Dogus Otomotiv Servis ve Ticaret A.S. (DOAS) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to Dogus Otomotiv Second Quarter 2025 Conference Call on the 20th of August 2025. Please note that today's conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference call over to the company's CFO, Mr. Kerem Talih. Please go ahead, sir.

Thanks very much, David, for your introduction. With our greetings in the name of the Dogus Otomotiv to all the participants, we are happy to welcome you all to our Investor Relations presentation for the outputs of the second quarter of this year. Considering that the presentation has been revealed beforehand, I'm not going into the further details of some areas like sustainability or market information [Technical Difficulty] Turkish automotive market has already been revealed almost like more than 10 days or 2 weeks ago. And instead of this, I will give more time for the [Technical Difficulty] development that we're happy to announce. But as important as them or even more important than them in line with our strategic alliance with Volkswagen AG, knowing that last year, we have celebrated the 13th year of our distributorship as the sole representative of Volkswagen Group in Turkish market. In line with -- as an output of our continuous good relations with them, we also signed a letter of intent with the OEM in a way that Dogus Otomotiv is going to be appointed as the distributor in the markets of Republic Azerbaijan and the Republic of Iraq, respectively. This is an important and major development for us. And we are proceeding with detailed organization structural preparation, so on and so forth. And we will be informing our shareholders, respectively, when material developments arises. Coming to important takeaways. Our sales performance at the end of June this year is more than 10% better than the performance of the previous year, together with the sales performance of Skoda, and we have exceeded a sales volume of 93,000 units. Coming to sustainability, our risk score in Sustainalytics ESG score is better off as compared to previous year. And our risk score has diminished 2.5% to a level of 8.2 over 100. And for the first time, we took our place in the Financials Times Sustainability Good Emerging Index that we are doing our very best to be able to comply with the international standards in terms of sustainability and in the related fields. Coming to the financials. I will just skip this part because I'm going to go into further details in the financial parts. Coming to automotive market. As I have said, I will go very briefly over it knowing that the market performance has already been [indiscernible] respectively. But just as a glance of the performance of the July stand-alone performance, the size of the market has reached to a level of 107,000 units, which is the highest performance of this year. At this point, we must note that the rumors or -- I'm sorry, not the rumors but the plans of the fiscal authority to increase the special consumption tax for vehicles was already in the agenda, and it was waiting to be announced. So before the legislation has been activated, there was quite an increased demand to be able to buy the vehicles when they are relatively with the lower special consumption tax rates. In that respect, the performance of July was much beyond expectations. But at the end of June, as you can see, the market is still performing better than the previous year, 5% better than the previous year and to a level of 622,000 units, among which we have sold, together with Skoda, almost 90,000 units. And as you can see, as compared to previous year, our performance is better than the performance of the market itself. As have already noted the changes in the special consumption tax regime, as you know, almost [Audio Gap] has turned out to be 80% and mainly for EV cars, the special consumption tax has been increased from 10% to 25%, so there is a 15% increase. And also for internal combustion engines, there is an average increase of more than 10% to 15%, respectively. And when we just monitor the market, the average price of the related vehicles has, let's say, more than 10%, which also has an influence on the secondhand and used car market that there is an average price increase of 3% to 5% that I would like to note at this point. Also at this stage, as you can see, the performance of EV sales has reached a level of more than 85,000 units, which is definitely more than 3x of the previous year. So in the total market, the share of EV cars is 13% and for Dogus Otomotiv, it is around 5%, so in line with our strategy of the OEM that we are following the developments in the market. So in terms of market share allocation, we are ranked -- at the end of June, we are ranked at the second position with a market share of 14.6%. Coming to July performance, which is the type refer to going to the details since this is more up-to-date information. The retail market has reached to a level of 733,000 units, 6% better than the previous year, and we have exceeded or we have almost touched 105,000 units, among which the EV share in the total market is 14% and for Volkswagen Group, it is still 5%, respectively. Coming to next page. So coming to the breakdown on brand basis. As you all know, our leading volume brand is Volkswagen passenger cars and Skoda and Audi, respectively, which is followed by light commercial vehicles. As you can see, there are certain decreases in sales volumes. For Scania, it is stemming from vehicle availability; for light commercial vehicles, it is almost same as the previous year that we are going to close this gap. But for SEAT, as you can see, it is substitute with the increased sales volume of CUPRA, respectively. And in terms of market share allocation, again, at the end of July, we are still ranked as the second company in the market after Stellantis Group with a market share of 14.4%. Coming to financials. Our revenue, which was more than TRY 100 billion, has increased slightly to a level of 2% increase, to a level of TRY 105 billion at the end of second quarter. And our EBITDA and net profit are, respectively, lower than the previous year despite the fact that our working capital and total assets have increased more than 20% and 14%, respectively. The major determinants of this issue is stemming from 3 or 4 major points. Number one is the -- which is not only valid for Dogus Otomotiv, but which is also valid for the all Turkish automotive market, namely the normalization of gross profit. Just to refresh all the memories, the gross profit performance of year '23 and '24 was the highest years in terms of gross profitability. So in that respect, we should be aware of this information when we are comparing the performance of the previous year. So at this point, our gross profit margin is still better than the average of the historical performance of the company, but gross profit is definitely lower than the performance of the second quarter of this year or the whole year of year '24, respectively. The second influencing factor is the inflation accounting that I will come into the details of it in the following page, number 4. Now the third influencing factor is increasing in total financing costs, mainly which is driven by the foreign currency loss amounting to almost TRY 2 billion, which is stemming from the devaluation of Turkish lira, driven from the foreign currency-based borrowings. And fourthly, as I have already provided the related details at the end of first quarter are in line with our social charity contribution program. We have taken over the responsibility to construct 1,000 flats in the earthquake region in the Southeast part of Turkey in Hatay. So there is an incremental TRY 2.4 billion one-off effect of in the body of total administrative expenditures. So in this graph, we tried to consolidate all the variance factors that reconciles the profit of previous year at the end of June to the profit of June year '25. At the first column, as you can see, the historical profitability performance was TRY 5.2 billion, which was indexed because of inflation accounting and an additional TRY 1.8 billion is included and the historical comparative net profit figure has increased to a level of more than TRY 7 billion. So the decrease in gross profitability, that I will come in the next page relating to the information of profit percentages, but the normalization of gross profit has brought more than TRY 5 billion less income and the changes in operational expenditures is TRY 1.1 billion more than the previous year. But among this, as you can see in the bottom of the page, in the footnote, the influence of social cultural donations to Hatay region is TRY 2.4 billion. So if you just eliminate this, the total variance would [Audio Gap]. The other influencing factor which worked to our advantage is the income driven from our affiliated companies and business partnerships, which is more than TRY 1 billion. But as I have already explained, the change in the financing activities is at the level of TRY 2.3 billion, among which TRY 2 billion is stemming from foreign currency loss. And in line with the -- all the influencing factors, the change in the monetary gain and loss is -- to our favor is TRY 1.3 billion less than the previous year. There are 2 influencing factor among this. One is the lower inflation rate, which decreases the indexation coefficient; the second one is after the dividend payment and relatively less profit of the year, the index shareholders' equity is relatively lower than the performance of year '24. And as a result of this, the lower profit drives less taxation. So we are going to pay TRY 2.1 billion less taxation and at the end of the minus and positive effects of those factors, we end up with a net profit of TRY 2.7 billion at a consolidated level. Coming to margins. As you can see, and just to refresh the memory of some, by the way, we have reached a level of more than 40 participants and that may be newcomers. In that respect, I just would like to remind the information that the historical average of our company's gross profit margin is around 5% to 8%. And as I have said, the historical performance of 16% of year '24 was -- and in year '23, it was more than 20%, which was the perfect storm conditions within a period that there were lack of supply and enormous demand in the market, which was pent up. In that respect, knowing that there is a 5%, almost more than 5% decrease in gross profitability as compared to the second quarter performance of last year, but attaining a level of more than 10% and especially at a level of 13.2% is really a very successful result for our company, which is definitely much beyond the historical gross profitability margins. Coming to OpEx over sales. Our historical average, again, at this point, I must note the importance of inflation accounting because all the historical P&L figures are indexed by -- to be able to represent them with the purchasing power parity of June end 2025. In that respect, this is also increasing the OpEx over sales performances. So within the body of [indiscernible] year of '24 and also '25 we have the influence of this social cultural donations. In year '25, the balance is -- the magnitude is TRY 2.4 billion and last year, it was TRY 1.3 billion. When we eliminate these 2 factors, the OpEx over sales figure is 2-point-something level, which is definitely lower than the historical average of 5% of our company's history. Respectively, our margins are 7.7 percentage and 6.3 percentage. And after taxation, our net profit margin has ended at a level of 2.6%. Just to repeat those 4 influencing points is the normalization of gross profitability, increase in our foreign currency loss, increase in donation expenditures in the body of operational expenditures and also the influence of inflation accounting coming from indexation are the most important driven factors at this stage. In fact, after giving all the related information relating to margins and also major P&L components, at this point, I do not have much to note in the detail of our income statement, knowing that I have already explained to you the important influencing factors. And coming to the performance of our associates. There are also good developments here. As you can see, the performance of mainly VDF company has proven a TRY 1.3 billion development. The contribution, which used to be TRY 1 billion negative has turned out to be positive. And the almost 50% decrease is stemming from the effects of inflation accounting and also the deferred tax adjustments in the IFRS arena and other factors are, respectively, not material in the body of our consolidated scheme. Having a look at the balance sheet. As you can see, we have -- we are experiencing an expansion in our total working capital which is mainly stemming from -- I mean, the increase in the total balance sheet size is stemming from the increase in the total working capital development. As you can see, despite the fact that we have less cash as compared to the year-end, knowing that we have paid our dividends, the cash at the end of the year had been spent to be able to subsidize dividend payments. And our trade receivables are almost at the same level, but we have considerable amount of higher inventories. When you just consider the graph at the right side of the page, the number of inventories has increased almost -- I mean, doubled itself to a level of more than 15,000 to a level of 27,700 units. And the reason behind this is the normalization of sales, not only for Dogus Otomotiv, but for all Turkish automotive market, respectively, because as we have always trying to explain, a distributor company in such scale and magnitude should definitely be carrying a volume of inventories that will cover the sales performance of the forthcoming 2 months sales performance. In that respect, the turnover rates last year was quite high, which ended up with a lower inventory level. But having doubled it, it does not create any problem for that. And also in the body of our total balance sheet, as you can see, the total liabilities has increased to a level of more than 40%, which is driven from the need to finance working capital requirements and some proportionately to subsidize the dividend payments. Coming to the details of the financing costs. As you can see, the main driven factors are the foreign currency loss coming from foreign currency borrowings and also increase in the financial expense, namely the interest expense because at the consolidated level, the total borrowing of Dogus Otomotiv consolidated balance sheet, our total borrowings has increased from TRY 14 billion to TRY 22 billion that, as I have already said, which is in line with the expansion in the working capital requirements of our company. But also at this point, I must emphasize the fact that we are executing a very cautious financing and [Audio Gap] management. And from time to time, our level of liquidity may increase to a level that the liquidity may pay like 25% to 30% of our total debt. But in such a volatile market conditions, we are on the edge of being cautious and to be ready for hectic market developments. Coming to the financial performance at the last phase. As you can see, our turnover in receivables has decreased to -- I mean, from 31 to 27 days, which is a slight deviation. But the major deviation in inventory turnover from 36 to 81 days is in line with the normalization because there is more supply and less demand as compared to previous year. So last year, it was not easy to acquire a vehicle in a couple of months. In that respect, all the vehicles that had been imported was invoiced to the dealer and also used to be invoiced to the final customer in the retail area. And also, respectively, our payable turnover has increased to 61 days. But I can easily say that these are all expected outputs in line with our financial and operational performance. And at the end, our capital expenditures in terms of million Turkish lira is TRY 1.6 billion, which is almost the same, quite less than the previous year. And return on assets is 4% level lower than the previous year. There are 2 factors. I have already spoken about the developments in P&L. And coming to balance sheet, the size of the balance sheet has increased in line with the increase in the working capital; and respectively, return on assets. The decrease in the return on assets is an arithmetic output of what we have explained so far. Coming to sustainability and corporate governance. All those pages and affirmative information is the same as the end of first quarter. In that respect to be able to put more time for your probable questions, I just would like to skip to the final page relating to '25 expectations. So we have -- I mean, by considering the performance of the first half of year, we have updated our market size and our sales performance to a level of 130,000 units, which used to be around 110,000 units without Skoda. So when we add Skoda, it would definitely be more than 150,000 or 160,000 units, hopefully, and [Foreign Language], within a market, which is definitely expected to be at a level of 1.2 million units. And we will continue to do our investment expenditures either some digitalization, infrastructure and test cars and also we will be keen on making the related investments in the electric vehicle charging stations, respectively, in line with the expansion of our sales performance in such fields. So this is all from my side. So we are more than happy to answer your questions if you have any.

[Operator Instructions]

Or later you can contact us by phone or by e-mail, we are always ready to answer your questions.

Yes. We have one voice question from Cemal Demirtas from Ata Yatirim.

My question is on the outlook. We see some tax increases. How does it go so far in August? What are your perceptions about the consumer trends on your side? That's my first question. And going -- and could you give -- make any comment about the -- excluding TFRS 29 numbers, how could have -- how could it be in that case? And again, for the outlook, where do you think the margin, EBITDA margin will approach going forward as a sustainable levels? And maybe the last question is about the real estate sites. Could you make any additional comment on that? Because now there's a part in your numbers with that acquisition. Maybe if you could comment about that, too, it will be helpful.

You're welcome. Thank you very much, Cemal, for your questions. Coming to the -- I mean, as I've tried to explain the performance of July with the expectation that special consumption tax will definitely be increased, that we already had it, has just boosted the performance of July, so which definitely had driven some future demand to present day. But as of August, our sales performance at the -- almost at the mid of third week of August is totally in line with our budget. By the way, this budget has been made at the end of May or at the beginning of June. So at this point, the influence of special consumption tax has not been considered in a way that -- so in a good scenario basis, our sales performance within our budget has not been adversely affected. And knowing that the market has already reached to a level of more than 700,000 units at the end of July reaching to a level of 1.1 million, 1.2 million is -- can be named as a reasonable or easy target that we can achieve. Relating to the influence of inflation accounting, let me go to the reconciliation page. In fact, I mean, technically speaking, I do not -- I can say that it is not -- it may not be so healthy or in terms of competitive reporting standards would not be so correct to speak about a figure without the inflation of -- without the effect of inflation accounting. But when you just had a glance of the reconciliation page, TRY 1.8 billion is coming from the indexation of previous year. The historical figure was TRY 5.2 billion. And there is not only relating to inflation accounting, but onetime effect of this social cultural investment is so important and material for -- even for a company in the size of Dogus Otomotiv [Audio Gap] TRY 2.4 billion is coming from there. And also minimum TRY 1 billion is coming from the indexation of our operational expenditures. So when you just add those figures, it turns out to be minimum TRY 6 billion that, without the effect of inflation accounting, the end-of-year performance would be more than TRY 8 billion. Relating to the consolidated company, Dogus real estate company, I know -- I can say that there is no new news or specific things that I would like to note on that. They are continuing their operations. We are one of their major customers. And in line with some new real estate developments, we are planning to structure them in the body of our affiliated company. And sorry, what was your fourth question, I might have skipped that?

Sustainable EBITDA level going forward, Kerem, sustainable EBITDA levels in the new balance because in the -- historically, it was lower and then it went up and now where do you think it should be staying? When the things settled in terms of inflation? And what's the reasonable levels going forwards?

Yes. In terms of gross profitability, knowing that we are for the moment at the level of 13% to 14% at the consolidated level and knowing that without this onetime effect of these social cultural changes, our operational expenditures over sales is around 4%. So a figure of around 8% is a kind of normal EBITDA percentage for us, I can say, that we will be doing our best to be able to sustain this figure.