Tekfen Holding AS

IST:TKFEN.E

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to Tekfen 2021 First Quarter Results Conference Call. I will now hand over to Mr. Çaglar Gülveren. Please, sir, go ahead.

[Çaglar Gülveren, executive]

Thank you, Lydia. Good afternoon, ladies and gentlemen. Welcome to Tekfen Holding's First Quarter 2021 Results Call. This is Çaglar, Head of IR, and we have our top management with us today with -- but this time, due to the curfew, we are all joining from different locations through our mobile phone, so should there be any problems with the audio connection or the sound quality, we apologize for that in advance.

And now I hand over back to Lydia to start the session. Thank you.

[Operator]

[Operator Instructions] The first question comes from Selim Kunter from AK Invest.

[Selim Kunter, analyst]

[indiscernible] congratulations and best of luck in your new post. I have 2 questions. In the footnotes, you have stated that your project related with Gazprom's external gas transfer pipeline had about TRY 320 million loss so far due to unfavorable winter conditions to carry out the works at the site. But the project was originally scheduled to be completed in May 2021. And although 2021 winter season has also passed, the [ completion is still at ] 27%, if I'm not wrong. So should we anticipate further losses to be booked from this project? And if the recorded loss already incorporates further delays, when should we expect it to be completed?

And my second question is on the guidance. You had a fairly strong first quarter realization and yet, you have not revised your full year expectations. How should we read this? I mean had you already anticipated Q1 to be as strong? Or do you see some headwinds for the remainder of the year?

[Çaglar Gülveren, executive]

So I'll leave it to [indiscernible] question.

[Unknown Executive]

Regarding the Russian [indiscernible] project, Kharampur, the project duration and completion time is extended to 2022 based on the agreement with the client. And the project completion is about 50% as of -- at April. Yes, we have said loss last year, and now we are dealing with the client for the compensation of the -- our loss plus [ a week ] time expansion. Cost goes to loss, and the expansion cost discussions are going on. And hopefully, we will come agreement last quarter of this year. Thank you.

And 2021 guidance, and we have stated at the very beginning of the year. And if this guidance is still safe, we are keeping our guidance and maintaining our guidance. Thank you.

[Selim Kunter, analyst]

Just a follow-up on the first question. If you can't negotiate or if you can't reach a deal with the client to get your claims, should we expect further losses? Or is it all accounted for so far?

[Unknown Executive]

Right at the moment, what we have reported is the expected loss. It may -- any further loss, it depends on the COVID conditions and weather conditions because weather conditions -- 5 years reported weather results are not matching with the last year and the time to time we are having to this year. If any things change, as we have experienced -- get experience last year and if those additions also will be equate.

[Operator]

[Operator Instructions] We have a question from Koray Pamir from Unlu & Co.

[Koray Pamir, analyst]

A couple of questions, if I may. First of all, can you provide an update on your contracting outlook? How many active expectations are already in the [indiscernible]? Any particular geographies that you are concentrating? And then more importantly, should we expect to hear a tangible [ CapEx ] over the next couple of quarters?

And secondly, can you provide some insight in your second quarter output, which you expect for the [ port side of Kharampur ]. If I understand correctly, the first quarter was quite strong due to the input costs. Should we expect a sharp normalizations in the second quarter [indiscernible] profitability?

[Çaglar Gülveren, executive]

Sorry, this is Çaglar. There is a problem with the quality of the sound. If I'm not wrong, just [indiscernible]. The first question is regarding the Contracting Group. And you're asking the, I think, backlog expectation or -- it's my understanding. And second, would the second quarter outlook, especially you are asking for the agri industry or mainly the first larger business, I guess?

[Koray Pamir, analyst]

Yes, that's correct.

[Çaglar Gülveren, executive]

Okay. So the [indiscernible] question is on [indiscernible]

[Unknown Executive]

Hey, Çaglar, I have difficulty to hear the question. But as far as I understood, it was about new geography, new markets for the -- in the -- for the Contracting Group. We are trying to keep our existence in the existing market where we are working, countries. And we are making a study for Africa, East Europe and other countries of Caspian, which either long time we have not worked or we never work. And the Middle East, again, our existing market that we are trying to keep our existence. If I understood rightly, this is the answer of the question. Thank you.

[Çaglar Gülveren, executive]

And an additional backlog expectation was part of the question, I guess.

[Koray Pamir, analyst]

Yes. Second quarter of -- with regard to [indiscernible] segment.

[Unknown Executive]

Sorry, I didn't get.

[Çaglar Gülveren, executive]

[indiscernible]

[Koray Pamir, analyst]

[ Here, I will repeat it now ]. The second quarter output regarding the [indiscernible] segment. The first quarter was quite abnormally strong. Should we expect a sharp normalization in the second quarter? That was my question.

[Hakan Göral, executive]

It's Hakan Göral, Head of Agri Industry. Thank you for the question. To start with, of course, we are living in such an era that there are a lot of disruptions. So it's really hard to predict what kind of price change would take place in Q2. But if I may, as an estimate, as long as this pandemic is around, food security is still very important. And what comes with the food securities, of course, all the crops needs to be fertilized. In that respect, being [ guess ], I wouldn't expect a sharp normalization of the fertilizer prices.

And if I may add, even if that takes place beyond a certain value, because of the fact that Toros does use weighted average cost accounting system, the impact of the prices on Toros accounting would not be that drastic. I hope that answers your question.

[Operator]

[Operator Instructions] There are no further questions in the call. I will give back the floor to Mr. Çaglar Gülveren.

[Çaglar Gülveren, executive]

Okay. Thank you all for your participation. That concludes our call, and have a nice day ahead.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines. Thank you.