Eregli Demir ve Celik Fabrikalari TAS

IST:EREGL.E

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to Erdemir Group 2018 Second Quarter Financial Results Conference Call. Eregli Demir Çelik Fabrikalari may, when necessary, make written or verbal announcements about forward-looking information, expectation, 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 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, plans, targets 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 is 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 a result of subjective evaluation. Therefore, it should be noted that when a party is coming to a judgment based on estimates and forward-looking statements, our company may not have made a revision at that 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.

I will now hand over to Mr. Avni Sonmezyildiz, Financial Control and Reporting Director, who will take you through the presentation.

Here, Mr. Avni Sonmezyildiz, please go ahead.

[Avni Sönmezyildiz, executive]

Good afternoon, ladies and gentlemen, and welcome to the presentation of our financial results for the period ended June 2018. I'm with our CFO, Mr. Emrah Silav; and our Investor Relations Manager, Idil Onay.

And our conference call will have 3 parts: first of all, we will give you a more detailed information about our CapEx plan that we announced yesterday; then we will go through our presentation, which you can find in our website, also you can follow it within the webcast via the link that we shared with you; and at the end of the presentation, we will try to answer your questions as much as possible together with Mr. Silav and Idil Onay.

So before going through the presentation of the first half financial results, we would like to make clarification about the CapEx announcement that we made yesterday. As you are already aware, we have announced 3 investments yesterday: first one is sustainability and modernization of -- modernization investment of second hot strip mill in Eregli plant. This investment will be made to improve the product range and quality of hot-rolled product in Eregli. And there won't be any interruption expected at the mill while completing this investment. So you may consider this investment as a part of our sustainability CapEx, and no additional capacity increase expected after the completion of this modernization investment of hot strip mill.

Second one is the construction of new second blast furnace in Eregli plant. Although it's a new blast furnace construction right next to the current second blast furnace, it should be considered as a part of planned reline of the current furnace. Second furnace has to be relined until 2021. And our engineering team estimated total reline time around 5 to -- 3 to 5 months. As you'll lose significant amount of crude steel at the reline time, our management decided to build a new one right next to the second blast furnace with an immaterial capacity increase. By establishing a new furnace right next to the current one, we will be able to use some of the equipment of the current furnace, and also continue producing crude steel while building the new one. When we did relining cost of current furnace and the effect of crude steel lost during the reline, the construction of new furnace will not cost much different than reline of the current furnace. This is the first one.

Also there has been an accident in the second blast furnace yesterday. You heard the news most probably, and there were so many questions about it. We would like to inform you that there's no significant problem at the furnace. And our investment decision in Eregli at the same day of the incident is just a coincidence and has no relation with our investment decision.

The third investment is in Iskenderun plant. Same as the second blast furnace in Eregli, third blast furnace in Iskenderun has to be relined also until 2021. It is estimated that the reline will take around 3 months. Also Iskenderun plant's first and oldest blast furnace is idle right now. As a result of -- as a result, our management decided to construct a new blast furnace with higher capacity in the area of idle blast furnace #1 in spite of relining the third blast furnace in Iskenderun. After the construction of new blast furnace, capacity of third blast furnace, which is 1,850 cubic meters, will be replaced by a new blast furnace with 3,000 cubic meters. Therefore, we will increase Iskenderun's liquid steel capacity moderately by getting rid of reline cost of third furnace and losing crude steel capacity at the time of reline. After the completion of new furnace, third blast furnace will be idle, but it will give us a flexibility of capacity increase when required. We don't want to give you a certain capacity increased tonnage based on a basis -- tonnage basis at this point, as it could change within the engineering and development phase of the new furnace. However, you can make a rough estimation about its capacity tonnage as the fourth blast furnace in Iskenderun, which is the biggest one in Turkey, is 2,500 cubic meters.

So to conclude all of the investments, these investments should be considered as a replacement of scheduled 2 blast furnace new lines with a new -- with a moderate capacity increase. So we are not talking about $1 billion level investment, and it's going to be a lot lower than that. And we assume that our net cash and dividend payments will not be negatively affected by these new investments.

So after this clarification, I'll continue with the presentation of the 6 months results, which you can follow in the webcast or in our website. So I'll start on Page 5. In Page 5, you can see year-on-year growth of crude steel production according to Worldsteel data. All steel regions in the world increased their crude steel production in the first 6 months of 2018 compared to the same period of 2017. World crude steel production was 882 million tonnes in the first 6 months of 2018, up by 4.6% compared to the same period of 2017. China's crude steel production for the first half of 2018 was 450 million tonnes, an increase of 6% compared to the same period of 2017. CIS region produced 51 million tonnes of crude steel in the first 6 months of 2018, which indicates 2.8% increase. European Union produced 87 million tonnes of crude steel in the first half of 2018. It also indicates around 2% increase when compared with the same period of 2017. At the same time, in Turkey, crude steel production for the 6 months was around 19 million tonnes, and it indicates around 4% increase when compared with the same period of 2017. So as you can see, there has been an increase in the crude steel production in the world, almost all of the regions, which is good for the industry.

In the second -- next page, in Slide 6, you'll see the pricing trend for raw materials. We still see less volatile iron ore and coking coal prices, so prices range within some -- within line. So benchmark coking prices -- coking coal prices is around $185 per tonne, while index price for the 62% iron ore is just below $70 per tonne. Scrap prices have become highly volatile after the depreciation of Turkish lira as Turkey is the market maker for the scrap prices and comes back to $310 levels. So due to stable prices -- raw material prices, we don't expect significant change in our production cost for the rest of the year, except the effect of dollar-Turkish lira parity on our Turkish lira costs.

So in the next Slide #7, you'll see final steel production and consumption of Turkey for steel. Please keep in mind that final steel production data also includes processing of semi-finished imported flat and coils. That's why it's higher than crude steel production in Turkey -- of Turkey. So Turkey's final steel production increased 9% and has become 20.5 million tonnes in the first half of 2018. As you can see from the breakdown, the increase in production and consumption has mainly triggered by that products.

In the next slide, you will see the export and import figures of Turkish steel market. In the first half of 2018, steel exports of Turkey slightly declined around 300,000 tonnes when compared to same period of 2017. However, steel imports increased around 16% as the same period and reached 8.2 million tonnes. The increase is mainly because of flat imports of the electric arc furnaces and [ jidodims] due to high scrap price.

Then -- now I will continue with our 6 months results in slide -- starting from Slide 10. Let's take a look at the -- some key operational and financial metrics in the slide. So as you can see, our liquid steel production is around 1% higher than first half of 2017. Also we have produced more flat steel in the first half. However, total sales is 4% lower than the same period of 2017. Decline in total sales is mainly related with decline in billet sales. We were able to sell more flat product in the first half of 2017, and it also helps us to keep our EBITDA and net profit better than first half of 2017, although total sales volumes is lower than previous period.

In Page 11, you will see the liquid steel production, so I'll skip it, we have already mentioned.

In the next page, you will see the crude steel capacity utilization ratio of our group and the world comparison. The crude steel capacity utilization ratio for the 6 months in 2018 is 76%. And it indicates 4% increase when compared with the annual capacity utilization ratio of 2017. The crude steel capacity utilization ratio in June 2018 was 78.5%. Compared to the May 2017 it is 1% higher. This data indicates that capacity utilizations have been on a rising trend since the beginning of 2018 all over the world. And as you can see, we are running almost with full capacity, except there were some maintenances in the rolling mills that I will mention later.

So in the next slide, in Slide 13, you will -- in 13 and 14, you will see the breakdown of production and sales for the main product segments. As we previously discussed, our long sales have declined, while we are able to keep our flat sales at the same level. And let's take a look at the 14 -- Page 14. So in the second quarter, our sales volume is just above 2 million tonnes. It is significantly lower than second quarter of 2017, also lower than the previous first quarter of 2018. Sales volume in the second quarter is affected by the maintenance in Eregli plant and delay of planned shipments. July shipments and our shipment estimations indicate that low volume in second quarter will be recovered partially, but we don't expect annual sales volume of 2018 higher than 2017.

Now let's take a look at the revenue breakdown in Slide 15. So this slide shows revenue strength and distribution of revenue from domestic sales and exports. So we are able to keep our exports revenue around 17% of our total consolidated sales. As the U.S. increased tariffs to 50% and European Union applied trade costs to Turkish producers and the other producers, we would like to remind you that, our direct export to USA is immaterial and it can be easily shifted to other export markets. Also we follow European Union's trade costs on a daily basis, and we don't see significant problem with the tariff set by the European Union so far. For instance, as of today, only less than 5% of HRC cost and 3% of cold coil cost is [ forfeit ]. So for the 200-day period, there is still too much room to fulfill for European Union trade costs.

In Slide 16, when we look at the breakdown of domestic sales, there is no significant change in the flat sales breakdown. There is only slight increase to auto producers and general manufacturing producers. In long sales, sales to construction steel and profile producers declined from 277,000 tonnes to 166,000 tonnes.

In the next page, you can see the breakdown of our export sales. Although total exports more than declined around 120,000 tonnes, we were able to increase our sales to eurozone, and we don't see significant problem with our exports to eurozone because of 200-day tariff -- trade costs that as I previously mentioned.

So let's take a look at the financial metrics in Slide 18. First of all, it's been a very successful half for the group for 6 months. Although sales volume is lower, increase in sales prices and stable raw material costs helped us to achieve USD 481 million and 33.8% EBITDA margin. Also we have reached $351 million net profit in the second quarter, and in total for the first half USD 630 million net profit, which indicates more than 22% net profit margin. I would like to remind you that in the second period, there is additional foreign exchange gain resulted from the Turkish lira depreciation coming from our dividend liability. Due to Turkish lira depreciation, USD equivalent of dividends declined, and we recognized around USD 90 million foreign exchange gain from realization of dividend liability. This is very important because this is a one-off thing, and it's just -- it's happened because of the Turkish lira depreciation.

And let's take a look at the EBITDA to net profit bridge in Slide 19. We recognized USD 93 million depreciation expense, which is completely in line with the previous period. We recognized important financial income with losses from our net cash position and also lira depreciation. Our net interest income for this first half is USD 25 million. As I mentioned in the previous slide, there is significant foreign exchange gain, the losses both from dividend liability and Turkish lira short position.

In the next slide, you will find EBITDA to net cash bridge. The main reason for decline in the cash is related to dividend payments of 2017, which is $660 million. Also our working capital requirement increased because of the increase in trade receivables as a result of sales -- increase in sales prices and VAT position. So we -- it lowered our cash around $210 million just because of the working capital change.

In Slide 21, you will see the EBITDA per tonne trends, which is one of the most important metrics for us. Although low sales volume in the second quarter, we are able to increase EBITDA per tonne for the final product sales from $197 to $223. Also we generated $25 million additional EBITDA from byproduct and service sales such as port services. Due to decline in order prices during the second quarter, we expect lower EBITDA per tonne figure in the third quarter, but we also assume that lower EBITDA per tonne will be partially recovered by the sales volume in the third quarter.

In the next slide, you will see some financial figures. I'll skip the page to Slide 24, this is just the financial information. In Slide 24, you may see our net cash position. Although our net cash decreased to $358 million from $675 million, dividend payment is partially covered by free cash flow generated in the first half.

In Page 25, you will see the borrowing maturity profile and our cash as of June 2018. So there is no significant change in our debt maturity profile. And mainly on debt maturity for the short-term period, mainly contains short-term trade financing liabilities. We still have very strong balance and maybe the least vulnerable public company in [ more so ] Istanbul to Turkish lira depreciation due to our currency position and net cash position.

In the next slide, you will see the cost of sales breakdown. So there is no significant change in our cost structure when compared with the 2017, so I'll skip this slide as well.

In Page 27, you will see the CapEx spending, and we spend $124 million cash for the CapEx in the first half. However, $42 million of CapEx spending is related with the real estate, acquisition -- real estate and building acquisition, while rest of the CapEx is related with the facilities.

As a final slide, you will see the number of employees. So we are continuously lowering our number of employees, and we have reached 11,763 employees as of June 30, 2018.

So this is what we will say about our presentation. So we will be happy to answer your questions. Waleed, please go ahead for the questions.

[Operator]

[Operator Instructions] Our first question comes from [ Koray Amir of Yape Keden ].

[Unknown Analyst]

Three quick questions, if I may. First of all, you mentioned that the total CapEx of the new high furnace investment would be less than $1 billion. Could you provide even a ballpark figure estimate of and more accurate estimate of the total CapEx that could we incurred for these investments? Secondly, for the duration, should we expect some -- around 3 years for the investment to start and start commercial production? And lastly, during these investments, I understand that can you confirm that your existing production from the other furnaces or the existing furnaces will be maintained or unimpacted -- mostly unimpacted from these new investments?

[Avni Sönmezyildiz, executive]

Actually, right now, we are not going to argue a ballpark figure because, although there is an investment decision, it requires additional work, and the collection of the -- additional information from the suppliers, et cetera. So it's going to take time. But when it is available, we will give you more detailed information. But as we mentioned, it's going to be significantly below $1 billion.

[Emrah Silav, executive]

Actually, this is Emrah Silav, the CFO of the group. Our Board of Directors give the right to our engineering department to go on to reline these 2 furnaces. So maybe we'll be coming up with final cost figures in the future. But right now, Mr. Avni mentioned that it's not a kind of $1 billion scenario because it's lower than that. Don't take that as a point I would suggest.

[Avni Sönmezyildiz, executive]

[ Koray ], what was your second question?

[Unknown Analyst]

Regarding how long these investments could take? Around 3 years from start to commercial operations?

[Emrah Silav, executive]

Actually, it usually takes in the past -- we have the experience, it takes 2 -- from 2 years to 3 years. We say 3 years to be a bit more conservative. And you also mentioned that if it's completed in the time frame, our current production would be affected or not, it's not going to be affected. Actually, that's why we are starting building these blast furnaces right now. So this is going to take part of the older ones in the future and bring some more moderately additional capacity.

[Unknown Analyst]

Understood. As one final follow-up, should we expect any further investment decisions in these assets, for example, for Iskenderun, any debottlenecking investments that we should expect going forward in the near future?

[Emrah Silav, executive]

For these 2 blast furnaces, they had to be done. So it's not a decision from Board of Directors to -- they gave the green light to go. We don't see any bottleneck that would require more investments because of these furnaces. But as we discussed before, we are working on additional operational efficiency increasing or capacity-increasing project, but if something comes up like that, we would be working on that reasonably. And, of course, publishing it and sharing it with you.

[Operator]

Our next question comes from Andrew Jones, Wood & Co.

[Andrew Jones, analyst]

Could you remind me what the setup is at Iskenderun? I mean as you said, there's currently 4 blast furnaces. One of them is idled. Clearly, obviously that would not be restarting anytime in the future. Could you remind me what their capacities are? And what the volume of these blast furnaces are? So we have an idea for the sort of tonnage potential we could expect from this new blast furnace? And could you also -- you spoke fairly quickly before. Could you run me through -- again, the scheduling of how this would work? If -- once the new blast furnace starts up, which furnace would be essentially decommissioned? I mean, could you just explain the setup again and just go through that clearly, please?

[Avni Sönmezyildiz, executive]

Thanks, Andrew. I mean, in Iskenderun, there are 4 blast furnaces. And the first and the oldest one and the smallest one is idle. It's been idle for a long time. If we use it as a backup furnace, then it's required. But for a long time, we are not utilizing it. I will not give you the details for each blast furnace, but I can tell you that we have 5.5 million tonnes of liquid steel capacity at Iskenderun, and the newest one, the fourth blast furnace has capacity of 2 million tonnes, and its volume is 2,500 cubic meters. At this point, that's all I can say about the blast furnace capacity -- individual capacity. And the second question is related with the time schedule and the -- of it. So we have already answered some of it. And there don't expect any interruption in the liquid steel production because we are building -- it's a kind of reline, but we're building new furnaces, while running with the current one. And as Emrah mentioned, it will take 2 years to 3 years to complete under normal conditions. And within that period, I mean -- there are 2 separate things. First, one of them is Eregli so you will not see any difference in Eregli because we will [ get rid ] of the new one right next to the current one, and we will shut down the old one when the new one is in operation. So we don't expect a significant -- any actually, liquid steel loss. For Iskenderun, as I mentioned, we will be building a new one in the place of first blast furnace, the oldest one, the idle one. And when the new blast furnace will be in operation, we will shut down the third blast furnace, which is currently running now and because it requires reline. So when the new one gets into operation, the third one will be idle. But maybe later, depending on the market condition and the liquid steel demand in Turkey, we could also make additional investments for the third one, but there is no decision yet right now. So as of today, all in all is that third blast furnace will be shut down when the new one is in operation in Iskenderun.

[Operator]

Our next question comes from Anton Fedotov, Bank of America Merrill Lynch.

[Anton Fedotov, analyst]

Can you please clarify once again. So you mentioned that the fourth blast furnace, it has the capacity to produce 2 million tonnes per year. And it has the volume of...

[Avni Sönmezyildiz, executive]

Yes, correct.

[Anton Fedotov, analyst]

And the volume of 2.5 million cubic meters, right?

[Avni Sönmezyildiz, executive]

2,500 cubic meters.

[Anton Fedotov, analyst]

2,000 -- yes. 2,500 cubic meters.

[Avni Sönmezyildiz, executive]

Okay. Yes, yes. And the new blast furnace in Iskenderun -- new blast furnace in Iskenderun, as we explained in the statement yesterday, will have 3,000 cubic meters.

[Anton Fedotov, analyst]

And it will replace the current third blast furnace which has 1,800 cubic meters?

[Avni Sönmezyildiz, executive]

Yes, 1,850 cubic meters.

[Anton Fedotov, analyst]

Fantastic. My second question relates more to the market conditions. Would you expect any negative impact on the domestic demand on the back of the current significant depreciation of the Turkish lira that we have seen in the past few weeks? And would you expect any impact on the prices as a result of potential demand slowdown and this depreciation?

[Emrah Silav, executive]

I can add something to that. I mean, of course, the market volatility and FX volatility affects the Turkish domestic market. But from the beginning of the year, we were trying to increase our exports which was quite successful so far, plus we don't have the exact figure, but we understand that most of the clients exporting to the U.S. even after Section 232 increased their capacity, they buy the raw material -- our product is a raw material -- and roll it and sell it to U.S. So this is an export for us, too. These are taking off some of the risks from the table, but we have to watch because last 2 months, the volatility was very high. We haven't seen any effects right now, but we have to watch it closely, and we are doing it. That's, I think, all we can say right now.

[Avni Sönmezyildiz, executive]

Yes. Anton, actually, this is too early to tell the effect of Turkish lira depreciation. Most probably we'll be able to see the effect in, if any, in September and October in the market.

[Emrah Silav, executive]

But as Avni mentioned, it's like -- from the asset management or asset liability management side, it doesn't affect our balance sheet or income statement adversely because we are now -- we are since for a long time using dollars as the main currency for our operations.

[Anton Fedotov, analyst]

If there is significant slowdown in the domestic demand, would you be able to export more out of Turkey?

[Emrah Silav, executive]

Actually, that's what we think. That's what we expect because, as Avni mentioned, the flat steel imports to Turkey increased for the arc furnaces. They are still trying to import flat, and roll it and then export it again. So we see a room for that for exporting. Whenever we find -- we find it more appropriate or more advantageous, we can increase it.

[Operator]

Our next question comes from Rishad Ahmed, GoldenTree.

[S. Rishad Ahmed, analyst]

Just a follow-up on that point around the exports. So -- currently, how easy is it for you to be able to increase the exports by a much more meaningful way for it to, let's say, to go from around 15% of your revenues to just throwing a number out there, closer to 50%, just from a logistics and supply chain and transportation perspective? And then secondly, obviously, given the Turkish lira depreciation, your exports should become more attractive. But could you help us understand what the profitability is in, let's say, EBITDA per tonne, for your exports versus your domestic sales currently?

[Emrah Silav, executive]

I would answer the logistics part. It doesn't make a huge difference for us because we have 2 ports in both [ system facilities ] and we mainly use the seaway to do the trading. So we do it for exporting our domestic. It doesn't make a huge difference. I don't see any problems with that. And we are utilizing both ports very efficiently. We don't share the EBITDA per tonne difference from -- for export and the domestic market. So we don't disclose it right now. But it's a matter of competition. As you mentioned, the labor costs are coming down, so we, of course, become more competitive in that part. And it's a matter of pricing, I would say. And as you know, the prices are set internationally. So I think that we can keep our competitiveness in that part because the steel market is still strong in China, Eastern part of the world and also the European side.

[S. Rishad Ahmed, analyst]

So -- but even if you can't give an exact number on EBITDA per tonne, can you talk about the relative profitability of exports versus domestic sales? And domestic sales a lot more profitable than exports? Or is it pretty similar?

[Avni Sönmezyildiz, executive]

Rishad, actually, it's a very tough question because the prices are different for different product segments. I mean -- so I can give you an example. The galvanized product is profitable in Turkey sometimes but less profitable in Europe or it could be vice versa in the hot product. So it's very hard to give you an example on that because it changes constantly. So -- but the thing is, we are always able to increase our exports, but we have been selling most of our product to the domestic market because Turkey is the best market for flat. And even if there is a problem in the flat demand in Turkey or overall demand because of the currency depreciation, this will not change because there is a huge gap between the imports -- between the demand and the supply. So -- I mean, most probably, you and us will never be able to measure the effect of export prices versus domestic prices because of so many different factors.

[Operator]

Our next question comes from Cemal Demirtas, Ata Invest.

[Cemal Demirtas, analyst]

My question is related -- first question is related to your investments. As well as I understand, you had the relining and you need a relining in 2021?

[Avni Sönmezyildiz, executive]

Yes. On system 2021, we need to reline one blast furnace in Eregli and one blast furnace in Iskenderun, Cemal, you are right.

[Cemal Demirtas, analyst]

Okay. So related to your CapEx spending, could we assume that the majority of your investments will take place by 2020? Or equal 2019 and 2020? Or are we going to see some initial increase in your CapEx starting by the second half of this year?

[Avni Sönmezyildiz, executive]

Cemal, most probably, it will not affect our CapEx plan this year. You will see its effect starting from 2019 and 2020. And it will be on an increasing trend, starting from 2019.

[Cemal Demirtas, analyst]

Okay. And do you plan any maintenance stops late this year or early 2019 apart from relining?

[Avni Sönmezyildiz, executive]

There is no maintenance plans apart -- I mean, no more big -- there is no big maintenance plans apart from reline of these 2 blast furnaces, which will affect our production capacity because there is always maintenance. I mean, there is maintenance in the cold rolling mill, so we'd ship some of our production to the hot product or when there is a maintenance in the billet facility, we change our production, the sales breakdown, and we sell more hot product. So you will never realize the effect of maintenance in the rolling mills. But as I mentioned, apart from these 2, there won't be any maintenance which will affect our liquid steel capacity production -- production capacity.

[Cemal Demirtas, analyst]

Okay. And another question related to your sales mix. I see some decline in domestic CRC sales volumes specifically, and also in long steel. How do you see the import competition? Or do you have any specific delivery reasons for lower CRC?

[Avni Sönmezyildiz, executive]

Let me take a look at the numbers, again. CRC has -- yes, you're right. It's declined around 70,000 tonnes. I mean, there is no specific reason for that, actually. It could also depend on the profitability of other products. So there is no specific reason for that or any market conditions that you should be aware of. And for long, it's kind of a substitute market for us. And you see much more declines in the long production and long sales in the first half. It's partially our decision because of the profitability concerns and also some decline in the demand on -- of long steel. Both of it affected our -- I mean, we partially selected to lower our long sales because of the profitability concerns. Also, the demand is lower.

[Cemal Demirtas, analyst]

And another question is, from your previous experience, what was the cost of latest relining of any blast furnace? Do you have any examples from the past?

[Avni Sönmezyildiz, executive]

If I tell you the cost of latest reline, most probably, you will make estimations about the CapEx plan, and we don't want to do that. So we will give you the necessary information about the cost of new CapEx when the engineering work is ready.

[Cemal Demirtas, analyst]

And the last question about your effective tax rate because of those currency changes. I think, the profit before tax is much higher than our expectation. But your effective tax rate is around 35% on -- based on IFRS figures.

[Avni Sönmezyildiz, executive]

Yes.

[Cemal Demirtas, analyst]

What should we expect for the future? Or was it happening because we were expecting some increase, but it was even much higher than our expectation in -- what transpired to see further demand?

[Avni Sönmezyildiz, executive]

Cemal, actually, the main reason is related with the deferred tax effect coming from the foreign Turkish lira depreciation. We are always telling you that there is an FX impact goes to the deferred tax income or loss. And if you take a look at the details of taxation notes in the financial statement, you will see directly what is the effect of currency depreciation to the deferred tax. Also there is another effect, but it's not much significant, but it could be significant for the remaining -- for the rest of the year. The effective tax rate is 22% right now. But our estimate that -- had the investment is sanctioned, and we have used all of it in the -- within the first 6 months of this year, so it's [ lower ], which means that in our -- in standard of legal books, the legal tax payments will be higher than last year. But it's just finished recently. So you didn't see its effect in the financial statement. So to conclude, all of -- almost all of the effective tax rate effect is coming from the Turkish lira depreciation, and it goes to the deferred tax expenses.

[Operator]

[Operator Instructions] We have no further questions. Mr. Avni Sonmezyildiz, back to you for the conclusion.

[Avni Sönmezyildiz, executive]

Ladies and gentlemen, thanks for attending our teleconference tonight. We know that it's late and there's going to be a vacation for our Turkish colleagues, a long vacation. So have a nice weekend for our colleagues outside of Turkey, and have a nice vacation for Turkish colleagues. Good evening. Thank you.

[Emrah Silav, executive]

Thank you so much for attending. Have a nice weekend.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.