ŞİŞECAM Outlook 2022/q4

On February 6th, hit by one of the biggest earthquakes in its history, Turkey woke up to a devastating morning. It was 04.17 local time when the 7.8 magnitude first earthquake struck Gaziantep, southern Turkey. Just 7 hours later, at 13.24 another earthquake with a 7.5 magnitude, made things much worse. This time the epicentre was Kahramanmaraş, but as you can see from the below charts, their impact felt over at a very large area.

Huge destruction and collapsed buildings were captured in photos and videos, but freezing weather conditions, many other extreme difficulties, sorrow and thousands of lives that are lost cannot be described by any means. Following the disaster, rescue teams dispatched to the region by Turkish government, a broad solidarity showed among people and immediate action taken from all around the world to help. These are all appreciated and will not be forgotten.

With this opportunity, I would like to express my heartfelt condolences to the families of victims who lost their lives in this devastating disaster. I am deeply saddened, and I wish a fast recovery to all who injured and affected with these terrible earthquakes. In my personal capacity, I also tried to help from the very first day but these are minuscule efforts compared to what Şişecam, other great companies, many people and organisations did.

I am glad that some companies took initiative instantly. As an example, Şişecam dispatched resources and gave support to the region right after the disaster. As of 15/02/2023, donations made by Şişecam were at 200 milyon TL in cash, and 25 milyon TL in kind. From preparing facilities for accommodation to sending volunteers who are specialised in emergency cases; and from sharing its resources to providing equipments to rescue teams the list goes on. I am proud to be an investor of such a company, which is not solely driven by profit motive, but also bound with a code of conduct, ethics, social responsibility, solidarity and rebuild better mentality. In this regard, I also would like to extend my thanks to the management for their “care“, which is not only a word that is written just in strategy documents.

You might question the opening of this article and the appropriateness of the title, but without expressing this tragedy and showing gratitude to all who helped, no analysis would mean anything. Having the same thoughts Şişecam postponed “2022 Consolidated Financial Results Webcast and Audio Call” for an indefinite period, which had to take place on 06/02/2023. I will update this article after joining the event in the future, but now let’s have a look at the outlook of the company with the year-end financial report, which was revealed on 03/02/2023.

At the earning release, M. Görkem Elverici, the CEO of Şişecam, reminds us how turbulent times we have been through. “The business world has been dealing with a climate of uncertainties globally for almost 3 years. Macroeconomic and geopolitical tensions continue to rise constantly. The challenges such as Russia-Ukraine conflict, hyperinflation, risk of recession, energy shortages, logistic disruptions and even sudden lack of supply remain unsolved.”

2023 is expected to be a year of volatilities and from the point I stand, I see that Şişecam is managing this uncertainties and risks at their best. How? Among other factors, being a global player in the glass and chemical industries enables the company to act efficiently. Quoting Görkem Bey once again: “Şişecam’s extensive production network spanning 4 continents and 14 countries allows us to manage such a challenging period in an agile manner by adapting to the conditions.“

1. Consolidated Summary Financial Results

Breakdown of Income Statement

I find Sankey Diagrams very useful to evaluate a company’s performance. Therefore I have prepared the following Income Statement chart for Şişecam, with cumulative figures and they should be read in thousand Turkish lira.

As stated above, Şişecam had 95.3 billion TRY revenues, and this income generated in five segments. The leading contributor was Chemicals with its 28.3 billion TRY share, which makes the 28 percent of the revenue. Architectural Glass was second top line contributor with its 26 percent share (24.7 billion TRY). Glass Packaging, Glassware and Automotive Glass follow those. Graph 2 shows the percentage distribution on the left side and cumulative figures are presented on the right side.

I have also analysed the revenue segments quarterly and Graph 3 shows the percentage distribution on the left side and figures for the last three months are presented on the right side. The picture is pretty much the same. Chemicals are strong, but low-cost producers’ appearance and demand prospects should be observed closely.

2. Gross Profit and EBIT Margins

3. Revenues – Cost of Sales – Gross Profit

4. Changes on Key Items

As we had an idea on the performance of the company, now we can compare some of the recent financials with the previous quarter and same period of the last year.

On the same graph, gray bars show changes compared to the same period of the previous year. For example, revenues at 2021/q4 was 11.0 billion TRY therefore the increase is 163.2 percent. You can follow the similar increases on other items, too.

Path to Net Income

As we throughly looked the figures, it is now time to see the transmission for Net Income, which was 19.3 billion TRY. At the end of the year, Cost of Sales for Şişecam was at 61.6 billion TRY and Gross Profit was at 33.7 billion TRY. Operating Expenses took almost half of it and the biggest expenditure made to Sales and Marketing (13.4 billion TRY). Research and Development Expenditures stand very small and General and Administrative Expenditures stand around 4.6 billion TRY.

Deducting all operating expenses Şişecam generated a 15.3 billion TRY Operating Income. Adding the other operating, financing and investing activities Şişecam showed in its financial tables a 19.8 billion TRY Income Before Tax. At the final stage deducting tax and Minority Interest from this sum we have reached to 19.3 billion TRY Net Income.

Conclusion

“Şişecam is a global player in the glass and chemicals industries, and it is moving forward on its growth journey that creates sustainable value.” — Şişecam Press Release

Last three years were full of uncertainties and risks in a wide range from Covid-19 pandemic, Russia – Ukraine war, inflation, recession, supply chain problems, etc. Şişecam’s activities in 14 countries, on 4 continents, and sales in more than 150 countries worldwide give the company a solid edge on efficiency.

I am pleased with the company’s recent performance, and I am proud to be an investor at a company where the only value is not the profits, but also social responsibility and “care”. Although I do conducted a discounted cash flow analysis for Şişecam every quarter I’d rather keep the analysis private for the moment. In case you are interested in a previous study you can check:

ŞİŞECAM Valuation 2022/q2

I also have to say that we are at a time to act in diligent and more carefully than ever. Because we are at a point where the volatility is high. There are retreats and negative changes in some items at the financials and a close monitoring is required for those in the short-term. In addition to that, Turkey is a great country, which is home to great companies, and I believe that it will recover from this devastating earthquakes’ dismay quickly. However possible outcomes of approaching elections and macroeconomic outlook must also be considered by the investors.

Best regards,

Ergun UNUTMAZ, 18.02.2023

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