Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arcelik AS (IST:ARCLK, Financial) completed a significant transaction with Whirlpool, consolidating Beko Europe's financials, which is expected to enhance growth strategy.
- The acquisition of Whirlpool's MENA operations, including UAE and Morocco, is anticipated to expand Arcelik's market presence in these regions.
- Beko Europe, post-transaction, has become the number one player in Europe, with a substantial increase in production facilities and workforce.
- The transaction is expected to generate potential synergies, including optimized production lines and procurement savings, estimated to save around EUR300 million by the fifth year.
- Despite challenging market conditions, Arcelik achieved a 23% year-on-year revenue growth in the second quarter, driven by inorganic growth from the transaction.
Negative Points
- Arcelik's EBITDA margin was diluted by approximately 200 basis points due to higher production costs and increased operating expenses in Europe.
- The company reported a net loss of TRY0.8 billion in the second quarter, with a decline in net margin year-on-year and quarter-on-quarter.
- International revenues decreased substantially by 11% year-on-year in real terms, reflecting weaker consumer demand globally.
- The company's leverage increased to 3.45 times, indicating higher financial risk compared to previous quarters.
- Arcelik's gross profit margin declined by 3.4 points year-on-year due to rising material costs and challenging pricing environments.
Q & A Highlights
Q: Can you provide some background on Whirlpool's performance in the second quarter and the current demand environment in Turkey and Europe?
A: In Turkey, we observed growth in many product groups, particularly in the AC market, but expect uncertainties that might impact growth negatively. In Europe, the market is soft in Western Europe but buoyant in Eastern Europe. Whirlpool's sales are in line with the market, slightly below last year, but expected to perform at or slightly better than the market going forward.
Q: Despite increasing leverage, there is a drop in monetary gain. Why is this, and what is the current leverage situation?
A: The drop in monetary gain is due to lower inflation rates used for asset index adjustments. Leverage appears increased due to lease contracts within Whirlpool's portfolio, booked as financial debt under IFRS, not actual financial debt to banks.
Q: Excluding Beko Europe, what was the second quarter EBITDA margin, and what are the reasons for poor margins?
A: The second quarter margin was low due to seasonality, increased transformation costs, and higher advertising and sales expenses. We expect margins to improve as these seasonal costs will not recur, and the transaction impact will lessen.
Q: What is the expected timeline for achieving EUR300 million in savings from the new united company?
A: The savings will gradually increase, starting from EUR50 million to EUR100 million in the coming years, reaching EUR300 million by the fifth year.
Q: Given the increase in working capital needs and leverage, are there plans for capital optimization or bond issuances?
A: We plan to replace short-term loans with long-term financing this year, but do not intend to go to the market for extra borrowing before 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
