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

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Autohellas Conference Call to present and discuss the Full Year 2023 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. Eftichios Vassilakis, CEO. Mr. Vassilakis, you may now proceed.

Good afternoon, everybody. Welcome to our annual results call. Just to introduce everybody else here in attendance from our side, our Deputy CEO, Mr. Deligiannis, who joined us in September, our CFO, Mr. Dimitrakopoulou; and our Controller, Mr. Vitzilaios, who will be sharing effectively the discussion with you and with me. We're all here to give you our initial feedback and, of course, take your questions. Now we have published our results for almost, I believe, 3 weeks exactly today. Therefore, I think the market has had time to absorb them and some questions have already been asked by some of you. However, we'll give you a high-level overview and a feeling about the outlook going forward between myself and Mr. Vitzilaios, and then we'll take your questions. So in a nutshell, 2023 was an excellent year for us. We managed to replicate and even marginally improve the profitability of 2022, which was a record level for the company. So we produced another record for '23 relative to '22. And I think here, there's 2 things that should be highlighted. One is that the company has managed to double its revenue in 5 years from '18 to '23. So there is, I would say, a significant and relatively persistent growth rate despite what we all know has happened at different times in the market, especially around travel. And also, very significantly, many companies in our sector, our core sector being Rent-a-Car and leasing had record results in '22 because basically, either the short supply of vehicles in the market with the return of travel caused pricing to become quite high and attractive for rent the car and leasing companies and residual values, in particular, were also high at the same time because the supply of new cars were restricted. Those 2 together caused record results in many of our peers in 2022. But I think what makes our position quite notable is that in '23, we managed at least as a group to produce the same result as '22 and a little better despite the drop of pricing, but followed the gradual reconstitution of the supply of vehicles in the market, both in terms of rent-a-car pricing and in terms of residual car pricing. And at the same time, we were able to offset due to the increase of operating profitability, the significant increase in the cost of interest, which, of course, is due to the behavior of the [ LIBOR ] from the summer of '22 to the end of '23, which has been a dramatic increase of circa 400 basis points in the course of the last 2 years, most of which matured in 2023 in terms of its effect to us. So I think the growth that is significant over the last 5 years, including, of course, last year. And even more importantly, perhaps, a rather unique performance for our sector, managing to retain the high results of 2022 as a group into 2023 despite the interest cost, and that comes out of a very -- of a rather simple explanation from the point of view that we are a more balanced company. We think our 3 different, let's say, sectors of business, core, which is the Greek -- the rentals in Greece; automotive trade, which became part of our company in 2015 and increasingly carries more weight and more contribution to the overall results; and our international rental sector. These last 2 sectors have come to represent for the first time in this year, 50% of our overall profitability. And that, of course, gives us a somewhat better ability to balance the evolution of the different submarkets, which sometimes do not follow the same course. So naturally, at the same time, the growth of the company is creating a significantly higher organizational requirements, which we are gradually beginning to address in a more effective way. But clearly, that's a long road. Nevertheless, the direction that we've taken seems to be paying off. And I think, as I said, the comparison of our results, '23 to '22 versus other peers in the market shows that. Now just to mention a couple of numbers. We did reach an EBITDA level of EUR 272 million versus EUR 226 million the previous year. That's a 20% increase. EBIT went up by 16% from EUR 120 million to EUR 139.8 million and earnings before tax to EUR 104 million to EUR 106 million and earnings after tax from EUR 82 million to [ EUR 84.9 ]. So in effect, as I mentioned earlier, the increase of operating profitability was able -- just able to come and cover the additional interest costs caused by the interest rate environment. As you might recall, we were only circa 20% hedged in our financing as a result, we have borne the brunt of the interest rate increase. Indeed, our interest rate cost went from an absolute level of EUR 16 million in 2022 to EUR 34 million in 2023. And a lot of what we've been working to do in the last, essentially 6 months has been planning on how to address that, not only by, of course, waiting for the interest rates to go up again by taking several other actions, some of which have already been visible to the market and Zachos will refer to a little bit more shortly. In terms of dividend, we have already stated that we expect that we will propose to the general assembly that's coming up on 18th -- that's coming up on the 18th of April. The documentation for the general assembly actually has just been published today. So we will suggest a dividend of [ $0.70 ] per share to the general assembly. That will mean an increase from [ $0.65 ] from the year before and that comes to about EUR 33.6 million of payout to our shareholders, which is a little bit lower than 50% payout ratio on the overall results of the group. So a growth in dividend payout, but still a relatively conservative dividend policy with a lower payout ratio than 50% and of course, once again, another year where Autohellas is consistent with both dividend payment and indeed dividend growth. So I'll take a break over here. I'll hand over to Zachos to give you some more information about what we see around us as outlook, and then I'll come back and then in the end, make some additional problems -- some additional comments. Mr. Vitzilaios, please go ahead.

Thank you. I would like to welcome you -- to welcome you from my side as well and share with you some information about the outlook for this year. First of all, on the tourism sector, what we see is that the capacity in air seats in Greece is positive, about 8% to 9%. This increase relative to '23 is mostly higher in the early season than in the peak season. And this shows an effort to stress the seasonality, to improve the seasonality in Greece. Also, I would like to share with you that this increase is more focused in Athens and Saloniki compared to the regional airports. On top of that, what is supportive is the investments happening in facilities and hotels to support this demand because this improves the quality of the product and attracts the customers and this is a movement to the positive direction. On the car side, on the car market side, after a year with significant growth of 28% in car registrations in Greece, of course, this was due to the backlog of orders that were delivered to the customers. So the expectations for '24 is still for growth, but more modest something exactly between [ 5% to 10%. ] Now what's the effect on the rental business on the fleet purchases and this normalization of the supply chain that happened in '23, it looks that it can improve the discounts in the fleet sourcing in buying cars practically. But at the same time, we see the effect on the used car market, which is also normalizing in terms of pricing. This is normal. This was expected and we have to mention that the prices are still better than how they were before the COVID period. Now another thing that I would like to share with you are some of our Autohellas objectives for the year running. First of all, we have some objectives regarding our financing. As we all know, we experienced significant growth in interest rates in the past 2 years. So from the beginning of '24 we have taken some actions and the actions are still going on regarding the spread, but also our financing structure and the financial instruments that we use and these actions are expected to deliver in the second half of the year. For example, as you know, the successful issuance of the EUR 200 million bond loan was to this direction. Also on the used car side, we want, and we are investing to increase our capacity both in retail and wholesale of used cars and the objective is to improve apart from quantity also the quality of sales by injecting qualified people to this business and use the vulnerability of client locations that they have -- we already have in our assets and increase our total footprint in the used car market. And the third objective is customer and product oriented, further developing our synergies, our group synergies towards the car as a service, improve the IT systems, increase our emphasis on the customer, how we're going to do these things? We want to focus, and we're focusing on developing new products, create more digital processes, exploit new partnerships and cooperations for these new products. And this will accelerate product development, both in rent-a-car and in leasing and then add value for the customer by simplifying the use of our services.

Okay. Just to take a couple of the things that Zachos mentioned further. Indeed, on the financing side, the bond has been issued basically now between the bond and our natural and some additional hedges that we've executed, we are around about 50% hedged and 50% open on interest rates. We have also taken advantage of some trading around the swaps because as you know, there was a significant downturn on the curve of the interest rates towards the last 3 months of the year. We have exploited that, I would say, pretty well. So we have paid some -- also mitigate some gains from these transactions that will benefit 2025 by reducing our overall costs. And broadly by actually issuing our first bond successfully, we have reduced our reliance on banks and increased this also at the same time, the desire of banks to work with us. And this is basically causing us to have now several options about how to reduce financing costs from the point of view of spreads that as Zachos mentioned, keeping also, I would say, the right kind of instruments in play, such as securitization, which is the ideal instrument to finance the receivables of leasing. So having said that, for final second point was made about used cars. Indeed, we had several facilities that were not yet several pieces of land that will not be yet engaged effectively in used car sales. We are expanding our retail operation to cover them. We are increasing our -- the depth of our cooperation with different financial houses to have more ancillary revenues through the used car system. And at the same time, as Zachos mentioned also, we are investing in both people and systems to try to make the retail side more effective. While at the same time, working on improving technology in terms of how to deal with the wholesale side of the -- of the used car business. It's clear that used car retailing or wholesale is a critical capacity issue and quality issue in terms of determining real depreciation. And in terms of being able to support what has now become, again, a growing leasing fleet as well. Therefore, it is a significant priority for us. Zachos mentioned issues referring to product development, digital processes and also a broader efforts towards people development, training levels and HR practices. I think what's missing to say here is that since September when our -- Mr. Deligiannis has joined us as a Deputy CEO, we have managed to recover, I would say, the structure of the company that was missing since early '22, when Mr. [ Mangioros ], our previous General Manager was supporting us, retired. And I think we had a couple of difficult years trying to find solutions on our -- on how to support the structure and the succession within the company. I think finally, we're in a good path. And that's why I think that the objectives that we have set for the year in terms of the product process HR or other issues are now going to come to live at a rather more accelerated and more effective space than we had in the 2 years. So I do believe that by the end of the year, the company is going to start looking significantly different. And by the end of 2025, I think those changes will be visible to all our customers in a very significant way as well. Now going back to summing up how we consider the outlook, tourism, as Zachos says, still looks strong in terms of development works we supported by airline capacity and hotel development in the country. Pre-bookings from the market overall seem to be quite strong, still developing quite significantly from further away markets, particularly U.S., but also to an increase in trend Asia and to some degree, Latin America. So that's good. On the other hand, of course, we expect the supply of cars to be even higher to the market, which means that there will be additional competition. So again, we will have a scenario or a situation where we do expect higher rentals, but we also expect a lower rate for at least the nonpeak part of the season of the year. So again, it's going to be a race between increasing rentals and through rentals utilization and RPU revenue per unit, which is what is basically our main revenue count per unit. And through that offsetting any early or later price pressures and at the same time, consistently addressing the more aggressive growth of the leasing fleet that we've been trying to achieve in the last few years but was invading us to be honest, until basically the last quarter or the last 2 quarters of 2023. So we have now a convincingly positive path in terms of fleet development on the leasing side as well. And on the car market side, we have to say that the market is becoming also more dynamic. There's more brands coming into the market, into Europe. Electrification is proceeding not at the pace initially thought, but definitely proceeding. We've got Chinese imports and companies coming into the market as well. They will not have a significant impact for the next year or 2. But on the longer term, we do expect them to have a more significant impact. And our group is also, of course, seeking to expand its portfolio through new partnerships that we hope we will be able to achieve before the end of the year in order to also further expand our own portfolio of brands for import or retail. So in a nutshell, that's where we are. I'd like to stop here and take your questions. And then again, thanking you for being in the call. Thank you.

[Operator Instructions] The first question is from the line of Bursa Leandro with Euro Securities.

Quick question on the top line. Just to clarify, you mentioned that the tourism growth is about 8% to 9%. This should be an assumption. Is it safe to assume that this would be a volume growth for modeling purposes for the rental car business, but somewhat less in terms of revenue given the competition? Did I get that correctly? This is the first question. And the second question is regarding the reorganization that you mentioned. And it would be feasible in 2025. This should translate into better margin I assume in -- in what sense you could see something more visible in that...

I will -- Sorry for that. Okay. so, let me answer the first 2, so I don't forget but you can ask...

Of course, of course, yes.

So first of all, as I said, there will be pricing pressures again in the market because the supply is higher in the point of view of rent a car from -- on the side of rent a car. I expect the rentals to grow more significantly the arrivals because simply when prices fall a higher percentage of the incoming tourists rent cars, classic elasticity situation. During the year where the prices were at the highest level, that's when the lowest penetration -- the lowest translation of every 1,000 tourist becomes a rental. So as prices go a little bit down or significantly down, this actually allows you to rent significantly more cars and so you have a better multiplying effect than the increase of arrivals. Now what happens to the overall revenue is -- well, it depends on what actually happens to the price. So if the arrivals are 8%, then probably one should seek a higher rental increase than 8% because with lower pricing, there's going to be positive elasticity. And what happens to the revenue? Well, that will depend on where exactly the price falls. But I think it's going to be, yes, a couple of points left or right from the arrivals. Now that's -- now for us, in order to -- for that to be positive in the contribution of results, that means that we have to get it not with additional fleet but with additional utilization of the existing fleet. So what's going to determine finally how this plays out in our results is basically on whether this can be achieved with the same fleet with high utilization per vehicle or with an increased fleet, which, of course, has increased cost and then it's very difficult at that level of revenue expansion and rentals expansion to get with lower pricing at equal or better results. So sorry for not being entirely specific on that, but I just have to give you all the parameters. Now second, you asked about reorganization. First of all, reorganization sounds like something you do after bankruptcy. We are clearly not at that level. That's why I had the [ little laugh ] before. What I meant to say is we needed to replace somebody that had been in the business for 30 years by another person coming from another sector. Mr. Deligiannis comes from -- basically he was in Amazon, 11 or 12 years now before us, and he was working on various parts of the broader consumer retail sector and logistics and logistics positions or commercial positions in Greece before Amazon for another 20 years. So he's adjusting to our sector and to our company. He is gradually taking over different parts of the business. Eventually, most of the departments on the rental business and the leasing business domestically and internationally will be under him. And also, at the same time, the group functions like HR, IT, et cetera, will be under him even for the automotive trade part of the business. So that's a gradual process. And also, of course, the sort of reenergizing of how quickly we make changes and improvements in our business is also a gradual process. And when I said these will be visible to our customers gradually from the end of this year and more so after the end of '25, it only refers to the fact that when you're talking about organizational changes or IT changes, typically, they take time for the processes of the systems to mature. So we now have a much clearer plan, a much more aggressive plan much more investment in those areas, be it in people or systems, but it will take time. Some things will be visible by the end of the year, some by the end of next year. Now you said about margins. Well, margins, I wish that margins were dependent on technology or any kind of process. Margins eventually are about the balance in demand and supply in each industry. I think what can be said clearly is that if we are able to develop products that increase our revenues and increase the employment of our fleet and the synergies between our companies and at the same time, reduce -- what's the right word? the -- improve the time and the efficiency and the digital experience of our customers when they use our products, then we should be rising a positive trend. And then things, I think, will work more to our favor than against us. If we are not able to do that, then we will back track. That's the challenge. How that will translate to margins, I don't know, it's a combination of overall revenue and bottom line profitability. It's going to take you a couple of years to find out.

And of course, I'm meant reorganization in a positive sense. One very quick question as well on the interest expenses. Is it fair to assume that this EUR 34 million that you had in 2023 was the big given all these changes you have made?

Yes. I think EUR 34 million was the net finance cost for '23. Basically, what I can tell you is that we went from a 2.5% effective interest rate to the group, including spread in the beginning of '22 to basically 5.6%, 5.7% effective interest rate for the group by July or August of 2023. So that's a huge delta that's a 300-point delta. Now we believe that we will be below round about 4.5% again from H2 of this year, regardless of any further interest rate drops from today. So if interest rates stay what they are today, with what we've done with the bond, with what we've done with spread renegotiation with repricing of certain agreements. We will gain about 1% from June and on without the interest rates moving any further. If they move down, then 50% of our -- the unhedged portion of our exposure will also benefit before that -- beyond that, I'm sorry.

[Operator Instructions] The next question comes from the line of Svyriadi Natalia with Eurobank Equities.

It was a very good set of results, I would say. I just wanted to clarify a bit on your fleet plans. I understood -- if I understood correctly, you're basically moving more into lease more long-term leasing raising the fleet in the long-term leasing but keeping it the same in the rent a car? Or did I -- at the same time, boosting your used car sales? I'm trying to understand the balance of how this moves?

Yes. Broadly speaking, I mean, yes, short answer to that is yes. But the reason I need to repeat the reason. Remember that '21, '22 and parts of '23, we had restricted vehicle supply. We're not prioritize the rent a car fleet growth because that was a higher yielding usage of the cars with the reconstitution of supply, 2 different things happen. One, rent a car becomes less high-yielding because there's more cars and therefore, more competition. And so you can find more easily a car to rent and that drives down pricing. And so that gives us a very good -- and at the same time, the availability of cars gives us the ability to reincrease the leasing fleet, which has a lower profitability, but the more steady -- but a more steady business. And I'd say guaranteed around the year revenue regardless of what happens in tourism. So yes, this year, we expect to be buying around about the same amount of cars that last year overall as an investment, but there will be a higher mix going into the leasing business. So we expect revenue to expiration, contracts available to be securitized to reach higher numbers. Yes, of course, growing the leasing fleet implies that you do have to grow your used car sales capacity because eventually, the cars will expire. And therefore, that's 1 of the important things we're doing. By doing more retail also, we support our margins and also we get more independence when the market gets heavier with a higher number of used cars. And in terms of the rent a car fleet, yes, we will replace part of it, but we don't intend to grow it, at least not in Greece, which is the major market. Our focus would be to try to get more utilization on more rental based out of each car that we have in the rent a car fleet, probably with lower pricing and try to increase the revenue per unit that we have through more transactions. So in a nutshell, the initial perception was correct. What you related as the question. And I hope that what I've given you just -- that puts some more color to that.

[Operator Instructions] 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 call. It was a great year, and we, of course, create another base for us to compare ourselves in the future. I think we've explained to you that there are positives and negatives against going forward. I think we've given you a decent description of the outlook going forward. We don't tend to make as you know, definitive predictions or commitments, but we try to give you all the information we come in terms of what the market is like and what we are doing in terms to improve in the direction to improve our situation. So thanking you for being -- thank you for being in the meeting. We have our general assembly in about, as I said, 20 days. And we hope, again, for a positive strong year this year. Goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Have a pleasant evening.