Earnings Report /

Arçelik A.Ş: Depressed bottom line as expected

  • Arcelik realised TL336mn net income in 3Q22, slightly lower than our estimate of TL390mn and consensus of TL390mn

  • Weak margins could be explained by slower than expected growth and higher raw material costs to some extent

  • Net margin of 1% is not sustainable and might be a concern if it continues

Cemal Demirtas
Cemal Demirtas

Head of Research

ATA Invest
25 October 2022
Published byATA Invest

Arcelik realised TL336mn net income in 3Q22, slightly lower than our estimate of TL390mn and consensus of TL390mn. Topline was in-line with our estimates but EBITDA margin of 8.7% was 11bps below our estimates.  Slightly lower than expected EBITDA and higher than expected FX losses were the major reasons behind lower than expected net income.

Consolidated revenue guidance for 2022 is maintained at “>90%”, driven by “c.70%” growth in Turkey (in TL) and “>20%” growth international revenues (in FX). EBITDA guidance revised down by 50bps to c.9.5%. NWC/Sales guidance of c.25% is maintained and Capex is revised by €40mn to €260mn. We foresee 96.4% topline growth and 9.1% EBITDA margin in 2022E.

Topline growth decelerated to 88.8% y/y in 3Q22 to TL34.2bn due to slower pace in both domestic and international revenue growth.  Domestic revenues increased by 87.5% y/y to TL10.1bn in 3Q22 whereas international revenues were up by 89.3% y/y to TL24.1bn, representing 70% of consolidated revenues, during the same period.  International growth was driven by 19.1% organic growth, 68.6% FX impact and 1.6% acquisition impact. Despite Euro/TL and US$/TL basket appreciated by 93.9% y/y in 3Q22, FX impact fell short of our estimates. 

Arcelik realized EBITDA margin of 8.7% in 3Q22, slightly weaker than our estimate of 8.8% but higher than consensus of 8.5%.  Arcelik realised gross margin of 28.8% was 34bps below our estimates. Lower than expected opex/net sales ratio by 10ps mitigated the negative impact of lower gross margins.  Higher raw materials prices coupled with weaker TL, lower capacity utilization on both quarterly and yearly basis and weaker €/$ parity led to lower gross margin in 3Q22 whereas general administrative, marketing & sales expenses as of net sales decline q/q reflecting cost discipline at the operations

Arcelik’s net debt declined by 4% q/q to TL28.1bn (down by 14% in US$) in 3Q22 whereas NWC/Net sales ratio declined to 29.7% by 180bps from 31.5% as of 3Q22-end.   Thanks to lower net working capital requirement, Arcelik’s net debt/EBITDA ratio declined to 2.68x in 3Q22 versus 3.15x in 2Q22. Since July 2, 2021, Arcelik bought back 68.87mn shares, corresponding to 10.19% of the Company’s capital at avg price of TL44.98 (including costs) which is 33% below yesterday’s closing of TL73.25, implying a TL1,645mn gain based on current price. Arcelik Board's had initiated additional buyback program in May 2022 and decided to increase the amount of the fund for the allocation of the share buy-back to TL9bn from TL3bn. If the extended buy-back is completed as planned, then free float of Arcelik could decline to 5%, considering that free float declined to 15% after latest buy-backs.