Arçelik Anonim Sirketi (ARCLK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining the Arçelik A.S. conference call and live webcast to present and discuss the third quarter 2020 financial results. At this time, I would like to turn the conference over to Mr. Polat Sen, Chief Financial Officer, Mr. Özkan Çimen, Finance Director; and Mr. Orkun Inanbil, IR Manager. Mr. Sen, you may now present.

Thank you very much. Good evening, everyone. Thank you for participating in our call -- for earnings call for quarter 3 2020. So we have just announced our results. So I'm going to make the investor presentation. We can start with the first page. I'd like to give you the highlights of quarter 3. Our top line growth is around 45% in this quarter. Profitability is higher in all lines, operating profitability, EBITDA, net profit, PBT, everything is higher than our normal leverage. Demand is recovering all across the regions, all of the regions. There's a tailwind on -- about currency, which is affecting positively the profitability of the international operations. And also another good indicator is the free cash flow is very strong, and we have been able to produce around TRY 1.8 billion free cash flow in the third quarter. And there's further improvement in further -- in working capital. And also, the leverage is improving as well, despite the currency headwind. And Arçelik has achieved another milestone in sustainability by going carbon-neutral in global production, which I'm going to share in the next slide. We are the first Turkish company becoming -- first Turkish manufacturing company becoming carbon-neutral in our all global productions, by the way, in -- throughout 2019 and '20 with our own carbon credits. That means that we did not purchase any carbon credits. This is just our carbon credits that we produced. And that's a very important step in the fight against the climate crisis for Arçelik that we have been investing for a long time on sustainability. And these Credits will be used to offset the GAG emissions generated by Arçelik global production facilities in '19 and '20 fiscal years. And we have also the plans to go carbon-neutral from now on in the coming years as well. That's a very important issue that I have been receiving questions from our investors if the product line is changing, with COVID. We know that all the consumers are really obsessed about hygiene right now. And Arçelik has launched just 2 weeks -- 3 weeks ago, a Hygiene Shield product reach in almost all the categories, not only one category only. And there are disinfection programs and functions to disinfect packaged food and help the consumers to adjust to the new normal at home. And this Hygiene Shield product line has the power to kill more than 99% of the bacteria and viruses, including the coronavirus. So we just started that. We just started to advertise that. We did not -- we do not know the results of the consumer feedback yet. But we are really trying to change the consumer behavior with this new line. Another factor, which is affecting the -- I mean, I would like to share the key factors, which is affecting the sales and margins in the quarter 3. Revenue growth is around 45%. This is much more stronger than the expected recovery in the key markets. We have been able to achieve almost TRY 12 billion of net sales. Turkish lira has been depreciating that also helped the growth in Turkish lira terms. And gross margin has been 34.6%, which is also higher than our usual average in the last couple of quarters -- a couple of years. And there is almost -- in this last quarter, there's almost 100% capacity utilization ratio in our production facilities, which helped that gross margin, and weaker U.S. dollar against euro and GBP has also helped the gross margin as well. And we have been able to fix the raw material prices and the stable raw material prices due to our longer contracts has also helped our gross margin to grow. And higher gross margin with lower OpEx, which I'm going to share in a couple of slides, has led to an EBITDA margin of 14.3%, which is mainly due to stricter OpEx management. COVID has given us the opportunity to be much more sensible about spending. And that also helped us -- I mean, the higher operational leverage also helped us to drive this EBITDA margin. I just talked about the OpEx management. I mean when you look at since 2018, this is the lowest quarterly level of OpEx ratio to sales, which is 22.8%, less than 23%. We haven't been seeing this for a long time. This is the lowest OpEx sales ratio since 2013, Q4, which is a huge achievement for us. But this is due to not only headquarter OpEx management. It checked OpEx management in all across -- in all our subsidiaries, in all across the world. And that is also a very -- it's an important factor that we would like to sustain not maybe at that level, but close to that level in the coming years as well. And also another good improvement is on the working capital to sales ratio. Because of this free cash flow impact of TRY 1.4 billion, we have been able to decrease since last year from 28.3% to 24% right now. And we will -- I mean that is mainly due to focusing on SKU optimization and inventory management, and also very strong receivable collection performance in the domestic market has been the main driving factors of this working capital to sales ratio improvement. And that led to a very strong cash generation at the end of today. When you look at the quarter-by-quarter, the last 5 quarters, you see here, this quarter, we have been able to achieve almost TRY 1.9 billion, which was very close to that in the second quarter as well. And this strong EBITDA is a very -- I mean, strong EBITDA is the main factor driving this and also CapEx management, which you are going to see in the -- in our cash flow analysis. We have been able to produce more than TRY 5 billion of free cash flow in the 2019 -- 2020. I forgot to mention one issue. Can you go back, please, 1 slide? That is -- when you look at the last 12 months, the free cash flow yield, this is around 26%, and it is an important item that we should also consider. We can go on. And in 2020, quarter 3 balance sheet that is an important question that I'm getting that in Turkey, the interest -- Turkish lira interest rates are going up in the couple of -- last couple of months. But we have been able to refinance ourselves when the interest rates were low. And our investors have the question of what's going to happen next year? Are you going to be affected with the higher interest rate? So this table is mainly to show you that our redemption and -- in quarter 1, quarter 2, quarter 3 '21, and as you can see here, average cost of our redemptions in quarter 1 is around 15% and in the second quarter, it's around 20% to 25%, which is like 45% of our leverage, Turkish lira leverage, the second quarter is mainly due to our we have -- that we have a Turkish lira bond. And we also have this EBRD loan, which is a higher interest. And that those -- actually, that is going to be -- I do not know what the interest rate will be at that time. But the first 2 quarters are going to be actually positive for us rather than a negative, let's say, financial expense effect. And after quarter 3, we are going to see some effect, maybe, but we do not know what the rates will be at that time. So we try to manage this according to -- dynamically managed according to the conditions. So due to that free cash flow management, we have been able to decrease our net leverage to 1.2x our EBITDA. So that is also a very important achievement for Arçelik. For a long time, we didn't really see this number. And we came from 3.1 to 1.2 in almost 2 years. Raw material, I would like to share about our raw material trends. As you know, we have been discussing that from quarter 2 to quarter 3, there has been some increases, market price increases, almost around 10% in both metals and plastics and our contract prices are remaining very flat actually compared to quarter 2, mainly due to longer time price fixations on our procurements. We are going to see some effect, maybe most probably when you also consider the effect of the inventory. Most probably, we are going to see this effect starting from the first quarter, and we will try to manage this with price increases. And also, at the same time, I have to say that the currency is helping our profitability on the export side. So most probably, we are going to be able to cover this cost increases on the raw materials with price increases and currency movements. I'll just hand over to Orkun now to take you through the regional market dynamics.

Good evening, everyone. I'll start with the Turkish market. As you can see from the -- as you can follow the monthly development from the local manufacturers association, Turkish market has been -- has already been resilient in quarter 2. When you compare with the European markets, the declines were very limited. And starting with June, with most of the measures being listed off, we see the demand coming back very strongly. And when you look at the third quarter figures, we see the demand was up by 33% in unit terms for the MDA-6 category. And the increase in the air conditioner sales is much more higher and also impacted by the climate conditions. It is almost close to 90% increase in the second -- in the third quarter. These are the figures. Two figures are shared by the local manufacturers association, as I say, and these are the selling figures. But we should stress that there is also a matching and consumer demand for these product categories. So that there is -- we can say that we do not see inventory build up at the retailers. On the contrary, we have seen some period in the third quarter when there was a low inventory also in the pipeline, also in our dealer network. So in terms of inventory management, I can say we are at a very positive level now. I'm talking about the general inventory. And also at the retailer level, we have seen a matching consumer demand for this product category. The third category is the TV category, and I would like to differentiate that because this is not from the local manufacturers association. This is showing the real demand and consumer demand, but it's just for 2 months. The September figures are not published by the market research agency, but this also really shows the very strong demand growth in the TV category. So briefly, the third quarter was a very successful quarter for the Turkish market. And also, at Arçelik, we also have huge sales to our dealer network, which was also compensated by end-consumer demand, as I said. When you look at the dealers -- financial health of our dealers, I can say they're also at a good level. As we always share with our investors and analysts, sometimes our dealers may be asking for extension of their payables. But to give you some color, in the first 9 months, I mean, that ratio, the extended receivables within domestic sales was just something like 0.3% or 0.4%, even lower than the same period 2019. And the main reason was that for the most of the year, especially in the first 6 months, the large dealers sell from their own inventory. But with the third quarter, now we see as a huge consumer demand we also were able to sell to our dealer network at a huge level. If you move to European markets, we see again, the demand coming back in the third quarter. In fact, we have seen the first signals in June. June was also strong, but that strong demand continued throughout the third quarter in all Europe, both in East, West part of the continent. And -- but obviously, there are some countries like U.K. and Germany, which was leading the growth. There were much more successful. And in the eastern part, Poland and Russia, again, they were stronger than the others. And when you look at the first 9 months, almost all countries turned into positive in the European market. And then we look our performance in Europe, this is also reflected into our financials. In Europe, our achievement was high single-digit sales growth in Europe. And similar to market growth dynamics, we have seen higher growth in Germany and U.K.. And due to the currency moves, as you know, we are benefiting from a stronger euro against USD, the appreciation of Euro and also Pound against U.S. and on the other side, a weaker Turkish Lira helped us in our international sales also in our international profitability. In terms of market share, we have seen huge market share gains, especially in second quarter, in the middle of the COVID-19. Those online sales were increasing hugely in second quarter. And in line with this trend, as we are one of the strongest players in the online, we have gained huge market share. What I can say for the third quarter, we have seen some normalization, as also off-line stores are open. But still, in many countries, our market share is higher year-on-year. And also in some countries we see price index developments. Our average price index is higher than last year in countries like Germany, U.K. and Poland. And if you divide the continent into East and West, as you can see, our top line was around 10% up in the western part and also in the eastern part, it's also up 5%. And if you move to other regions like Africa, after general lockdown, almost 1.5 or 2 months, we see also a remarkable turnaround for sales. Both domestic and export sales were up by 40% in local currency in the third quarter. On top of the top line growth, also thanks to tight expense control as our CFO mentioned in the earlier slide, it's not only before the ad quarters, but all our custodies were very transitive in terms of OpEx management. Price manage -- price adjustments in the country and also appreciational ramp in the quarter. This helped the price to increase its gross profit line at all levels. When you look at the Asia Pacific, again, in Pakistan, we see around 20% increase, again, due to pent-up. So again, it was a good quarter also for Pakistan. Similar increase was also seen in Singer, again, following a hard quarter because Pakistan and Bangladesh, both part and the bundles were under lockdown in the most of second quarter. So we see a positive impact in the third quarter also in these countries. Our ASEAN revenue was around USD 26 million, indicating a 4% year-on-year increase. So generally, our international sales were also positive. And as also you can see in the coming slides, we have seen both organic growth and also the impact of Turkish Lira translation. So it was a very -- also a perfect quarter for our information sales as well. Now I would like to give the floor to Özkan Çimen, our new Finance Director.

Good evening, everyone. So I would like to start with sales by region slide. When you look at the Tokyo and international, both are very strong in terms of growth. And Turkey with 43%, leading to year-to-date growth of 28%. In international markets, almost all markets performed well. Top line growth was 49%, which turns the year-to-date figures into double-digit growth. When we go to the regional breakdown, Turkey revenue share increased by 1 point, which is the result of strong Q3. Western Europe gained 1 point to 30.3%, whereas Eastern Europe growth, which has less growth than Western Europe, lost 1 point almost. South Africa is back to 6% from 5%. In Pakistan, we feel COVID impact still not recovered. So on the next slide, we will look at the sales evolution. Sales coming from Q3 last year, both TR and international markets, as mentioned, is positive. Organic growth from Turkey is TRY 1.3 billion, and organic in international market is TRY 633 million. With a significant FX contribution, as Orkun mentioned the appreciation against major currencies, Europe, dollar and GDP, which are the main markets. So that there's an FX impact of TRY 1.7 billion, which brings us to TRY 12 billion revenue. And if you exclude the currency impact from the international growth, we see double-digit 11% growth, organic growth. So in the next slide, I will mention about the P&L. Top line is very close to 45%. We see a positive improvement in the gross profit, 1.5% to 34.6%. Increasing capacity utilization with higher sales volume actually impacted these results. And also partially stronger euro-dollar currency has had positive impact as well. We have been able to manage our OpEx effectively. We are already into historical low level, which resulted the EBIT to be even better than the gross margin. The improvement is better compared to Q3. So 11.5% EBIT rate. We expect a strong profit before tax of TRY 1 billion, which is 8.7%. And as a result, we have a remarkable EBITDA margin of 14%, which is 3 points better than Q3 and 4 points better than last year. On the next slide, I will mention about the cash and financial debt. We have closed the quarter with TRY 11.5 billion of cash equivalents. And most of the cash is in U.S. dollar and in euro. And we have a very low leverage of 1.24x. Gross debt accounts for TRY 16 million equivalent, of which is TRY 7.7 million loan portfolio and TRY 8.2 million is bond portfolio. And it's a significant part of the loan portfolio is coming from Turkish Lira borrowing. We have been able to reduce the rates to 11.3% utilizing the Central Bank regulation and renewing our loan portfolio with the low-cost borrowings. Throughout end of year, we do not expect major increase in effective interest rate for the Turkish loan side. In terms of [indiscernible], we have only 40% left for the remainder of the year, and 47% is due next year, mainly coming from the bonds which is due in September. The longer term [indiscernible], the other bonds and some loan at the subsidiary level. So this is the final slide that I'm going to mention, which is related to cash flow. We have started with TRY 7 billion and as mentioned, we have a strong cash flow coming from the operations as well as the working capital management. And the TRY 1.8 billion is coming from FX conversion. And we, as Polat has mentioned, we have an effective CapEx management and TRY 900 million -- around TRY 900 million CapEx cash out. And TRY 1.4 billion in the other buckets, which is mainly consisting of interest payment. So I will hand over to Polat for the expectations.

Thank you, Özkan. I would like to give you an update on our guidance. We are going to change our guidance to the year-end due to the very positive results of quarter 3. So in Turkey, the growth, the Arçelik revenue growth -- our expectation in Turkish lira terms is around 25% to 30%, so we are increasing this number. And on the international side, it was before around 5%, now we are changing it less than 5% decline. And our expectation for the year-end is around 20% to 25% increase, previously, that was 10% to 15%. Right now, we are increasing to 20% to 25% revenue increase. On profitability side, previously, our profitability for our EBITDA margin for 2020 was 10.5% to 11%. Again, due to the tailwinds that we have on various issues that we have explained, we have decided to move it more than 11.5%, which is the same margin of our long term EBITDA. Right now, we do not want to change our long-term EBITDA margin until we see the full effect of this COVID crises. On CapEx side, that was previously around EUR 150 million to EUR 160 million. Now we are updating it to EUR 180 million as we need some more capacity, and we need to start investing on, especially on the new product lines and energy-efficient product lines as much as possible. So on the working capital side, it was previously less than 30%. But it seems that we are going to be able to -- I mean, now we are at 24%. So we are updating this to less than 27% with an upside potential here that we see. Thank you very much. So now we can go on to the questions and answers session, so that you can understand better our results. Thank you.

The first question comes from the line of Demirtas Cemal with ATA Invest.

Congratulations for very good results. My question is about the sustainability of the growth you realized so far. What were the specific factors that helped you? You mentioned some of them in the presentation, but what was the most important reason behind this performance? And could you give us some color on the fourth quarter trend, the raw material levels, both in international and domestic side? These are my 2 questions.

Thank you very much, Cemal Bey. Sustainability of growth, that's mainly about the top line as long as I understand your question, right? We -- as you know, let's separate domestic market and international markets. On the domestic front, the growth is mainly due to -- we were -- I mean, our industry, our market was shrinking for the last 2 years in 2018 and '19, it was almost 17%. And now actually, there was a pent-up demand in the market, that's what we see. And due to this COVID, the consumer behavior has changed through the appliances. And there's a huge demand right now. And to be honest with you, we expect in Q4 because now we are -- in October, we see the trend still continuing. So until Q4, end of Q4, I think that we are not going to be affected from the demand. We do not expect the demand decrease actually. Starting from Q1, yes, there could be a possibility, but really, it's really hard to foresee the effects of COVID, how it's going to play, let's say. And in Q1, the positive part for us is actually our pipeline, especially in the domestic market, is really empty. I mean our dealers do not have a huge amount of stock, actually, it's very minimal. And we do not have enough stock, to be honest, and we are trying to. So there is a sell-in potential. If there is no sell-out potential in quarter 1, we have the sell-in potential already. So I think that we are not going to be affected in the worst-case scenario on Q1 as well. So on the international front, yes, there is a -- that it didn't really -- I mean, the market did not really grow. The online side has grown more, and we have taken opportunity of the online growth by moving fast with our online customers. That has given us the opportunity to win some market share on that front. And the inventory situation is the same in the international markets as well. I mean the pipeline is empty, not only for us. It's a competition as well. I mean the demand is really high, but the producers right now have difficulty in fulfilling it even they are working with full capacity utilizations. So we do not expect because it's a high, let's say, season, Q4 is a high season for international markets. We do not really expect a downturn in the quarter 4 as well. So the sustainability looks like it's there. For next year, our expectation about our sales, especially in Turkey, let's say, there will be -- right now, it's hard to say, but the worst-case scenario, we expect no growth next year, but no shrinkage as well, but that is going to be much more clearer when we come to the end of the year. And on company-specific factors behind the performance. As I told you, I mean, we have been managing our OpEx very effectively, and we really have taken the advantage on raw material prices. And we also have taken advantage of the low interest rates as well. So those are very company-specific issues that has been really produced. And also inventory management was not company specific, just happened naturally, to be honest. So our inventory data is falling down. But on the cash flow management, especially on receivables side, the effort of our domestic team was really tremendous. And we have been, I mean, still continuing to create cash from these efforts. So we will keep on -- try to keep those achievements that we have been able to get until now. And the sustainability of the results are mainly -- it will be very much related to our performance, how we are going to be able to keep our OpEx level, how we are going to keep our price levels in the market. And also the cash flow generation is going to be the key factors. But we are all geared up for that for next year as a company. And I hope that on all the fronts, we are going to be keeping at least some of our achievements that we have got this year.

The first question comes from the line of Mr. Asli Tuncer. And the question is, congrats on your results, how sustainable is your EBITDA margin and FCF, especially in light of expectations around raw material prices that will come through into profitability with a lag? Some OpEx savings can clearly be sustained, what about on gross margin side?

All right. I actually answered some of this question in Cemal Bey's questions as well. Sustainability on EBITDA, yes, this EBITDA margin is really high. I do not think that we will be able to keep this EBITDA margin throughout the next 4 quarters, let me say. So generally, you know that December is a weaker month, and our EBITDA is generally affected from that. So -- but we do not really expect a very weak EBITDA as well because we see the numbers right now. We know our costs, and we know our prices, and we know that the weak Turkish Lira is helping our profitability, especially on the international side. And right now, the international side is going to be increasing in terms of sales this quarter. So our expectation on EBITDA, as I told you, at the end of the year, it's going to be around 11.5%. But I would like to say something about 2021 in our last earnings call of this year, most probably because it's really slippery ground because of this COVID situation that we are living in. On free cash flow side, it's basically the same. As I told you, yes, there is raw -- on gross margin and EBITDA side, yes, you said, right, there is an effect of raw materials. But as I told you in the presentation, we do not really expect big change in our raw material prices until quarter 1, let's say, mid of quarter 1. And to be honest, when these are increasing, we are able to reflect the prices if we need to. So we do not really -- the raw material prices are not going to be affecting our profitability, that's my expectation. On the free cash flow side, yes, that has been a great year. We can't continue to decrease our stock days and our receivable days forever. At some point of time, we are going to be balancing ourselves. The most important thing for us is to keep what we have gained till now. So I think that the cash flow is an exceptional situation this year. But next year, we are going to be keeping some of the achievements that we have this year, and we will try to keep decreasing, especially the net working capital. But I don't think there is going to be that much next year. That's what I can say.

We have a follow-up question from the same participant. Regarding the sustainability of your EBITDA margin, how much is the improvement driven by the favorable mix shift towards the domestic market? Thank you.

There is no specific information in front of me right now about this question. I think that our Investor Relations team can get back to you on -- if we can answer that question. But right now, we do not have the numbers about this.

The next question comes from our webcast participant, Bianca Boorer with Reorg. How do you plan to redeem the 2020 notes?

All right. I'll just give it to Özkan to answer this question.

All right. In terms of Eurobonds, so we are evaluating several options which are on the table. Depending on the yields, the level, whether we go for a new vision, so we expand the bond via liability management for -- we have -- loan credit is an option for us. We are discussing with the [ DCM ] teams of the banks. So we're still looking for the best time and best options to decide.

The next question is again from our webcast participant, [ Yavuz Birdal ] with [ Pamco ]. Congrats for the results. Could you give us a preliminary call regarding the year 2021?

We are on the process of budgeting right now. So there's no exact numbers that I can share from now. Most probably, you are going to see our expectations about '21 in our last call. But as I told you, I mean, in terms of growth, our expectation from Turkey is going to be stable. And in terms of market growth, I'm talking about, and it's the same for the international markets as well. But it's really, as I told, it's a slippery ground to make predictions about the future in a situation like that. And today, we have been able to take advantage of the situation. But if, for example, lockdowns come back again that will have an effect on demand as well and production as well. So it's really hard to say something from today what will be the expectation for 2021. But maybe only thing that I can say is I mean this year, for example, we have really been able to -- we have been able to create a good OpEx management system in the company. And I do not know if we will be able to keep this 22.8% in quarter 3 for the 2021. But for sure, our expectation is the company management is to keep it as simple as possible, and we will try to be more, let's say, more alert on spending, especially on the OpEx side, and we will try to keep our approach throughout 2021 as well. So my expectation is, if there is no big change in next year, we expect to continue our good results, as you can see in the last quarters.

Thank you before continuing with our webcast participant questions, we have a question from an audio participant. The question comes from the line of Kurbay Berna with BGC Partners.

Congratulations on the fantastic set of numbers and even speakers kudos on going carbon-neutral. I have also a couple of questions, and I'm afraid, minor sort of related to 2021 as well. But just in broad terms, the net debt-to-EBITDA level you've reached at 1.2x now, is -- how should we think about this going forward? I mean, is there a level that you think you will be below next year, like maybe below 2? And in relation to that also on the working capital side, is below 30% a reasonable level to assume going forward? So those are my questions on the balance sheet. My second question is on the CapEx side. You've mentioned that both yourselves and also the competitors are mostly operating at full capacity. If demand is going to be at the same level as this year, I guess your current capacity will be sufficient, but are you planning on increasing CapEx significantly above the level that you will see in 2020? That's my second question. And also finally, on the international markets, all of these markets seem to have grown in the double-digit figures, if I'm looking at the correct charts at the moment. And so is this mostly about the change in consumer behavior about profit? And is it going to come to a maybe sudden stop in 2021? And also particularly the U.K. with Brexit, are you expecting -- what sort of disruption are you expecting?

All right. The last question Orkun, please you answer, I'll just answer the others. Net debt to EBITDA, 1.2x in 2021, it's really hard to say something from today, but this is an achievement we have, and we would like to keep this, but you know that a lot of decisions that we may take throughout the year may affect this number. If we are going to be, for example, distributing dividend that is going to be affected or if we are going to be involved in an M&A transaction that can be affected. So it's really hard for me today to say this is going to be around this level. If I would say nothing would change and there's no serious decision of cash out for activities like just I told, we should be around this 1.5 level without increasing it too much. And for the net working capital of 30% for next year, yes, we -- I mean, our intention is to keep our net working capital below 30% at all times, I have to say. Now we have -- as I told you, we have been able to achieve 24% by collection performance, by inventory performance. But inventory performance, some of it is going to be coming back. So I think that 24% is an aggressive -- let's say, less than 25% would be an aggressive target. But I think that we will be under 30% -- between -- somewhere between 25% and 30%. So we are going to move around these numbers in 2021 as well. And on the CapEx side, your question was about the sustainability of our CapEx level. Yes, we have actually decreased our CapEx this year due to our COI precautions. In the fourth quarter, we started to spend some more, actually, in order to be ready for '21. So -- but our normal CapEx level is around EUR 200 million every year. So we expect to be at EUR 200 million plus or minus level. But as I told you, our budget term is still continuing, and we have been discussing up and down on those numbers. Sometimes we may need a bigger CapEx for a special project as well. So for CapEx '21, I think it would be better to wait for our Q4 earnings call. And I'm going to give to Orkun about international markets, consumer behavior and Brexit answer.

Obviously, we have seen a huge increase in Q3 in the international market. In some markets, it was double-digit up. Obviously, some it was related with the pent-up demand because in Q2, the demand was very poor due to general lock down. So we see the impact in the third quarter. But on the other hand, obviously, we see some changing consumer behaviors as we also mentioned in the presentation. Our new product range is really built on this new consumer concerns because now, especially in developed markets, people are more anxious about going outside, eating outside and hygiene is much more in the center of their daily life. And in such an environment as we have conducted many research in many countries, we see -- we have already seen the concerns and come up with a new product range. So to be frank, at appliance industry, we believe that we are a bit more luckier than others because now if people spend more time at home, cook more in the house. So they will be more interaction with appliances. And this will create an opportunity and at Arçelik, we have come up with a solution to meet this consumer need, to meet this expectation is the relief from this anxiety. Therefore, we expect our appliance industry to be positive in the coming years, especially in the developed market. But maybe not -- we will not see double-digit growth every year or every quarter, but we may expect it to be positive at least due to the new concerns of the consumer.

And any comments on the U.K.?

Can you repeat it again, Berna? We couldn't hear you.

Brexit issue. She's asking for Brexit.

Brexit issue. Well, obviously, the trade negotiations are still going on between Turkey and U.K. and also on the other hand, U.K. is also negotiating with the remainder of Europe about the new deal. I mean obviously, if we believe that as Turkey and U.K. are large trade partners, we hope that it will end up with a solution, and we will not be subject a different sales agreements than the European countries, EU countries. Obviously, if there will be such a different trade deals that we may be subject to some tariffs. But what we are talking about is something like low single-digit tariff, not more than that. But our expectation, as I said, that there will be trade deals between the 2 countries, and we will enjoy the same tariff with EU. Luckily, there is no manufacturing in the country, in our industry. So therefore, these products will be imported. And if they will be adding some -- if they bring some new tariffs, obviously, it will be impacting the prices of the product, which may have a negative impact on the consumer. So probably, they will be also taking this into consideration.

A question comes from the line of [ Borco Kura ] with [indiscernible]. And I quote, Arçelik has a large portion of its debt coming due in first quarter and second quarter 2021. What plans do you have to refinance that debt?

I think we have answered this question. Didn't we?

We have answered the Eurobond for the Turkish Lira funding, as mentioned in the presentation. We don't have renewal till end of Q1 and end of Q2, which we think it would roll after the second half of 2021.

The next question, again from our webcast participants come from Hanzade Kilickiran with JPMorgan. And I quote, I have 2 questions, if I may. First, after omitting dividends this year, what would be your strategy next year given sizable buildup on cash? Second, do you worry that European demand may stay negative post strong replacement demand during COVID period, which exceeded all players' expectations so far?

All right. Thank you. As you know, our policy for dividends is 50% over long-term of distributable income. And our strategy is still the same. We did not change our plan for that. This year was a specific year. Today, I do not have any answers on that because as I told you, it's really hard to see what's going to happen. We are going to be able to give you a specific answer when we are close to our general assembly because we do not really know how the next 2 quarters is going to be moving, let me say, that easily. And also we need to see our CapEx plans in other plants in order to see if we are going to be able to distribute dividends. But normally, as I told you, we want to keep our 50%, and our cash situation is really helping on that. And when the time comes around, let's say, February, we are going to decide according to the conditions that we have. And the second question you have was about the European demand. I'll just ask Orkun to answer that.

I think there was a similar question from Berna. Yes, now the manufacturers are obviously surprised with the pent-up demand, not only us, but also all the European manufacturers. But looking ahead, as we also try to understand the consumer expectations and their needs for the coming period. As I said, there's anxiety about this pandemic. And obviously, people are spending more time at home now. As I said, cooking more at home, watching TV, spending more time, eating less outside, so which will be inevitably increasing their interaction with appliances. So therefore, our expectation is the industry, that's something we can benefit as a whole appliance industry. So we should not be pessimistic about the coming quarters due to the high demand in Q3 or in Q4. We shouldn't think that it's something stealing from the other quarters. But obviously that the demand growth maybe -- will not be within the range of double-digit increase. But we may expect some positive signals from the European appliance market.

The next question comes from our webcast participant, [indiscernible] with IS Invest. And I quote, does your EBITDA margin guidance of over 11.5% for 2020 include one-offs?

In the EBITDA of 2020, we only have the one-off item settlement income as a result from our suppliers, which we have accounted this year as an income.

And a follow-up question from Hanzade Kilickiran with JPMorgan. Do you plan inorganic growth in 2021 given capacity constraints after strong demand?

In terms of the CapEx, actually, other than our existing factories, we do not have any new factory plan for 2021. So we are going to increase the capacity by simple lines, investments and machinery investments, which is a normal way to do it. So we do not expect a big chunky CapEx in terms of capacity increase.

And the last question from our webcast participants come from Osman Memisoglu from Ambrosia Capital. And I quote, have you seen major changes in the competitive environment during the post-COVID world? You mentioned market share gains in Europe. Are you better positioned versus competitors in this new environment?

Yes. In the competitive environment, yes, there are changes. We can see that and that's mainly due to this capacity constraints that every producer has. So it's -- whoever has the capacity to produce and feed the market has been able to gain market share in this quarter 3, especially. So that's the main issue. But the market itself is really moving towards this online market rapidly. And I think that in terms of a big change from past and which we think that it's going to be permanent rather than temporary is going to be the rise of the online players on the retail side, and we are trying to be ready for that. Thank you. Okay. I think it was mainly due to you, but I understand that the team -- my team has had my answer. I really forgot the question right now, it is not in front of me. So I think that they've got the answer. If they didn't, please just write it again, I'll answer it again. Okay. Let's move on.

Okay. So the next question, again from our webcast participants is with Doruk Kurt with Sabanci University. Asia Pacific differs from other regions in terms of pandemic cycle. What are your expectations about Asia Pacific top line growth after the COVID effect? What is your comment about Asia Pacific current demand? Was there a pent-up demand for this quarter?

Orkun?

Well, obviously, Asia Pacific differs from other regions in the sense it started in the region, and it started as a supply-side problem for the appliance manufacturing industry. And to be frank, in February or March, as all the appliance manufacturers, we have to cope up with keeping our supply chain management and try to find alternative sources if our suppliers were troubled with pandemic. But that was a short time. I mean within 1 or 2 months, at Arçelik, we were able to find alternative suppliers, and we were able to overcome this problem. And then this issue became a European market issue as it impacted negatively the demand side. So I can say rather than that, in terms of demand, it impacted both the European markets and also the Asia Pacific markets. The only difference I can say is, at the beginning, it had an impact on the supply site. That was the difference, I can say.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Sen for any closing comments. Thank you.

I would like to thank all the participants and the questions today. If you have further questions after looking at our financials, please let our Investor Relations team note. And thank you very much for all this participation. Have a nice weekend. Thank you.