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Edited Transcript of SISE.IS earnings conference call or presentation 30-Jul-19 2:00pm GMT

Q2 2019 Turkiye Sise ve Cam Fabrikalari AS Earnings Call

Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Turkiye Sise ve Cam Fabrikalari AS earnings conference call or presentation Tuesday, July 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mustafa Görkem Elverici

Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board

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Presentation

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Operator [1]

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Ladies and gentlemen welcome to the Sisecam First Half 2019 Consolidated Financial Results Conference Call and Webcast. I now hand over to your host Mr. Gorkem Elverici, CFO. Sir, please go ahead.

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [2]

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Thank you. Good afternoon, ladies and gentlemen. I'd like to welcome you to our webcast today where we will be talking about our first half of 2019 results and some key developments that have had impacts on our operations.

At the end of the presentation, we will be happy to take your questions. And I'd like to remind you that our presentation and the Q&A session may contain some forward-looking statements and our assumptions are based on the current environment and may be subject to change.

Let's move to Page #2 and have a quick look at the economical and political landscape that is presented. I do not want to take your time about the macro and political events, but overall, 2018 has ended with a global downturn and 2019 has started with political and economic turmoils and their disruptive intense U.S. trade wars, Brexit, in addition to geopolitical risks in the region.

As for Turkey, while we continued to benefit from weak TL's macro picture in the domestic market led us adopt to a more cautious approach.

Let's move to Page 3. I would like to give you a brief update on the global and the Turkish glass industries. 5% to 6% of annual global growth is expected to be sustained. And as of 2018 year-end, down to 3% of total glass production capacity in Turkey belongs to Sisecam. With continued depreciation of TLs in May 2019, Turkish glass exports increased by 55%, while glass imports decreased by 35% in volume terms year-on-year.

Construction industry contracted by 13% in the first quarter of 2019. And in case of 2.5% GDP contraction, contribution of construction industry remains 6%, and 19% contraction might be expected for the overall year.

The exports in the automotive industry contracted by 8%, while production decreased by 13% in the first half of 2019. However, the sales have contracted by 45% in Turkey.

In the white goods industry, production increased by 1%, while exports remained flat while domestic sales contracted by 9% in the first half of 2019.

And as for Tourism, Turkey's revenues grew by 5% in the first quarter of 2019, while the number of tourists increased by 9%.

Before moving on to the financial results, I'd like to talk about the major developments that took place in our Group in the first half of 2019 on Page 4.

Anadolu Cam increased its domestic production capacity by 11% from approximately 1.2 million tons to 1.33 million tons since the beginning of 2019 to 2 cold repairs and one new Furnace that's been built.

Mersin Plant, 120,000 ton Furnace, the Furnace cold repair was finalized in mid-April with an annual production capacity increase of 2,000 tons -- 20,000 tons and Mersin Plant, a 100,000 tons, Furnace cold repair finalized in mid-June with an annual production capacity increase of 30,000 tons.

Mersin Plant, 80,000 tons. 4th Furnace was ignited in May and became operational in June. As we have mentioned in our 2018 year-end results discussed, Sisecam Elyaf Sanayii, 70,000 tons per year capacity yields glass fiber production facility, that's located in Balikesir, became operational in January 2019.

Sisecam and Aselsan has signed a cooperation protocol valid for 2 years to develop solutions for the supply of materials for the defense industry-related projects of Aselsan. Our aim is to develop a wide range of glass and glass ceramic materials for using diverse equipment to be developed by Aselsan, namely (inaudible) project.

Negotiations regarding the Collective Bargaining Agreements with Kristal-Is Union that have begun in January 2019 were concluded in March 2019 for a period of 3 years starting from 2019.

Sisecam issued $700 million of Eurobonds with a coupon rate of 6.95% and 2026 maturity. Group Companies, namely Trakya Cam, Pasabahçe, Anadolu Cam and Soda Sanayii are the guarantors of 80% of the total issuance. $200 million of the new issuance was used to buy a deck of $1,200 million of the outstanding Sisecam 2020 notes, which was issued back in 2013.

Sisecam distributed TRY 400 million dividend in May, and a total of TRY 1.1 billion cash dividend distribution was made including our Group Companies.

In June 2019, Moody's downgrade -- Moody's has downgraded our long-term issue rating with a negative outlook after lowering the sovereign's long-term credits rating. Currently, we are rated as B1.

Soda Sanayi signed a joint transfer agreement with Imperial Nature Resources Trona Mining, a general group company to produce 2.5 million tons of natural soda and 200,000 tons of sodium bicarbonate through solution mining process technique. Further details will be shared in the following pages.

Anadolu Cam's 4th Furnace investment in its Mersin Plant with 80,000 tons of annual capacity has become operational in June.

In July 2019, BOTAS, the natural gas distributor, announced a 6.5% price hike for the electricity producers.

Trakya Cam announced the ignition of its Bulgaria float line after 6 months (sic) [9 months] of cold repair process.

Fitch rating sales downgraded Sisecam's credits rating to BB- from BB+ while maintaining its outlook as negative 3 weeks following the downgrades of the sovereign fielding.

Finally, it's importantly -- as part of the ongoing simplification process of the corporate structure, Sisecam sold its 16% share in Trakya Yenisehir and Trakya Polatli to Trakya Cam. Trakya Cam paid TRY 83.1 million for the acquisition of shares and become the sole owner of its 2 subsidiaries. Company has applied for capital markets for the approval in order to merge these subsidiaries into Trakya Cam on July 23.

Now we can move on to the financial and operational

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And TRY 2 billion of EBITDA after adjustment, 18% higher compared to the same period of last year. If we were to exclude net FX gains, losses on trade receivables and payables, which are included in our EBITDA distribution, EBITDA margin would decrease to 22% from 23%.

Net profit after adjustments came in at TRY 961 million, with 11% margin, remained flat year-on-year.

EPS has decreased to TRY 0.41 from TRY 0.48 in the first half of 2019 as return on equity was at 16%.

On Slide 6, showing the historic revolution of our top line and EBITDA performance. EBITDA margin levels were kept at or above sustainable level of 20%, in line with our strategy tends to robust operational performance across all divisions.

Moving on to Page 7. Highest contribution to Sisecam top line continues to come from flat glass business on the back of acquisition impact, including international sales together with currency mix.

Top line performance of glass packaging was strong, thanks to the price adjustments in Turkey and in Russia, higher level of exports from Turkey and local currency depreciation.

Chemical segment's top line performance was supported by Soda Sanayii's unit price increase in hard currency terms, incremental revenue is generated by the newly introduced glass fiber business, rising energy revenues and Turkish lira devaluation.

Increase in hard currency-denominated sales and posted pricing in Turkey, and volume increase in international markets supported glassware division's top line.

On Slide 8, while flat glass segments' EBITDA contribution decreased from 38% to 34%, chemicals contribution decreased from 30% to 27% and glassware's share from 12% to 11%, glass packaging segments share increased to 23% from 19%.

On Slide 9, TRY 1.1 billion negative free cash flow was generated in the first half, mainly due to higher CapEx and dividend payments.

Operating cash flow continues to be strong, roughly at TRY 1 billion in the first half.

Turning to the next slide. CapEx increased to TRY 1.2 billion, and major CapEx items were cold repairs in Turkey and Russia and new furnace investments in Turkey in glass packaging, cold repair in Bulgaria and South Italy, and new line investments in Turkey in flat glass and fiberglass investments in chemicals.

Moving on to Slide 10. Sisecam's low leverage continues despite all the investments on the Sisecam due to continued strong EBITDA generation. EBITDA-to-CapEx ratio came in at 1.9.

On Slide 11, we can see the evolution of the production in the course of the years. In the first half of 2019, glass production contracted by 12% due to the cold repair of the line with 2,000 tons -- 240,000 tons capacity in truckage on its Bulgaria Plant. This plant was under repair since September 2018, and that is now operational starting from June.

Also the scheduled coal-fired boiler maintenance program completed at the end of first quarter of 2019, as planned resulted in 1% contraction in production.

Please note that in glass, while 58% of the production was realized in Turkey, remaining 42% is produced in plants outside of Turkey. In soda, while 61% is produced in Turkey, the remaining 39% is produced in the plants outside of Turkey.

Moving on to Slide 12. Looking at the ratios, we continue to sustain the lower-end conservative net-debt-to-EBITDA and net-debt-to-equity levels, TRY 0.87 million and TRY 0.24 million, respectively. Here, we have a huge headroom in terms of covenants in the loan agreements and the existing Eurobonds. Our gross debt in hard currency is 58% of total. While 58% of the loan has a maturity of less than 1 year, existing Sisecam 2020 notes, which were issued back in May 2013. Rest is mostly maturing in a 1 to 5 years' timeline. As for the interest rates structure, the portion of fixed-rate liabilities is at 73%.

A cross-currency swap was made for $575 million out of $700 million of the bond that was issued.

Moving on to Slide 13. We are seeing that Sisecam's strong cash performance continued in this period as well. Cash and cash equivalents including our Eurobond investments increased to TRY 9.6 billion from TRY 5.8 billion in 2018, mainly due to $700 million of Eurobond issuance in March.

On Slide 14, we can see that we have continued to have a long FX position for $501 million at the consolidated level. We have long position of U.S. dollars, while short in euros, mostly related to the cross-currency swaps for hedging existing 2026 Eurobond.

Now I would like to walk you through each division in this last section of our presentation. On Page 16, starting with flat glass, Trakya Cam ended the first half with TRY 3.3 billion revenue, equivalent of EUR 550 million, which grew by 28% year-on-year in TL term, with 20% in TL margin after adjustment. Organic revenue, the metric that excludes currency and acquisition impact remained almost flat compared to last year as a result of different pricing and so that needs -- despite 7% year-on-year decrease in sales volume due to mainly slowdown in Turkish operations.

The underlying weakness in Turkey was a reflection of reduced demand in construction industry that was resulted in more than 20% contraction, both in our sales volume and overall market demand.

Price adjustments we had made in the second half of last year has started to control the [postages] generated from our Turkish operations. This year, we increased our exports from Turkey to international customers and our clients in Europe.

Improvements in our logistic capabilities position us well to expand into new regions and resulted in doubled up exports volume.

As you may recall, our Bulgarian plant went into cold repair in the third quarter of last year and since then, has been set by exports from Turkey was ignited in the very beginning of July.

Revenue generated from Europe was down by 4% in euro terms year-on-year, as we have benefited from strong demand conditions in Europe together with favorable product mix, while some pressure was seen on pricing due to capacity introduction from the region.

In Russia, we started the year with 35% lower sales volume year-on-year due to the depletion of our energy unit, which was a result of expanded promotional activity, rather than a slowdown in demand.

In the second quarter, our sales volume increased by 1% year-on-year, while downward trend in pricing was seen in the region. Contraction in our total sales volume for the overall year in this region may be limited to the volume decrease we recorded in the first quarter of 2019.

Consequently, share of international sales reached 64% in the first half including our acquisition in India. The impact of acquisitions in India particularly were dilutive on the possibility due to competitive pricing in India, after new capacity introductions in the region and cold repair in particular. Had those regions not been included, our EBITDA margin would have been 22%.

Market conditions for automotive business in Turkey was quite challenging for local couriers as exporter -- the EMs to whom we sell our product tends to the more resilient.

For our international operations, we took some cost control measures, especially in Romania with continuously improving capacity utilization in this region.

In the first half, EUR 61 million CapEx was made and EUR 21 million attributed to cold repairs in Bulgaria and Manfredonia. This is highly likely for new close line to be operational in 2021 and it's upcoming for the repairs.

On Page 17, glassware segment ended the first half of the year with TRY 1.5 million top line performance, which grew by 32% year-on-year with a 15% EBITDA margin adjusted for one-off set at carbon emission payment and income from asset disposal.

FX gain on trade receivables and payables, which are included in our EBITDA definition had TRY 40 million of impact compared to TRY 48 million at the same period last year. Excluding this, EBITDA margin would be 12%, down by 100 bps year-on-year.

IFRS 16 implementation had also 700 -- 170 bps at points of impact on EBITDA margin.

During the first half, our focus on (inaudible) initiatives on working capital requirement reductions continued to abide these initials -- had an initial-level impact on EBITDA margin in the first half this year. They will have positive impact in midterm as they are mostly related to the production going forward. We also took actions to preserve strong pricing environment, especially in domestic market and increase our penetration in global markets with a consistent focus on profitability channel.

Local currency depreciation against euro and dollar also continue to support our top line generation in sales and has had 65% of the revenue was generated from international markets.

Domestic revenues increased by 26% year-on-year, mostly backed by positive price adjustments and favorable product mix, which resulted in high contribution of sales from the personnel state and HoReCa channel.

International revenues increased by 26% year-on-year, supported by volume growth especially in wholesale channel as a result of increased business in global markets. The top line growth was also supported by the increase in share of sales from HoReCa channel, which is the most profitable channel in our sales composition, as it moved up to 15% of total revenues, excluding paperboard packaging. We spent EUR 10 million for typical expenditures, which was mostly related to mold investments.

Moving now to glass packaging on Page 18. Anadolu Cam flagship company on the glass packaging segment recorded a double-digit top line growth, once again, in first half of 2019 and surpassed Turkish lira depreciation against euro, which is 28% and the hard currency basket, which is 33%.

We started the year with a 17% to 19% annual average per ton price reduction controlled to show operations. The product price increase of 6% in ruble terms on annual average unit price in the beginning of the second quarter.

In first half of 2019, our consolidated revenues were 37% higher year-on-year, with 23% versus pricing and product mix, 16% local currency depreciation, despite the 2% decline in consolidated sales volumes.

2019 has been a top year for our domestic operation in terms of volume sales, due to top sale demand for glass packaging products as a result of contraction in nonalcoholic beverage consumption due to inflation (inaudible) products prices. Our client's intention to keep their inventory levels relatively low considering that the (inaudible) revenues has there been negative impact on our sales.

Meanwhile, in line with our high prices targets of increasing the export shares in consolidated revenues, Anadolu Cam recorded 37% increase in its exports from Turkey. Although our total sales volume recorded by non-Turkish operations grew by 9% in the first quarter. As in the second quarter and Russia has decreased compared to the same period of last year. As you may recall, Russian glass packaging demand was very strong last

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Thank you and apologies for the technological breakdown. I'll start from the beginning of Anadolu Cam. Anadolu Cam, our flagship company on the glass packaging segment, recorded a double-digit top line growth once again in first half of 2019. And surpassed Turkish lira depreciation against euro was 28% and the hard currency basket, which is 33%.

We started the year with 17% to 19% annual average per ton price adjustment in Turkish operations. The product price increase of 6% in ruble terms and a new average unit price was made in the beginning of the second quarter.

In first half of 2019, our consolidated revenues were 37% higher year-on-year and with 23% was the pricing and product mix, 16% local currency depreciation, despite the 2% decline in consolidated sales volumes.

2019 has been a tough year for our domestic corporation in terms of volumes, sales due to softer demand for glass packaging products as a result of contraction in nonalcoholic beverage consumption due to inflation, depreciation on product prices.

Our client's intention to keep their inventory levels relatively low considering that its (inaudible) revenues has had a negative impact on our sales.

Meanwhile, in line with our high-priority target of increasing the export share in consolidated revenues, Anadolu Cam recorded 37% increase in its exports from Turkey.

Although total sales volume recorded by non-Turkey operations grew by 9% in the first quarter, sales in the second quarter in Russia has decreased compared to the same period of last year. As you may recall, Russian, glass packaging demand was very strong last year, which led to an increase of sales volume by 9% with the support of workup event, local football championship and favorable weather conditions. Therefore, we ended the first 6 months of 2019 with a sales volume decline of 4% compared to the same period of last year.

Consequently, having grown by 49%, our international sales accounts were 61% of the consolidated share units. Despite the rise in raw material and energy cost, glass packaging Turkey unit's gross profit margin expanded from 29% to 31%, while non-Turkey operations experienced during the larger margin expansion, bringing the regional profitability up from 31% to 35%.

On a consolidated basis, Anadolu Cam recorded 51% increase in gross profit and the margins stood at 33%.

OpEx-to-sales ratio inched up to 90% levels with increased logistic expenses due to local currency depreciation, growing in-line transportation cost, larger scale of exports and a regional (inaudible) PLA charge to the percentage of Sisecam Group company revenues spending from third-party sales.

Our adjusted EBITDA grew by 42% in nominal terms and therefore, we ended the period with 100 bps expansion in our EBITDA margin to 25% level. FX gain on trade receivables and payables, which is included in our EBITDA definition, had TRY 11 million posted impact in the reporting period compared to TRY 8 million net FX losses in last year in the same period. Excluding this, EBITDA margin would have contracted by 20 basis points on a year-on-year basis.

We spent EUR 90 million in CapEx in relation with the new furnace investments together with (inaudible), mold and operational efficiency investments.

In the reporting period, through new furnace and development investments, we added 130,000 tons to our operating capacity in the local market. And on the consolidated basis, our total annual production capacity increased by 5% to 2.65 million tons. We are planning to continue exploring strategic opportunities focusing on both maintaining our market leader position and expanding our export capabilities.

Moving on to chemicals division on Page 19, our flagship company, Soda Sanayii ended the first 6 months of 2019 with 37% year-on-year growth in its revenues and reported 27% one-off gain adjusted at peer margin, which is approximately 550 basis points lower than the margin of the same period of last year.

FX gain on trade receivables and payables, which was included in our EBITDA definition, had TRY 29 million, close to that, impact in the reporting period compared to TRY 45 million in last year in the same period. Excluding this, EBITDA margin would have been 26%. In other words, year-on-year EBITDA contraction would be limited to 317 basis points.

Due to lower output level resulting from the scheduled coal-fired boiler maintenance program in Bosnia plant and with the high base impact of 2018 sales volume, which were boosted with pushed-back shipments, so that sales volume contracted by 5% on a year-on-year basis.

We witnessed the volumes decline on the chromium chemicals business due to lower level of output resulting from equipments renewal program. Contractions in international operations put further pressure on volume sales. Accordingly, within the reporting period, we recorded 16% decline on a year-over-year basis in chromium chemical sales. Per tons realized price increased by 5% in U.S. dollars on average, while prices were unchanged on the chromium chemicals side.

Our new glass fiber business venture ramp up period in the first 6 months of 2019. With the capacity utilization rates of slightly lower than 60%, Soda Sanayii recorded TRY 94 million incremental revenues from this segment.

Soda Sanayii continue to benefit from Turkish lira depreciation with its 90% of revenues generated in hard currencies. 13% of the consolidated top line versus 11% last year in the same period. Domestic and international sales breakdown was 26% to 74%. Our COGS-to-sales ratio increased by 250 basis points, mainly due to consecutive natural gas tariff hikes throughout 2019. And our gross profit margin decreased to 35%.

OpEx-to-sales ratio inched up by 20 basis points and was recorded at 16%.

In the reporting periods, we made EUR 24 million Capex, of which 55% was in relation with the glass fiber business and the rest mostly being maintenance and operational efficiency investments.

Demand for soda ash continues to be strong, and the market's still tight on the back of capacity closings in the Chinese market. Although there were price declines in Asian spot soda ash markets, we do not expect soda ash prices to enter a downward trend, as there are no sizeable new capacity introductions in the near future and facing constantly growing demand, especially from glass packaging and detergent industries.

Having mentioned about the supply growth, we wanted to take this opportunity to give some more color on our natural soda ash investments in U.S. And in this call, as we continue to get additional informational request and questions.

Now let's please proceed to Page 20. We believe this is a major step forward for Sisecam towards becoming global as it is our first investment in U.S. And as you may well know, we have been looking into expanding our footprint, but only if it will have uplifting impact on our business in terms of profitability in a complementary manner. We can confidently say that this one is.

We already shared the rationale of the investment and the partnership via announcements made a couple of weeks ago. Our partner's unique expertise in the production technique is also evidenced by the operations in Turkey encouraged us strongly to take this step. Points like, contemplated managed reserve is over 100 years being the only producer using solution mining process technique with much lower production cost, even if transportation costs added are making this investment viable.

You can see the parameters we used in our feasible study, which I can tell you that are still very, very conservative. The expected the EBITDA margin expected to be generated 2024 onwards, once production and sales start are well above 50%. Its impact on consolidated Soda Sanayii EBITDA is not expected to be lower than 250 to 300 basis points. While we understand the concerns of the invested community around cash position, dividend expectation for the investment period, I'd like to reiterate that our dividend policy also remains the same and paying stable dividend, not fluctuating significantly from year to year is very important for us, too.

Additionally, the investments will be financed by a project finance structure relying on the cash flow generated through the project.

To recap the investment highlights, global soda demand growth expectations of around 2% to 2.5% per annum, minimum 50% to 60% per ton higher gross profit versus synthetics soda, lower labor and energy costs almost equal, fixed and variable cost structure, 80% of sales that are targeting exports and partnering with #1 producer globally in natural soda ash production.

Please note that we will continue to provide updates regarding milestones throughout the investment phase.

Coming to the end of the presentation, I would like to draw your attention to a few key takeaways. We have entered a heavy CapEx period, similar to the one undertaken between 2013 to 2018 period. Once those new capacities are digested, we have now the new investment cycle ahead. But of course, in light of developments in the global economy as well as in Turkey, we will have the flexibility to slow down or postpone less imminent ones if required. Despite the CapEx trends, we do not expect levels to exceed 1.25 multiple net-debt-to-EBITDA levels, which is our internal risk management limitation.

Our focus on operational excellence continues to be a priority. And above industry average profitability levels compared to global peers also continue. During these times, while free cash flow may be in the negative territory for some quarters ahead with the CapEx program, our strong cash position will continue.

Now I will the happy to take your additional questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from [Achem Ambatchi] from [Ulu and].

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Unidentified Analyst, [2]

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I would like to ask a few questions -- a couple of questions. One is about your business development expense regarding your soda ash investment in the U.S. So in the financial -- in your financial reporting for the Sanayii, we noticed that there was TRY 440 million of cash outflow regarding this business development expense. Will this be one-off? Or should we include additional expenses, startup expenses regarding this investment? And are you still assuming targeting -- planning $200 million of capital injection to this entity from Soda Sanayii? So that -- would there be an upside risk -- I mean, would there be higher cash flow or higher capital injection going forward? Is there any risk on that? That is my first question.

And the second one is about the flat glass demand. Could you please provide some information on the current market environment in flat glass? Do you expect any improvement during the year for the rest of the year? And would there be additional price increases in the market?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [3]

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Thank you for the questions. Let me start with your first question. The $75 million is paid for the startup costs of this investment and they are one-offs. And they will -- they need to be considered on top of $200 million of investment that will be done by Soda Sanayii for the investments.

So as we have mentioned during the presentation, we do not expect any additional cash injections that will be required as the rest of the project will be financed by project financing. And as I have already mentioned we believe that the business case is still very, very conservative, so our aim is to just come up with reduced CapEx spend for this investment rather than any previous settlement.

So coming to the second question. So for the flat glass market, the first half has not been very shiny. And for the second half, being on the conservative side, although we are hoping for a better picture, we don't turn ahead for better picture in the second half, rather than hoping that the market conditions will turn to be better, which will be definitely a positive upside impact for our operations, we are more shifting our operations focus from the domestic markets to international markets. And flat glass has now started to export almost around 30,000 tons, which is the maximum in its entire history, so because like for the flat glass division the ultimate course of the business, it is limited to 8,000 tons to 10,000 tons, which is, right now, almost tripling the size of the ordinary course of business. And as we have previous strong position in the distribution channels, especially in the mid- to Eastern Europe, so it is not an issue for a flat glass business to try to come up with additional customer portfolio. So we are expanding our presence in our (inaudible) portfolio that we can direct some of the sales from Turkey to our international operations. So the improvements in the market that might happen, especially starting from the early 2019, will definitely have the positive impact in our operations. But our planning, I should say, is directing our focus more and more to the international operations, which is an easier thing to do for flat glass business, thanks to positioning in international markets.

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Unidentified Analyst, [4]

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On price increases, do you expect any further price increases in the domestic market?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [5]

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So in the local markets, you know that we are adjusting the prices depending on the market conditions, the import prices the export markets and trying to find the right balance, and we are trying to do in the necessary business segments or glass segments, rather than doing its totally for the overall one-size-fits-all approach. So if there is an increase in the input price, especially in energy prices, for sure this will be seen by the company as a force majeure to do the necessary price corrections. And I believe that there is still further headroom for the business segments, thanks to the support it will create from the exports capacity that will be required to do some additional price corrections in the second half of 2019.

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Operator [6]

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Our next question comes from [Tilal Alfirazi] from Loomis Sayles.

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Unidentified Analyst, [7]

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[Bob Firaldi] here. A couple of questions here. CapEx for 2019

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Can you hear me?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [8]

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Yes. I was waiting if you have any additional questions.

So for the overall course of the year, we are expecting $550 million to $560 million of overall CapEx at Sisecam consolidated level, which may be -- change of a little bit due to payments, especially meant for the advanced payments of the machinery and equipment. But we are expecting it will be more than EUR 500 million for the overall course of this year.

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Unidentified Analyst, [9]

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And in terms of margins, EBITDA margins, where do you expect, given the softness in first half?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [10]

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So we expect that the margins will stay at similar levels, if not slightly better in the second half when compared to the first half of 2019.

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Unidentified Analyst, [11]

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And lastly just to confirm, last question, in terms of the business acquisition in U.S., soda ash spending, what was the actual cost of the transactions here, just $200 million capital injection? Or is there any other cost?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [12]

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So there has been a startup cost of $75 million, that has been paid. And additional $200 million of capital injection will be done to the joint venture company, that has being formed together with Ciner Group for the course of 5 years, which is the overall project timeline before the operation starts.

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Unidentified Analyst, [13]

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So that will we -- that cash outflow will be seen this year, and that is -- that's obviously not included within CapEx, right? So (inaudible) to it.

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [14]

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So the cash outflow has already been realized, the $75 million. And for the rest, it will be perfectly aligned with projects requirements, but especially for the last 1.5 to 2 years, as that will be the time period that we'll be facing for the granting of the licenses and additional startup activities that are required, as this the, in the end, a mining-type of business. So we don't expect to be huge CapEx spendings, especially in -- for -- in 2019 and 2020.

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Operator [15]

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(Operator Instructions) Our next question comes from (inaudible) from Is Yatirim.

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Unidentified Analyst, [16]

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I have 3 questions. In flat glass, you said that the more volumes will be directed to export, but how much margin dilution should we expect in -- for Trakya Cam, I mean comparing it with the domestic profitability and export, of course, there is significant cost of transportation? And as for -- (inaudible), I was wondering since the domestic market is relatively weak and the new capacity chain online, how much more volumes you can direct to exports in the remainder of the year? Because the last -- second half of last year, base was quite high. And in 2020, if the weakness in domestic market persists.

And the third question regarding soda, this quarter, we see that in the chromium chemicals, the volumes came down around 16%, the price was down around 1% year-over-year, but your profitability -- growth profitability, it improved significantly. So how should we understand this? Could you give us more colors on that? And what should we expect for the remainder of the year ...

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [17]

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Can you repeat please your third question?

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Unidentified Analyst, [18]

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The third question was regarding chromium chemicals business of soda. For this quarter, that was 16% volume contraction, 1% price contraction in USD terms, but your profitability has improved significantly, both quarter-on-quarter and year-on-year terms. So I assume this is the result of a change in product composition, but could you give us more color on that for the chromium chemicals volumes and the profitability?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [19]

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Okay. Let me start with first question. So for the flat glass business, due to the growing exports business, we don't expect any additional evolution to happen, especially in the second half of the year. And then, in fact, the southern Italian business in [Mount Fredonia] kicks in. We believe that the dilution will minimize that has happened already in the first half of the year.

So we don't expect any additional dilution on top of first half, the impact, we believe there would be improvement, even if it may be limited.

So coming to your second question in glass packaging. The first half is roughly around 100,000 tons, that is being exported. And for the second half, we expect it to grow at minimum by 30% to 40%, which may even reach to 50% to 60% compared with the first half. So the yearly total can reach up to 240,000 to 250,000 tons, that has been exported from the Turkish operations. And for the chromium parts regarding your question, you're perfectly right, the margin improvement is coming from the improved cost -- inputs cost in the chromium business.

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Unidentified Analyst, [20]

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Okay. And just I have another question. For your U.S. investment in soda, what was the cost of debt that you used for your IRR calculation? Or how much, I mean, what is your projected cost of debt for the project finance?

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [21]

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So normally, we don't disclose in detail the cost. But I can say that it will we aligned with, even a little bit better than, the cost of findings that we have at a consolidated level for the project financing of debt.

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Operator [22]

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(Operator Instructions) We have no other questions. Dear speakers, back to you for the conclusion.

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Mustafa Görkem Elverici, Türkiye Sise Ve Cam Fabrikalari A.S. - CFO & Member of Executive Board [23]

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Thank you very much for joining our webcast, and we hope that we will be able to meet you while we will be doing the year-end of 2019 webcast soon. Thank you very much.

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Operator [24]

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Thank you. Ladies and gentlemen, this concludes today's webcast call. Thank you for participation. You may now disconnect.