Enerjisa Enerji A.S. (ENJSA) Earnings Call Transcript & Summary

Dear investors and analysts, this is Rawand speaking, and welcome to Enerjisa Enerji's Full Year 2022 Earnings Results Call. The call will be presented by our CFO, Michael Moser, for approximately 30 minutes, and thereafter, we will open the line for Q&A. Before starting our presentation, I would like to remind you about our disclaimer on the forward-looking statements and highlight that the figures presented today are according to the Turkish Financial Reporting Standard, TFRS, unless otherwise mentioned. On our home page, you will find the earnings presentation as well as the full financial statements in both TFRS and IFRS, which we have provided as a supplementary information in order to provide our investors with a holistic view of our financials. Now without further ado, I would like to give the floor to our CFO, Michael.

Thank you very much. Hello, everyone. This is Michael. Welcome to our full year 2022 financial results call. And in particular, I hope that everyone is healthy and doing well. Today, I'm together with Rawand Faraj, who is the Head of Investor Relations, Tax and Corporate Office. And I would like to welcome also the newest addition in his team, which is Pinar Saatcioglu, who is our new IR Manager. I would like to start today's call by expressing my deepest condolences to all the people impacted by the terrible earthquakes that struck Türkiye and Syria on the sixth of February. While we cannot yet disclose the detailed impact on our business, as this happened just recently, I can share with you that we are doing everything we can to save, support and restore the conditions of those impacted by these devastating and unthinkable event. With a very sad and mourning heart, I also want to mention and honor the 15 of our own employees who lost their life. Our thoughts, support and continuous efforts are with them and their families as well as the 1,000 others decreased deceased or injured in these dreadful catastrophe. Enerjisa has around 4,500 employees in this region. But I can let you know that all of our more than 12,000 employees have been directly or indirectly been part of the support activities Enerjisa has done since the very first hour, the earthquake hit our Toroslar region. As previously announced, our business operations have returned to normal conditions in 4 out of 5 of our cities in the affected region. Hatay is overall the most impacted region and this is also the case for Enerjisa's operations and assets. Here, we have managed to re-electrify all critical locations such as hospital airports, collective accommodations and street lightnings, to name a few. As a regulated company, our actions and requirements need to follow a coordinated approach with our regulator, EMRA. Therefore, I cannot yet mention in detail how the terms regarding customer support and also investment renewal will be conducted. The official communication from the regulator will thus include details on how we will support our customers. With delaying their invoices and to which magnitude our investments will increase as maintenance and repair activities will need to renew the impacted cities. Adding to the list is also the supportive measures which the regulator will take to compensate companies like Enerjisa, for example, potential delayed payment for energy consumptions without bearing the interest costs. Please note that Enerjisa has made all necessary insurances and therefore, has a framework that support its operations and assets through the regulation and the embedded insurance mechanism. With the details yet to be defined, I can reiterate our message despite the effects of this disaster. No changes foreseen to the business results for our company plans of 2023. Yet again, before starting the regular portion of this call, my sincere and deepest condolences to all people of the nation. We are strong here in Türkiye, and we will stand together. And now please turn to Page 2 to the executive summary. Focusing now on the 2022 financial results, I would like to share with you a summary of our major developments, which are a strong set of results across the board. Bottom line earnings, meaning underlying net income, grew by 85% year-over-year, which is a record growth rate for Enerjisa. Free cash flow, despite of the negative start fully reversed in Q4 and ended up positive in the tune of TRY 1.6 billion. The strong results also translated into a substantial growth in dividend with an 85% higher proposed dividend than last year. The proposal consists of a dividend per share of TRY 2.30. This is also always subject to the AGM's approval, of course, and comes with a proposed adoption of the dividend policy as follows: Dividend will still be based on our adjusted earnings base, namely underlying net income and will continue to be distributed within the attractive payout ratio of 60% to 70% also in the future. However, with the revision to the policy, it will mean that instead of using IFRS as a base, it will now be reflecting the higher TFRS results. The previous dividend policy was built upon the assumption of a continued mirroring of international accounting standards in TFRS. As of observed decoupling between the 2 in the year 2022, due to IFRS recognition of inflation accounting, our Board decided yesterday to propose a dividend distribution with a payout on the higher TFRS earnings that does not include inflation accounting this year and thus, results in a higher dividend for our shareholders. Moreover, we have in 2022, further strengthened our balance sheet and successfully continued our deleveraging journey and are now at a leverage ratio well below 1. Looking ahead, we also see continued strong growth. And with our new medium-term guidance for 2025, we expect an average compounded annual growth rate of 25% to 35% in our underlying net income. Please turn now to Page 3, the financial highlights. And let me start describing the financial highlights by looking back at the beginning of 2022 in order to give you a proper context to appreciate the financial results we have published today. Overall, the past year was characterized by many challenges in the aftermath of the Russian invasion into Ukraine. In addition to the continued and for Turkey. Specifically rapidly accelerated inflation rise post-COVID. For Turkish utilities like Enerjisa, it also mean additional pressure as the tariff, which invoices and cash generation are based on, did not fully reflect the high energy cost, which utilities needed to procure their energy for. This was the reason for the negative free cash flow observed in the first and second quarter. However, it is during extraordinary challenging times of uncertainty that management tactics and company's resilience are truly put to test, and I'm happy to share that Enerjisa has once again demonstrated its strength leading into a great company performance. In Q4, we continued our accelerated earnings growth path for operational earnings and closed the year with TRY 15.1 billion, resulting in an annual growth rate of above 100%. The last quarter contributed over proportionately on back of higher financial income due to both the updated IFRIC methodology introduced in Q3 and higher midyear inflation rate which is one of the key elements of our investment returns in the distribution business. Our underlying net income i.e., our adjusted net income figures grew by 85% from TRY 2.4 billion in 2021 to TRY 4.5 billion in 2022. Free cash flow recovered strongly and overcompensated for the negative profile in the first half of the year and ended up at TRY 1.6 billion after all investments, interest and tax payments, which is a TRY 1.5 billion increase compared to last year's figure of TRY 108 million. I will elaborate on the extraordinary mitigation measures that drove these results later on. Our strong earnings development, together with our positive cash generation also translates into a decrease in leverage, further strengthening our balance sheet as our earnings trajectory outpaced our accumulated debt level. Thus, our leverage ratio, net financial debt over operational earnings decreased from 1.2 in 2021 to 0.7 in 2022. Please take a look at the market environment now on Page 4, and let me start with elaborating on the inflation development that predominantly impacts our distribution business. Inflation increased heavily in 2022 as the year-over-year inflation rates peaked at 86% in October, after which it settled at 64% by the end of the year. Please recall that for the majority of our regulated revenues, investments and cost parameters, the relevant inflation rate is the midyear figure, which was 79% for 2022 in the end of June. Our solid business model shields the majority of our earnings from increasing inflation rates on a long-term average basis. As our revenues are indexed with inflation, which is one of the key drivers for the, let me call it, outstanding operational earnings development seen this year. The inflation rates will continue to be a driver for our operational earnings going forward. As our largest earnings line item, the financial income and the distribution business grows with an average inflation rate of 10 years on a discounted basis. Along with other parameters as the regulated average weighted cost of capital and future investments. With regard to the specific sector developments observed in 2022, the energy spot prices, which utilities procure their energy for continued to be above the national tariff for the majority of last year. This relationship between sourcing costs and invoice prices have created a positive earnings growth in our retail business as the regulated earnings are derived based on a preset margin of 2.38% on top of the sourcing costs regardless of how high they are. However, the same driver has temporarily a negative impact on our working capital as the retail price correction mechanism, compensating for lower tariff levels, are paid back with a time delay of 6 months. Thus, the negative free cash flow generation seen in our earnings results in Q1 and Q2 of this year. Since then, the regulator has, via close collaboration and support from the energy industry with Enerjisa in the forefront, taken the necessary adjustments to compensate for the tariff levels via a handful of supportive mechanism. Simultaneously, as these have been incorporated gradually throughout the year, our cash flow generation has also turned positive, which we had seen already in Q3. In Q4, this was continued and further strengthened as the isolated quarterly cash generation reached TRY 4.2 billion, which were enough to compensate the negative free cash flow seen in the first half of the year. Thus, our full year 2022 free cash flow landed at a positive figure of TRY 1.6 billion. Let me now have a look at our operations on Page 5, starting with distribution. CapEx increased to TRY 4.5 billion on a net basis, including the negative CapEx outperformance impact driven by the not yet adequately updated material price list set by the regulator. The isolated CapEx spend without this CapEx outperformance were TRY 5.3 billion, just 3% shy of the maximum ceiling. Thus, 2022 can be concluded as a year where Enerjisa's investment volumes were executed broadly in line with the allowed maximum level. Our regulated asset base grew by TRY 8.67 billion -- sorry, TRY 8.7 billion, reaching TRY 19.9 billion by the end of the year, leading to a 77% yearly growth rate. Efficiency and quality earnings increased by TRY 247 million compared to last year, reaching TRY 1.3 billion in 2022. The main drivers were an increase in theft and loss related earnings as well as a 163% boost in quality bonus. This positive efficiency and quality result shows once again that Enerjisa delivers additional value to its shareholders beyond its investment capabilities by being an efficient operator of its grids and related customer services. Now please over to our retail operations. In our regulated retail segment, the gross profit margin increased to 8.1% in 2022. Regulated volumes increased by 18% year-over-year mainly due to an inflow from the liberalized customer pool who are free to choose energy provider outside the incumbent regional player. In our liberalized segment, margins reached 4.2%, which is an 89% nominal increase compared to last year's margin level, mainly due to a low comparison base in 2021. Now related to our new fast-growing segments. Customer Solutions, all business lines increased its performance and generate together a 52% increase in gross profit. Our installed solar capacity for customers increased by 6% and but is expected to increase much more next year mainly due to the postponements in 2 large projects caused by delays in land and site content. The revenues from this project are not lost and will instead be recognized in the first half of 2023. Our e-mobility business increased its charging base by 60%, reaching 788 charging blocks in 2022 and therefore, remains the largest fast-charging e-mobility network in Turkey. Operational earnings on Page 6 increased by 101% to TRY 15.1 billion. Growth came from all 3 of our segments. Our distribution business generated growth both from its return on assets and investment activities as well as on its efficiency and quality performance. In our Retail segment, substantial growth was seen both in the regulated and liberalized market. Our Customer Solutions continued its revenue growth and grew its gross profit generation. Increasing investment related earnings and distribution, including higher financial income and CapEx reimbursement. Other expenses increased due to higher interest expenses of postponed payments conducted as a mitigation measure to deal with the negative cash flow in the first half of the year, as previously mentioned. Let me add some more color on the respective business lines on the following page, starting with distribution. Please turn now to Page 7, operational earnings increased by 91% year-over-year and generated TRY 12.5 billion in 2022. Financial income grew by 111% and is, together with the CapEx reimbursements, the consequence of the regulated investments made in our distribution business and thus, provides a guaranteed incentive for growing our asset base. The growth in absolute terms is TRY 3.3 billion, which of TRY 1.6 billion is related to the updated IFRIC accounting methodology that now recognizes income each year. Based on a 10-year return outlook instead of the previous longer period, which lasted until the end of the concessions. This was implemented as of Q3 with detailed explanations to be found in our 9 months 2022, earnings results presentation. The related IRR of the 2022 financial income calculation was 81%. CapEx reimbursement, which is part of our adjusted EBITDA, namely operational earnings, but not a part of underlying net income increased TRY 2 billion. Mainly due to the increase in inflation and depreciation profile of last year's investments. Efficiency and quality increased by TRY 247 million a growth of 24% on the basis of our higher performance levels than the set targets by the regulator. Let me break down the out-performance categories of this line item. Theft and loss-related performances generated an increase of TRY 510 million against last year on back of higher tariffs as well increased theft detection and collection performance. Likewise, quality bonus increased by TRY 243 million, thanks to increased quality customer satisfaction scores and lower outages. Please note that the lion's share of our quality bonus is recognized in last quarter of the year, due to the annual nature of the benchmark targets, which is set and evaluated by the regulator on yearly targets. These positive developments were partially offset by 2 factors: both related to the regulatory indexation, which this year experienced pressure due to increasing costs well beyond inflation. Firstly, our OpEx outperformance-related earnings decreased by TRY 211 million due to the same trends observed in our Q3 earnings. Explicitly increases in wages, material and fuel costs that exceeds customer price index, which is the cost compensation index for our regulated OpEx. We are carrying discussions with the regulator on applying a more granular indexation to avoid these costs in the future. Secondly, I want to inform you about the CapEx outperformance that increased compared to our 9 months results but decreased TRY 295 million in relation to last year's strong performance. In 2022, our realized CapEx outperformance is neither positive nor negative as we have recognized the updated calculation method which the regulator communicated to introduce in order to adapt the indexation to the achieved purchase prices in line with the actual costs occurred in the sector. While this compensatory calculation update will be introduced by the regulator retrospectively, we have taken action already now and corrected for this in our adjusted earnings base this year in order to link it with the related performance period. As such, we do not recognize any losses from the current price list index and conclude that our CapEx outperformance for this year was recorded at 0%. Please note that Enerjisa as a company due to its synergetic size as well as its well advanced supply chain methods, usually enjoyed a positive CapEx outperformance of around 5%. Nothing in our capabilities have changed in this regard. As the effects mentioned are only due to a lagging calculation method and the regulation, namely to update for price increases, which steeply increased due to the material and supply chain crisis impacting all businesses in the last years. We are welcoming the regulator's communicated decision to correct for this. Based on the sector's actual performance and expect to return to normal circumstances in terms of price list indexes already in this year 2023. Lastly on earnings. Tax correction, together with other effects consisting mostly of mark-to-market gains of FX hedges together contributed around TRY 900 million. Just shy of twice the amount of last year due to the increasing inflation and FX rates. Let me now also walk you through the cash flow generation in our distribution business. The operational cash flow before interest and tax was recorded as TRY 5.6 billion. This is just south of half of the operational earnings due to the fact that the corrective compensation period by the regulator are longer in the distribution business than in our retail business. Almost all of the TRY 12.5 billion of operational earnings are over the long term, generating cash. But due to the nature of the regulation, roughly half of this amount is to be recognized in the coming years, once the regulator updates its assumptions on inflation and other estimated parameters. This is the case for the financial income earned but not yet cash effective as well as the net working capital effects, which, as mentioned, will -- predominantly will be received in the upcoming years. Free cash flow before interest and tax in the distribution business, therefore, came in at TRY 18 million as the cash effective CapEx was more or less the same amount as the operational cash flow generation. As you can see on Page 8, our retail business also displayed an exceptional earnings growth of 174% and thus generated TRY 2.6 billion in 2022. The regulated gross profit, which constitute the bulk of our retail earnings, increased by 195% mainly due to the mentioned advantages of higher energy prices and increased volumes. Liberalized gross profit increased by 430% year-over-year due to the following 3 factors: one, increase in procurement prices; second, the base impact of a relatively low result in 2021; and third, effective pricing and energy procurement management. OpEx in our regulated and liberalized market increased 125% due to higher inflation, wages and other expenses. Bad debt related earnings increased by 64% and generated a positive contribution in 2022 of TRY 252 million. In addition, other expenses amount to TRY 531 million. As we account for the interest costs related to installment payments as an operating item, which occurred to manage the working capital situation that prevailed in the first half of the year. The free cash flow in our Retail segment was highly positive due to the tune of TRY 5.2 billion, twice the amount of the operational earnings due to the introduced support mechanism to compensate for the tariff levels as described in the beginning of our call. In our Customer Solutions, top line financials increased both in terms of revenues and also gross profit. However, realized in our lower operational earnings due to the postponement in revenue recognition from the specific project delays mentioned earlier. But yet again, these are not lost in profits, but only in revenue recognition to 2023. With that said, I'm confident about our outlook in this segment. And therefore, let me now share some future projections related to our Customer Solutions business. In our full year 2020 earnings call, we announced a long-term growth ambition for our Customer Solutions revenue which was TRY 1 billion in 2025. And thus, a rapid accelerated growth mainly in the years '24 and '25. In the last 2 years, we have achieved a solid base for growth in all areas within the segment. And the new market environment increased our ambition level for our Customer Solutions segment and thus, project revenues of TRY 4 billion to TRY 6 billion in 2025. In addition, we also provide you with an expected operational earnings margin of around 10%. We will continually provide you updates regarding key projects and milestones in all 3 of our customer solutions, business lines, energy efficiency, our e-mobility charging networks and the solar PV business. Now let me elaborate on the bottom line development on Page 9. Our underlying net income increased by 85%, accumulating just over TRY 2 billion in bottom line profits and thus reached TRY 4.461 billion in 2022. Below the line item, operational earnings, the main effects were as follows: Net loan interest expenses increased by TRY 1.762 billion due to an increase in both financial debt and interest rates. The average loan interest rate increased by 13.6 percentage points and reached 29.5% in 2022. In a similar matter, our bond interest expenses increased by TRY 658 million due to increasing interest rates, mainly related due to higher inflation impacting CPI-linked bonds as well as new bond issuances in October. Thus, the average bond interest rate for 2022 increased by 14.6 percentage points to 35.9%. The revaluation expenses of customer deposits were significantly higher than in the last year due to both a higher deposit base and a higher revaluation rate. Please remember that the calculation metric for indexing our customer deposits is the 2-month lagging inflation rate. Meaning that our full year 2022 results are incorporating the October 2022 inflation rate, which was 86%, 4x the rate in the same period of 2021. Other financial expenses contributed positively by TRY 831 million which are mainly related to the interest income accrued related tariff correction amounts in our retail business. Please note that excluded in the underlying net income, meaning our adjusted bottom line is the effects from the accounting treatments, asset evaluation and inflation accounting. Asset revaluation, which we declared to have applied for in our last call, has a positive impact on the company's overall tax expenses in our statutory books but have no impact on the underlying business. Therefore, the effect has been adjusted for in our underlying net income but can be seen as a positive contribution of TRY 11 billion in our reported net income. However, I want to remind you that the non-adjusted net income is not the basis for dividend and thus have limited impact. Inflation accounting adjustments have not been incorporated in TFRS, as per Turkish capital market laws, which we fully comply with and is thus only present in our restated IFRS figures, which can be found in full on our home page. Further explanations about both of the accounting effects can be found in our NX section. Please note that the negative impact of inflation accounting is thus not included in the proposed dividend base, which is subject to our Annual General Meeting in March and therefore translate to a higher than previously anticipated dividend payment. I also want to highlight that the IFRS underlying net income adjusted for inflation accounting ended up at TRY 2.6 billion within the upper half of our IFRS guidance range. Dividend is proposed as TRY 2.30 per share, translating to a payout ratio of 61% of the TFRS underlying net income base, which is TRY 4.461 million (sic) [ TRY 4.461 billion ]. This generates a growth rate of 85% compared to last year's dividend in line with our bottom line development. Please note that the new dividend proposal with a 61% payout ratio on the TFRS bottom line now generates a much higher dividend even compared to a 70% maximum payout on the IFRS earnings base. Turning to Page 10. Our economic net debt increased by 34% on an annual basis from TRY 11.3 billion in December of 2021 to TRY 15.2 billion at the full year point of this year. This is a decline from the TRY 18.1 billion level in September on the back of the strong cash flow generation in the last quarter. Free cash flow before interest and tax was strongly positive in 2022 and to reduce the debt level with TRY 4.8 billion. Our leverage ratio, net debt operational earnings is currently 0.7, the lowest level in our history, thanks to our strong earnings growth. Net interest payments increased our debt with TRY 2.6 billion. Change in deposits was TRY 2 billion flat, mainly due to revaluation of our customer deposits. We also have an additional TRY 2 billion of other items, where the majority of the effect is related to derivatives of financial instruments. Let me underline that we target to have a diverse funding base and has since many years, not financed our business in any other currency than Turkish lira. This is a measure to eliminate risks and have pure translation between our earnings capacity and financing expenses. In the first month of 2023, we issued a new bond of TRY 2.5 billion, which is the second multibillion bond issued in the last 5 months. In addition, we just closed a roughly TRY 2 billion sustainable financing deal with EBRD, which have a maturity of 5 years. This further propels our green financing strategy to continue invest and finance our business with ESG and sustainability as a guiding pillar. Lastly, let me elaborate on our new guidance before we close the presentation and open up for Q&A. Today, I would like to widen the horizon and provide you with a midterm guidance, which includes our expectations until 2025. At the current situation, due to many external unknowns, we believe it would be not helpful to provide you with the 2023 guidance at this point in time. Besides the specific ongoing energy market, related developments, many external uncertainties are expected to materialize during this year. As we have stated, we have seen no fundamental change to our business plan going forward, including our operational activities in 2023. Naturally, this does not disregard the fact that the earthquake had various real and unexpected effects to our financials. However, we were -- where we stand today, we do not see -- we see a regulatory compensation mechanism that will fully compensate for majority of these effects, either in the short or medium-term outlook. Therefore, we are today announcing a midterm guidance as follows: operational earnings to grow with a compounded annual growth rate of 30% to 40% in between 2022 and 2025. Underlying net income is expected to grow with a CAGR of 25% to 35%, also between 2022 and 2025. Please note that growth rates mentioned is in TFRS and is based on an annual compounded growth rate, and it does not exclude yearly variations within the period. We will, in the coming quarters, provide you with a more elaborated picture for the year 2023, along with the speed that regulatory and legislative measures are being introduced. Lastly, I would like to mention that the already disclosed news that I will be leaving Enerjisa Enerji latest by the end of July after being a part of the company for 4 years. Enerjisa, along with its investors, analysts and all other stakeholders will forever have a special part, of course, in my heart. And I'm very certain that the company will definitely achieve new heights of excellence also after my leave and our CEO, Murat Pinar, will, together with the whole team make this sure. I will have the chance to say goodbye to the investor community again during our Q1 2023 call. And therefore, I simply leave it with the word. See you again and now hand over to Rawand to start the Q&A. Thank you very much.

Thank you, Michael. We can now start the Q&A session. To all participants, for your verbal questions, please press the raise hand button on the bottom of your screen. You can also convey your written questions through a Q&A section, which is located next to the raise hand button.

So our first question comes from John [indiscernible] from QNB Finans.

Thank you, can you hear me.

Yes we can hear you.

Okay. Great. Thanks for the call. And I am deeply sorry for your losses in the region, hoping we all get better soon, together. I have 2 questions. So let me start with the one regarding your financials. I just want to be sure on the potential difference between your IFRS and TFRS underlying net income for this year. I couldn't follow your comments in the beginning of the call. I assume a relatively more stable inflation or at least much predictable inflation environment for 2023. Is there going to be such a large gap between your IFRS and TFRS underlying income or should we assume this difference amount for this year seen from the inflation accounting as a one-off for this transition year. And my second question is about the earthquake damage, can you give some insight on the earthquake damage on your distribution infrastructure? Do you think that you may need to increase your CapEx in the region, due to this damage specifically?

Thank you, John, for your questions. Let me please try to shed some light, but start with the most important topic and start with the earthquake effects and the impact on people. And let me also personally communicate my deepest condolences to all people affected by these terrible events. As mentioned in the call, it's yet still too early to discuss the specifics, both due to the ongoing analysis that we are doing, but also the regulatory aspects that we need to follow and have communicated [indiscernible] first by the regulator EMRA. However, if you have read the specific, you can see that we have stated that in 4 out of our 5 regions, namely Adana, Gaziantep, [indiscernible] and Osmaniye, our operations has returned to normal conditions. In Hatay, which is most affected generally by the earthquake, but also for Enerjisa. We have reinstated in all critical locations energy. However, it's important to note that Enerjisa has made all necessary insurances and therefore, has a framework that supports its operations and assets through the regulation and the embedded insurance mechanisms they're in. How this specifically will outline and specifically your question, we cannot yet declare. As soon as we have the official communication from the regulator, and we have conducted our analysis, we will continuously inform your investors and we'll come back in the Q1 call with further details. Regarding your second question, John, of the financials, there is a gap right now between IFRS and TFRS of around TRY 1.9 billion. This is solely of the effect of inflation accounting. This doesn't impact dividends because we have recognized and proposed a dividend proposal based on TFRS, the higher figure. The gap is expected to continue also in the future. In IFRS, it's mandatory to implement inflation accounting as long as the conditions are there. So it's on one hand part based on the inflation rates, which -- with the outlook of going down which currently seems probably will last a couple of years, but also then depending on other circumstances, which IFRS dictates. So to answer your question shortly, yes, there will continue to be a gap. But yet again, dividend and the leading metric for Enerjisa is proposed to be the TFRS underlying net income. I hope this answered your question. Okay. I think we can go forward with the next question.

Okay. We have some written questions. The first question comes from Jamal Dimitros [indiscernible]. He asked regarding your guidance, what are your inflation assumptions during 2022, 2025?

Thank you, Jamal, for your question. Let me -- please elaborate again that the inflation metric that you should look at is the midyear inflation. So it's the midyear inflation for these 3 years, which is predominantly driving our earnings. However, we haven't provided guidance on the detailed inflation assumptions but I can mention that we are broadly in line with the estimations out on the market. And I think U.S. analysts and economists probably have a clear view on that. Of course, this is a dynamic topic. And after the devastating and the recent events, probably inflation expectation is also changing. Now we can go ahead with the next question.

So the next question comes from Muharrem Gülsever from Kona Capital. Please go ahead and unmute yourself.

My question is regarding the guidance that you provided for towards 2025. What CPI assumption do you have with this underlying current CAGR?

Thank you, Muharrem, just as the previous question that came in writtenly, we don't disclose the inflation assumptions. But as stated, we are broadly in line with overall market expectations, even though dynamic, you get a good sense of the inflation impacting our business by looking at a broader consensus view on the market. I think we can go ahead with the next question.

So we've got another written question from [indiscernible]. Please go ahead, and unmute yourself. It's written, sorry. Thank you for the comprehensive presentation. What is the underlying interest assumption behind your medium-term operating income growth forecast of 35% to 40%?

Thank you, [indiscernible], for your question. I think this is in line with the previous 2 questions we had regarding inflation. So I think we can go ahead with the next question. I think we have some written questions.

Okay. We received some written questions from [indiscernible] HSBC. So the first question goes like that. What was the main driver for the higher performance in fourth quarter?

Thank you for your question. The main driver for the higher performance in Q4 specifically is, as in Q2, financial income grew by the IFRIC accounting methodology change, TRY 800 million, in addition to higher investments executed in the second half of the year, which further increases financial income. Beyond that, also in the distribution business, we have higher efficiency and quality earnings contributing positively. This is related to CapEx outperformance but also quality bonus. Please remember that quality bonus, the lion's share of this performance is generated in Q4. This is because that these activities are based on yearly targets set by the regulator and thus only can be recognized in Q4 once the performance can be measured against the regulation. These 4 effects together drives a higher performance in Q4 compared to the previous quarters.

And he has another follow-up question. What were your net benefit are you getting from asset revaluation? You say it helps generate higher cash in 2022 and beyond, but you pay dividends, excluding this FX?

Thanks again for the question. Asset revaluation is explicitly elaborated on in non-Annex, where we state the real benefits it has to our cash flow. Please remember that it is a revaluation of our assets in the statutory books for the 2% tax free for future long-term cash generation in the future. This doesn't impact underlying net income, therefore, also doesn't impact the dividend. It has a cash flow benefit, but as our dividend base is not based on cash flow, this doesn't translate into a higher dividend. And please note that this is purely accounting and does not have a true effect on the operational business.

He has another follow-up question. On the free cash flow, it looks like the substantial deterioration in distribution, free cash flow in Q4 was much more than offset by the significant improvement in retail free cash flow. Can you run us through the underlying mechanisms for these changes? And what might happen in 2023?

Thank you, yet again, [indiscernible], and the deep interest from you and your questions. Please, as Michael mentioned, free cash flow in distribution business was around half of the operational earnings, TRY 5.5 billion of the TRY 12 billion. But as stated, the remaining half is not cash not generated. It's just not recognized in the first year. It will come in the future, and this is roughly TRY 5 billion to TRY 6 billion. And the biggest item you can see in the line item, financial income, not yet cash effective, which is TRY 3.7 billion of that. I think we have no further questions, and we can wrap up and thank our investors and analysts for their participation and hope to see you again in our Q1 call. Thank you, everybody. Bye-bye, and good evening.