Tekfen Holding AS

IST:TKFEN.E

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, welcome to Tekfen's 2021 Second Quarter Results Conference Call. I now hand over to Çaglar Gülveren. Sir, please go ahead.

[Çaglar Gülveren, executive]

Thank you, Melanie, and welcome to Tekfen Holding's second quarter results call. We have participants on the line, actually, participating from their mobile phones, so you may have some difficulties hearing. Sorry for the inconvenience. And we start with the Q&A session as usual. So now I hand over back to Melanie. Melanie, please go ahead.

[Operator]

[Operator Instructions] The first question comes from [ Kublai Cashler ] from individual investor.

[Unknown Attendee]

I have several questions regarding the construction site and the agricultural site. For the construction site, I have seen some numbers, the worker numbers annually according to the years. For example, in 2016, the number of workers is about 13,000. And now is -- in this year is 17,500. When you look at the revenues, revenues coming down and always decreasing. But the workers' numbers always staying same. I'm asking this, why the number of staff don't decrease. This is my first question.

And the second one is for the construction site, what sort of key performance indicators are you using to control the costs? For instance, are you using revenue per worker or staff? And the second question is for the construction site. Now I know the economic difficulties we are getting in country site and in the world, but to reduce the cost what we are doing especially for the construction site, I am asking.

And the other question for the United States, the United States Senate passes approximately $1 trillion infrastructure bill. This means there is a opportunity for Tekfen. I'm asking that the -- what plans do you have for this opportunity? Is there any company there for Tekfen or is there a plan to open a new office for this big market? This is the questions for construction site.

And the last one is for agricultural site, agricultural production. We are -- see that the another loss there. And when we look at the revenue and the cost of revenue is -- I couldn't understand the approximately TRY 50 million we have revenue, but the cost is TRY 56 million for this period. How this can be possible? And what we will do to increase the revenue of reduced costs. I am asking this.

[Unknown Executive]

Thank you very much for the questions with regard to the engineering and contracting segment. Let me start one by one. You have mentioned some staff numbers for the 2016 and the current stuff. We cannot correlate the number of workers available and working at site directly with the revenues generated. The number of workers or the staff is directly related to the schedule of the projects. If required, it can increase. But when the works has been completed, the number of workers should be decreased. This is -- I mean, there are many parameters why we are increasing the number of staff. However, it doesn't mean that it has no relation with the revenue. Of course, increased workers is directly related with the work to be done at the site. This is the workers' number issue.

With regard to the -- what sort of systems you are using or implementing while you are monitoring your cost? On company-wide at the contracting group, all the costs are monitored on digital platforms we have in-house developed and very extensive ERP systems. So once we are awarded with the contract, all the costs are being monitored through the ERP systems whatever the projects are, and it is reported to the headquarters. And at every project, we have cost control staff to monitor the projects, and on every month, the projects are reporting to the headquarters to consolidate the overall situation on company level.

With regard to the reducing of the cost, I mean, there are many ways to monitor first your costs and if possible, of course, but we cannot generalize. We can give a lot of examples to reduce the cost. And it is related with the scope of work. And if possible, you can do some engineering -- value engineering to see whether there is cost reduction possibilities or if it's construction -- pure construction-related works, you can control your workforce, your equipment, your purchases, et cetera. And we can, let's say, give a lot of examples to monitor your costs or reduce your costs.

With regard to the last question about the potential new market, you have mentioned bill that we are reading through the, let's say, media about U.S. infrastructure bill. We have been as a contracting group following up the new markets to have a diversified portfolio to diversify, let's say, balanced operations worldwide. North America is one of them. There are many, let's say, plans on company-wide. And once the management has decided to open or establish a presence into that market, of course, we will be taking the necessary actions to follow up the opportunities, as you have mentioned. I hope I could answer all your questions. Thank you.

[Hakan Göral, executive]

So it's Hakan from Agri-Industry. Thank you for your question, [ Kublai ] bey. If I may try answering your questions, start with, of course, agricultural production has been a, from the financial results point of view, disappointing sector for us. And of course, we are looking forward to size it, not necessarily reduce, but right size it so that it's not going to create further losses in our consolidated financials.

Talking about your question, since it's a new investment, the way we have financed the investment has been through credits. We have basically 2 big companies -- or 2 companies that are consolidated under our agricultural production. And they both have made investments. And the investments have been financed with credits. And of course, definitely, the recent hike in the interest rates has caused other financial expenses to increase beyond our thinking. If you look at the EBITDA of the production, agricultural production, it still is minus. But this time, instead of TRY 50 something, you are seeing TRY 20. This TRY 20 -- TRY minus 20 is still not acceptable by us. And there are definitely reasons that has caused this loss in our financials.

If I go through the reasons in a fast rate, there are 3 product lines, potato, wheat seeds and cherries. There are always excuses and we ought to accept that this has been an exceptional period that has been caused by the COVID. For the potato or seeds, the HoReCa sector, hotels, cafes and restaurants, have been closed as you know already about during the pandemic. And this has caused a shrinkage in the demand, which has then in return, has caused a stress in the price of potato or sea plant, we have to sell them below our cost.

For the wheat seed is an internal thing necessarily related with the global sector. But we founded convenience to revaluate our inventories, basically the wheat seeds that are from 2020 and partially from 2019, and we were a little bit concerned whether they will show us good seeds or not so we had to put a provision for the valuation of the inventory. This is, again, one thing that has caused this minus in the agricultural production.

And if I may talk about cherries, this year because of the extreme weather conditions, cherry exports out of Turkey has decreased. The official numbers has not been yet officially declared, but our understanding is in the range of 10% to 15%. [indiscernible] return being affected by this extreme weather conditions. This has been a factor that we have to recognize the loss in our fresh fruit segment. And not to forget, last year, we were able to export all our cherries to China and Southeast of large countries like Singapore and stuff. But this year, because of pandemic and because of the hygiene standards, China has not accepted any kilogram or any gram of cherries from Turkey. I hope this answers your question.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to the speaker. Thank you. Dear, speaker, back to you for the conclusion.

[Çaglar Gülveren, executive]

Thank you. And I would like to thank especially for [ Kublai ] bey for his questions and participation. And thank you all. I hope you all have a nice afternoon and weekend.

[Operator]

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