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

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Dogus Otomotiv Q1 2025 Conference Call on the 13th of May 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.

Thank you very much, Michael. Greetings from Dogus Otomotiv investor relations department. I have my colleagues here who will be putting their support through the presentation. So we are welcoming you all to the first quarter performance outlook of year '25. The content during the presentation, the ones that have already had opportunity to go through it knowing that it has been revealed beforehand, we have made some -- not some, made considerable changes in the body of our presentation, both in terms of visualization and also in terms of value of output. I hope this would be contributing for your better understanding of our performance. Here is the content in the page that you can see. And starting from -- with a glance, let me say, we are continuing our operations with 16 international brands and 17 product groups. Dogus Otomotiv still owns the most widespread customer touch points around Turkey, which is almost 750 units, within which more than 2,000 employees are serving to our customers. The VW Group's total vehicle park in Turkey has reached to a level of 2.5 million units. And when we are also considering the customer portfolio, it has almost reached to a level of 10.5 million units. This year, the performance of first quarter that I can say, as it has been the case in the previous 2 years, is kind of providing positive outputs beyond expectations, not only for the performance of Dogus Otomotiv, but also valid for the performance of total Turkish automotive market, I can say. As a glance to what is new, knowing that the related public disclosure references has been made in the disclosure platform and the capital increase of our subsidiary, Dogus Teknoloji, has been made. And we have, in the body of our new business segment, in Marine business, we have signed a letter of intent with the well-known Rivera brand, and our meetings and discussions for the positive sake of representation of this brand in Turkey is still in progress that we believe will provide positive outputs. And finally, we have performed our general assembly meeting in March, and the authority to determine the date of the dividend payment has been granted to the Board of Directors. And today, recently, we have informed our shareholders in a way that the remaining portion of the dividend, the advance of which had been made last year amounting to TRY 2 billion, additional TRY 6 billion will be paid to our shareholders next week, and the related public disclosure has been made recently like a couple of hours ago. When we consider the performance or the performance takeaways, at the end of the first quarter, our sales performance has almost reached to a level of 39,000 units, which is almost the same as the performance of the previous year. As you know, not only the financial KPIs, but also operational and governance KPIs are also very important for us. In that respect, we are still keeping the highest score in terms of corporate governance rating in Turkey that we have also made a slight increase, and we are ranked in the second position together with Pegasus, and the #1 position is, as it used to be in the previous year, is kept by Garanti Bankasi. We are the dividend yield champion in Istanbul Stock Exchange. I will come to the details of the financial highlights. And there is a considerable decrease in our net profitability. I will explain you why. But under expanding market conditions, we are very keen on continuing our capital expenditures and utilizing the financial debt as a financing instrument to finance our working capital needs as well as capital expenditures. Having a quick look to the performance of the automotive market, this is the performance of March in the page, as you can see, that the financial statements are the reflections of this performance. At the end of -- but just afterwards, I will also talk about the performance of April very briefly. As you can see, the performance of the market at the end of '25 is 7% lower than the previous year, which approximates again to a volume of 300,000 units. Passenger car segment and light commercial and heavy commercial market has just gone parallel in line with the market. But in the premium segment and EV car sales, there is quite an expansion in the market. Considering the performance of Dogus Otomotiv, as you can see, we have almost sold the same volume of cars. And as you can see in the passenger vehicle segment, our performance is considerably below the performance of the market. And -- but in light commercial vehicle segment, because of vehicle availability relating to the manufacturing strategy and plans of the OEM, which is mainly a case which is only valid for the first quarter, our expansion is quite below the performance of the market. In premium segment that we are serving in Audi, Lamborghini and Bentley, we have sold almost 5,000 units. And in the downsize in the heavy commercial market is to our favor, that in our Scania brand, even the market has downsized 25%, our decrease in sales volume is only 11%. In terms of competition breakdown, as you can see, in total, our market share is 13.3% following Stellantis Group. From this point, I'm going to skip to the performance of April, knowing that this is more up-to-date information. I presume that you will be more interested to it, that the performance of the April has broken a historical record among all years. And this 391,000 units is historically the highest first 4 months performance in Turkey, in the Turkish automotive markets. And as you can see, we are proud to be able to present that our performance as compared to the previous year's January to April performance is almost 10%, which has increased to a level of 53,000 units. And as you can see, the performance of passenger car and EV sales, and also in terms of heavy commercial vehicles, is definitely much better than the performance of the market. When we consider the brand basis allocation, as you can see, Volkswagen passenger cars and Skoda, and respectively, in terms of units sold, Audi is the leading brand among our brand portfolio. And in terms of total sales, we have increased our performance to a level of 57,000 units in year '25, which is 20% -- 12% better than the previous year. At the competition page in terms of market share, for the very first time, which is valid for previous year and also this year, in passenger car segment, we have reached to the highest market share to a level of almost 15%. And in total, in the light vehicle segment, we are just following Stellantis with a market share of 14.8%. So coming to the financial performance. After a small coffee break, coming to financial performance, there has been considerable variances. As you can see, the turnover in terms of million Turkish lira figures is more than 10% lower than the previous year, which has been realized at a level of TRY 42 billion. So the turnover is TRY 5 billion less than the previous year. EBITDA, in line with the decrease in gross profitability, which is a reflection of the normalization in the total market, not only valid for Dogus Otomotiv, and in line with the increase in operational expenditures, which constitutes a onetime effect of social responsibility projects additional costs, has decreased almost 50%. And respectively, after the financing expenditures and taxation, which also covers the adverse effects of inflation accounting as well, our net profit after tax has been realized to a level of TRY 570 million. Within that, we have kept our total balance sheet size almost flat around the level of TRY 105 billion. And as you can see, our working capital is also stable. But we are still keen on making the related capital expenditures, which are mainly in the body of digital infrastructure expenditures, hardware and software, test cars and also some infrastructural investments in the body of making the new Scania facility in our Sekerpinar campus that we are planning to complete in the following 2 months of the year. This page that I think you will be able to remember that we have injected in the body of our total presentation to be able to provide a better understanding of the influence of the inflation accounting together with the various factors. So starting from left to right, the numerical historical performance of the first quarter of last year was, in fact, TRY 2.9 billion. Out of inflation accounting indexation, it has been brought up to a level of TRY 4.1 billion. An additional TRY 1.1 billion is driven from the indexation of inflation coefficient. As I have noted in the previous page, the decrease in our gross profitability to a level of 1.6% and also decrease in the total revenue has changed a variance in gross profit to a level of TRY 1.6 billion. The variance in the next column relating to operational expenditures to a level of TRY 1.5 billion is mainly driven from the sociocultural donations that has been made -- that has been started to be made last year. And also with the approval of our general assembly, with the approval of our shareholders, we -- Dogus Otomotiv will continue to be the donator, let me say, like this, of the second phase of the Hatay earthquake zone. And in total, more than 2,000 flats will be there and will be donated to the people who are living in this region and also adversely affected by the unfortunate earthquake in February 2023. In that respect, when we just consider the influence of changing operational expenditures without this onetime effect, normally, our operational expenditures are, in nominal terms, lower than the previous year. Income from investing activities are slightly lower coming from the elimination of FX protected deposits. The income from affiliates and business partners are relatively lower, that I will come in the previous page. And our financing cost in total, together with FX loss, is TRY 426 million higher than the previous year. But despite all those negative factors, we are generating less monetary loss, less taxation income, which brought us to a level of TRY 570 million net profit, respectively. As I noted in the next page, you can see that the gross profit is 1.6% lower than the previous year at the end of first quarter. At this phase, I must say that this is totally a natural output of the developments in the Turkish automotive market, and the performance that -- knowing the performance of April, normally it is beyond our expectations. At this point, I must frankly note that the budgeted figures of gross profitability was definitely quite lower than the actual performance that we have already attained. The operational expenditures ratio to sales is, this year, considerably higher. But when we just eliminate the effects of the sociocultural donations, the figures would be 3.4% last year and 4.1% at the end of first quarter '25. So with this information, I can say that it is -- they are quite lower than our historical KPI of 5%, I must say. In line with the developments in the gross profit and OpEx over sales, our EBIT and EBITDA margins are naturally and arithmetically has decreased to a level of 8% and 6.6%, respectively. And together with the influence of inflation accounting with some additional monetary loss, and also increase in the financing cost, which is an output of the FX loss plus the increase in the Turkish lira-based working capital financing, our net profit margin has decreased to a level of 1.4%, respectively. In fact, those 2 -- the last 2 pages were explaining the general highlights of the net profit -- sorry, the P&L statement in that respect. At this stage, I do not have much to add to what I already explained. Coming to the performance of associates. Here, important information that I would like to tell you is relating to performance of mainly VDF Servis and Yüce Auto. As you would probably recall, VDF Servis, which constitutes vdf Filo, vdf Insurance, vdf Faktoring and vdf Consumer Finance, used to provide negative figures in the last almost 2 years, which was mainly stemming from the challenging pricing scheme in the used car market. And with the residual value provision, unfortunately, they were generating negative results. But in line with the relative normalization in the market, I can say, they have started to -- within their consolidation, of course, at the consolidated outlook of those 4 vdf companies, they are generating -- I mean, and also 50% of their performance is generating positive results in our consolidated financial statements. And Yüce Auto have also taken the related social responsibility project. And our of -- within the frame of second phase of this social responsibility earthquake project, they have also donated TRY 400 million. In that respect, this has caused them to book negative results at the end of first quarter. At this point, I must make a technical explanation in a way that this is totally a onetime effect. And the total cost of this construction project in the earthquake zone is booked immediately. And in the following quarter's performances, we will not be seeing any additional costs stemming from this sociocultural expenditures. Coming to the developments in the balance sheet. As you can see, almost the total size of the balance sheet is almost at the same level, which is 4% higher than the previous year to a level of TRY 105 billion, within which the number of inventories has increased to a level of 71,000 units, which is totally in line with our projects. Normally, a distributor in a size of the Turkish automotive market should be keeping minimum stock volume, which is sufficient to provide the forthcoming 2 months sales performance. And when you just consider the figures on a monthly basis, we are definitely selling more than 10,000 units, respectively. And the main infrastructure of the Dogus Otomotiv balance sheet is coming from working capital, namely cash, trade receivables and inventories, as you can see. And here in our -- there is only a slight increase in our financial liabilities, respectively. At this point, I must remind that the composition of financing liabilities not only covers the Dogus Otomotiv bank loans, but also covers the Dogus Gayrimenkul Yatirim Ortakligi as well, within which, we have also injected some additional financing to be able to finance our dividend payment, I must say. Coming to the details of the financing cost, as you can see, almost half of the financing cost is made up by foreign currency borrowings, FX losses in this devaluationary environment. And interest expense is 42% of the total financing costs. And as you can see, the commissions paid to letter of guarantees to Turkish banks and also the conforming banks is 36%. And also in line with the development in the liquidity performance, our total interest income from banks is around TRY 300 million, less than previous year, I must say. So coming to financial efficiency ratios, at this point, I must say that the inventory turnover -- the increase in the inventory turnover is also a one-time effect that, in April, it has been normalized and it is, for the moment, around 40 days. And respectively, the payable turnover has also decreased, I must say. And also coming to the performance of financials, the capital expenditures has increased to a level of almost TRY 800 million. As I have said, this covers infrastructure expenditures on digitalization, plus purchase of test cars, and also the construction expenditures that we are continuing in the [ construction ] by Dogus Otomotiv for our Scania brand. From here, I'm just moving to our sustainability strategy, and I will pass the word to my colleague, to Arda. He will just guide us through this heading briefly. Thank you, Arda.

Thank you, Kerem Bey. First of all, I wish you a great and pleasant day and greetings from the Investor Relations Department of Dogus Otomotiv. So since the presentation was shared with you yesterday, I will not go into every detail at this moment. But, however, I would like to underline the most considerable points regarding the ESG and corporate governance activities of Dogus Otomotiv. As an environmental step, we will be publishing our sustainability report in August, which complies with IFRS S1 and S2 standards. As you follow, IFRS S1 and S2 standards contain risks, climate risks and opportunities, and additionally, sustainability risks and opportunities. As a governance step, since the establishment of Borsa Istanbul Sustainability 25 Index, we have been listed on it. Additionally, we are in the third position among approximately 220 companies worldwide in the retail sector. And last of all, we are in the first position in the automotive sector in Turkey. According to the London Stock Exchange Group corporate governance ratings, at the end of March, we have reached a level of 84 points with an A grade, from 66 points in 2020. Keeping this success will be more than crucial and significant for Dogus Otomotiv. In terms of corporate governance compliance rating, at the end of 2024, we have been rewarded as the second company with the highest corporate governance rating score in Turkey. Additionally, it also means 13 years of consistently increasing remarkable performance. We have reached a level of 9.80, approximately, from 8.50 in 2012. Except for shareholders' rights, we have increased our performance in each category, such as public disclosures and transparency, stakeholders, and last of all, the Board of Directors. I will give the word to Mr. Kerem Talih for the guidance of 2025.

Thank you very much, Arda. And finally, in the last phase, I would like to talk about our expectations of year '25. And until the end of June, we will be updating our market forecast and also the financing and operational planning, respectively. So in the next meeting, we will be able to provide you with more precise information relating to our forecast for year '25. But at this phase, I can easily say that the total market performance under satisfactory conditions, of course, in such a volatile market and country like Turkey, will be more than 1 million units, hopefully, [Foreign Language]. And our sales performance is expected to increase to a level of more than 115,000 units. So this is all that we would like to explain. And also, maybe in a few sentences, I would also like to provide you with our strategy relating to electrification. Last year -- I mean, as of now, without Skoda, all of our brands in the passenger and light commercial vehicle segment have started to sell their EV models in Turkey. As you know, in the EV market, not only in Turkey, but in the global automotive market, there is intense competition of American, European, and Chinese brands, and we are definitely experiencing the reflection of those competitive market conditions in Turkey. For the moment, the EV cars have a definite taxation advantage. Their special consumption tax rates are from 10% to 60%, on average 40%, which is definitely almost more than half of the special consumption rate for the internal combustion engines. And within this year, we are also targeting to increase our EV sales to a level of more than 10,000 units. And also, maybe at this point, I will be able to provide more detailed information in the forthcoming meeting in a way that we will be providing the plug-in EV models of the VW brand, that we will have some volume targets, respectively. So thank you very much for listening to me. Then we can shift to the Q&A session if you have any questions. Thank you very much.

[Operator Instructions] Our first question is a web question. It's a voice question from Tuna Kocaoglu from Tera Yatirim. I think we will be reconnecting once again with Tuna in a second. Our next question comes from AK Yatirim, from Aytunç Uz.

I just want to be sure about donation expenses. You said there will be no further donation expenses recorded in the upcoming quarters of this year, right?

Yes, right. Maybe one clarification. There will be no donation for the Hatay earthquake zone, relating to this specific project. And the total size of our donations will be within the limits that have already been approved in the general assembly meeting that was made in March.

Okay. For the second question, I calculated a 2-week expansion year-over-year in your inventory days in the first quarter of '25. Should we expect inventory days to be higher in the upcoming quarters as well?

No. We are, for the moment, in overall, our working capital turnover, which is around like 6 to 7 days, is still performing quite well. So we are not expecting under current market conditions, under current macroeconomic conditions, with no change in the taxation policy, so on and so forth. We are expecting a flat performance on that.