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Edited Transcript of TKFEN.IS earnings conference call or presentation 2-Aug-19 1:30pm GMT

Q2 2019 Tekfen Holding AS Earnings Call

Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Tekfen Holding AS earnings conference call or presentation Friday, August 2, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Çaglar Gülveren

Tekfen Holding Anonim Sirketi - IR & Corporate Governance Director

* Cahit Oklap

Tekfen Holding Anonim Sirketi - President

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Conference Call Participants

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* Toygun Onaran

OYAK Yatirim Menkul Degerler A.S., Research Division - Head of Research

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to Tekfen Second Quarter 2019 Results Conference Call.

I will now hand you over to your host, Mr. Çaglar Gülveren, IR Director. Sir, please go ahead.

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Çaglar Gülveren, Tekfen Holding Anonim Sirketi - IR & Corporate Governance Director [2]

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Thank you, and welcome to Tekfen Holding's Second Quarter 2019 Results Call. This is Çaglar Gülveren, Head of IR. And we have top management here joining us to answer any questions you might have.

Mr. (inaudible) who is the Head of -- or President of the Agri Group is joining us from a remote location so there might be some problems with the connection. But he will try to answer all the questions you have. And now -- and I hand over back to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

First question is from (inaudible), private investor.

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Unidentified Participant, [2]

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And my questions -- I have 3 questions. The first one is when we look at the financial reports Page 10, we see CFS Petrokimya Sanayi acquisition. And I want to know that this acquisition is about TKR 4 million. And what is the reason of this acquisition? This is my question.

And actually, I have this company before in 2018. The government incentives, I think, the company has. This company still has these government incentives? This is my question.

And the -- what is the latest -- or what are your plans with this company? This will be my question.

The second one is, what is the latest status of so-called urea plant investments? There's lots question about the backlog. As you know, the backlog now is under $2 billion. Is there any possibility to get the new business nowadays? I want to know that.

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [3]

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This is Cahit Oklap, CEO of Tekfen Holding. I would like to answer your questions. The first question was related to CFS, the acquisition of CFS.

Yes, CFS had received the incentives for the PDH, polypropylene -- propane dehydrogenation and polypropylene plant.

And the reason of acquiring this company is to get this license and incentives. Our plan is to establish 500,000 tons of PDH/PP plant in our own land existing in Mersin, wherein, we have our -- one of our 3 chemical fertilizers production premises. Nowadays, we are working on getting the environmental impact report, and we have also instructed a company to make a market study with regards to the polypropylene needs in Turkey.

As you may probably know, Turkey is a net importer of polypropylene, consuming more than 2 million tons of polypropylene per year and having only 144,000 tons of polypropylene production locally.

So it is at the development stage -- planning stage. As we go along, we would, of course, make a feasibility study. And as -- if the feasibility study reveals that the project is feasible, then we would present it to the relevant organs of our holding. And once the final decision is taken, then we will make the announcement. I hope that I have been clear enough in answering your question.

The second question was with regard to our MOU that we have signed with SOCAR in Azerbaijan as far as carbamide plant is concerned.

As you may probably know, SOCAR has already established an ammonia/urea plant, carbamide plant in Sumgayit area in Azerbaijan, which is at the stage of startup.

Decommissioning was already performed and the facility started to produce high-density polyethylene and polypropylene.

The idea of this MOU is to jointly establish a replica of the existing plant near -- adjacent to the site that the first plant was established.

Now we are talking with our counterpart, with SOCAR. We have established a joint working group, which is going to make all -- going to refresh the feasibility study specifically for that plant.

And again, if the feasibility study reveals that the plant is feasible, then we are going to start implementing it. But that means we are going to get the approval of our Board and final investment decision -- our joint Boards actually. And the final investment decision will be taken, and accordingly, we are going to perform. Is it clear for the second question?

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Unidentified Participant, [4]

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Yes. Another thing is for this issue is, is there any date or deadline or something for this...

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [5]

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There is no deadline.

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Unidentified Participant, [6]

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For the...

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [7]

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Go on please. Continue please. We couldn't get your question. Could you please continue or repeat?

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Unidentified Participant, [8]

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For the second question, you mean? For the SOCAR business, I'm asking that is there any date to clean? For example, the SOCAR will say pumping for this plant.

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [9]

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There is no deadline. What we have agreed and stipulated in the memorandum of understanding that we have signed is that the joint working group of SOCRAN and Tekfen are going to make the study and make an assessment with regard to the feasibility. Then after, we are going to present to our respective Boards whatever we have found. And if the Boards of both companies decide to make this investment, then we are going to take next -- following steps.

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Unidentified Participant, [10]

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Okay. I got it.

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [11]

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Now with regard to the third question, my colleagues are going to answer.

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Unidentified Company Representative, [12]

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For the backlog, the study is ongoing and the tenders are under the evaluation. We are hopeful. And third quarter, having the results of the some [cognitive] tenders, the picture will be much more clear as we will share with you. Thank you.

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Operator [13]

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Our next question is from Toygun Onaran, OYAK.

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Toygun Onaran, OYAK Yatirim Menkul Degerler A.S., Research Division - Head of Research [14]

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I have a couple of questions on the fertilizers side and agri side. First of all, how do you see the domestic demand in Turkey in the second half of the year? Do you see a better picture in terms of domestic demand and pricing environment?

And on top of that, there was a slight decline in the exports for the second quarter. Do you think that the export performance will continue -- how do you think that export performance will continue for the second half?

And there's also very good turnaround in Tekfen Agri, as far as I can see, in the second quarter. How did you achieve that? If you can give a more clear guidance for the rest of the year, that will be great.

And I have a couple of questions for the real estate side as well. I've noticed that the recent investment in Germany, you made 3 investments, and some of them are minority shareholders as an investment. And what is the motivation behind that? And how do you see the strategy going forward for the real estate investments in Germany? Will that be a sort of strategic part of your operations or just (expletive) in the waters for the time being?

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Unidentified Company Representative, [15]

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So let me start first (inaudible), if I may try to answer your questions. And thank you for the questions (inaudible). As far as domestic market is concerned, I can (inaudible) that combines for 1.5 years close from (inaudible) expectations from the farmers for the elections, I would say probably such 3, 4, 5 fertilizer produces. And then as the elections took place forth, as they understood that this is the -- this is all, I'd say, (inaudible) going to (inaudible). The other pertains to purchase requirements with regard to kind of a delayed demand, which took place in March and April. In May and June, it was sort of a normalized season. But all in all, this is our expectations, I mean, we did together (inaudible) how we expected.

And as (inaudible) exports are concerned, I would say that almost all of fractions are almost to go about plan of August and for export volumes already take the global crisis from selected segments. I can always foresee that we are going to sustain our export volumes of (inaudible). So all in all, we're going to (inaudible) from export volumes are going to (inaudible) at least with [regard] to what was a year ago.

But talking about fixed-income (inaudible) consolidate, otherwise it expand (inaudible) first for different (inaudible) there were issues that (inaudible). And first is [forward,] and second stabilize our expectation from a second half (inaudible) as well as the sales are concerned (inaudible). I hope I was able to answer your question.

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Toygun Onaran, OYAK Yatirim Menkul Degerler A.S., Research Division - Head of Research [16]

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Oh, yes. I have one follow-up question for the terminal business. The occupancy rates in the petroleum products declined to 10% for the first half. Do you think that it will recur slightly in the second half? Or should we expect similar low occupancy rates?

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Unidentified Company Representative, [17]

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Even though we're having discussions for (inaudible) job vertical issue (inaudible) in the Middle East. I will say it would be slightly better the operations grade of our terminal business for the (inaudible) business but also will be slightly different than (inaudible) in the first half but still (inaudible) expect low [monetization] rate when compared to (inaudible). Still, the terminal business still had very good growth (inaudible) I mean, say, of getting it ramped up.

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Unidentified Company Representative, [18]

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This is (inaudible) from real estate. With regard to your question for our Germany investments, we have made investments last year as -- and this quarter, we made 2 value-add office investments in Germany. The reason behind that is to test the market with these minority shares. These are joint venture investments. And we had -- they are being observed in Germany within last 3 years. And following the H2's results, we plan to increase our investments in Germany.

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Toygun Onaran, OYAK Yatirim Menkul Degerler A.S., Research Division - Head of Research [19]

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What type of return rates you are targeting in those investments, if I may ask?

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Unidentified Company Representative, [20]

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Our target returns are about 10%.

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Operator [21]

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Our next question is from (inaudible).

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Unidentified Analyst, [22]

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Two questions. First, in terms of your net cash position, it has been growing for some time now with this steady (inaudible). It may moderate, but still, is there any specific areas that you're planning to allocate this cash? Or maybe it's too early to talk about it, but is there a chance of higher dividend payout rate for next year?

Essentially, what's your plans of allocation of that cash? And secondly, maybe as a follow-up. I know it's -- it may be early, but still, could you at least provide some sort of range for the year-end backlog in terms of -- it may be very wide range, but still, in order to understand the proximity or where we can land by the year-end.

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Cahit Oklap, Tekfen Holding Anonim Sirketi - President [23]

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Answering your question with regard to the available cash, I would like to reiterate that the payment of dividend, as was planned, will be the same as what it was last year as far as percentage-wise.

With regard to the plans, how to allocate this cash, we have to see the year-end results. And then we are going to decide. But you have to take into account the answers that we have given with regard to the CFS and the Azerbaijan carbamide project.

Those are -- those and other projects are projects that we are going to probably allocate half of our cash. But as I said, it depends upon the year-end results.

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Unidentified Company Representative, [24]

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And regarding the backlog, as I replied previously, we have given quite a lot number of (inaudible) total back and the expecting results give the third quarter. And in the third quarter, it will be much more clear for us to declare a number of -- number regarding the backlog. But if you want to know to -- what range, it is about TKR 2 billion up to TKR 3 billion.

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Operator [25]

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

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Çaglar Gülveren, Tekfen Holding Anonim Sirketi - IR & Corporate Governance Director [26]

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Okay. That's concluded our call. Thank you for your participation and questions. I hope you all have a nice day and weekend. Thank you, again.

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Operator [27]

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