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

Ladies and gentlemen, thank you for standing by, and welcome to Dogus Otomotiv Q4 2024 Conference Call on the 3rd of March 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 this company's CFO, Mr. Kerem Talih. Please go ahead, sir.

Thank you very much for the introduction. Hi, all the participants. I would like to welcome you all to the year-end Investor Relations presentation of Dogus Otomotiv. We are -- together with my team, we are more than happy to welcome you all in our online meeting. As we have always been doing, we would like to start with an overall overview, let me say, of the performance of the previous year and also the year to come. As we were always mentioning through the quarterly presentations we have been making, year '24 was a quite busy year in terms of new launches and model presentations to the Turkish automotive market. We have already launched more than 25 new models or facelifts throughout the year successfully. And the year to come that we have -- within which we have already completed 2 months of it is already very busier, as you can see in the presentation. That in all of our brands, not only in terms of internal combustion engines, but also in terms of new EV models of our brands that we are representing in Turkey, in the name of -- in the body of Volkswagen Group, almost more than 25 new models or facelifts will also be presented throughout the year. So in that respect, in terms of marketing activities and sales campaigns and performances, it is going to be a very tough and busy year, I must say. So, before going to the market and financial information, just to note you relating to what's new, in line with the recent public announcements we have made. On Friday evening, we have announced that, following the dividend advance that we have made last year amounting to TRY 2.2 billion, an additional TRY 6 million is going to be distributed as dividends out of the profit of the previous year. The timing of this will be announced to public just following our general assembly meeting, which is going to take place at the 27th of March. Following this meeting, within 15 days, we will be disclosing it, respectively. And the second recent information is the distribution of MATE bikes, which is a fancy instrument of the wave that we are going through in the name of electrification. MATE is an EV bike that, of course, is not going to comprise material portion of our operational or financial length. But despite of it, we will be serving to the delight of Turkish customers. And finally, relating to D-Charge, which is a subsidiary of Dogus Otomotiv Group. We have -- this is the company that we are monitoring the strategy of EV stations for all brands, respectively, under one legal entity. We have increased its capital in line with its OpEx and CapEx requirements to TRY 100 million. So having a view of what has happened throughout the year, I'm very happy to be able to see that the -- I mean, comparatively as compared to the year -- performance of year '23, there are slight decreases in financial output. But as we have always been saying, the performance of year '23 was totally an, how to say, an interesting year in which the sector has -- broke through all the profitability targets. But now considering the performance of our stock exchange, we are happy to see that the performance of year '24, and especially as compared to the competitors, is really being granted by the Turkish or international investors. So our total sales performance is 8% more than the previous year, which has touched almost to 190,000 units together with our Skoda brand. And within that, from day to day we are seeing that the portion of electrical -- electric vehicle sales is increasing. Last year, we have sold almost 3,700 EV cars. And this year, we are targeting to increase this figure more than 10,000 units almost, is probably -- may touch to 15,000 units. And as a result of this performance, our total vehicle park has increased to almost 2.5 million without Skoda, in Turkey. I will come to the details of profitability by referencing to the outcomes of inflation accounting, so on and so forth. But we have added almost 50 new customer touch points. In all spreads around Turkey, our customer touch points are increased to 730 units. And we are sustaining this with sustainable capital expenditures, which is around TRY 4.5 billion. And 2 highlights as reference to financial liabilities to equity. We have decreased the ratio 4% to a level of 22%, which is nice for us. And also, we have increased our corporate governance compliance rating score and Dogus Otomotiv is ranked as the second highest corporate governance rating score in Turkey, just following Garanti Bank. To a reference or to a glance to the market performance, as you can see, Turkish automotive market has again -- has reached to a level of more than 1.2 million units, but our performance has been -- had been even more than the performance of the market and has reached to a level of 186,000 -- 187,000 units. And when we consider it in segment basis, the only exemption is the Premium segment relating to Audi brand that we had some supply challenges. But apart from that, the performance of our brands, the expansion as compared to previous year as you can see, is definitely much better than the performance of the market itself as you can see in the presentation. And in terms of market share allocation, in the Passenger Car segment, in this graph we have just made a certain update considering that the consolidation of Tofas and Stellantis Group has not been approved by the Competition Board yet. They are separately disclosed in this table. In that respect, in the Passenger Car segment, we are the leading brand group with a market share of 16.5%. In Light Commercial Vehicles, we are ranked at the fourth level with a share of 8.7%. And in total -- in the total of all segments, we are just following Stellantis Group with a market share of almost 50%. As you can see, we have increased our market share 1.2% as compared to the performance of the previous year. Considering that the presentation has been revealed beforehand, I'm just skipping some detailed pages. We can come back to them if you have any questions related to them. And when we just consider the performance of brand basis sales allocation, as you can see, the Volkswagen passenger cars with an amount of -- with a sales volume of more than 75,000 units and Skoda with a sales performance of more than 43,000 units, which is more than 20% and 5% above the previous year's performances, are the leading ones. At this point, I must also give the required applause to the performance of light commercial vehicles because in a market that the market is not performing so fair, our light commercial vehicle segment has increased its performance more than 25% that we are really very happy out of this performance. And in the remaining charts, you can see the performance of other brands. So what has happened at the end of the first month of the year? Of course, we are all -- together with the other participants in the market, we are expecting a kind of normalization in the market. That total market has downsized to a level of 15% and our performance is almost similar, and we have sold more than 9,500 vehicles at the end of January. And the market share allocation has not changed much as compared to the performance of the year-end. So coming to financial performance. As you can see, our -- I mean, having to talk about the performance, or the comparative performance of year '23 and '24 needs some additional explanation because, just to refresh our memories, year '24 -- '23, I'm sorry, was the year that the automotive market was kind of recovering itself in terms of avoidance of supply obstacles, chip shortages, so on and so forth. And in a period of -- in such an inflationary environment with the appetite of Turkish customers having utilized -- buying a car as an investment instrument has turned out to be a phase that -- a phase that this lack of supply has tried to recover itself, but the demand of the customers was boomed. In that respect, not only the sales performance, but also the performance of the total market was at the highest historical levels. After this explanation, I mean, in year '24, all the players in the market, not only Dogus Otomotiv, but all the players, we were expecting a normalization, both in terms of sales performance and also in terms of profitability not only in the sale of new cars but also in the performance of used cars as well. So our revenue has realized at a level of TRY 188 billion, which is 30% lower than the previous year. And by the effect of increase in the operational expenditures and decrease in gross profitability, I will come to it, our EBITDA is 54% lower than the previous year. And with the adverse effect of inflation accounting and other factors that will come in the reconciliation page, our net profit has been realized to a level of TRY 7.6 billion. Our capital expenditures are moderate to a level of TRY 5.5 billion, which is on average in line with the yearly performance. And the decrease in total assets and respectively in working capital is in line with the decrease in our total sales performance, I must say. So this is a chart -- as you may remember that we have started to add in our presentation, in order to be able to clear reconciliation in between the performance of the previous year and this year, just following the inflation accounting has been in practice. So on the left hand, TRY 19.7 billion is the nominal historical net profit at the consolidated level of Dogus Otomotiv at the end of last year. So at the top of it, 1.44 coefficient has been multiplied to be able to represent it by the purchasing power parity at the end of year '24. So an additional TRY 8.7 billion is added at the top of the historical performance, which brought the last year's performance to a level of TRY 28.5 billion. So respectively, the normalization in gross profitability and decrease in sales figures has decreased our total gross profit to a level of TRY 16.1 billion. By the way, those figures are the difference between '23 and '24. And there is a material amount change in the total operational expenditures to a level of TRY 6 billion. Among this, as you can see in the footnote, last year, we have started to donate in the earthquake zone of Turkey, which was an unfortunate event, which took place in year '23. And the donations in this region has reached to a level of TRY 2.4 billion. I'm Sorry, just going to recap the page. So I got a phone call. I'm sorry just for the 30 seconds break. And also, among this TRY 6 billion worth of change in operational expenditures, TRY 2.4 billion is coming mainly from the donations, which did not take place last year. And also almost TRY 2 billion of it is coming from the decrease in the value -- or decrease in the market value of the financial assets of Dogus Otomotiv, which is in the body of the dealership which is rented in Ankara and also the idle general management building in Kartal region of Istanbul. So then we just proceed. The other material deviation is change in contributions by affiliates, which is like TRY 6.5 billion that I will count the detail of it in the P&L section. And there is a plus or positive variance, which is around TRY 5.5 billion. The material component of it is -- more than 90% of it is the decrease in our FX loss, considering that the foreign currency volatility was much higher in '23 as compared to '24. In that respect, our foreign currency loss out of foreign currency borrowings is definitely much less than this year. And with the influence of monetary loss of almost TRY 2 billion, which is mainly stemming from the indexation of capital and the net tax effect together with the taxes to be paid and also together with the deferred taxes, we end up with a net profit of TRY 7.6 billion. Coming to margins. As you can see, the normalization in gross profitability is located at a level of 16%. By the way, this is the consolidation of new vehicle sales, used car sales and also spare parts profitability. But for the moment, not only for the whole evaluation of year '24, but also for the performance of year '25, I must say that in all -- in the sector, in line with the competition and with the abundance of supply of vehicles, the gross profitability normalization will continue. And when we consider the performance of OpEx over sales, it is 7.4%, which is relatively higher than the previous year. But at this point, this donation to the earthquake zone amounting to TRY 2.4 billion, when we eliminate this figure, it goes down to 6%. And the reason in the total increase in the operational expenditures is mainly stemming from marketing expenditures, which is a natural output of more than 25 new models and facelifts, respectively. And as an output of those variances, our EBITDA and EBIT margin has decreased to almost 10% to 8.6%, respectively. And after the financial expenditures and taxation, our net profit margin is located at a level of more than 4%. But when we just consider the historical performances, I must again repeat that the performance of year '24 is not a benchmark year. Even for the sake of gross profitability, year '24 was a year that our gross profitability has been realized much more or above what we were expecting and the normalization may take place also in the year as well. So coming to the performance of -- I mean, in fact, in those slides I have already explained to you the major components of the income statement. So in that respect, I'm not going into the details on the P&L one by one. But as I have already said, one important variance is stemming from the income from associates. And as you can see, the performance is decreasing from TRY 5.6 billion, unfortunately, to minus, almost TRY 900 million. And the major variance here is, as you can see, is coming from Yüce Oto, which is 85% lower than the previous year. This is also a result of gross profit normalization. And also, it was a period that they have sold more than 45,000 units. They were also making so much -- so many new models and marketing campaigns and launches throughout the year. And also, in vdf Service, the figure has turned to a material degree of negative, mainly stemming from the residual value provision of vdf FILO out of the remarketing income provision of the operational rental portfolio that they are carrying in their balance sheet. Coming to balance sheet. As you can see, the size of the balance sheet has only decreased 8% to a level of TRY 54 billion -- TRY 56 billion. And as you can see, we have decreased our total consolidated financial liabilities which covers the figures of Dogus Otomotiv and also the real estate company at the consolidated level. And we decreased our total borrowings to a level of TRY 12 billion. And in line with the decrease in the profitability of our equity accounted investees, their portion in the total consolidated balance sheet has decreased from TRY 12 billion to TRY 9.4 billion. Coming to financing costs. As I have tried to explain it briefly in the bridging page, there is a considerable amount of decrease, which is mainly stemming from the foreign exchange losses on borrowings. As we can see, our total FX loss out of borrowings has decreased 80%. And with the other figures also considering the liquidity that we are keeping in banks in terms of foreign currency has enabled us to acquire interest revenue to a level of TRY 2.2 billion. And as a result of it, we have considerably decreased our total financing costs successfully. The working capital, net cash position and turnovers are -- I don't have much to add in that detail because, as you can see, the variances are quite normal in line with the developments both in terms of [Technical Difficulty] and financial outcomes. Coming to sustainability. Arda, do we have anything to add here?

Yes, maybe we can add a few points. Thank you, Kerem Bey. Hello, everyone, and greetings from Investor Relations Department of Dogus Otomotiv. So I would like to summarize the facts and recent news about corporate sustainability and corporate governance performance of Dogus Otomotiv. In the environmental line, reporting in accordance with International Financial Reporting Standards will be crucial in 2025. That's why we will be publishing our integrated Sustainable Report in the end of August. And additionally, in the economic line, our company was ranked sixth company among more than 300 companies worldwide in the retail sector based on London Stock Exchange Group and Refinitiv evaluations. And additionally, again, our company was ranked first company in Turkey in the automotive sector based on London Stock Exchange evaluations. And according to decarbonization strategy of Dogus Otomotiv, decarbonization strategy has mainly 4 core parts as: carbon footprint; efficiency; global standards; and leadership. Regarding the carbon footprint, we aim to contribute to environmental sustainability by reducing the carbon footprint from operations. On efficiency, we aim to reduce our operational costs, such as transportation costs, by ensuring energy efficiency. On global standards, we aim to comply with international regulations and standards related to carbon emission reduction. And last of all, about leadership, we aim to be a role model company in the automotive industry, gain the trust of our stakeholders and enhancing -- and enhance our reputation. Since the details of decarbonization strategy was published within the scope of our presentation, I'm not going into the details. As Kerem Bey has emphasized, we have increased our corporate governance principles compliance rating score to the level of almost 9.80. We have done some developments on categories such as public disclosures and transparency, stakeholders and Board of Directors. Keeping the success in 2025 will be main priority of Dogus Otomotiv and its strategy. And last of all, since 2020, we have been increasing our corporate sustainability rating score. We have completed the year 2024 as 86.4 point and keeping this success will be very significant for Dogus Otomotiv as well. So for the guidance of 2025, I will give the word to Mr. Talih again. Thank you for listening in.

Thank you, Arda. As an expectations to the current year, I can say that the performance of first 2 months was -- in terms of our sales performance was quite beyond what we have expected, frankly speaking. At the end of February, we have almost, I can say, reached the performance of first quarter of the year in terms of sales. And also in terms of gross profitability, the outcome is luckily beyond what we have budgeted so far. And throughout the year, we are expecting that the total market size will not be less than 1 million units and out of which we are going to sell without Skoda 115,000 units. And together with Skoda, it is supposed to reach the level of almost 160,000 or 165,000 units. And we will be -- as we have always been doing so, we are -- we will be continuing our investment expenditures, both in terms of maintenance of the current assets and also digitalization in some sustainability and EV station charges, I can say. So this is the end of the presentation. We are more than too happy if you have any questions. Thank you.

[Operator Instructions]

I think there is a question from Marmara Capital, Mr. Haydar Acun.

Could you please talk about Chinese competition? I'm very interested to hear your comments about BYD's investments and how other Chinese producers also can create competitive threat to Dogus over the next 3 to 5 years?

Okay. It may be a bit early to be able to put some interpretation relating to the forecast of 3 to 5 years because it's quite new, as you would appreciate, that the sale of EVs has, let's say, to a material amount, which is, let's say, less than the 5% of the total market last year. And this year, it's going -- it's expected that the market share of EVs will be 10%. Of course, the competition which has been brought by Chinese brands that all of them are almost new for Turkish market, has definitely refreshed the market, I can say. But as representing -- the representative of Volkswagen Group in Turkey, we have already launched the EV models of all of our brands. For the moment, just to note, Dogus Otomotiv is the first company who has imported the first official EV car to Turkey, which was a Porsche Taycan model, like more than 5 years ago, which has been followed by the e-tron series of Audi. And recently, at the end of last year and mainly in this year, we have started to sell all EV models for our volume brand, namely Volkswagen passenger cars in the name of ID.3, 4 and respectively, the new 7 -- ID.7 models. For the moment, I can say the major reason why Turkish customers are appetiting, I can say, to buy an EV car is irrespective of from which country they had been manufactured or imported because their special consumption tax as compared to internal combustion engines is more than 50% lower, which has definitely created enormous price advantage. But we are also taking our parts, and we are also placing our pricing strategy in line with the conditions of this related competition. But in the mid and long run, not only the price level but also the vehicle after sales services, the infrastructural investments of those brands, of the new entrants will be more important in the eye of -- in the demand of Turkish customers, I must say. But definitely, it is very obvious that those -- their price just because of the lower taxation policy is definitely lower, and we will be taking advantage out of it, as Chinese brands are doing so.

And last question. I think TÜVTÜRK -- losing the TÜVTÜRK tender is not going to make much impact on your financials as far as I can see. Is that right?

Yes, that's right. At the end of the tender phase, which was made by the Privatization Association, the [ TURK ] company group, let me say, has bid the highest price for the forthcoming 20 years. But I mean, of course, this function in the body of Dogus Otomotiv [indiscernible] in terms of operationally and also financially is important, but which was not material both in terms of its share in the balance sheet and also in terms of profitability. And also, I must note that the current company, TÜVTÜRK, 33% of it belongs to Dogus Otomotiv. We'll continue their operations until August 27.

Okay. And just one more thing. I saw that vdf Service losses were like around TRY 2 billion. Was there a one-off thing in that one?

Yes. This is a provision that they have booked for their operational leasing portfolio. So there is -- the used car prices has also started -- they have already been normalized. And I can say that there is a slight phase of recovery in the used car prices in the market. So it is a one-off effect. So since it has -- the total portfolio's risk out of this remarketing income has already been booked in year '24, it will not continue in the years to come. But at the end, the overall secondhand market will determine whether there will be a need of additional provision or not, we will see in the forthcoming days. But we are not expecting so far for the moment, I must say.

We have a next question from Oguzhan Kaymak from Tacirler Investment.

Yes. I would like to learn more detail about your outlook for 2025. If possible, of course, could you share your estimated revenue in euro-based for the year? And do you anticipate an improvement in operational profit margins in 2025?

I cannot speak out a precise figure in terms of our profitability target for year '25. But in terms of gross profitability, the performance of first 2 months of the year was -- definitely was better off than what we have budgeted. And also our sales performance, let me say, like this, in the first 2 months, we saw the performance of first quarter as well. So if things goes like this in the remaining part of the year and if there is not any, let's say, the change in some policies, like special consumption taxes are the same, there is not a hike in the currency level so on and so forth, so [indiscernible] basis we can say that again, year '25 will be a successful year as that we would easily be able to compare with the performance of '24. That's all I can say at this stage.

[Operator Instructions] Okay. We have a question from [ Jamal Dimitris ] from Ata Yatirim.