Arcelik A.S. (BIST:ARCLK) Q2 2021 Earnings Call

0:00 All right. Thank you very much. Ladies and gentlemen, good morning and for some of you, good afternoon.

0:06 Welcome to our second quarter 2021 results webcast. I am here with Özkan Çimen, our Finance and ERM Director and Alper Gür, our Investor Relations Manager.

0:17 Before going into details, I want to take this opportunity to thank all of our employees for their dedication and high motivation and relentless efforts this year.

0:28 Let's move on to the slide two.

0:31 I'll start with the highlights of the second quarter. Our net sales have increased by 86% year on year and 12% quarter on quarter, thanks to the continued high demand in many markets and our pricing initiatives. The increase in raw material prices hit profitability and our margins have declined on both quarterly and yearly basis. Our OPEX to sales ratio in this quarter was flat compared to the first quarter of this year. One of the most important indicators for us is working capital to sales ratio, which is 27.4%, which is flattish compared to the previous quarter. Please kindly be informed that this ratio does not include the acquisition of Whirlpool and Hitachi for Apple to Apple comparison purposes.

1:24 If included, the ratio comes down to 26.8%. I said Whirlpool and Hitachi, but I'm just talking about Whirlpool because Whirlpool has been acquired on 30th of June. So we had to include it in our balance sheet. I'm quite happy that we have completed our strategic acquisitions.

1:45 Whirlpool in the last day of this quarter and Hitachi on July the 1st.

1:50 It gives me great pleasure to tell that our green bonds, the first of its kind in Turkey, was a success story, receiving more than four times demand from 190 global investors, reflecting the trust that the markets put into our company. Our leverage was 1.54 times in the second quarter, excluding the impact of our acquisitions for Apple to Apple comparison purposes again. Can we move to the next slide, please? Our net sales was 14.5 billion, up by 86% year on year, thanks to substantial unit growth, yet coming from a low base, of course.

2:39 Proactive actions in pricing and strong EURUSD against Turkish Lira. The revenue growth was 12% on a quarterly basis, mainly attributable to the price increases and Turkish Lira depreciation. In terms of margins, the second quarter of the year marked by the significant upsurge in the raw material prices, which was not unexpected. As you can see in the middle and the right-hand side of the slide, our gross margin was 30.2% and EBITDA margin was 9.8% in the second quarter, reflecting around 430 basis points and 473 basis points contraction respectively on a quarterly basis.

3:33 mainly due to the severe increase in the raw material costs. But this was not something unexpected, as I told, and uncommunicated before. Our capacity utilization is a bit normalized in this quarter compared to the last two quarters, which was around 100%. EURUSD parity had a neutral impact on our gross margin in this quarter. which the impact was positive a quarter before when Euro was stronger. Beyond higher raw material costs, a slight increase in OPEX to sales ratio had a small negative impact in the EBITDA margin as well. Can we move to the next slide, please?

4:21 I'll continue with the domestic market. In quarter two of 21, Turkish MDA6 market was up by 16% in unit terms. As Archelik, we continue to outperform Turkish MDA6 market once again following the first quarter of this year, delivering 23% year-on-year growth within the same period and sustained our strong leadership. We have seen gradual decrease in the trends in the consumer demand growth from April to June mainly due to 17 days lockdown in May and inflationary macroeconomic environment and relatively lower house sales.

5:06 We see the contraction in June was the first signals of the expected normalization in the demand trend going forward due to the strong base of the last year's second half. The growth of AC market decelerated Following the first quarter, our AC sales have declined due to the high base of June 2020 last year and not executing the consumer campaign. TV market has declined further because of the supply issue in the panel market. Can we move to the next slide, please? I'll continue with the European markets. In Western and Eastern Europe, The strong demand continued in the second quarter, where we saw growth on both quarterly and yearly basis in majority of the countries.

6:00 The four of the five big countries in Western Europe performed quite good on a quarterly basis, except for France. Demand remained high and sellouts were very strong. Despite the logistic crisis in the ports faced with Brexit, thanks to increasing vaccination coverage. And Germany recovered very well after a decline in the first quarter, despite the traditional channels opened later than the rest of the Europe. Eastern Europe was also resilient, and except for Poland, the units sold in each country grew on a quarterly basis. Next slide. Our situation in the European markets As demand remained high in European markets, Archelik has benefited from that. The share of European market in total sales increased slightly compared to the first quarter and reached 45%.

6:58 In Western Europe, we saw strong top-line growth on a yearly basis in Euro terms thanks to the unit growth and our pricing initiatives. On a quarterly basis, sales were almost flat We have been able to increase our market share in the UK with a slight improvement of our price index there. Our performance in Eastern Europe was resilient and we delivered around 40% year-on-year and 10% quarter growth in Euro terms. We sustained our strong leadership in Romania and Poland as a result of our price increases We have been able to improve our price index in Russia, Ukraine, and Romania.

7:51 Next slide, please. Cycling a very low base, South Africa sales posted more than doubled revenue year on year in Euro terms. Due to the lockdown in the country, net sales decreased by 8% quarter on quarter. In the first six months of the year, we have gained significant market share and reinforced our strong leadership in South African market. Sales in APAC has increased its share in total sales compared to first quarter of 21. Our sales was up by 83% year on year, thanks to mainly the strong growth contribution from Pakistan and Bangladesh.

8:36 In Pakistan, Our sales have increased more than 20% in both Euro and Pakistani Rupee terms, reflecting the positive impact of both continued high demand and price increases. Despite lower units sold in Bangladesh, we have been able to increase our sales by 32% in local currency terms. Just after the quarter ended, There has been some looting issues in South Africa, as many of you know, which had impacted our sales in July. We are aiming to recover the loss of July within the quarter three. We do not expect significant financial loss thanks to our insurance coverage in this country.

9:26 Please move on to the next slide. As expected, the upward trend in the raw material prices, which started in the second half of the last year, continued this quarter as well. The supply shortages caused by high consumer demand to the finished product, which contains plastic and metal raw materials. China's conservative attitude for metal producers and logistics crisis that the world has been facing were the key reasons of the price increases so far. As Archelik, we have been closely following the market in order to manage our costs, but as you can see, we have been affected from the price increases in the raw material market As you may remember, the last quarter call, I told you that we had, especially in Q3, Q4 and Q1 of 2021, three quarters back-to-back. Our results were very strong, mainly due to our long-term raw material price contracts, which has been starting to finish by now.

10:44 Starting from quarter two, we are feeling the effect of increases in the prices. So every company has a different cycle on this one. So everybody is going to be feeling that sooner or later. So this is what I can say. I'll just hand over to Özkan to move on with the numbers a little bit more.

11:07 Özkan? Thank you so much. I will continue with the sales performance slides. In the second quarter of this year, Turkey's sales grew by 47%. On the other side, international sales grew more than actually doubled, where 60% was coming from organic growth and 52% is coming from the ethics impact. On the right hand side, you can see our original revenue breakdown. The share of Turkey in total sales compared to the previous year has gone down to the normal levels of 33%, while our other developing markets and European markets gained some share. Last year in Q2, Turkey's sales was an outlier in terms of revenue breakdown because Turkey shares has increased while the other markets were impacted with the COVID.

12:03 Move on to the next slide, please. So here you see the detail financials. I will not talk in detail of every item, but I will give some highlights. Our EBITDA was 1.4 billion in Q2, and the margin was 9.8%, around 50 basis points lower than Q2 last year, and around 470 basis points lower than last quarter, which was exceptionally high with 14.6%. If you look at the full year figures, The EBITDA margin is 12.1%, which is 90 basis points better than last year. We delivered in Q2 541 million net income with 3.7 margin, which is 32% higher than Q2 last year. If we move to the next slide, please.

13:01 On the right hand side, you see our loan portfolio and effective interest rates. We have 24 billion TL equivalent of loan. 14 million TL is bond portfolio and around 10 billion is loan portfolio. We have Euro, 2 Euro and 1 US dollar bond as the biggest shares in our total borrowings. We finance our Turkish business working capital needs with Turkish Lira loans. Certificate of Loan and Bond is around 6 billion TL. Last year, we have benefited from the low rates while financing our working capital need. In this quarter, as we renew our loans, we got higher market rates from the markets. Therefore, our effective interest rate for TL borrowing has increased to 16%.

13:59 On the left-hand side, you can see the leverage. Our leverage, including the impacts of acquisitions, was 2.2 in the second quarter. We have been able to manage to sustain the ratio at quite healthy levels, despite our cash payments for the acquisitions, and without any contribution. So if you look at the apples-to-apples comparison, the leverage is calculated at one point. As recently a card company starts to create EBITDA contribution for us, our leverage will get healthier since their capex requirement and networking capital need is quite lower despite their margins are lower than our consolidated figure. So we expect a lower leverage than when the company is fully operating.

14:56 Move on to the next slide. As you know, Archelic places sustainability at the core of its business. Our efforts regarding sustainability appreciated by various types third parties so many times before. This time, the investors showed their trust in our sustainability credentials. We have successfully issued 350 million Euro green bonds at the end of May, which is the first of its kind and attracted high demand from the investors. Total demand was 1.6 billion, around 4.5 times of the issued amount. We started with 350 basis points, initial price talks, and completed the deal with 300 basis points.

15:42 We can move to the next slide. Our free cash flow remained at negative level. but with an improvement compared to the first quarter figure despite having better capex to sales ratio and flat almost flat networking capital sales in this quarter the significantly higher raw material costs hit our EBITDA margin which resulted in negative free cash flow in this quarter so that was the last slide so now I will hand you over to Polat for guidance thank you Eskan

16:21 I just muted myself. Our guidance has changed for the year end, including the impacts of two acquisitions. So we had to do that because of the acquisitions. So our expectation for Turkey's sales growth is around 30% in Turkish Euro terms and international sales to grow by 35% in foreign exchange terms. in hard currency and that's mainly due to the change in the international sales mainly due to the acquisitions and our consolidated sales is going to be our guidance is to grow by around 50% in Turkish returns on a yearly basis considering a relatively lower EBITDA margins of the recently acquired companies we now expect our consolidated EBITDA margin to be around 11% And our networking capital to sales ratio and our capex guidance has not changed. And it is 25% and 220 million euros respectively.

17:29 So this is all from our side. We are ready for the questions and answers session. The first question is from the line of Demirtas Kemal with Atta Invest. Please go ahead.

17:41 Thank you for the presentation. My first question is about your guidance. You gave a guidance including the Whirlpool and Hitachi. What could be the guidance excluding these two? And what was the effect on the balance sheet? You gave some numbers, but could you further elaborate how this will change the net debt levels for the following year? For the year end, sorry. That's my first question. And the second question is about the income statement. When I look into details, the ethics items, ethics losses and gains, normally when the currency is going up net-net, when you include all the ethics in others and financial expenses, you come up with positive numbers, usually. In first quarter, it falls net 99 million Turkish lira.

18:45 But in second quarter, despite currency increases, we see ethics losses. What might be the reason in the second quarter for this? This is the second question. Thank you.

19:02 Cemal Bey, thank you very much. I'll take the first question and Özkan is going to take the second one. To be honest with you, we have just acquired the companies. It's been one month that we are really working with the companies and the acquisition, especially with Hitachi is a very, you know, multi-jurisdictional. We are talking about 10 different subsidies in 10 different countries. And it is, you know, because of the COVID situation, it's really hard to get into the details quickly. because of the circumstances that we have so we are going to be in need of some more time in order to say give you a guidance of a full year because right now what we see is that's what I can share right now we see a more upside potential especially on the synergies than what we what we were expecting It is a better picture for Arcelik in terms of synergies, especially on the raw material costs.

20:13 So our expectation is, and the last year of Hitachi especially has been a year that was more successful in terms of Evita than the year before. So we expect all of those going to be contributing on a full year basis, especially on 2022, because the effects will take time in order to change suppliers or in order to really materialize those synergies. But we are going to start seeing the effects in 2022. So it would be much more. Why is it for us to make an indication on this, especially at the end of the year in 2021? So I have to say that the Whirlpool has been included as balance sheet because of the 30th of June acquisition. But Hitachi, you can't see any numbers about Hitachi except the amount that we have paid has being transferred due to the time differences of Japan and Europe in 30th of July. So we see the cash out on 30th of July.

21:35 So that is also one of the reasons of our, you know, a little bit complicated results in quarter two. But to give you a better understanding about without any acquisitions, what will be the situation, we see I will not be able to give you a direct or you know a concrete answer on this one but I can tell you that we have guided you last time with 12 percent around 12 percent and according to us around 12 percent was between 11.5 and 12.4 according to our interpretation and I think that we are going to be close to the lower side of this bracket, let me say, for Archelik without the acquisition. So I hope that answers your question.

22:36 And then I'll ask Özkan to answer about the FX losses.

22:41 For Polat Bey, for the top line growth, because of these inorganic things, now we are just you know in between because we have some numbers in our valuation but now we don't know whether excluding those changes there is any upgrade in your numbers or not that's I think that is a little bit gives puts a blank okay because we know the you know for the transparency In revenue, there is no deterioration without the acquisitions. Actually, what we have guided you before,

23:43 In Turkey, let me, I have to check the numbers. Sorry about that. Yeah, maybe I'll answer that after Erskine answers this question, then I'll get back to that one. I'll check this one. Thank you.

24:02 Thank you. So, Canberra, your question around ethics, as you have pointed out that we are closely monitoring our open positions. in the balance sheet. So we are trying to do this as square as possible, looking at every day's breakdown. So, you know, we are working with more than 30 different currencies. So we are trying to manage the impact of those currencies. And sometimes the daily estimation that we are making is deviating from the actual position, so that's creating a small variance in our positions, which we can make another transaction to close the deficit in the coming transaction. Therefore, those variances, if there's a big daily impact in the FX, sometimes affect the total FX position. But other than that, we have swap differences coming from the total positions, which is reflected to the FX line in the P&L. So when we compare the two characters, yes, you said one is positive and one is negative, but this is coming just a temporary impact, which is actually balancing each other.

25:32 Thank you. And maybe one last question about Uh, tax rates, uh, it's lower than we thought. I think it's, uh, what could we assume for the, uh, the second half of the year and meet all the, the, uh, transaction, the, the, the, uh, verbal transaction have any effect? I don't think, but, uh, you know, what was the reason behind a lower tax rate?

26:01 Sure. As you said, Whirlpool didn't have any impact on the tax rate because we haven't included any P&L items. But besides, if you just look at the Turkey operations, as you know, there are two major incentive lines that we have been benefiting in Turkey. One is the R&D incentives, where R&D expenditures are deducted from the corporate tax base. and the second one is the Investment Incentive which is provided as a reduced tax rate. In Q2, our RMD expenditures were high and also we have invested on the amount of investment that we have made in Q2 which are subject to incentives has increased. Therefore, the effective tax rate just in Turkey reduced compared to Q1 with four points.

27:02 Actually, this has decreased effective tax rates of consolidated figures to the level that you see, around 12.7%. So if you look at quarterly, 15 to 7%, which is including the impact of that R&D benefit and investment incentive benefits.

27:28 Sorry, did I see the wrong number? I see that your effective tax in second quarter was 42 million Turkish lira.

27:37 Am I wrong? 42 million, which is 7.3% of the before.

27:43 Yeah, that's correct, right? That's 7%. Yes.

27:49 Okay, I'll just get back to your first question, Cemal Bey, about the revenue growth. I mean, Turkey is not affected. Actually, Turkish growth is not affected from the acquisition. So we guided Turkey 25% before. Now we are guiding 30%, mainly due to inflation and price increases and also some unit increases as well. On the international side as well, last time we guided 10%, more than 10%. So I think that we are going to be in the bracket of 10% to 15% organically only. So in order to go up to 35% on FX terms, this is the effect of actually the acquisitions.

28:47 Okay, so 10 to 15 international and Turkey side is 30% versus 25% in the past and there is no contribution from Whirlpool right into Turkey numbers.

28:59 No, no, there is no. It's all exports from Turkey.

29:02 Okay, now it's more clear and helpful. Thank you. Thank you. The next question is from the line of Kilikeran Hazande with JP Morgan. Please go ahead.

29:14 Thank you very much. I have some technical questions. I just want to be clear about this. So are you going to consolidate Hitachi for the full year, so on a 12-month basis, or you are going to consolidate the P&L of Hitachi starting from only July 1st?

29:31 Yes, the second one you said. The P&L is going to be consolidated for six months only as we are acquiring the company on 1st of July. But of course, the balance sheet is there's no time issue with balance sheet.

29:48 Is it possible to share some sort of insights about the first half performance of Hitachi? So what type of volume growth the company has experienced? What was the margin in the first half of the company?

29:59 Yeah, as as this is not our results, I am not able to give you full disclosure on that one. But I can tell you that it is better than 2020 results. In terms of growth and in terms of profitability. Both of them has positively surprised us. That's what I can say.

30:23 Okay. All right. And despite the acquisitions, I can't see any adjustment on capex. So does it mean that you are not planning to do any sort of capex in Whirlpool or Hitachi in the rest of the year?

30:36 As I told you, our teams are still working on integration. We have two integration management offices, IMOs, for both acquisitions right now working on it. There will be some CAPEX requirements, but we do not have anything that we have approved yet. I do not think that we are going to be starting spending CAPEX money within this year. Most probably, if there will be, I think that it's going to be small amounts, but the main spending is going to be coming in 2022, which I will be sharing with you at the end of this year.

31:20 All right. And final question is about pricing in the rest of the year. So the cost inflation, I mean, cost has just inflated, hit your Q2 from margin perspective. So it will continue probably in Q3 and Q4, right? Do you think that the market is good enough to reflect these potential cost increases into prices, both in Turkey and Europe? I mean, the rest of the market, I mean.

31:47 The situation is different in different countries. I have to tell you that in Turkey, until now, actually this quarter, only quarter two, we have increased prices, almost mid to high single digit price increases. In Europe, we have made again mid-single digit price increases in Euro terms this time, this quarter only. In Pakistan and South Africa, we have again made high single digit price increases in local currencies in this quarter. In quarter three and quarter four, we most probably are going to be in need of some more price increases as we are going to still see some raw material impact.

32:34 And also in Turkey, as you said, you know, some inflationary issues. In Turkey, we already have made a mid single digit increase in the beginning of August already. And we are watching for the remainder of the year if we are going to be in need of making some price increases. price increase is all about the raw material you know passing on the raw material increases so but the most important effect here is as I tried to explain how the competitors are going to be moving so we do not want to lose market share of course in any of the countries that we operate in so we are closely monitoring the situation and everybody has a different pricing cycle on the raw materials we have enjoyed our pricing cycle in quarter three and four and quarter one of this year some other companies are enjoying quarter one quarter two of this year so but at the end of today everybody is going to be balancing at a level which is going to be more let's say more competitive to each comparable to each other right now the prices are moving so quickly that I cannot say that the competition

34:04 every competition competitive companies are at the same level but at the end of the day everybody is going to come to the same level and we will see the situation after that but until then We are planning to push the price increases as much as we can or as much as the market can take it. But right now, in some of the markets, we are having difficulty in pushing the price increases. Turkey is included to that as well. In some of the markets, there is still some room that we can use. But in each market, we are trying to evaluate the situation one by one, not to make a mistake. At the end of the day, as I told, we do not want to lose profitability and we do not want to lose the market share at the same time.

35:01 So it's a delicate issue for each market.

35:05 Thank you very much.

35:06 Thank you. The next question is from the line of Gurbay Berna with BGC Partners. Please go ahead.

35:18 Good evening and thank you for the opportunity to ask questions. I have three. The first one is about the EBITDA margin outlook in the remainder of the year. Your new guidance suggests that you expect around 10% EBITDA margin in the second half, which is similar to what you achieved in the second quarter, but I was wondering if We should expect this margin to get worse before it gets better, or whether you see a significant difference between the third and the fourth quarters of the year.

35:50 My second question is about the net debt.

35:54 I'm looking at slide 14, and you have the net debt including Whirlpool Impact and Bidout, and I see that the difference is around $3.3 billion. So 14 billion including the Whirlpool impact and then 10.7 billion without. That seems a little bit high to me. I thought you paid around 78 million euros and I was wondering if you could clarify that difference. And finally, Whirlpool P&L in the first half Is it loss making and is this going to be a significant strike on your second half net profit?

36:37 Thank you. All right. I'll take the first and third question and I'm going to ask Özkan to answer the second question. I'll start with the third one, which is easier. We did not take over the Whirlpool operations as a loss making business. It is a profit making business right now. But of course, we started the operations very, you know, it's very recent, just been one month now. But the situation is that it's not a loss making business for us. And as I told for Hitachi, it's the same situation with the Whirlpool as well. We see significant synergy opportunities, which we are going to be, you know, one by one, some of them are, you know, S Unsp-Adr S Unsp-Adr Yes, there is a deterioration. As I told, we have already increased prices in Turkey by 5% in August, around 5%.

38:04 And we are also increasing prices in some of the other markets and we have already done some of them at the beginning of July in some of the countries. We are going to see the positive impact on this one. From second quarter to third quarter, the raw material prices did not increase as it increased from quarter one to quarter two, let me say. And in terms of quarter four discussions that we have with the suppliers right now, to be honest, we do not really expect an increase anymore in quarter four. So our expectation is to start the normalization maybe stagnant in quarter four but after that quarter one we expect some normalization in 2022.

38:56 But I can say that third quarter EBITDA is going to be my expectation is that it is going to be around this level and Because you know the price increases take time and the reflection takes time but quarter four our expectation is some more growth in the EBITDA margin in order to get to the guidance levels that we have. and this is also taking into account that third quarter typically is the strong quarter in terms of sales and so you expect third quarter margins to be lower than the fourth quarter because of this raw material pricing issues yeah mainly mainly about it's not any raw material it's about pricing as well the effect of pricing takes time to push so that's why I said like that yes quarter three is a is a powerful quarter but I have to say that in the beginning of July our factories we used the annual leaves in July mainly so the July month in terms of production overheads it wasn't the most effective month because of this situation because we wanted to stabilize our inventory levels as well

40:27 and Starting from August, actually, we expect again high capacity production and high profitability and also, you know, some more price increases to come. So that's why I expect again, maybe a little bit slightly more than what we have in quarter two. And in quarter four, we expect a better result. That's what I can say right now. But again, It's really hard to make predictions for quarter by quarter.

40:59 Our expectation, our guidance about our EBITDA margin around 11% should be the one that we should be sticking to.

41:06 It can really move around.

41:08 Okay, thank you.

41:12 Özkan?

41:15 As you see in the slide 14, the net impact of the acquisitions we have shown as 3.4 billion TL. If you look at the breakdown of it, 78 million Euro is paid to Whirlpool, which is around 800 million TL. And at the same time, we have acquired actually started to consolidate the last day of the month for Whirlpool. That means there is some cash of the entity that we acquired, which is around 450 million TL. So the net impact is around 350 million from Whirlpool acquisition. And we have paid $343 million to Hitachi, which is around 3 billion TL.

42:10 There is no consolidation in the balance sheet as of June because it's a transaction completed at the first day of July. But we have made the payment on 13th of June. So therefore, the net impact is 3.4 million. 3 million coming from Hitachi and 400 million roughly coming from Whirlpool.

42:38 Understood. Okay. So Hitachi acquisition has been paid as of June 30th. That's why this figure is high.

42:51 Both are paid as of June 30th.

42:55 Okay. Thank you. That's very clear. Our next question is from a follow-up question from with BGC partners. Please go ahead.

43:10 Yes, I just wanted to ask one more question about free cash flow generation. This year, there are ups and downs as the acquisitions go. So what is your view on a maybe 12-month outlook or by the end of the year? Are we going to see Some improvement over there or versus the first half, but definitely probably not versus last year. But how do you see the outlook in 2022, given that all the acquisitions will have been completed and everything would be in the numbers?

43:52 Eskan, will you take that or shall I?

43:56 I can take that. We have explained that the working capital level at the end of last year was not a sustainable level. Therefore, we expected deterioration in our free cash flow because of the working capital need. And in Q1, we have seen this impact high compared to Q2. In Q2, the free cash flow is slightly better than last quarter. And if you look at the total of the year with the impact of the acquired companies, which where we estimate the working capital need will be lower. Therefore, it will take us to the 25% level, which means we will see a positive figure compared to last two quarters when we look at the Q3 and Q4.

44:51 Thank you very much. Our next question is from one of our webcast participants. It's Mr. from Goldman Sachs. And the question is, hi, thank you for the presentation. Do you expect worse than previously expected WC slash sales on a LFL basis as WC slash sales is kept at 25% despite Hitachi having no WC needs? Thanks very much.

45:28 I actually in the networking cap to face ratio we have guided for 25% in Q1 we have seen 27 and this quarter it's 27 again so with the impact of the acquisition and partially improved of the current business we estimate it will be close to 25% And if we have higher sales coming from the acquired companies, for sure, there will be a positive impact. But right now, we think it will be close to 25, but most probably lower than 25. Thank you.

46:14 We have a follow-up question from the line of the Mitvazke model with Atanbaz. Please go ahead.

46:24 Just a question about the payments for Hitachi. You paid in the last day of the quarter. Did it have any effect, because it's a huge number, did it have any effect on your FX position, the closing? I'm curious about that. Thank you.

46:44 Actually, it did not have any impact as of June, but it will impact July and coming months because our position will change with that paid amount. So that means our income generating from the loan provision will decrease significantly.

47:07 Thank you. And another question about the domestic market trends. July and August, how was the selling and sell-out rates and the inventory levels? If you give us some color, maybe you gave, but possibly I missed.

47:27 Let me give information about the domestic side. Actually, second quarter was quite positive in Turkey. Only one of the issues that we had, you may remember at the Mother's Day time, there was a lockdown and this lockdown really affected our SDA sales. And that created more than expected inventory in the whole chain, including us and the dealers. But other than that, actually, our inventory level is Very healthy, I have to say. Both our inventory and the dealer's inventory as well.

48:16 We have been, especially the heat in July and beginning of August has affected very positively our air conditioner sales and it has really decreased our air conditioner inventory as well. And in terms of sales, the selling and sell-out ratios still seem very healthy and strong, actually, in Turkey. We do not really see a big negative impact. But starting from now, actually, last year, third and fourth quarters were very effective as well, you know, for sales. And I think that we are going to be, you know, we are going to be measuring ourselves with the quarter three and quarter four of last year, which is a high base for us. But I think that we are going to be able to close to what we have achieved or more than what we have achieved in last year for the remainder of this year.

49:27 So VC is still very strong. Inventory is very strong. Only SDA inventory is more than our expectation. But other than that, it seems healthy. Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Shen for any closing comments. Thank you.

49:49 All right. Thank you very much everyone for attending our earnings call of quarter two. If you have any further questions after you evaluate our results, please feel free to contact our investor relations team. We will try to get back to you as quickly as possible. Thank you very much.