tight financial conditions. Looking ahead, the pace of monetary easing and any measures supporting consumer financing will remain important factors for a broader demand recovery. While we are revising our revenue outlook, we are maintaining all other key guidance metrics unchanged, including adjusted EBITDA margin of 6.25%-6.5%, net working capital to sales of around 22%, and CapEx of approximately EUR 250 million. We continue to see opportunities on the profitability side through pricing actions, procurement savings, efficiency initiatives, and tighter cost management. This reflects our confidence in the actions under our control. During the second quarter, gross margin improved year-on-year despite lower revenues, supported by procurement initiatives, material improvement programs, pricing discipline, and favorable currency dynamics. At the same time, we continue to pursue efficiency actions, cost optimization, and product portfolio initiatives across the organization. Importantly, the second quarter demonstrated that even in a weaker demand environment, we can continue to protect the fundamentals of good business. Gross margin improved, net income returned to positive territory, and cash generation showed meaningful year-on-year improvement. Overall, the revised guidance reflects a more prudent revenue outlook in response to a softer demand environment and increased geopolitical uncertainty. At the same time, it reflects our confidence in our ability to protect profitability, manage working capital effectively, and maintain disciplined capital allocation. As previously announced, the sale of our stake in the Arçelik Hitachi joint venture remains subject to regulatory approvals and is expected to close within the next 12 months. At this stage, no impact from the transaction has been incorporated into our guidance. For the remainder of the year, our priorities remain clear: protecting profitability through pricing discipline, procurement actions, and efficiency initiatives, improving cash generation and supporting deleveraging, maintaining disciplined working capital and capital allocation, executing our integration portfolio and organizational initiatives with focus and accountability. We are also actively reviewing our non-core asset monetization opportunities, including selected real estate assets, as part of our broader deleveraging agenda. In a volatile environment, execution quality matters more than ever, and we will continue to focus on the areas within our control, act with agility and discipline, and create long-term value through consistent execution and responsible capital allocation. With that, we can proceed to the Q&A section. The first question comes from the line of Cemal Demirtaş with Ata Invest. Please go ahead. Thank you for the presentation. My question's about the EBITDA margin guidance. You maintained your guidance at 6.25% to 6.50%, and it's the adjusted number. But when we look at your numbers with the adjusted and unadjusted, the difference, especially in the second quarter, and your unadjusted number is 4.2%, and you had some impact from the adjustments. What should be the picture for the second half of the year to meet your guidance? Are we going to see some adjustments also in the second half of the year to meet your guidance, or should we expect also some clear improvements in your unadjusted EBITDA number? Thank you. Thank you, Cemal Bey. As you know, there's a disproportionate seasonality, especially in the European operations, when it comes to the months of October, November, et cetera. So it's very important that we see those months because the degree of operating leverage inherent in this business, it really impacts going forward. During Q2, especially on the OpEx side, we have experienced some impact from especially the transportation logistics side due to the sudden increases in the oil prices. Some of it we count under adjustments or one-off impacts as they relate to the Strait of Hormuz in particular. Having said that, we don't see that much of an impact going forward on the back of the expectation that the things have normalized to a certain extent. But of course, if the conditions of the war deteriorate and/or the conflicts escalate to a massive level, we can always resort to revising our guidance. I think the jury is out, given we are not there in terms of high revenue months, especially on the European side. We want to monitor those months before deciding. Thank you. About the working capital side, should we also expect some improvement on that front going forward? When I look at your financial expenses side in the footnotes or details, I see a positive contribution in the second quarter. Should we expect that kind of a trend going forward when we take the FX gain, FX losses from trading activities, FX gains on derivatives, FX losses, those items. When I put them together, I see a positive FX side. On the FX side, should we expect this to continue in the third quarter and the following quarters? The second question on the working capital, yes, we are entering much better months in terms of accelerating collections and monetization of the inventories going forward. As you know, towards the year-end, we always see substantial reduction in net working capital balance. So net working capital, in terms of nominal balance, would improve going forward. On the net financing expense related items, when you look at the monthly trend, in our case, of course, there are some hiccups here and there due to emerging market currency volatilities. But given our balance sheet hedging and hedging policies via financial derivatives, our financial expenses have been much better than we anticipated. So it has been rather stable. I would say towards the remaining periods of the year, you can expect a similar average number on a monthly basis when you divide it by six. We do not expect much hiccup because the balance sheet is mostly either locked in and/or protected against current volatilities in major developed market currencies. Thank you. The next question comes from the line of Maxim Nekrasov with Citi. Please go ahead. Yes, good afternoon. Thank you so much for the presentation. I just wanted to clarify regarding the one-off positive impact on the bottom line. Is it fair to assume that this one-off was TRY 6.7 billion as a decrease in contingent liability, which would mean that adjusted for that net loss would be something around TRY 3.3 billion? The second one is, I noticed that there are some improvements on the volume side if you look both domestically and internationally. Do you have expectations of further improvement on the volume side? Can you also maybe talk a bit more about the price and mix pressures, what's exactly driving that? Is it mostly related to the competition or there are some other factors, and whether you have plans to somewhat improve on the pricing side as well in the second half and into next year. Thank you. Thank you. Your first question, yes, that's broadly correct. That's the one-off positive impact in the other income line emanating from the Whirlpool transaction, release of contingent liabilities, et cetera. On the volume side, I think the trend that has been secular so far on the volume side, we expect it to continue. We don't see much catalyst apart from a consumer stimulus that could come out of Turkey. In Europe, we are entering high seasons. That's encouraging on that front. On the product mix, as you know, we are trying to increase the pricing mix via diverse brands that we have, especially on the Whirlpool side. So any improvement in the margin, we expect to come out of product mix and pricing increases, especially in Turkey, we have lined up price increases to abate the impact of increases in the war-related gross margin impact. That is why we believe that the margin will be largely protected. While on the volume side, apart from the seasonal trends, we expect a similar year-on-year change going forward and hence the revision in the guidance. Understood. Thank you so 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 Hanzade Kılıçkıran with J.P. Morgan, and I quote, "Thank you for the presentation. I have a few questions. First question, how comfortable are you in achieving your margin guidance after weaker than expected performance in first half due to many external factors?" Second question, related to the previous question, do you see strong tailwinds for Turkey's demand in the second half of the year? Third question, should we expect further exits in strategic alliances assets while you restructure your international operations? Thank you. Thank you. We are fairly comfortable on your first question. Secondly, on the strong tailwind, currently, we do not see much catalyst in Turkey. Having said that, you know the degree of dynamism in Turkey if interest rates are being lowered and/or there is a consumer stimulus package coming from a political standpoint. Things change and turn very quickly, and that is our hope in any case. We do not factor this in our financials. We will be fighting, especially on the pass-through of raw material prices in the form of higher pricing in Turkey. When we come to the third question, of course, we are always reviewing our portfolio for strategic actions, and we will continue to monetize non-core real estate assets, in particular, as we progress throughout the year. For assets, I think we will be looking at it, and bound by the confidentiality, we will, of course, announce any material development that will come on stream. Thank you. The next webcast question comes from Marco Kirner with Valiant Asset Management, and I quote, "How long will the favorable commodity prices benefit continue? Will you see a benefit in second half as well?" Thank you. On the plastic side, actually, there's no favorable commodity pricing, but we have been quite successful in acting early and locking in some agreements. As I said, this material improvement projects that we always talk about is very, very important for us to keep the gross margin at a certain level. We expect a rather flat performance on the gross margin side. The aim is to keep the competitive pricing, our market share levels, and utilize strategic pricing as the brands, both in Turkey and Europe, allows us to do. That's why we don't expect a benefit per se, but I think any reduction or any normalization in the war environment will, of course, be highly beneficial and elevate the gross margin, which we're not factoring at this juncture. Next question is a follow-up question from Marco Kirner, and I quote, "Are you in breach of bank covenants after leverage increasing beyond 4.5 times?" Thank you. From some banks, we have already obtained waivers based on the 2026 interim financial statements. Some of the financing arrangements are subject to annual testing periods, not semi-annual. Accordingly, no breach is currently arising under these facilities in relation to the 2026 interim financial statements. Our aim is to ensure compliance with the relevant financial ratios at the testing date for the year end in 2026. You know how quickly the deleveraging happens towards the year end, given the monetization of net working capital balance. It will be a mixture of waiver processes at this juncture versus continuing delivering the compliance certificates as we progress throughout the year. 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 and attending the call prior to the holiday season. Appreciate it. See you in our next call. Thank you.