Tofas Türk Otomobil Fabrikasi Anonim Sirketi (TOASO) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I'm Polina, your Chorus Call operator. Welcome, and thank you for joining the Tofas Türk Otomobil Fabrikasi Conference Call and Live Webcast to present to discuss the 9 months 2026 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Cengiz Eroldu, CEO; Mr. Ahmet Tasangil, CFO; and Mr. Mehmet Agyüz, CFA and Investor Relations Manager. Mr. Tasangil, you may now proceed.

Thank you. Good afternoon, and good morning, everyone. Thank you for joining our call. Shortly Mehmet Agyüz, our Head of Investor Relations, will take you through our results for the first 9 months of the year. Before that, I would like to share a few key highlights. In the first 9 months, our profit before tax margin was 4.1%, up 250 basis points year-on-year. In the third quarter, our margin was 6%. This improvement was driven mainly by 3 factors: better pricing, effective channel mix management and the better product mix. On the local market side, conditions remain challenging. However, we maintain our pricing discipline. Our aim is to optimize both profitability and market share in the domestic market. In the first 9 months, low priced vehicle demand declined by 13%. This was mainly due to a weaker passenger car market. On a positive note, we gained 4.5 points of market share in light commercial vehicles. This largely compensated for lower share in passenger cars. Turning to production. We produced 100,000 units in the first 9 months. That is 12% more than last year. Pege has been phased out even saw K0 production more than doubled and this drove our performance. Our exports increased strongly. Export volumes more than doubled compared to last year. Within this month, we will start shipments to North America. This will further support our K0 export volumes beyond this year. In October, we started distribution of the localized can families plant. We expect the first production ramp-up with a focus on the local market. It's the only local produce model in this segment, so it will further support our profitability. Finally, our new vehicle project is in its final stage. Preliminary spending is ongoing while we finalize the contract. We expect to sign the contract before the year-end. With that, I will hand over to Mehmet. After his presentation, we will be happy to take your questions. Thank you.

Thank you, Ahmet. Good afternoon and good morning, everybody. In the first 9 months, Turkish motor vehicle production reached close to 1 million units, which suggests around 6% decline compared to the prior year. During this period, Tofas production grew by 12% and reaching 200,000 units. And now Tofas constitutes slightly more than 10% of the industry output. In third quarter, specifically, the decline was mainly due to the phase out of our passenger car model -- again in terms of production mix, there has been a shift towards LTV and now it constitutes 22% of our production, almost doubling compared to the prior year. Moving on to domestic markets. In the first 9 months, the market retreated by around 13%, reaching to slightly above 800,000 units. This was mainly driven by the weakness on the passenger car side, which declined by 15%, reaching to 626,000 units. The decline on the LCV side was milder with a 5% contraction and the volumes reached 176,000 units. When we look on a quarterly basis, there has been a slight acceleration in the contraction of the market where we observed around 23% contraction in the third quarter for the overall demand. And this was bit between 25% and 12% contraction, respectively, for the passenger cut and the LCV demand. The main driver of this contraction after more than 3 years of historic high demand hide geopolitical tensions and macro volatility as well as the base effect in the second half of the year. The macro volatility has increased in September with the investment fund crisis and which starts to impact demand, and we observed in the October figures as well. In terms of market share, Tofas maintained its lead in the market with a market share of 25.2%. This suggests around 120 basis points year-over-year decline. When we look at the breakdown, we continue to perform quite strongly on the LCV market with a market share of 48.6%. This is around 450 basis points higher compared to the prior year. The strength was mainly driven by the Fiat brand with higher availability. And actually, this suggests a more normalized level going forward. On the passenger car side, our market share declined to 18.6%, which is around 340 basis points lower compared to the prior year. The weakness here stems mainly from the product transition in the Fiat brand as well as more pricing discipline, especially managing the fleet and the retail customers. Moving on to exports. Our exports continue to climb higher and starting continuing its normalization journey and grew by 110% reaching to 57,000 units in the first 9 months. Our exports mainly constitutes of LCV and RK shipments grew by 13% during the same period. On a monthly basis, you see the evolution of our exports, where we observed in the first half of the year, a higher growth, whereas there is a slowdown due to base effect and also supply-related constraints, which is results at the moment. In terms of end markets of our exports, France constitutes our biggest market with around 29% of our export shipments followed by Germany with 21% and Italy with 17%. In terms of our shipment volume breakdown, in total, we shipped 24% higher volumes at 260,000 units. When we look at the breakdown, Domestic volume -- wholesale volumes grew by 12%. And within that, imports grew by 4%. This was mainly due to inclusion of Stellantis consolidation -- full year consolidation in 2026. As a reminder, we closed the acquisition in May of 2025. From production, wholesale shipments declined by 34%. However, this is due to phase out of Egea production mid this year. On the other hand, LCV shipments in the local markets continue to gain traction, which grew by 38%. On the export side, volumes grew by 103% in the first 9 months. When we look at quarterly basis, this is more apples-to-apples and our total shipments declined by 25% to 72,000 units. On the export front, we continue to execute quite well with close to 90% growth whereas on the import side due to the weakness in the local market as well as our slight market share loss. Our shipments declined by 21%, whereas our shipments from production declined by 58%. And this is mainly due to phase out of Egea. And you could see our TV shipments from production increased by in the third quarter alone. This is a snapshot of our financial performance. And you could see on the left-hand side, 24% growth in our shipments translates into 19% growth in the revenue. Our EBITDA stood at TRY 7.6 billion, which is 14% higher compared to the prior year. Our main KPI, profit before tax surged by more than 200% and stands at TRY 12.1 billion. This is the snapshot of our P&L. And you could see in the third quarter, due to weak domestic market conditions, our revenue declined by almost 29%. However, this is not reflected to the other items due to our margin strength, where we observed a 41% growth in the gross profit and this translates into more than doubling of our profit before tax at TRY 4.8 billion due to slightly lower taxes compared to prior year, the growth in the net income was higher at 176%, reaching to TRY 4.3 billion. So essentially, almost 500 basis point increase in the gross margin translates into a slightly lower improvement on the PBT margin with a 6% level. On a 9-month basis, 90% growth in our revenues also translates into a much higher growth in the other items with 54% growth in the gross profit and with a 250 basis points improvement in the PBT margin, our PBT almost tripled in 9 months, reaching to TRY 12.1 billion. On balance sheet, we are -- despite the ongoing CapEx cycle, we continue to generate cash and compared to year-end, our cash and cash equivalents declined by TRY 7 billion at TRY 18.2 billion and considering our CapEx as well as the dividend this is quite a healthy level. And also on the net working capital side, we are managing at a similar level compared to the year-end. We spent around EUR 141 million in the first 9 months and more than half of that was due to our ongoing investment for the canine project, which we started production late last month. And the remainder was for the K0 with EUR 33 million due to homologation investments for the naphtha and the remaining amount is due to structures as well as our preliminary spending for the new projects. Moving on to outlook. Due to recent macro volatility in the market, we decided to take a more cautious approach and decided to reduce our domestic light vehicle market estimate from -- by around 50,000 units from the high end to 1.1 to 1.15 million units. And in parallel to the decline as well as the availability of some of the imported vehicles, we reduced our domestic retail sales by around 10% to 270,000 to 290,000 units. And due to supply-related cost, we slightly reduced our export shipments by 5,000 units to 70,000 to 80,000 units. As a result of this revision, we reduced our production volume by 10,000 units to 135,000 to 145,000 units. Our CapEx remains the same at EUR 250 million. Considering very robust PBT margin in the first 9 months. We are now increasing our PBT margin and removing the 3% so now we are expecting around 4% PBT margin for the full year. And we are maintaining our 2028 PBT margin target at 5% to 7% for now. This marks the end of our presentation, and we are happy to take questions. Operator?

[Operator Instructions] The first question is from the line of Yasin Sarihan with [ Yapi Credi Yatin ]

I have 2 questions. First, respect to the domestic volumes and the temporary shutdown in July and August in talent and no contribution from the K9 Bubble family. You incur operating margin both year-over-year and quarter-to-quarter. So -- and also we know that K9 ramp up this start in the fourth quarter of this year as K0 export -- so I'm trying to understand why you kept the 2020 EBIT margin target at 27, you already achieved a 5.6% EBITDA margin in the third quarter and the outlook for the fourth quarter looks similar. So I think something -- why are you so cautious about profitability over the coming year.

Thank you for the question. We have that we delivered a good result in this quarter. And we updated our guidance. But obviously, there's a positive risk on this one. But as you know, the fourth quarter is a crowded one, heavy on the volumes and the market is really volatile. So we would like to be on the cautious side. And only updated our guidance as circa 4%, but there is some positive upside, obviously, on it. Going forward, for the years to come, we will be updating our guidance next year on this one, but we are well on our target. So we hope to deliver much better results on this.

My second question was related to new projects. So you -- noted in need to post that create an aspect, we are launching -- in the coming week. So how should we read this for Tofas? Should we see this imported model as pods replacement in Türkiye? Or can we still expect a new model to be produced by Tofas to succeed Egea and also the timing?

So that's a new model, and that will also complement our Fiat -- portfolio and we are really positive on its performance, and we will be foreseeing to start -- off between this year as well.

The next question is from the line of Aytunç Uz with Ak Invest.

I have 4, and I would like to ask one by one. So I know the first question is I know you already cut your domestic guidance for 2026, on any recent macro amount. Should we also expect a weak domestic marketing first half 2027. Thank you.

I mean looking at the trend, as you know, starting from the second half of this year, the market is down. Actually, the market was really strong in the couple of years -- in the last couple of years. So it's normal that we have some softening. But we will see that it will go on, and this is also true for the first half of next year results. So definitely, the market will be softened in the months to come.