Autohellas S.A. (OTOEL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Autohellas conference call to present and discuss the full year 2022 financial results. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, CEO. Mr. Vassilakis, you may now proceed.

Yes. Good afternoon, everybody. Welcome to our call. It's actually been a while since we had a call for results. I believe it was sometime in 2020. So an altogether different environment. And we are very happy, of course, to be in a completely different circumstance right now. With me today, we have Antonia Dimitrakopoulou, our CFO; and our Controller, Zachos Vitzilaios, who is also responsible for Investor Relations. So Zachos will lead on with making the bulk of the presentation, and then I'll make some additional comments, and then we'll take some questions and then can discuss a little bit the outlook. So that's going to be the format of the discussion. Now just to say before I hand over to Zachos that obviously, 2022 has been an extremely positive year for us. Second year in the row where we increased, where we reached record revenues and record profits and most significantly, a year, again, where profitability is contributed in a positive way from all 3 pillars of our business, which shows that we're heading on the right way in building the different elements that will contribute to us having an overall positive results and building the synergy between the different elements of the business will contribute to make us stronger and more resilient. And what has shown to be in the last few years, a very volatile environment. So having said that, I will hand over to Zachos, so he gives you the specifics, and then I'll be back to make some additional comments. Thank you. Zachos?

Thank you. Ladies and gentlemen, and fellow analysts, I would like to welcome you too from my side to our annual analyst call. Hopefully I'm not [indiscernible] now on. In 2022, as already said, it was a record year, a second in a row, where we managed to record group revenue of EUR 765 million, which was 19% over last year turnover. And this performance delivered an operating profit of EUR 120 million, which was 4% increase compared to last year again. And the after tax result, it was EUR 82 million -- well, to be more precise, it was EUR 77 million after the minorities, which is an increase of 57%. Of course, the result of 2022 was driven by 2 things. Of course, the group performance, but also extraordinary market conditions that existed in '21 and continue in 2022. Having said that, I would like to start looking at the segments by saying that traveling in Greece practically restored and went up to the levels of 2019, while at the same time, car availability did not which happened due to the supply and same issues that we have seen. And within this environment, Autohellas -- because proactively, we have ordered cars for 2 years in a row for rent a car and we managed to increase in this environment of market share. The result also has been supported by the used car sales prices. And this price was -- this price increase was following the trend of the new car sales that also increased. Those 2 effects were material and led a result of Greece rental segment, the revenue, first of all, to EUR 250 million, which was 19% over last year. Going to the segment of Auto Trade. As we said, the supply chain had an indirect effect in used cars, but it also affects directly the Auto Trade segment, creating a backlog of orders. But at the same time, the margin of selling cars improved in this period. The total revenue reached EUR 472 million, which was 14% compared to last year. And if we compare the performance of Auto Trade Greece with the car registrations. We have witnessed that our market share was at the levels of 21%, but the market share in retail in particular has improved a lot to over 20%. Going to our third segment, which is the International activity through our subsidiaries in Balkan's and Cyprus. In this market, traveling has not -- has restored partially. I didn't catch up as Greece or as Portugal where we will operate in '23. But under these conditions, our main priority in those markets was to maintain our size, effectively use our fleet and have improved cost control. And these things we mark, we achieved those targets, those objectives. And as a result, revenue and profitability of this segment also improved. I have to say although that the 41% that we see in this business has an increase in revenue it's partially organic, about 10% to 15% is organic growth. The rest is from the acquisition of Portugal that contributed in revenue for the last quarter. But as you already said in other releases in profit side, the effect due to winter is immaterial. Another important part of this year performance is the cash flow side, where we have done some significant investments. In particular, we had 146 million of net CapEx, which we used for fleet replacement and expansion. But also apart from the operational part, there was also investing CapEx used for the acquisition of Portugal, approximately EUR 40 million, which completed in September. And -- so that complete and starting from October, we consolidate the subsidiary, yes. The total fleet as of today, as of December is over 53,000 cars. And the group employees are in peak season are more than 1,800. I have to also add that despite those investments that we mentioned just now, the group also distributed, let's say, regular traditional dividend of about EUR 22 million. But on top of that, there was also, as you already know, an extraordinary capital return of EUR 52 million that an outflow that took place in December. And we think all of these strategic movements, the total leverage ratios have come to the levels of 2019 about 1.5% net debt-to-equity ratio.

Okay. Thank you, Zachos. I think if I were to just go back and emphasize a few different things, clearly, Greece recovered better than any other European countries in terms of recovering travel to Greece and particularly air travel to Greece, which is what shapes the pace of our demand. Clearly, also, there was a shortage of cars. However, the shortage of cars in our country does not have the level of effect that we know to have in other countries where rent-a-car companies, switch their fleets in 12 or 18 months. The replacement ratio with special duration here in Greece is more like 3.5 to 4 years. As a result, the short of the vehicles was not as pronounced and the price effect was not as pronounced a visible in some other countries. So the material improvement that we've seen has been a combination of increased market share due to the fleet and network power that we have as well as a significant increase in the price but a lesser increase in price than we have seen in other markets around Europe because of the shortage because as I said, the decrease in the available feedback in Autohellas was not as profound. The important thing to note here is that these results were indeed achieved without any support from Portugal from the point of view of profitability, as Zachos pointed out, is only consolidated -- we only consolidated the last quarter, which brought some revenue with no profit. Portugal is going to be neutral or even loss-making in the fourth and first quarter of each year because it is an only rent-a-car company to now, until now, there is no leasing component as we have significantly here in Greece, where revenue is shared almost equally between leasing and revenue in the Greece rental part. And of course, in the Balkans and revenue from leasing side is greater than the rental car. So that's a different, in Portugal, we haven't developed that yet. Portugal, therefore, did not contribute any profit for the year. The investment, however, and the burden to the balance sheet was there. So Portugal no matter what happens in 2023 will be somewhat of a plus. Also, the year had another important development that we've talked about. We've heard about an announcement. We secured the distribution, the acquisition of the distribution entity of Stellantis Group is responsible for Fiat, Alfa Romeo and Jeep. This is a transaction that has been signed for, agreed with in the latter quarter of the year. However, it will actually occur in 1st of May. We gained approval from the competition authorities on the 18th of January of this year. And now we're working to the cutover of basically systems to take over the company, together with our partner from Israel, Samelet as of 1st of May of this year. So it's clear that there are additions to the revenue and to the potential of the company coming in, in play, work for in '22 to some degree, paid for in '22 that will come into play as of '23. Of course, each one of those additions have a different maturing profile in terms of when it will contribute to our profitability. But the important thing to note is that we're using the positive circumstance and the dynamics that have been created by our relative and absolute performance in the last 2 years to build on the overall capacity of the company on their overall footprint of the company and then the overall synergies of the company. So before I hand over to take questions. One more thing, of course, has been already stated that the dividend that will be proposed to the general assembly that will occur in April will be $0.65, up from $0.46 of last year. So that's $0.19 or circa 40% improvement in the dividend year-on-year, and we consider that increase to be significant, but also sustainable. We do not want to exhaust the capacity of the company to pay dividends because we want to keep a relatively stable and hopefully growing dividend policy as it is, I would say, very much of the trademark for Autohellas that was not -- that have never in essence seen paying dividends even in great years of great difficulty. And as I've said before, and I'll say that before I still have to take questions. Our performance this year has been excellent and definitely also partially driven by circumstance. But I'm even more proud of the fact that in 2020, when the whole world was in crisis and when Rent-a-Car companies, in particular, that are, of course, very much travel-related companies were a big crisis, including our master franchisor, Hertz Global, we were still able to produce even in 2020, a positive result. And this is what, in my mind, constitutes the foundation of what this company is -- it is primarily resilient and stable and then has the capacity to develop and achieve, I would say, outstanding results when the market allows. So I'll stop here to take questions, and then I will talk a little bit about this year's outlook to the degree, of course, it is visible to us today. So please go ahead and post your questions.

The first question is from the line of Svyriadi Natalia with Eurobank Equities.

I was wondering on Portugal, if you are aiming to develop also leases probably, I assume you've done -- in the RaC business, you're going to expand fleet also well, as time goes on. But are you going to go in the leases in the long-term rental business looking ahead, of course. And if you could say some things more on your CapEx plans for 2023 regarding the fleet, not only in Portugal also in Greece and international. And I have also one more question about the margin improvement we've been seeing. If this is coming unsustainable or is it coming only from -- part of it is coming from the factors that are the very good factors with the pricing and I think you said. I think you partly said that in Greece, it wasn't pricing and vehicle replacement ratio is lower. So I'm understanding that part of it is sustainable, but if you could say more about that.

Okay. With regard to Portugal and whether we will go into leasing there. This is something that we will need to decide over the next, I would say, 24 months. So we need to understand the market a lot more intimately than before taking that decision. It is clear that we want to expand the size of the company and the company will be funded in a superior way to the past in terms of capital availability. In fact, already, there's been an effectively a capital increase to the company right after we bought it. But having said that, we will not rush to make that decision because, of course, the market, the competitive conditions in Portugal in the leasing markets are different. As you know, both in Greece and in the Balkans, we were among the first companies to start the operating leasing business, which is not the case in Portugal where competitors in that segment are quite developed. So we look at all sectors of the market, the replacement business, which is much more developed in Portugal and Greece, monthly rentals, subscription-related, corporate rentals, leisure rentals and also the possibility of doing leasing. But one thing is for sure. If we do leasing in the next 24 months, if we start, it's going to be complementary, not a lead function as here in Greece. We are, I would say, far too late in terms of our entry in the market report to develop that because there is quite developed competition there. So it will be possibly in the future part of the business, but I would not expect it to change the balance of the business in the way that you see the business behaving Greece or in the Balkans. And I hope that's clear. In terms of CapEx, well CapEx depends on 3 things. Our decision on how to expand the Rent-a-Car fleet, the degree that we have a success in gaining additional orders from our customers in leasing. And of course, the availability vehicles in the market. And I would say I expect to have a higher trend in the gaining leasing orders this year than the year before. I expect to have more deliveries from the manufacturers, the importers or the manufacturers into Greece. So that's going to be positive for growing CapEx. But equally, because of the level of cars we have put into our fleet and Rent-a-Car in 2021 and 2022, which are basically 8,000 new vehicles into the Rent-a-Car fleet in '21 and '22. That part will be significantly lower because we already are at significantly higher levels, not only than our competition, but also on our own path. So there, we will be reducing the CapEx. So overall, I would expect it to be marginally higher with more vehicles coming out of leasing or for leasing and less vehicles invested for Rent-a-Car. Now this is the overall picture in Greece. I wouldn't expect big deltas in what you have seen in the current year in the Balkans or Portugal. And regards to the margin question, there are negatives and positives for margins in the side of the business, main negative for margin across the board on an EBT level is going to be the high section because, of course, we all know that interest rates are significantly higher now than they were last year and probably are expected to grow a little more before they stabilize. We have hedged around about 20%, 22% of our overall exposure effectively. We also have done some work with RFF and 2 banks, a national bank -- National Bank of Greece and Eurobank to secure significant lines for financing, electric and plug-in hybrids, BEVs and PHEVs through this line, which are cheaper, but the bulk of our purchases will still be affected by higher interest rates and then be the bulk of our fleet wheel. So that will be a negative pressure on the margin. If we consider EBT, obviously, below the highlines or above that on an operating margin has no effect. The margins continue -- will continue to be supported by positive results, significant profit on the disposal of cars, given we will consider -- we will continue to have a very conservative depreciation policy. And if anything, we expect our new car sales to grow this year as we are finally delivering cars to our leasing customers. We were expecting for a long time, so we're able to dispose of the older ones. So that number should be higher and the contribution from there should be higher. And on the other hand, for the question is how do things balance out for Greece between supply and demand on the car rental pricing, short-term car rental pricing. And then there, we expect the pressure to be moderately negative. Whether this word moderately will mean 3%, 4%, 5% or something more or something less, it is really too early to say because it will depend on the balance between demand and supply. From what we see from hotel bookings, from airline bookings, from airline seats and from we hear from hotel operators, we see very healthy booking patterns going into the summer in most cases, higher than the booking patterns of 2022. So we're not afraid that Greece will have less visitors is likely to have higher visitors, number of visitors, particularly in the first 6 months, but also in the second part of the year that we expect to have more of an increase in Athens, which was still below 2019 numbers, the major area of the 2019 numbers for '22. And overall, I would say, if I had to put it all together, I would, yes, expect a drop in the margin, which I hope will not be too significant to the pluses and minuses that we have mentioned. On the car distribution side, hopefully, we should have a higher number of invoices as we begin to gradually address the significant backlog that has been created in the past few years. But again, there, it's going to be hard to give exact numbers because from what we see, production recovery is also quite volatile. But no matter what, it is difficult not to imagine a higher level of unit sales on the car delivery side because part of the order bank will be depleted. So that's what I have for you, right now. Of course, 2, 3 months down the line, some things would be here.

The next question is from the line of [indiscernible] with Pantelakis Securities.

Congratulations for the very good results. I just wanted to ask what is trends that you've seen the secondary market for cars in terms of pricing? And what do you expect the outlook to be?

Yes. It's an interesting question because nobody knows the exact answer. There are clearly going to be, again, to offsetting effects to effect in different directions, but we'll see how they will balance. One is that the gradual increase of supply of new cars should be a gradual, should cause a mitigation of the increases of prices we have seen in the used car market, at least as a percentage of the price of the equivalent new car. On the other hand, we continue to see significant increases in 90% of the retail car prices of the brands imported into Greece. So practically everybody would be exception of Tesla as once or twice already increased their price catalogs in the last 3, 4 months. Therefore, that's going to still lead prices higher. What's going to balance things out, hard to tell. I believe one thing that is for sure is that the retailing of largely petrol, a smaller category, mostly Rent-a-Car related cars will remain quite strong. On the leasing car side, which is a more complex, let's say, equation with many more types. There will be some things that will be weaker and some things that will remain strong. One thing that would be supporting pricing and on the leasing side is the fact that gradually, diesels are becoming less available on the new car market. There's very fewer and fewer cars being made with diesel engines. So we expect that's going to have a positive retention effect on these cars. So overall, again, a few offsetting effects, if one were to take a bit, again, there will have to be somewhat of a negative bias, but I would not expect it to be significant overall this year. Always, of course, assuming we have normality in the operation of the economy and then the global surrounding normality by itself is an interesting definition in the last 3, 4 years.

Great. Can I have another 2 questions, please, as a follow-up. One regards your net debt and what sort of target do you have if you have a target of net debt to EBITDA or EBIT as we measure it. And the other question regards the Auto Trade business. I presume given that you have an infrastructure in place, there must be good operating leverage in this business, the more volume on the higher margins I presume. And if so, is the target margin that you can share with us I mean in margin improvement in terms of EBIT margin or the EBITDA margin model?

Let me be clear on a couple of things. First of all, clearly, what we want to maintain is we want to maintain a solid balance sheet with as good return for shareholders as is possible to achieve with an increasing leverage on our equity because our leverage on our equity is still very, very low for the kind of business that we are in. The leverage of competing businesses listed but are active on the Rent-a-Car side are typically between 2 and 2 to 4x debt to equity, and we are -- where you know, we are 1.5. And the leverage of leasing businesses is typically between 3 and 5 or 6x debt to equity. So there is significant space there. This is also augmented by the fact that around about 35% of our existing gross debt is in securitization by JPMorgan, which is basically a nonrecourse facility. This is the facility that's going to keep expanding and cover our needs for the leasing sector. So our nonrecourse securitized facility by definition means that it concerns and touches what it concerns and touches. Typically, in other entities, it is not even considered part of that due to its structure. So that's an even more space there. Now the question is, do we think that we will have enough demand to materially increase the leverage ratio of the company this year. The answer is, I would like to think so, but I don't think there will be such a big demand that will cause our leverage to significantly increase during the course of this year, unless there are other acquisition opportunities like we had last year.

Very, very clear. And in terms of the operating leverage of the Auto Trade business?

Well, yes, your statement is partially true. I mean when we -- when the market expands and we sell more of each brand, yes, that will be a plus. On the other hand, as Zachos said, it has been basically 1.5 years with very little discounting from wholesalers and retailers in the car industry exactly because customers have to wait for a long time for their cars. So you will have, again, 2 different effects. If the market normalizes, one would expect higher sales but might have lower per unit margins. Now fixed costs would not grow. And therefore, overall, what will come out in the end is not very clear, possibly some positive momentum on that, but it will depend on the degree that things grow. It's been a positive environment for the overall car trade. And you can see that in other countries as well, it's just that in Greece, of course. We are the only entity that has the size and let's say, vertical integration and is also lifted, so you say it's more of us. But for sure, the more of the car business grows, the more our overall margin on revenue dropped, right? Because the other margin from Rent-a-Car is significantly higher than the margin from wholesale. So whenever you see wholesaling increasing as a percent of total revenues, that's not positive for margin, but it's very positive for capital employment because the capital employment levels are lower. The asset turnover is significantly higher, and the operating leverage is also quite straightforward, as you said, whereas in the leasing business, it is less so.

The next question is from the line of Karanikas Vangelis with NBG Securities.

Just one quick question from my side, if I may. If you could provide some color regarding financials, top line or profitability figures historic for the business that you have acquired in Portugal or the one that you plan to -- you mentioned in your press release, but maybe your statement just before Stellantis subsidiary having as if you could provide some historic financial figures for these businesses that would be very useful.

For the Stellantis business, I'm afraid that the historic financials are not reduce because as a subsidiary of the manufacturer it essentially has a pre-agreed fixed kind of margin, which they manage as a wholly owned subsidiary. They don't care about what margin -- what the profit they declare in Greece, they care about how many cars they sell. So looking at the financials, I will not give you any important information, except about the level of sales, which creates the history of the market share of this brand. Now typically, the aggregate market share of what these brands have had increases between something between 6% and 8%, depending on the year. However, with a strong bias to fleet sales and a lower bias to retail sales, which is not a very good thing for margin. We will need to significantly increase both for the benefit of the network and for the benefit of the company, the mix between retail and fleet and that will take some time. What is significant for us there is aside from the 10,000, 11,000 cars or more that can be added in the overall sales, which translates in the revenue that will certainly be around EUR 160 million to EUR 200 million per year, which, of course, will be held through a JV. So it would not be entirely to our benefit. The other thing there that is important for us is that there are 2 elements that are being added that we don't have. One is a company with a very good share in the LCV, light commercial vehicle market where we have 0 share percentage. And there, they have a very good interesting range of products and successful one. Second is the brand of Jeep, which is a luxury brand, a premium brand and one which Stellantis Group is making a very significant investment in the next 2, 3 years from what we have seen. And we expect that brand to have a significant portfolio of both electric and conventional cars, primarily, of course, electric as things developed but also ice as well. So that's an important advantage as well. In terms of Portugal, Portugal between car sales and Rent-a-Car is about EUR 100 million a year. And in terms of profit last year, the profit for Portugal, which has not been incorporated was about, I believe, EUR 9 million pretax. In the ports in the -- yes, now this is the recent history of the company as of last year. Of course, as -- under what is it, investment funds and reports, previous performance is no guarantee for the future, but that's the reference that you want.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments. Thank you.

So once again, thank you for attending our conference. A couple of words about outlook. I referred to it a little bit later as well. Greece seems to be still in a positive trend in terms of incoming leisure demand. And so as well is the demand for Rent-a-Car services. We expect to have more competition from more supply from our competitors in the market than the year before, that is clear. And we will see how that will balance the degree of improvement. We expect more rentals, but probably somewhat lower pricing there. On the leasing side, we do expect some growth after a couple of years that we did not grow very significantly also because we prioritized the delivery of whatever vehicles were available to us more to the Rent-a-Car business. So we do expect some growth after a couple of years of small growth, a little bit of growth in that business. And in the automotive sector, we would expect to have a higher invoicing due to the gradual depletion of the order bank that has been built with the short supply here. So that's a positive side as well. Certainly, the big pressure on cost is going to come from financing. As is clear from everybody that has, of course, exposure. We're talking about the Euribor of circa 0 at the beginning of last year. Today, we're talking about circa 300 bps. This is a significant effect over the size of the debt and the capital that we employ. We are positive in what we are seeing until now in the development of our company this year. We consider last year as Zachos has already said, to be one affected by extraordinary circumstances should not be taken as granted. But this level of margin is sustainable in all segments of the business, particularly for Rent-a-Car. At the same time, we hope that different elements will be contributing to mitigate shortfalls here and there. What will come out in the end. Well, we'll have to wait and see. It's far too early to have a view on that. But as I said, our intention is to try to use growth to mitigate and possibly offset partially or fully whatever effects of extraordinary profitability were there in the year before. So that's our intention, that will be our efforts, and we are very positive for this year as well. If it is another record in profit or not or if it falls back a little bit or a lot from what it is before, it's still very early to tell. But for sure, for the return on equity side for the value to our shareholders as we've been building in the last 2 years and the portability of our dividends, we are quite confident that what we are offering in 2023, out of '22, we'll be able to offer also the year after that. So that should give you at least a level of comfort in terms of how we perceive our overall standing. And we really do believe that the synergies that we are building are important, and they will continue to be a competitive advantage in the future. So thank you very much for your attendance, and we hope to have another conference within the year. Whenever we have a clear picture of where things are going. Possibly, I would think, probably right after the summer when we announced our 9 months results, which are typically the ones that have most of the effects of the year. Naturally, Zachos is going to be available to all of you at different times, and we hope to be able to participate also in a few conferences so that we give -- we gradually build more understanding for our company, and so that you're able to do your jobs in terms of evaluating our performance and coming back with whatever forecast you want to develop. Thank you very much, and hope to talk to you again soon.