Eregli Demir Celik Un/Adr

Ladies and gentlemen, thank you for standing by. I'm Polina, your chorus call operator. Welcome and thank you for joining the Erdemir conference call and live webcast to present and discuss the third quarter 2026 financial results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. Please note, Erli Demir Celik Fabrikalaritas Erdemir may, when necessary, make written or verbal announcements about forward-looking information, expectations, estimates, targets, assessments, and opinions. Erdemir has made the necessary arrangements about the amounts and results of such information through its disclosure policy and has shared such policy with the public through the Erdemir website in accordance with the Capital Markets Board regulations. As stated in related policy, information contained in forward-looking statements, whether verbal or written, should not include unrealistic assumptions or forecasts. It should be noted that the actual results could materially differ from estimates, taking into account the fact that they are not based on historical facts but are driven from expectations, beliefs, and other factors which are beyond the control of our company. As a result, forward-looking statements should not be fully trusted or taken as granted. Forward-looking statements should be considered valid only considering the conditions prevailing at the time of the announcement. In cases where it's understood that forward-looking statements are no longer achievable, Such matter will be announced to the public and the statements will be revised. However, the decision to make a revision is the result of a subjective evaluation. Therefore, it should be noted that the party is coming to a judgment based on estimates and forward-looking statements. Our company may not have made a revision at a particular time. Our company makes no commitment to make regular revisions, which would fully cover changes in every parameter. New factors may arise in the future, which may not be possible to foresee at this moment in time. At this time, I would like to turn the conference over to Ms. Idil Onay Ergin, Investor Relations Director. Ms. Ergin, you may now proceed.

Thank you very much, Polina. Good afternoon and welcome to Erdemir's third quarter 2026 conference call and webcast. I will start by taking you through our master presentation, which is available on our website and is also being displayed during the webcast. Following the presentation, we will open the floor for our Q&A session and take your questions. As you know, our presentation is structured in two main sections. We will begin with an overview of the market environment, followed by our financial performance. Let's begin with the commodity price developments. On page 3, you will see the prices of fuel-related commodities and HRC. In the third quarter of 2026, coking coal prices were supported by supply constraints in China, while weak global steel demand limited further gains. Following mining accidents, tighter safety inspections, and production cuts in China, curbed domestic supply. From August onwards, Prices climbed to around $285 per ton, driven by tighter supply in China and stronger import demand. Although the upward momentum eased in September, limited physical supply kept prices at elevated levels. Island oil prices fluctuated within the $92 to $100 per ton range in the third quarter, remaining volatile and generally subdued. As the anticipated increase in demand failed to materialize in September, prices fell to around $92 per ton CFR China by the end of September. In July, scrap prices fell to as low as $370 per ton CFR. In September, prices gained momentum as fuel makers resumed purchasing and geopolitical developments drove up logistics costs. As a result, imported scrap prices ended the third quarter at $404 per ton CFR. In the third quarter of 2026, global HIC market trends were shaped by rising production costs and regional supply constraints amid weak end-user demands. In China, high inventory levels and subdued domestic demand puts downward pressure on prices, while trade measures and limited import options in Europe supported domestic producers. As a result, price disparities between regions became more pronounced. On page four, you will find an overview of the Turkish steel markets, including production, consumption, export, and import figures. In the first eight months of 2026, Turkey maintained its position as Europe's largest and the world's seventh largest crude steel producer. In the January-August period, Turkish crude steel production increased by 7% to 26.6 million tons, and this growth reflects resilience in domestic output despite the challenging global steel market conditions. Going back to the slide, while production rose by 4%, consumption and exports increased by 3%. Imports increased by 3% over the same period. As a result, the export-import coverage ratio increased to 84% in the first eight months of 2026, higher than the previous year. In the January-August period, China remained the leading supplier despite an 18% year-on-year decline, followed by South Korea and Russia. Asia continued to be the largest import region, supported by an 8% annual increase, while the CIS ranked second on the back of higher imports from Russia. Despite an annual decrease, the EU remained Turkey's largest export market, followed by MENA and CIS. Italy was the top destination by volume. As we shared on the previous call, EU's carbon border adjustment mechanism entered its definitive phase on the 1st of January. In addition, the EU's new steel import regime took effect on 1 July 2026, replacing the previous safeguard system. These changes increase carbon costs, quota availability and pricing risks for Turkey's steel exports to the EU. Overall, the Turkish steel industry recorded higher production and consumption alongside improving export-import dynamics. Nevertheless, sustaining domestic demand, managing import competition and maintaining access to export markets will remain critical for the sector in the coming months. Let's now turn to our financial and operational performance. On page six, you will find a summary of our key results for the first nine months of the year. We achieved $4.3 billion revenue. Also, we generated $490 million EBITDA and $245 million net profit. On page 7, you will see the operational indicators of our company. Following the commissioning of the final two investments in our previous investment package during the second quarter of 2025, our critical capacity utilization ratio gradually increased since then and reached the 96% level. Accordingly, sales and production levels returned to their normal levels in 2026. Supported by strong demand in Turkey, we achieved sales of 6.4 million tons in the first nine months and we aim sales volumes of 8.4 million tons in 2026. So let's take a look at the segmental breakdown of domestic sales and export volumes on page 8. As you can see from the pie charts, there has been a slight change between sectors when we compare it to last year's breakdown. There has been a transition from distribution chains, general manufacturing, and auto to Python profile on a percentage basis. We see similar changes between sectors in the long products, although its share in the total sales is relatively small. Our export volume was 916,000 tons in the first nine months, representing around 14% export share in total sales. Although our focus is the domestic market, we also consider export as an alternative market. This year we aim to keep the share of exports in total sales in the 13-15% range. Due to strong domestic demand and our flexibility to shift to other markets, we expect the impact of the EU's new steel import regime on our company to be limited, which I mentioned the details in the fourth slide. On page 9, you can find a breakdown of revenue for domestic and export sales. 84% of the revenue comes from domestic sales in line with the domestic volume. Despite import pressure in the domestic markets, we achieved to generate $490 million EBITDA and EBITDA per ton reached $100 in Q3 marking the seventh consecutive quarter of improvement since the low point in Q4 2024. Our EBITDA per ton guidance for 2026 stands in the range of $75 and $85 per ton. In the fourth quarter, we expect EBITDA per ton to decrease through increasing coal prices. In terms of profitability, we closed the first nine months of the year with a net profit of $245 million. On page 10, you can see how we reached a net profit from EBITDA. One of the largest items was depreciation, which was $249 million in the first nine months. The other major item in this chart was financial expenses of $159 million. The tax income amounted to $196 million due to deferred tax income. After other expenses, net profit was $245 million. In the graph below, you can see Ebitda's change in cash bridge. Our networking capital in Q3 decreased compared to the second quarter due to the increasing inventories. Also, we spend around $300 million to investment activities in nine months. This amount also includes capex and advances paid for the capital expenditures as well. The reason for the change in credit payments is that we paid off our maturing financial debts to reduce our credit interest costs. We also paid dividends of $95 million in June. On page 11, you will see the historical trends of financial borrowings and net debts. As you can see from the financial borrowing charts, our financial borrowings have decreased by the amount of Our credit payments. When we look at the third quarter, our net working capital increased compared to the second quarter due to the increasing inventories. We managed to achieve a net debt EBITDA of 1.54 times at the end of the quarter. We expect not to exceed two times in 2026 at the maximum level. Slide 12 represents our cost of sales breakdown. There has been no significant change in our cost breakdown since Q2. In the fourth quarter, we expect higher coal prices to put upward pressure on our total costs and increase the proportion of raw materials in our cost structure. Page 13 represents the historical capital expenditures. Total capex was $775 million in 2025 and $315 million in the first nine months. We expect our capex to accelerate in the fourth quarter, driven by our solar power plant investments. So the total capex will be approximately $600 million in 2026 with maintenance and other ongoing investments. As you already know, this figure is accrual based and the cash outflow will be lower due to advance payments. On page 14, Just as a reminder, we announced our net zero roadmap in 2024. The roadmap remains unchanged from what we previously shared. The first investment under this package, the solar power plant, is expected to be partially commissioned by the year end 2026. We will now move on to the Q&A session. We look forward to answering your questions. Thanks for listening.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1 on the telephone. If you wish to remove yourself from the question queue, then you may press star and 2. Please use your headset when asking your question for better quality. Anyone who has a question may press star and 1 at this time. One moment for the first question, please. The first question is from the line of Jason Faircloud with Bank of America. Please go ahead.