Good afternoon, everybody. Welcome to Sabancı Holding Q3 webcast. We have our Chief Financial Officer, Orhun Köstem with us today, and we will start with the presentation and major points of our Q3 performance. Before doing that, please refer to our disclaimer as you can see on the screen. Now, I would like to hand over to Mr. Köstem for the introduction.
Thank you, Kerem. Good morning. Good afternoon, everyone. We're quite happy to host this call to report another quarter of good solid financial results as well as to report on our progress towards our strategic undertakings, which we believe has also been successfully executed in the period. Now, if you look at the backdrop of what is happening in the first nine months of the year, we're looking at the Turkish lira depreciation of about 96% against the dollar and about 74% against euro. The latest reading on inflation in the first nine months was about 83.5%.
I think it's worth mentioning and remembering those when we look at the financial results, which we believe is well above the expected thresholds. Now, in this period, if you look at page three, we refer you to obviously our growth and earnings quality, which I'm going to touch base in a second. We maintain the strength of our balance sheet. In fact, we continue to incrementally deliver in the period. I'm going to show you the undertaking investments that we've been doing as we progress through our strategic transformation. The return on equity has tripled. You know, it was about 59% in the third quarter.
Obviously, our banks' ROE has been up to over 50%, quite seriously as well in the first nine months. The net debt to EBITDA, as I said, fell below 1x. Then one area, as you remember, in the last two quarters that we were referring to, which was our operational cash flow, now have obviously rebounded very strongly in this period. We are investing in renewable capacity in Turkey and outside of Turkey to further our climate technology strategic agenda, as well as investing in some disruptive emerging and climate technologies. Now, in the next page, that's page four.
Obviously, when we say renewable energy investments in Turkey, as you know, we have announced Enerjisa's 1,000 wind plant investments that are two tenders of YEKA, and this is in collaboration with ENERCON. Outside of Turkey, we have started our investments towards building a solar power plant in the U.S., as well as investing directly in certain startups. One is about fusion technology, and the other one about the drilling, which we believe are some of the technologies that are closest to getting commercialized in the near future. We further our initiatives investing in climate technologies, advanced material technologies, and digital technologies.
I won't repeat, but in this page four, you see the progress since the start of this year. Next, we have, as I said, left behind a very strong quarter that grew our nine-month financial performance quite strongly. Our revenues grew about 175%. Our combined EBITDA grew 259%, and our consolidated net income was up 221%. Now, what we mean by quality growth, obviously, is this pattern of growth where we grow our revenue and our profitability grows faster. In these results, I'm not going to touch base, but of course, our bank, Akbank has done a very good job in this quarter as well.
I'm sure you must have followed the banking sector results that are also quite good. We believe not only Akbank's results, but its underlying operational performance was very, very satisfactory. On the non-bank side, we're also quite happy with the performance of our businesses, where the revenues in the first nine months were up by 178%. EBITDA was up by 118%, and the net income was up by over 200%. Back to the point about cumulative inflation as well as the Turkish lira devaluation, we trust these are good results. You know, if you look at the existing working environment. The banks also, again, capital adequacy has further improved, which we're quite happy with.
Gives us not only confidence, but we believe give us more flexibility to be more competitive in the market going forward. Now, the return on equity is up in the period on a consolidated basis, it was 41%. If you look at the bank's return on equity, it was 55%, and our non-bank was 27.7%. Obviously a very good performance, but we're still playing catch up with the inflation, so there's still room for us to further improve. If you look at our cash position, it stands at TRY 4.4 billion at the end of nine months, which is down from TRY 5.5 billion at the end of the first half of this period.
Obviously, worth to mention is our investments in the climate technologies in the period. The capital advances provided to Aksigorta to effect a subsequent capital increase, which is probably due this period, and then obviously our ongoing buyback program. Now, on the next you'll see our operational cash flow, which obviously was a laggard in terms of performance in the first two quarters of the year. That was specifically due to the increased working capital requirements of Enerjisa Enerji on the back of the price equalization mechanism that came with a lag. Now that's obviously behind us, I hope, and I trust you listen to our friends' webcast as well. They've done a great job in the period.
Our operating cash flow has rebounded quite significantly now over and above last year's full year levels. Finally, our net financial debt to non-bank EBITDA on a combined basis is down to 0.7x , half of what it was a year back. I'll remind you that our group's midterm guidance on net debt to EBITDA is to maintain it at or below 2x . We believe together with our cash at hand at the holding level gives us enough firepower to continue pursuing our strategic initiatives as well as defending ourselves successfully for any potential volatility going forward. If you look at certain details for this third quarter, specifically, the combined revenues of the group was up by 192%.
Again, I'm happy to say that the contribution of the energy business was quite strong. We believe portfolio is an important driver of the success of our business, not only in the sense that we have a portfolio in distribution as well as generation, but also our generation portfolio is quite complementary between you know all the sources available in the market, which allows us to do a good job on a sustainable basis. The retail growth, top line growth in the period was also quite satisfactory on a like-for-like basis. Obviously the critical point is that we've seen the customer growth to be relatively strong which obviously supports the top line growth of our retail businesses. Last but not least, our industrials business.
Obviously, the demand was relatively stable, so to say. I mean, if you remember, our discussions earlier for our tire manufacturing businesses, for example, the OEM side of that business was not growing. The replacement part of the business is coming quite strong, but in general has good, you know, demand. Together with the favorable pricing, we see strong top line growth in our industrials business that assists our overall combined revenue growth in this quarter. If you look at EBITDA, again, I'm happy to say the EBITDA growth of 285% is obviously faster than the top line growth in the quarter. Now, obviously, the banks' now contribution becomes bigger.
On the non-bank side, I trust you would agree that, you know, between the energy prices and the raw material prices, we believe our businesses are doing a great job in terms of growing its absolute EBITDA and maintaining or minimizing any potential contraction in margin in this environment. Energy, obviously, again, our energy business was quite instrumental in delivering strong EBITDA growth. As I said, in both of our businesses, distribution and generation did quite well in the period. Needless to say, the demand for energy is high for this year specifically, and therefore, our businesses are on the profitability side, doing quite well.
The building materials, again, we can't obviously help but note that the fuel prices have been skyrocketing for the building materials business. Two things that we have been focusing on quite diligently. One was to ensure that we continue taking ourselves towards more alternative fuel usage. We have got it on average over 20% levels, which is actually at par or even better than some of the EU benchmarks, which we're happy with. But at the same time, to ensure that we do a very disciplined OpEx management in the period, so that we can maximize the leverage out of the top line growth that we see in these businesses, which drove good EBITDA growth.
On the industrials, again, we see strong EBITDA growth, driven partly by the top line growth. I have to say, in these businesses, obviously, the fact that the parity, euro/dollar parity remains below one is not helpful. Therefore, our friends, my colleagues, have been able to mitigate this effect quite successfully this year. Something to think about for us next year, obviously, under prevailing conditions. Nevertheless, good strong EBITDA growth and contribution to the combined EBITDA of the group. If you look at the net income, the net income growth was over 350%. On the non-bank side also, it was very strong at 230%.
Again, the energy side, we see the good progress on the operating profit to flow through our bottom line quite nicely. If you look at our generation business, Enerjisa Üretim, obviously continue to deliver on the back of good financial profit and cash flow generation. Therefore, our bottom line net income on the energy side has grown quite strong, despite the fact that Enerjisa Enerji has been in the first two quarters of the year needed to incrementally fund its growing working capital, which we're happy to note that in the third quarter, starting from the third quarter, and given the changes in the recent amendments in the amendment by the regulators has been more or less normalized for 2022.
Now, on the industrials, you know, apart from the fact that we have a disciplined management of our financial expenses, there has been an extension of the tax incentives for Brisa, which normally should count for the first nine months, flows into the third quarter. That is about TL 65 million impact. There is a jump. Nevertheless, good bottom line performance. On the building materials as well, you know, flowing through the operating profit, we see strong net income performance hitting the bottom line, therefore contributing very positively for the combined net profit of the business.
Now, I will now hand over to Kerem, which, as always, will take you through into certain details of our business units before we convene again for closing any questions. Thank you.
Thank you, Orhun Bey. Let me start with energy. We continue to benefit from having a portfolio in our energy business in terms of generation and energy trading and distribution and retail. In Q3, energy segment delivered a robust performance as EBITDA more than doubled, thanks to the contribution from both businesses. Enerjisa Energy recorded a strong performance as the distribution segment's EBITDA more than doubled compared to last year, thanks to the higher financial income on higher inflation trend and change in financial asset model approach, leading to a higher IRR. The strong growth in financial income, thanks to an efficient collection with higher national tariffs and hedge gains, more than compensated for lower OpEx and CapEx outperformance due to the impact of higher commodity prices. As of nine months, regulated asset base growth reached 68%, mainly reflecting revaluation of opening balance with inflation.
In the retail side of our energy business, gross profits more than tripled, driven by volume growth, impact of increasing procurement costs and inflation and base impact in liberalized segments. Higher gross profits in core business supported EBIT despite higher OpEx spending as a result of high inflation. In the first half of 2022, the cash flow was negative due to the fact that continuing increase in electricity procurement prices were not supported by national tariff levels, and the fact that any inflation assumptions incorporated to national tariff calculations were below realized inflation. The cash flow in Q3 recovered due to numerous measures introduced by the regulator to address the sustainability of the system. Financing costs increased on a year-on-year basis, driven by both higher inflation, higher financial debt and interest rates, and increase in revaluation expenses of customer deposits due to elevated inflation.
Meanwhile, financing costs is on a quarter-on-quarter basis as quarterly inflation increase decelerated and net debt declines. Thanks to strong operating performance, the company's net income increased by 116% year-on-year, more than offsetting higher financial expenses. Looking at the generation's performance, energy generation's revenue almost quadrupled, driven by much higher spot electricity prices as well as weaker Turkish lira, despite lower generation sales volume. Even though hydro generation volume increased compared to last year, total generation volume declined by 8% year-on-year as a result of the efforts to optimize natural gas plants production to reach the highest profitability level as far as spark spreads are concerned. EBITDA tripled as natural gas profitability increased on higher spark spreads due to higher market prices in addition to higher renewable volume in Q3.
Moreover, our team's ability on energy trades, which led us to capture market opportunities and higher dispatch contribution, supported the EBITDA growth in the quarter. Despite increase in effective tax rates, net income registered solid returns compared to last year, thanks to the robust EBITDA contribution and declining financial expenses. By the end of Q3, net debt declined EUR 61 million, indicating a net debt to EBITDA of 0.1x . The decline in indebtedness is an important development ahead of 1,000 MW wind investments, as we have already announced in October. The Industrial segments combined revenues increased by 144% year-on-year in Q3, thanks to flat volumes in both businesses and well-managed pricing, specifically in the tire business.
Although tire business maintains its operating profitability, segment EBITDA margin deteriorated by 5 percentage points due to declining Euro-USD parity and inflationary pressures in the tire reinforcement business. Coming down to the bottom line, net profit grew by 132% year-on-year, thanks to EBITDA pass-through, declining net financial expenses, and positive effect of tax incentives in tire business. Moving on to building materials. Segment displayed an impressive revenue growth of 168% year-on-year in the quarter, thanks to the sales mix optimization driven by domestic markets. Also, Çimsa Sabancı Cement BV effects link revenue contribution in the segment's results continues at a material level.
Despite negative impact of higher fuel, electricity, raw material, and transportation costs, fuel mix optimization that provided better energy margin and better OpEx management led to tripling EBITDA, resulting in 1.4 percentage points improvement in EBITDA margin in Q3. It will also be important to point out that alternative fuel usage ratio improved even further to 25% from 16% compared to last year, which is much higher than Turkey's average of 9% with the contribution of Çimsa's new investment at its off-field plants. Finally, the segment's net income grew by 368% year-on-year on the back of solid operational profitability. Note that our net income figure excludes the proceeds from gray cement network optimization, contributing around TL 900 million to the net income, which we deem as non-recurring income.
On retail, segment's combined revenues increased by 126% year-on-year, thanks to strong contribution from both electronics retail and food retail, which was well above average inflation in Q3. Like-for-like traffic in both businesses have shown double-digit improvement compared to last year when COVID restrictions started to ease gradually. As impact of COVID related restrictions disappeared from last year's base, both companies recorded strong performances in food retail online sales and electronic retail GMV, driven by marketplace investments. Solid top line growth managed to cover elevated operating expenses, especially the minimum wage hike in July 2022, and operating profitability improved in both businesses. Segment's IFRS adjusted EBITDA increased by 136% year-on-year in 3Q, and margins improved by 0.2 percentage points.
Despite higher financial expenses, segment's bottom line improved with positive contribution from both businesses. Financial services segment had another quarter with robust top line growth registered as 97% year-on-year, driven by strong performance in all major life and non-life businesses. Segment's EBITDA increased by 40% year-on-year driven by life and non-life business. In life business, thanks to the life protection volume growth and pension assets under management, EBITDA increased by 46% year-on-year. On the other hand, in non-life business, underwriting results was adversely affected, driven by ongoing increase in inflation of claim costs, 2021 minimum wage increase of 50%, ultimate loss ratio upward revision, which leads to an additional reserve increase, the increase in material damage coverage limits in motor line.
Consequently, combined ratio deteriorated to 134% in the quarter compared to 112% last year. However, the increase in financial income offset the negative impact of underwriting results and EBITDA grew by 20% year-on-year. We would also like to point out that with the contribution of increased financial income and improvement in MoD products profitability, non-life business generated net income in Q3. Despite slight decline in non-life business' profitability, higher financial income on increased interest and effective rates in life business resulted in an impressive 76% year-on-year bottom line growth in the segments. Note that with the new regulation published by the end of October, non-life companies are authorized to eliminate the impact of macroeconomic fluctuations in the calculation of unexpired risk reserve.
The positive effect of the regulation change will be reflected in Q4, together with the effect of minimum wage increase, which is of course scheduled by the end of the year. Finally, coming to the bank. Despite all the volatility and challenging market conditions, Akbank's strategic priorities have always remained intact. Akbank is one of the best-positioned banks in the environment with robust capital, highest among peers, solid liquidity, highest level of efficiency and low operating cost base. Akbank's nine months net income was up more than 5x year-on-year to 30 billion TL. The bank achieved an eye-catching return on assets of 5.66% and return on equity of 52% as of nine months.
Across the board, fee performance, market share gains in SME and consumer banking, strategic securities positioning and stellar 1.7 million customer acquisition year-to-date, contributed to solid core operating performance. The bank also further built capital during the quarter, reaching a robust figure of 19.3%, of course, excluding forbearances, with main contribution coming from internal capital generation. The sound solvency ratios will continue to provide the bank significant competitive advantage going forward. This concludes the details of the segments. I now would like to hand over to Mr. Köstem for closing remarks. Thank you.
Thank you, Kerem. Again, we're happy to close the third quarter of 2022 in a very good note. Obviously, as we're all aware, there remains to be challenges for the year ahead. However, we're quite confident that we can also close the year with this good performance that we have seen throughout the nine months of 2022. Thank you for your attention and now we can move forward with questions.
If you'd like to ask a question, please write your question to the Q&A section of the Zoom. Thank you. Once again, if you'd like to ask a question, please write your question to the Q&A section of the Zoom. Thank you. Bart, we have one question. Have you done any inflation work on your consolidated ROE? What would be the real ROE stripping out the inflation, please?
Thank you, Hamza Bey. Well, what we did, obviously, we started looking at individual companies' inflation-adjusted accounts starting from the first half of the year. The bank, as you know, they have been indicating that they're looking at a high single-digit ROE on an inflation-adjusted basis, which is great. We would be able to give you a more concrete guidance once we see the nine-month inflation-adjusted results for the whole group. I believe should be towards maybe on the back of this year. In any case, on an even inflation-adjusted basis, given the bank was quite nicely, and I believe our energy businesses should do as well, then we should be able to be at a good positive territory.
bear with us a little while more, please, so that we can give you more concrete guidance.
Once again, if you have a question, please type your question to the Q&A section of the Zoom. Thank you. We have another question. Are there plans for the IPO of energy generation units?
Thank you, Serhat Bey. Well, look, I mean, I'm aware in the past that there has been discussions of Enerjisa Enerji's IPO, which at the time, my understanding is that the business was not in necessarily great shape versus how the market was. Today, if you're following up on our disclosure, and if not, I will obviously happy to guide you to the fact that Enerjisa Üretim's performance, I'm sorry, is very satisfactory, both companies, but specifically Enerjisa Üretim. However, it's quite questionable whether that's the right time to do an IPO.
Going forward, obviously, we would need to align with our joint venture partners to see, you know, or weigh the benefits of such a transaction, which could obviously be favorable in a number of ways. For the moment, we don't have any concrete decision for that.
We have another question. What is growth strategy in the U.S., and what extent do you target to grow in the U.S.?
Yeah. Thank you. Thank you, Mehmet Bey. Now, obviously, first of all, as you know, our stated purpose, as we're saying, is to grow in three areas if you exclude the financial services, of course. One of them is climate technologies, materials technologies, and digital technologies. In material technologies, we're looking at renewable energy generation capacity to grow, you know, in Turkey and outside Turkey. When we look outside of Turkey, we've seen that the biggest market globally for renewable capacity or renewable demand is China, where we don't have any intention to do any business in the foreseeable future.
The second largest market is U.S., which is attractive for us, also in the fact that, again, I'm sure you must be following through our, you know, strategic dialogue that we're looking to improve our fixed revenue streams. We're looking to diversify our regulated base, and also we want to make sure that sustainability is at the core of our decision-making for capital allocation. This ticks all the boxes, in that sense. Now, if you look at U.S. market, though, you know, 100 GW of renewable capacity is installed in the last three years only. There is serious push to, you know, continue increasing the renewable generation capacity in the U.S.
If you follow the Inflation Reduction Act, it was an important facilitator to accelerate such investments, basically. Again, if you look at some stated commitments that the U.S. companies have stated that they're going to source some 80% of their consumption from renewable sources by 2045. Now, that makes about four terawatt-hours of energy. You know, that's mind-blowing. In that sense, we've started with relatively small, but we can quickly expand. You know, we've set to add some 1 GW of capacity in our Turkey's generation base, which is obviously relatively sizable given the fact that we had over already 3.6 GW. It gets us closer to 5 GW. It's very sizable for Turkey.
Even if you build 1 GW in the U.S., you know, just for comparison purposes, at the same period of time, there would still be ample room for potential growth given the size of the demand is very, very, very high. For the VC investments, I see a follow-up question. Now, these are for us, not only, you know, potential financial, let's say, gains. You know, I mean, the U.S. attracts some 60% of the global startup investments. We see a lot of good ideas in the disruptive emerging technologies in the U.S. in our lines of work.
Now, we also look at these in the sense that, because we directly invest in certain startups for Commonwealth for fusion and then Quaise for deep drilling technologies to see if going forward, once they become commercialized, whether we could actually integrate this into our businesses. Now, that's a far, you know, outlook for the time being. Having said that, the purpose of our investments, as you may guess, is not only for financial investment, but we're looking to see ecosystem gains as well as we go forward.
Well, we have another question. How do you see outlook for the energy business for 4Q and 2023? Do you expect the strong profitability to continue or normalize?
Thank you, Umut Bey. You know, 2023, 2022, first of all, obviously has been a well, so far, we haven't closed 2022 yet, but so far has been a very strong year in terms of, you know, top line and profit growth. Now, what drives it, we're quite happy about the way that we manage our business. We believe we're quite effective. We have great capability. Our teams are great. Our balance sheet, our resources are a great platform on which we could build our business, profitably. Having said that, it's also about the top line demand. Needless to say, that this year, obviously the demand was very, very high. The spot prices remained very, very high. That's a bit driven by this year.
Of course, it's also a bit driven by the general conjuncture. I mean, we haven't planned for a Russia, Ukraine, you know, event, basically. We've seen that the comeback from the pandemic through the energy prices up, which were even accelerated further with this unfortunate event. Now, all I can say is I'm sorry, I wouldn't be able to give you a more definitive answer. All I can say is both of our businesses, our portfolio approach, allows us to capitalize fullest on any demand opportunity in 2023 as well. If it happens, there's no reason why we shouldn't be able to maintain or even improve our strong profitability.
If you have any question, once again, please type your question to the Q&A section. Thank you.
Once again, if you have any question, please type your question to the Q&A section. Thanks. What competitive advantage would Sabancı have in U.S. renewable energy markets?
Thank you, Cengiz. I believe, look, I'm not sure at this point, given the level of demand, that we need to do anything very differently than the current players in the market. Obviously, we have grown capability in the domestic market in Turkey, setting up, you know, generation capacity and managing it very, very effectively. Obviously that's our competitive advantage. But I'm not suggesting that, to you that it's going to, you know, take us to the pinnacle of the energy industry in the U.S. That's not the point.
The whole point is it's a very big market with great demand, and more importantly, given the incentives provided in the US market, it gives us very good returns on our cost of capital. That's an important part of the equation. The other point, as I tried to underline, as I was answering one other question was that it's the most liberated or most liberal, let's say, market, probably globally. You know, I'll qualify myself. I don't know all the markets, but probably given the sizable markets, it is the most liberal.
Therefore it actually helps us in a great way to build generation capacity in a liberal market, and therefore diversifying our portfolio in the way that we expect, and at the same time, as I said, deliver good returns on capital. That's actually the whole so to say roadmap.
All right. If you have any question, please type your question to the Q&A section. Thank you. Cengiz, revising his question. Is U.S. market not competitive enough already? What newcomers such as Sabancı can make good returns?
I don't know. Maybe. Look, as I said, I'm not sure if it's not competitive enough. I'm sure there are many incumbent players in the market who are competitive, so it's not like we're eating easy bread.
We need to still work hard because in order to do that, obviously, as you might have realized, we haven't started with acquiring business. We have started with building the business. That's our capability in that sense. However, what makes it work better for us are the incentives that are applicable to all, by the way, I have to tell you. At least allows, even with our cost of capital, which you may assume to be relatively higher than any potential, you know, U.S. corporation, allows us to generate decent returns on our cost of capital. That's our viewpoint.
Now, Look, the project that we look at, I have to tell you, we looked at it initially. Some other party was awarded the tender and tried to start the project and couldn't, so it came back to us, and now we're finishing it. I don't know if it's a competitive advantage. All I'm saying is we believe we know how to do business or how to build, you know, a generation capacity. We'll put it into use, as we build our base, hopefully for renewable capacity in the US. If you have any question, please type your question to the Zoom section. We have another question. Thank you. Well, thank you, Cenk.
Once again, if you have any question, please type your question to the Q&A section of the Zoom. Thank you. It seems like we don't have any further questions on a late Friday afternoon. Thank you all for joining, and I would like to once again hand over to Orhun Köstem for final remarks. Yes. Thank you, Kerem, and thanks everyone for joining. Now, look, Kerem was telling me that the consensus estimate in Bloomberg for our net income for the full year we have reached it by this nine months. I'm happy with the performance that we have so far. We are aware of the challenges going ahead.
We believe we have the capacity to manage our business very successfully in light of those challenges, and looking forward to meet with you once again when we close the year to report back on our progress. With that, stay healthy and have a very good weekend. Bye-bye.