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Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Koc Holding conference call and live webcast to present and discuss the first quarter 2022 financial results.
At this time, I would like to turn the conference over to Ms. Sinem Baykaloz, IR Manager at Koc Holding. Ms. Baykaloz, you may now proceed.
Thank you. Welcome, and thank you for joining us today. This is Sinem, IR manager of Koc Holding. I have here with me our CFO, Mr. Polat Sen; our IR Coordinator, Nursel Ilgen; and our Finance Coordinator, [indiscernible], to go over the presentation and answer your questions during the Q&A session.
I would like to note that our presentation and the Q&A session might contain forward-looking statements and assumptions based on our business environment as we see it today, and they might be subject to change. Please remember you can access the replay of the webcast on our website after the call.
Now I would like to hand over to Polat bey to start the presentation. At the end of the presentation, we will have a Q&A session. Polat bey?
Thank you, Sinem. Welcome, everyone. I'm honored to be here with you -- with you here today as Koc Holdings CFO this time, for more than 5 weeks since the role. Before that, I was at Arcelik, as most of you may know, for almost 17 years as the CFO for the last 7 years, and I also performed in different departments.
As you know, I'm not entirely new to the Koc Group. I started my career in Koc Holding as well. So I'm pleased to be with all of you today here on this call. Before we begin, I'd like to share that we feel deeply sorry about the war in Ukraine. Let's hope that the suffering end soon with a sustainable piece established afterwards.
Let's look at the highlights of the first quarter of the year. On Slide 3, you will see today's agenda. So let's start on Slide 4 with some key indicators for Koc Holding. 2022 started off with many uncertainties, including macroeconomic challenges, geopolitical developments and continued impact of the pandemic. Yet, we were able to manage volatility and proved our resilience one more time, thanks to our diversified portfolio structure, agile management, strong financials in our present -- prudent risk policies.
On the left, you can see the sectoral breakdown of our diversified business portfolio at end of March. Business models of all companies were tested in a year when new set of risks have arisen, having different impacts on each business. Even under the challenging conditions, our portfolio proved its resilience as we have been favoring diversification. Also, we have leading positions in the sectors where we operate, which is also giving us great power to handle the challenges.
On the right, you can see the revenue breakdown. Diversification is not limited with sectors but also includes international positioning as well. We are the largest exporting group in Turkey with our exports accounting to -- for around 7% of Turkey's total exports. In terms of composition of our own revenues on a combined basis, 32% is coming from the international sales. If we also include Tupras, which is an FX-linked commodity business, approximately 57% of our revenues can be considered in hard currency.
On Slide 5, you can see our dividend income and payments. So far this year, our dividend income was solid and amounted approximately TRY 5.2 billion, excluding potential dividends for the remainder of the year from some of our companies, as our past year practices. Our dividend income reached all-time high figure, and showed a major recovery compared to last year's dividend income of TRY 3.5 billion for the whole year. This was a good testament to diverse portfolio, enabling a sustainable dividend flow. Note that the majority of our dividend income is derived from the companies with FX or FX-linked revenues. In 2022, our AGM resolved a distribution of TRY 2.3 billion of dividend payments corresponding to 15% payout ratio.
Moving to Slide 6. You can see the evolution of our net cash in the first quarter of this year. At the end of last year, we had $275 million of net cash position at the holding level. Considering our dividend income and other items such as management fees, operating and financial expenses and currency conversion impact, our net cash position at the end of March '22 has reached $510 million, including Yapi Kredi Bank AT1 investment. Meanwhile, incorporating the purchase of additional 18% Yapi Kredi Bank shares as well as our dividend payments and dividend inflows from IGAs and Yapi Kredi Bank Koc Financial Services, In April, our net cash position becomes $136 million.
On Slide 7, you can see the main pillars of our solid balance sheet. As you all know, prudent management has always been a key focus area for us. As we have just discussed, our adjusted net cash position stood at $136 million, including Yapi Kredi Bank AT1 investment, around 90% of our $1.6 billion of gross cash in hard currency. Keeping an efficient level of liquidity has always been our approach, and it allows us to maintain our resilience. With our agile management, we sustained our healthy balance sheet despite the headwinds of the pandemic and the market volatility.
In terms of our funding at Koc Holding level, the only debt we have to -- we have is the 2 Eurobonds outstanding as of end of March. We strictly apply and regularly monitor our prudent risk management policies at each underlying company on a combined basis. In terms of liquidity, leverage and foreign exchange position, we preserved and even improved our conservative levels. On a combined basis, our current ratio is 1.2x, and our net financial debt-to-EBITDA is at 1.3x.
In terms of FX, we have the policy of keeping a neutral position, and we remain well within our risk management rules. As the largest investment holding company in Turkey, and being active in diversified sectors, we manage our balance sheet to ensure that we always remain resilient against market volatility. Going forward, we will continue to prioritize maintaining the solidity of our balance sheet, no matter how challenging the market conditions are.
Now I would like to hand over to Nursel to go over the other slides. Thank you.
Thank you, Polat bey. Let's move on to sectoral developments in the first quarter of this year. We will start with energy and Tupras on Slide 9. The Energy segment's contribution to Koc Holdings consolidated net income is positive in the first quarter, thanks to the growth in domestic demand, rebounding crack margins, inventory gains and higher capacity utilization rates despite sharp price in energy costs.
The domestic demand for refined products maintained its growth momentum in the first 2 months of the year. Jet fuel sales surged 58%, gasoline sales increased 43%, and diesel sales grew 2% year-on-year. In the first quarter of 2022, Tupras domestic and international sales volumes were up 18% and 108%, respectively, resulting in 29% higher total sales volumes.
Looking at the refining margins, we see $9.7 per barrel increase in the Med Complex margin to $9.5 per barrel in the first quarter, thanks to historically high crack margins. Ongoing post-pandemic demand recovery and supply issues stemming from Russia and Ukraine war resulted in record high [indiscernible] cracks. These [indiscernible] margin improved strongly and increased to above its last 5 years' first quarter average due to post-pandemic demand recovery, and also decreasing Russian exports to Europe that resulted in supply shortage.
Similarly, jet fuel crack increased above its last 5 years' first quarter average supported by cap distillate supply as well as ongoing recovery in the number of global flights. Gasoline cracks were strong with the opening and driving season and increasing gasoline blending costs. Meanwhile, Tupras' net refining margin was $4.3 per barrel lower than Med Complex margin, mainly due to oil being the only crude oil in the slate of Med.
In the first quarter of 2022, Tupras overall net refining margin amounted $5.2 per barrel versus $1.5 per barrel during the same period of last year, mainly due to better cracks, inventory gains and high capacity utilization rates despite hikes in natural gas prices. Tupras capacity utilization rate reached 85% in the first quarter. In light of the ongoing trend of cracks, Tupras revised its 2022 net refining margin guidance to $8 to $9 per barrel from $4 to $5 per barrel before. The company will not provide guidance regarding net complex margin until market conditions normalize due to high volatility observed in the oil market.
Tupras noted that net margin is a theoretical calculation and has lost its indicative quality, with [ oral ] being only crude oil in the slate of Med.
On the LPG side, consumption decreased slightly in the first 2 months. Aygaz, the leading player in the LPG sector, focused on profitability, and its sales volume was down 21% in the first quarter.
Let's move to Slide 10 and discuss the developments in the auto segment. Our company sustained a strong performance in the first quarter of the year. Auto segment's contribution to consolidated net income was TRY 2.2 billion. The main drivers of this robust performance were favorable product mix, solid export contracts as well as OpEx control and pricing discipline, despite weakness in both domestic and export markets. In the first quarter, we saw a softness in demand on a year-on-year basis mainly due to high base year effect as well as accessibility issues due to semiconductor availability.
We witnessed 23% year-on-year decrease in domestic auto sales in the first quarter. While passenger car sales was down 25%, commercial vehicle sales decreased 14% year-on-year. Our market share in the domestic market was flattish at 25% compared to the same period of previous year.
On the export side, we saw a 12% decrease in passenger car and light commercial vehicle sales in the European markets. In the first quarter of the year, European auto sales had a weak start to the year mainly due to disruption in supply chain as well as ongoing challenges due to semiconductor availability and economic headwinds. The European passenger power market registered 11% decrease, while light commercial vehicle markets realized 22% year-on-year decline.
Our group market share in the export increased 1 percentage point to 46%. In the first quarter, Ford Otosan export sales volume was 11% lower, while Tufas witnessed 16% decrease in its export volumes. Favorable product sales mix, pricing discipline as well as currency sales and support total revenues of both Ford Otosan and Tufas decreased 72% and 65%, respectively. Export revenue growth was strong for both companies.
Ford Otosan registered 79% growth in export revenues, while it was 68% at Tufas. International revenues were supported by euro-based cost-plus contracts, and in the case of Tufas, also by take-or-pays. TurkTraktor, our tractor company, enjoyed strong export sales in the first quarter with 26% higher export volume. On the other hand, the company's domestic sales volume decreased 30% year-on-year. Accordingly, TurkTraktor's total revenues surged 49%, and the company's net income grew 32% to TRY 477 million.
Otokar, our leading cost and defense company with superior R&D capabilities and prosperous products, also had a very strong start to the year. Otokar's domestic revenues increased 22%, and international revenues grew 67% year-on-year while the share of international revenues is around 64% of the total revenues. Overall, total revenues increased 48%, while the net income increase was much higher at 87% to more than TRY 200 million.
On Slide 11, let's look at the Consumer Durables segment. Consumer Durables segment's contribution to consolidated net income was up 24% to TRY 568 million. This performance was driven by strong international and domestic revenues, contribution of new [ railcar ] operations as well as currency tailwinds despite higher raw material prices. Turkish white goods sales decreased 9% year-on-year in the first quarter, while the export market increased 6%. In the domestic market, despite the wholesale units, retail was quite strong in the same period mainly due to customers' expectation of further hikes in product prices.
Looking at Arcelik figures, in the first quarter, domestic revenues increased 79% year-on-year, thanks to effective pricing despite 10% decrease in unit sales. Similarly, international revenues, constituting 7% of total, increased by 138% on the back of FX impact, inorganic growth and also organic growth. Looking at the key risk metrics, Arcelik managed that at healthy levels. The company's working capital to sales ratio became 27.7%, and leverage stayed at comfortable levels despite dividend payments, share buyback and FX volatility with a net debt-to-EBITDA ratio of 2.8x.
Regarding 2022 expectations, consolidated revenue growth expectation is revised upwards for Arcelik for more than 60% to more than 80% on forward positioning in the domestic market and strong performance in international markets.
Finally, let me also briefly talk about the finance segment and the developments of Yapi Kredi on Slide 12. The finance segment was the largest contributor to consolidated net income, and the share in consolidated net income was realized at TRY 3.25 billion. We have quickly recorded a robust profitability before the price fundamentals. According to BRSA financials, the bank's net income more than doubled quarter-on-quarter to TRY 7.3 billion in the first quarter, while at the same time, return on tangible equity was realized at 42.3%. Net fees and commissions registered a significant 54% growth, supported by the increasing number of transactions year-on-year. Core revenue growth was much stronger driven by the higher net interest income.
Cost growth was below inflation at 50% year-on-year. Turkish lira-driven lending goals continued in both loans and deposits. In the first quarter, total loan growth was 14% quarter-on-quarter and total customer deposit growth was 14% quarter-on-quarter. The bank's strategy to focus on value-added segments such as Turkish lira's multi-cap lending and sticky individual demand deposits continued. During the first quarter, Yapi Kredi successfully acquired more than 400,000 new customers. The share of retail loans increased to 55% in total FX adjusted cash flows, while the share of demand deposits in total customer deposits reached 42%.
Net cumulative cost of risk, including currency hedge was at 39 basis points mainly due to limited inflows and strength in collections as well as front-loaded provisions. Conservative coverage levels were preserved across all stages and total coverage was 6.3% on a consolidated basis. The equity remains comfortable in terms of liquidity. Total liquidity coverage ratio of the bank stands at 201% as of the end of March. In terms of capital, Yapi Kredi continues to operate with more than 350 basis points buffer on its capital ratios compared to regulatory requirements, with close to 150 basis points contribution from internal capital generation.
CAR and Tier 1 ratios stood at 15.5% and 13.3% by March end, respectively.
If we move to Slide 13, I will walk you through the overall results of the group, incorporating all of the segment trends we just discussed. On a combined basis, Koc Group registered TRY 233 billion in revenues, TRY 18.2 billion in profit before tax and TRY 15.4 billion in net income. Consolidated net income amounted to TRY 6.7 billion with a 218% year-on-year growth.
Now I would like to leave the floor to Polat bey for a summary of our ESG initiatives and concluding remarks. Polat bey?
Thank you, Nursel. I would like to take this opportunity to give you an update on our recent developments in the ESG area on Slide 15. As the Koc Group being aware of our significant role in the transition of the sectors which we are operating in, we declared our target to be carbon neutral by 2050.
In line with our 2050 carbon neutrality target, Koc Holding commits to reduce Scope 1 and Scope 2 GAT emissions by 27% in 2030, and by 49% in 2040 compared to the 2017 baseline year, which is 8.4 million tonnes of carbon emissions. Scope 1 and 2 GAT emissions totaled 6.9 million carbon emissions in 2021. We aim to manage the climate-related risks, seize potential opportunities and regularly disclose our performance to our stakeholders in line with the task force on climate-related financial disclosures recommendations.
Considering our portfolio, almost all of our companies, all of our leading companies like Arcelik, Ford Otosan, Yapi Kredi has committed to size-based target initiatives in different levels. Koc Holding has joined the supporters of CEO Water Mandate initiative, which was created by the UN Global Compact and aims to mobilize business leaders on water management.
In line with Koc Holdings global leadership and commitments on the UN Women Generation Equality Forum, we pioneered the commitment of Aygaz, Arcelik, Ford Otosan, Koc Finance, Tufas, Tupras, TurkTraktor and Yapi Kredi to ensure equal opportunities for women and girls in technology and innovation for 5 years.
Finally, on Slide 17, you will see the evolution of our net asset value discounts, which we believe to be unwarranted given our strong fundamentals that we have just discussed. Although we maintained our strong financial profile and prudent approach with a track record of sound liquidity, our NAV discount widened significantly. Unfortunately, Koc Holdings' current NAV discounts and the discount to its listed assets do not reflect the strength of our fundamentals.
As discussed previously, we are not happy with this deeply disconnected valuation. Therefore, last year in July, we initiated a share buyback program to take a more proactive stance. While doing so, we wanted to make sure a meaningful free float in order to maintain Koc Holdings' place in various indices.
Yet, you must have noticed an accelerated news flow from Koc Holding on high impact and very value accretive projects in our various sectors. We closely follow the megatrends in the world such as climate change, acceleration, consumer transformation and changing demographics.
We shape our strategy accordingly as the pioneering group of Turkey. Our investment for the additional 18% stake at Yapi Kredi Bank has already generated more than 100% return in less than 6 months. We do believe that all our large-scale strategic initiatives and investments in line with our global growth vision will further reinforce our position, and be reflected to our share performance once the external factors related headwinds will settle down.
Thank you for listening. And now we can start the Q&A session if everyone is ready.
The first question is from the line of Kilickiran Hanzade with JPMorgan.
Polat bey, congratulation for the new role. I have a question regarding your project on the battery production in Ankara. What is the -- I mean, I know this is still an ongoing project. But is there any strategy on the capital allocation, how much do you think you may allocate for this project?
And the second question is about your dividend income. Do you have any -- I mean, a full year expectation on the dividend income? It's -- I mean, it's progressing, but it's still slower than our expectations actually. I just wonder which company is left to distribute other than Ford Otosan.
Okay. I'll answer the battery project, and Nursel is going to answer the dividend income. For the battery project, as you know, Hanzade, it's very, very early stage. We just have signed the MOU. So the project is still going on, and there's a lot of lose ends to be tied up. Whenever we are available to be able to answer this question in a concrete manner, we are going to be guiding the market with the numbers. But right now, it's really too much moving parts along the way. So let us give some more time for this. And it's also nice to see you here with the Koc Holding, Hanzade. Thank you. And I'm moving to Nursel.
Yes. Thank you, Polat bey. Hanzade, as you know, they'll be usually collection from our underlying companies in March and April, and there are some companies that pay dividends twice a year, as you mentioned, like Ford Otosan some. So for this year, we have the numbers that we receive from our underlying company. So far, it is included in our presentation, so will receive about TRY 5.2 billion of dividends from our company, and that doesn't include the potential second dividend for the remainder of the year. So we cannot give a guidance regarding how much we are expecting for the remainder of the year. But I would say that you may expect a higher figure than this TRY 5.2 billion that we received so far.
There are no all your questions at this time.
I will now move to our webcast questions. The first webcast question is from [ Latif Demir ] with Garanti Securities. And I quote.
"Thank you for the presentation. Can you give a guideline on the share buyback program that you announced in last year? Do you consider to start buying from the market?"
Second question is, "can you give guidance on the battery investment that you announced recently? And how much the size? And what is your plan on financing this investment considering your recent cash position?"
Thank you. For the battery, it's almost the same question that I've just answered. So I'm not going to repeat myself. I think it has already been answered. For the share buyback program, as you all know, we have an active share buyback program last -- in early July last year that we have launched.
And so far, we haven't really bought a big amount of shares, very small. According to -- we can buy 5% of our free float, which is around 1.4% of our capital. We would like to sustain a healthy dividend payout as well as to ensure a meaningful free float in order to maintain Koc Holding in the radar of path of investors as a constituent investable accretive market indices.
Currently, we are not happy with our NAV discount that is hovering at levels far away from the historical averages. We are monitoring the market closely and considering our liquidity as well as the active share buyback program, we may buy back our shares. But I can tell that since July last year, the Koc Holding shares have appreciated much more over the average of the market. So without the buyback program, we have been able to provide a good yield for the investors. So if we think that there is a need to use this share buyback program, we are going to be using. But right now, until now, we haven't had the need to do it. Thank you.
The next question is from our audio participant, Rizvi Adil with Jefferies.
This Adil Rizvi from Jefferies in New York. Can you shed some color on the plan requiring exporters to convert 40% of their hard currency revenue to Turkish lira?
I can. As you know, we are the biggest exporter in Turkey, and with the recent change, the increased number is from 25% to 40%. But to be honest with you, this is a very -- at the end of the day, we are buying Turkish lira. And then if we need the FX, we are buying back again. So there is a spread which is really affecting us. But this spread is very, very negligible in terms of our overall business cost, let me say. So right now, this is not really hurting our business at all, and we are not really having a huge impact on our P&L because of this regulation. I can tell that it is very, very negligible in the overall Koc Group balance sheet. Thank you.
The next question is from our webcast participant, Umut Ozturk, with Oyak Securities. And I quote.
"Thank you for the presentation. What were the drivers for the decline in the solid net cash position in first quarter '22? And how should we expect it for the remainder of the year?"
This is Nursel speaking. Let me walk you through the net cash bridge that we provided in our earnings presentation. As you know, we end up the year at TRY 3.6 billion of net cash, equivalent to $275 million. If I continue with the Turkish lira equivalent, you can see that we received TRY 5.2 billion of dividend income, incorporating the dividend payments, and also this additional 18% [indiscernible] to Yapi Kredi Bank shares at the beginning of April, which amounted to TRY 2.5 billion. We come up with an adjusted net cash figure of close to TRY 2 billion, which is equivalent to $136 million. So I think this net cash, which answers your question. So the dividend income was TRY 5.2 billion, the payments, and also this dividend payment and also this payment for Yapi Kredi Bank resulted in the cash outflow. Still we have this net cash position as of April.
The next question is from our webcast participant, Samarth Agrawal with. And I quote. "First question is, how do you see the domestic demand trends for the remainder of 2022? Do you see growth rates normalizing?"
Second question is, "can you also let us know how supply chain constraints are impacting the margins of portfolio companies?"
Okay. I'll start maybe with the consumer demand, and the trend. As we just discussed, in the first quarter of this year, we had the high base year impact. And that's why we saw some decreases in our domestic sales volumes in autos, in consumer durables with different magnitudes. And there was also the ongoing trend, which started last year. We saw the inflation impact that impacted the household purchasing power, combined with this normalization and the pent-up demand for some products. So that trend was visible since the second half of the year.
And this is also reflected in the consumer confidence indices. The indices were at low levels in the first quarter this year. Looking at the guidance so far, underlying companies, you can see that they announced flattish or a slight increase in the domestic markets. I'm talking about autos and also consumer durables. So for the domestic market, our expectation is for this year, we expect a flattish market, both in terms of autos and also consumer durable sales. And we will be following to developments closely, and our companies are announcing their guidance as we follow. On the supply chain, I'm going to hand it over to Polat bey.
On the supply chain side, I mean, I'm sure that you have already listened to our other subsidiaries, earnings calls as well. It's different from sector-to-sector. And there is still some constraints, especially on the automotive side, and that's affecting the -- to fulfill the demand. So there is still accumulated demand in the automotive industry due to supply chain constraints.
But other than that, the situation is easing for the other part of the world, let's say, for the other parts, like Consumer Durables and some others. But the problem is, of course, the costs are rising on the supply chain side, especially the logistics costs. And that is really also one of the factors which is affecting the inflation all over the world.
Because of that, all the producers or retailers are trying to push that -- increasing the costs to the prices. And we are doing the same as well. And it seems like the supply chain constraints, or the supply chain cost is not going to really change until the end of this year. We don't really foresee a big change until the end of the year. We are closely following up the situation. But I can tell that with the slowdown in China, especially, we see some positive developments on the metals like copper, aluminum, all of you must have seen that the prices are falling down a little bit. And we expect the other sectors will continue following that in the upcoming quarters, a little bit later maybe. But we are expecting some normalization throughout the end of the year, and maybe in 2023, especially on the material side. Thank you.
Ladies and gentlemen, there are no further audio or webcast questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you very much. We would like to thank everyone who have participated in the call at the hour. I hope to see you next time with even better results. Thank you very much.