Türkiye Sise Ve Cam Fabrikalari : 2021 YE Webcast Transcript

2021 FY Results Webcast Transcript

TÜRKİYE ŞİŞE VE CAM FABRİKALARI A.Ş.

February 9th, 2022

TÜRKİYE ŞİŞE ve CAM FABRİKALARI A.Ş.

	T 0850 206 33 74
İçmeler Mah. D-100 Karayolu Cad.	T 0850 206 31 08
No.44A Tuzla İstanbul Türkiye	T 0850 206 26 57	sisecam.com.tr

Operator

Ladies and gentlemen, welcome to Şişecam 2021 Year End Financial results audio and webcast call. I will now hand over the call to Şişecam's CFO, Mr Gokhan Guralp. Please sir, go ahead.

Gokhan Guralp

Thank you. Good afternoon ladies and gentlemen, and welcome to the review of our 2021 Full Year Earnings Results. we hope everyone is well and healthy since we last spoke. Today, I'm together with our CEO, Görkem Elverici Güralp and our IR Director, Hande Özbörçek.

In today's call, I will first walk you through 2021 Full Year financial and operational results of Şişecam, with performance review on a business line basis. Afterwards, I will continue with our cash position and the capital allocation. Operational and financial review will be followed by Şişecam's approach to sustainability where I will provide you our progress report on 2017-2022 strategy. I will also share the details on our renewed strategy and targets.

As always, I will be pleased to take your questions at the end of the presentation. Please be reminded that our presentation and the Q&A session may contain some forward-looking statements. Our assumptions and projections are based on the current environment and thus may be subject to change.

Moving onto slide three, we ended the year once again with a record-breaking performance, on the topline. We have had all time high profitability on both EBITDA and net income levels on a one-off adjusted basis. Consolidated revenue, with a year-on-year growth of 50%, reached to 32 Billion TL. Euro-based topline went up by 15% and recorded as 3.1 Billion. Thanks to the robust performance across all business lines with one single exemption, Auto Glass, our EBITDA increased to 8.6 Billion TL. Local currency and Euro-based increases in our nominal EBITDA were recorded as 73% and 33%, respectively.

Even though 2021 was an extremely challenging year given globally high inflationary environment, we left the reporting period behind with 27% Adjusted EBITDA margin, up by 400 basis points compared to the level recorded in 2020. Larger scale of operations, wider catchment area and higher capacity utilization rates as well as cost pass through almost all business lines were the main drivers of the solid improvement in our profitability. Backed by below the operating line FX gains, one-off adjusted parent- only net income went up to 8.1 Billion TL.

Our portfolio performance were supported by all five business lines thanks to sales volume growth and cost pass through. Architectural Glass continued to be the highest topline contributor. It was followed by Glass Packaging and Glassware segments. Chemical operations, due to mainly hard currency decline in soda ash prices given 2021 contractual terms, had a sluggish performance. Auto Glass operations' weaker than expected performance was directly in relation with unsystematic risk.

Moving onto slide four, Architectural Glass operations sustained its outperformance throughout the year. Value added glass demand dominated the markets in all geographies we've been present as local manufacturer as well as we were exporters. We were fully equipped and well skilled to meet our end-client industries' needs. Upward trend in building renovation, governmental housing and infrastructure projects combined with the mobility on home appliances and furniture sectors were the main drivers of the flat glass demand in Turkey. Continued processed glass exports of the wholesalers pushed the demand further to the north. Meanwhile, European markets were extremely mobile with cold repairs at peer company level and limited flow of processed glass due to logistic constraints on top of the demand for flat glass as the most preferred insulation material coming from the construction industry. Stronger operations in Russia and India have also contributed to the eye-catching sales volume growth of 21% year-on-year. Price and sales mix combined with currency devaluation impact, net external revenues went up by 85% compared to 2020.

In our Auto Glass operations, on the other hand, we have experienced the inevitable impact of the everlasting global semiconductor industry shortage. Amidst temporary production halts of our main clientele, OEM, in more than one round throughout the year, we managed to increase our sales volume by 3%. Gradual increase in aftermarket sales share, inclusion of new projects and hard currency denominated revenue stream have all contributed to the segment's 36% topline growth.

On slide five, I will continue providing details on the last two business lines.

Thanks to improved consumer sentiment with the ease of Covid-19 related restrictive measures and reopening of HORECA, Glassware business line has unsurprisingly had a very good performance. Volume sales went up by 17%. And the mobility in our domestic market as well as in the international markets was healthy enough to accept product price increases. Further boosted by local currency weakness, segment-wise revenue increased by 53% year-on-year.

Our Glass Packaging operations generated a topline growth of 37% on the back of 8% volume increase and 29% price, sales mix and currency impact. Sales volume growth was evenly split between Turkish and international operations though limited on the exports side, while the share of international revenue stood at 60% of the segmental revenue.

Finally yet importantly, our Chemical business line revenue went up by 37%. Although, sales volume growth was visible across all sub-segments, yet pricing was weak for our soda ash operations given 2021 contractual terms. Therefore, logistic expense and energy price increases could not be reflected to product prices within the year. Hence, considering the existence of solid demand dynamics, major global soda ash producers conducted 2022 negotiations by allowing the clientele to secure the volume they

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require for the full year but at variable pricing terms subject to change on 3 to 6-month reviews of the cost of goods sold. This year, Global soda ash market continues to be highly promising parallel to the expectations of third party market analysts.

With the incremental production capacity, we took online in our Bosnia and Turkey plants, our soda ash capacity went up from 2.4 to 2.5 Million tons per year. With the inclusion of the already operational Wyoming mine, we started this year with a total production capacity of 5 Million tons.

Moving onto the next slide. With our operations in 14 countries, naturally balanced operations portfolio, wide range of products in all business segments and strong export capabilities, we continued to cater our products across the globe. In 2021, share of international revenues recorded at 66%, up by 800 basis points year-on-year. Export revenues, half of which were generated from sales to Europe, stood at 814 Million USD. Including sales from Şişecam facilities located in the region, sales to Europe accounted for 36% of our topline. Including US markets, our sales to developed markets reached to almost 40%.

On slide seven, our strong liquidity position was sustained in the reporting period too. We ended the year with 1.3 Billion USD cash and cash equivalents including financial investments portfolio, which is composed of Turkish financials and non-financials Eurobonds having similar to or higher than Şişecam ratings. Net debt position recorded at 788 Million USD with a post US natural soda ash controlling stake cash outflow of 450 Million USD-leverage of 0.9x. Outstanding debt was 2.1 Billion USD, down by 260 Million USD with a term structure of 38% short to 62% long, and an interest rate structure of 53% fixed to 47% variable. We carry 87% of the cash and cash equivalents in hard currency, as we continue to be short in TL to preserve our long position in hard currencies, and to fund our Turkish operation. Şişecam's net long FX position came in at 440 Million USD. As of the year-end we are 813 Million long in USD and 367 Million short in EUR.

Moving onto slide eight, in 2021, our CapEx moved up by 41% to circa 300 Million USD compared to the same period last year, mostly on low base. Majority of the capex were in relation with scheduled cold repairs and mould investments in addition to land acquisition in Hungary and Turkey for our greenfield flat glass and glass packaging investments. Cash conversion cycle lengthened by 4 days year-on-year rise in inventory days outstanding due to local currency depreciation. We ended the year with a negative balance on the free cash flow side given non cash adjustments in relation with unrealized FX gains, increased capex, cash payment for the stake acquisition in US deal.

As a final note about our operations, I would like to touch upon the investment decisions we announced throughout the year. As part of our strategy of enlarging our operations portfolio by bringing in high ROE generating assets;

• In the very beginning of June, we decided to go ahead with a greenfield investment in Hungary, a 255 Million EUR sized two-furnace investment with a total of 330K tons annual production capacity which will be operational in 2023, and is expected to reach its full capacity by 2025.
• We have also decided to bring in our fifth furnace with an annual production capacity of 155K tons to our Eskisehir facility. Estimated cost of this investment is 84 Million EUR and we do plan to ignite the furnace in 2023. Upon its completion, our domestic production capacity will increase to 1.5 Million tons/year. Global glass packaging production capacity will reach to 3.2 Million tons/year upon the completion of the greenfield investment in Hungary.
• In September, to meet the rapidly growing glass demand in Turkey we announced two new float line investments exceeding 350 Million EUR with a total capacity of 600K tons/year in architectural glass and automotive industry-dedicated glass production. Once these investments are completed, Şişecam's domestic float glass production capacity will increase by 30% to 2.6
  Million tons per year. The lines will be operational within 2023. Additionally, close to the end of 2021, we acquired a land in Tarsus for our greenfield investment float line investment.
• In December, we successfully completed our US natural soda ash investment deal, which is the largest scale investment in our entire history. As you may recall, we increased our stake in Pacific mine from 50% to 60%, acquired 60% stake in Atlantic mine and 60% controlling stake in Ciner Resources for 450 Million USD. While Ciner Resources has 2.5 Million tons of annual capacity, Atlantic and Pacific have in total 5.4 Million tons capacity. Altogether, we will manage 8 Million tons natural soda production capacity in the U.S. We will be operating the lowest-cost capacity in the region. With our partner, Ciner, we will invest 4 Billion USD to develop Atlantic and Pacific projects in the next five years. On a pro rata basis, our total share for these investments will reach to 2.4 Billion USD. As far as our balance-sheet is concerned, including other growth projects we have already announced, or are included to our 5 year strategic plan, in glass production operations and scheduled cold repairs, we expect our consolidated net debt to EBITDA to peak around maximum at 2x in 2024, which is considerably lower than our comfort zone of 2.5x and we will sustain net long FX position throughout the investment period. Majority of the spending will be made in the next three years (from late 2022 to 2025). Once Atlantic and Pacific operations reach full capacity in 2027-2028 and as it is already the case for Ciner, we expect to generate 1 to 1.2 Billion USD EBITDA with 70% FCF conversion.
• And very recently, we acquired the Italian company Refel S.p.A., one of the world's leading refractory materials manufacturers with an annual production capacity of 6K tons for 22 Million EUR. Although, this investment is a fraction of our capex plan for the next five years, we believe it has a strategic importance. Having Refel in our portfolio will allow us to secure our AZS refractory needs and manage supply chain-based risk for our new furnace investments and scheduled furnace maintenance processes going forward.

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On slide nine, I would like to take the opportunity to share a new chapter on our Sustainability Journey. We are now ready to launch our Sustainability Strategy 'CareforNext' for the year 2030, which is driven by the needs of societies and evolving challenges of our planet. The strategy introduces clear and compelling targets in the pursuit of the UN Sustainable Development Goals derived on dynamic assessment on ESG issues and backed by inclusive stakeholder consultation since 2020. The Strategy is also supported by a Compass developed following broad screening of ESG risks & opportunities as well as identified substantial investment needs from a corporate to plant approach with the contribution of more than 400 specialists. This diligent process enabled Şişecam to have a sound and genuine strategy with specific targets for 2030. In the new period, we remain committed in PROTECTING THE PLANET EARTH and EMPOWERING SOCIETY while introducing a new purpose called as "TRANSFORMING LIFE".

Moving onto slide ten, Recalling Şişecam's long and strong history on sustainable value creation, and 2021 has been another remarkable year for enriching our legacy on sustainability. We received a highly prestigious Sustainable Business award recognized as "Sustainability Oscars of Turkey" for our V-block product, which was the world's first antimicrobial glassware.

As mentioned, we developed our 2030 CareforNext Strategy with the target of moving Şişecam to the next level on sustainability. Our strategy will allow us to take a larger role in providing sustainable solutions and products for the wellbeing of societies and the planet. Our venture capital investment on a biotechnology solution had been a clear sign of this movement. The planet friendly innovation called BASALIA technology is to produce Hydrogen Gas energy while capturing CO2 emissions as core outputs of zero pollution processes. Natural soda ash investments, we have added to our operations portfolio very recently, is a clear sign of our vision on value chain sustainability, as well. This investment is to halve our CO2 and water footprints of our soda ash business line and is integral to our sustainability targets for 2030.

On Slide eleven, you may see the list of targets set as part of our 2017-2022 Sustainability Strategy and respective progress. We achieved some of them yet as we are sure, you will all agree that the last two years were exceptionally challenging due to the everlasting pandemic and we experienced certain setbacks in our sustainability too. We have already learned our lessons and we are ready to kick-start once again with our new strategy.

Moving onto the next slide, as underpinned by the pillar of Protecting the Planet in our new Strategy, we have adopted a clear vision of becoming CARBON NEUTRAL by 2050. As Şişecam, we do recognize the stark reality of Climate Crisis. Summer of 2021 had been a clear proof of global warming with the most devastating climate disasters we faced. Şişecam has been and will act with the full responsibility as an active partner in the solution to the climate crisis for the Next.

We have already began investigating opportunities for adopting a Science Based Target for 2030. We are fully aware that shifting to such path requires adoption of best available technologies as well as pioneering for breakthrough ones. We are determined to invest on an electrical furnace in the upcoming period given our strong R&D expertise. We are also exploring science on Magma Technology for solar melting in addition to the implementation of advanced technologies including but not limited to advanced furnace control technologies, waste heat recovery, increased boosting and cullet use, where technically plausible

This low carbon path by 2030 will make Şişecam more resilient to transitional risks of EU Green Deal and its integral component "Fit for 55 package" as well, while lowering risks stimulated by other emerging measures of carbon pricing around the globe.

We also aim to increase our renewables capacity by 8 times. We target to have 53 MW installed renewable energy production capacity by 2030 primarily for our plants' own electricity consumption. We have been also purchasing green electricity credited with International-Renewable Energy Certificate (I-REC) for our central office building here in İstanbul. We aim at further benefiting from I-REC opportunities in other operation geographies in upcoming term.

With respect to "Water use", which is one of the key topics of ESG for Şişecam, we are determined to reduce our water footprint by 15% compared to the level recorded in 2020. To achieve this goal, we will shift to closed loop cooling water systems while standardizing roof top rainwater collection systems our plants. Moreover, we will invest in BASALIA technology at our Mersin soda ash production plant where we will recover and reuse discharge water coming out of municipal wastewater plant. This is going to be one of the advanced examples of industrial symbiotic relationship in water cycle.

Since circular production approach is well embedded into Şişecam's way of doing business, we have well achieved our respective target within the previous strategy term and now ready to leverage them for 2030. We aim at reducing our entire packaging waste by 50% and at increasing external glass cullet ratio up to 35% in glass packaging.

Let me continue with the pillar of Empowering Society. We are committed to retain our vital role in "transferring glass heritage to future generations" and has been pioneering and actively promoting endorsement of 2022 by UN as International Year of Glass(IYG). We feel privileged to take part at the opening ceremony of IYG in Geneva soon and determined to display our leadership throughout the year and ahead.

With respect to our Equality, Diversity and Inclusion approach, now we have an increased target for WOMEN EMPLOYMENT rate to 25%. We will support this target by mainstreaming women friendly factory standard and by introducing Women's Expression Program across the entire operations.

We are also aimed at enhancing our inclusive workplace environment where Şişecam employees feel valued and participatory reflected by policies that provides equal, fair, safe and respectful for human rights. We aim to reflect our inclusive culture to all our business areas, and work to widespread this among our business partners.

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Other key material issues under this pillar consists of "Function based and Competency fit Talent" with a clear target on increased number of trainings per employee a year. Additional goals include "Acquisition of New Generation Talents" and "Enhancement of Employee Engagement".

We have refreshed our net zero incident vision, which is to be empowered by integration of programs on Safety Leadership and cultural transformation program on Occupational Health & Safety. We believe that this vision is not limited to zero incident and shall care for wellness of our employees through their life span. Hence, we are to expand our Total Wellness program and integrate it across regions.

I will proceed with the final pillar of the Strategy, called as"TRANSFORMING LIFE". Scoped under this pillar, Our Digitalized Value Chain has three clear and lean goals including "Digital Workplace Environment", "Digitalization of Corporate Level Operations" and "Decision Making based on Data Analytics".

Prior to explaining our goal on sustainable products, let me recap on our product-based solutions in creating value for the society and planet. Our glass product solutions becomes more substantial every other day for the world's low carbon transition. Our coated and low-e glasses provide energy and light control in buildings and responds to the needs of evolving policies such as "Renovation Wave for Europe". We are also working intensely to support the clean mobility transition to provide lightweight auto glass solutions while aimed at increasing our share in providing glass fiber for wind turbines as well as high quality glass for photovoltaic panels. On the road to 2030, we aim at expanding our portfolio and ratio of those sustainable solutions in turnover. At present, we collaborate with 60 universities and companies from all over the world in the fields of R&D and we strive for boosting this goal in the near future. We have also initiated an In-House Capacity Building Program on Life Cycle Assessment for spotting improvement areas for more eco-friendly practices both at design and manufacturing phases. We are proud to have played a leadership role in establishment of eco-design criteria for glass products, which ended up in the issuance of Turkey's national environmental label criteria for the sector.

As part of our supply chain sustainability vision, we will soon introduce a Supplier Capacity Building Program on sustainability and will seek for full commitment on our Supplier Code of Conduct by our entire suppliers by 2030.

As final remark of this slide, let me share that we are keen to reinforce our corporate mission through new partnerships on our sustainability goals (SDG17).

On Slide 13 Let me also explain how we govern Sustainability and execute the Strategy at Şişecam. We have a dedicated Committee on Sustainability, chaired by the CEO and coordinated by Chief Strategy Officer, with members of Chief Officers. Updated committee structure and associated working groups are now aligned with our new strategy and the organizational structure.

Beyond the core functions of the given committee, at the execution and monitoring phases in particular, the recently established Committee at Board Level, chaired by the Chairman of Şişecam BoD, provides oversight as well as guidance and direction on corporate sustainability while holding the mandate on endorsement of the Strategy.

I would like touch upon our ESG performance. We have been eligible for the İstanbul Stock Exchange's Sustainability Index since 2016 and now complying with the stricter requirements against a broad scanning by Refinitiv on quarterly basis. We retain our "above the average performance" in most of the indexes.

On our final slide, we are now going under verification process by a third Party Assurance Agency on our sustainability reporting and practices for the first time. The verification will be conducted in accordance with international standards, and we are fully interested to learn further out of this process to improve our ESG practices.

We are also glad to inform you that we will soon be launching a new and dedicated micro-web site on sustainability, which will allow us to disseminate information for all our stakeholders at a faster pace.

Since I have completed sharing the comments and the slides with you, we can now move forward with the Q&A session.

Q&A

Cemal Demirtaş, Ata Invest

My first question is about the outlook. You had a great year last year. How do you see the outlook for the first two quarters? How do you see the visibility? And some colour on the profitability side. Do you expect further synergies after the completion of the merger?

In your sector, do you see any threat from the changes in China in either way, - for the full year perspective - or the global perspective? It will be very helpful to see, at least, some indications about the trend in Turkey and in your other markets. Thank you very much.

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