ŞİŞECAM 2023/q2

Thread in Turkish

Türkiye Şişe ve Cam Fabrikaları A.Ş. was founded in 1935 by İş Bank and currently consists of a holding company with 57 subsidiaries, 1 joint venture (Rudnik Krecnjaka Vijenac D.O.O.), 2 associates (Saint Gobain Glass Egypt S.A.E and Solvay Sisecam Holding AG) and 2 joint activity (Pacific Soda LLC and Denmar US LLC).

Şişecam is among the world’s most prestigious manufacturers and with its 88 years of corporate history, it has a considerable experience and high degree of specialisation. As a global company Şişecam has production activities spanning 14 countries on 4 continents, and sales in more than 150 countries. Following the merger, which was completed as of 01 October 2020, Şişecam is on track to become one of the top three global producers in all its core business lines. As it is already in top five, and investments keep rolling on, this goal is within the reach.

Following this brief introduction, let me cover the financials of the company for 2023/q2.

1 – Segments and Regions

On the first quarter’s report I have highlighted the changes in the segment reporting. Previously Şişecam had 6 segments, namely: architectural glass, automotive glass, glassware, glass packaging, chemicals and others, and after this structural and name changes there are currently 7 segments. I have updated my tables accordingly and in Figure 1 you can follow both QoQ and YoY changes as well as quarterly results both for 2022/q2 and 2023/q2.

At the lower side of the table you can also check the developments for regions, for the same period.

In Figure 2, you see net sales by these segments. On the left side, pie chart shows us the percentage shares, and bars at the right side depict the values of those contributions. At the end of second quarter, revenues of Şişecam stood at 30,069 million Turkish lira (TRY) and “Chemicals” is the top line item with its 29% share in revenue and 8,658 million TRY value. “Architectural Glass” follows that with 20% and “Glass Packaging” is at third place with its 18% share. The new segment, Energy makes the 10% of total.

When it comes to net sales by region, Figure 3 shows the geographical segments with respect to the customers location. Turkey has the biggest share by 39% and 11,700 million TRY. Europe stands at the second place with 25% and its contribution is 7,470 million TRY.

Also it must be noted that although produced in Turkey, some of those items exported from Turkey to other markets. Based on sales in and exports from Turkey, the share of international sales for Şişecam reached to 65% at the end of 2023/Q1. In Figure 4 you can follow the yearly changes.

Şişecam had produced in the first half of the year 2.5 million tons of glass, 2.3 million tons of soda and 1.8 million tons of industrial raw material. At the same period total investments reached to 7.1 bilion TRY.

2 – Income Statement

Mr. Görkem Elverici, CEO of Şişecam, emhasised on the earnings release how bad the global environment with these words: “The world continues to struggle against the ongoing challenges caused by global macroeconomic fluctuations and political uncertainties.” But on the bright side Şişecam has managed to complete this quarter with a success. Effective management in logistic challenges, data driven decision-making and technology were apparently main factors in this success.

In Figure 5, I have attached highlights from the Income Statement. You can compare revenues, cost of sales and gross profit with the previous quarter and last year’s same quarter. There is a slight increase in sales revenue as well as cost of sales. When it comes to gross profit there is a 1.8% increase compared to 2023/q1. With a 135 basis point fall in the margin, the gross profit margin completes the quarter at 32.4%. On the other hand, EBIT margin increases drastically at this quarter, it is at 23.4% and increase is 653 basis points. It must also be noted that in year over year comparison both are at a lower point.

In Figure 6, I have plotted these figures in a graph. Blue color represent QoQ changes, while black is for YoY changes. At the end of the second quarter, EBIT margin hits a 47% and this is pretty good. Glass packaging should take the credit for this achievement.

Breakdown of Income Statement

At this point, it is apt to see where does this 30,069 million TRY revenue come from. In Figure 7, Sankey Diagram shows the revenue by segment on the left hand side. Then we deduct Cost of Sales 20,323 million TRY and obtain 9,747 Gross Profit. Operating Expenses are steady and even there is a slight decrease in marketing expenses. Operating Income at the second quarter was 3,709 million TRY and after adjusting for other items, Şişecam ended the quarter with 6,346 million TRY net income.

In Figure 8, we can see the revenue growth and cost of sales. Some part of this increase come from the inflation and some part comes from the investments made. Let’s hope the latter may bring better margins and profits in a disinflationary world.

3 – Financial Ratios and Stock Buyback

If you are familiar with this blog, you would normally see here a full-fledge DCF Valuation for Şişecam. I do run intrinsic valuation for Şişecam at every quarter and 2023/q2 is not an exception, but I will share my calculations on this occasion with a time lag.

Below you can find the financial risk ratios for Şişecam for the last five years (Figure 9). The most stable ratio in the graph is financial leverage that the company uses. It is anchored around 40% and the most recent value is 45%. Debt-to-Equity ratio is 0.81 and it is not that volatile. When it comes to liquidity ratios Current Ratio is falling from high safety zones to safe levels. It is at 1.98 and Quick Ratio is at 1.38.

In addition to search for the best returns to the invested capital, Şişecam also pays dividends regularly with an increasing ratio every year. Last but not least, Şişecam announced a buyback program on 26.02.2021 and made its first purchase on 15.03.2021 and after reaching the first criteria Şişecam announced a second, supportive program and it is still ongoing. For further details you can read my article on Şişecam Stock Buyback.

As a conclusion; it was a tough quarter, but Şişecam managed to achieve “good” results. Due to global recession, decreasing demand and diminishing purchasing power with the high inflation, main sectors of the company and customers of its products having problems. Furthermore cost efficient competitors from the China do not make the scene better for the profitability of the company. Under all these circumstances and drastic depreciation in Turkish lira after the elections, undermine the financial results. Therefore I used the term “good”. It is relative, and it might have been much worse. In the short run, it is important to keep wheels turn, and control the cost. When it comes to the long run, I believe that Şişecam will take the opportunity to reach its goals decisively.

Şişecam is one of the companies that I follow closely and have in my global portfolio for years. I hope this figures, analysis and calculations are also useful for you, too. For further documents and news please check Şişecam Investor Relations.

With this opportunity, I’d like to thank to Şişecam management and all employees for their efforts and performances, who are ready under all circumstances for the best of the company and to create sustainable value.

Ergun UNUTMAZ, 06.08.2023

You can read my previous works on similar subjects by clicking the links.

ŞİŞECAM Valuation 2023/q1
ŞİŞECAM Outlook 2022/q4
ŞİŞECAM Valuation 2022/q2

Carl Zeiss (AFX) 2023/q1
Puma SE (PUM)

I wish you all the best.

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