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

Yes. Good afternoon, ladies and gentlemen, and welcome to Dogus Otomotiv's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note also that this call is being recorded. Following the presentation, there will be a question-and-answer session. I will now hand over to the Dogus Otomotiv team to begin the presentation.

Thank you very much, Tim. Thanks for starting the conference. I am Kerem Talih, the CFO of Dogus Otomotiv, and I'm here with my colleagues of Investor Relations and Financial Controlling. We are all welcoming you to the third quarter of the financial and operational results of Dogus Otomotiv that we have recently published yesterday, and we'll be providing you the preliminary details beneath this financial and operational performance. As I have always been doing so, I will be -- I will try to -- I will do my best to keep the presentation as brief and simple as possible, considering that it has been [Technical Difficulty] for you to be able to put your questions if you have any at the end of the presentation. So this time, we have just made an update in our flow of the presentation and would like to inform you relating to the new developments in Dogus Otomotiv Group, starting from the distributorship of trailers, namely Wielton. Wielton is a well-known trailer company. Maybe some of you might have recall that a couple of years ago, we have been the distributor of Krone branch for many years in Turkey. And afterwards, we have made a joint venture agreement with the company and set up a factory in Izmir region. But in the crisis times of 2018 and 2019, we have separated our growth -- we have separated our growth with them. And for the last 5 years to 6 years, we were not selling the complementary product of trailers as an additional product cycle to Scania brand. And we have signed a new agreement with Wielton. The letter of intent has been fine, and we are proceeding the rest of the process, and we are planning to start the sales process in the beginning of next year. And on a yearly basis, of course, it will be a kind of ramp-up period, but on a yearly basis, we will be selling 500 to 600 soft trailers as a complementary product to Scania trucks. The second -- the new development or the new news is the license from the Energy Market Regulation Authority to Dogus Sarj Sistemleri, namely the trademark is D-Charge here. As you know, we have -- we set up the company recently in the beginning of this year, which is a kind of new initiative in Dogus Group -- in Dogus Otomotiv Group that will, on a consolidated basis, will coordinate the electric control and manage the investment and maintenance -- and management phases of charging stations for electric vehicles. In one hand, we believe that this consolidated structure will definitely help us to not only to sell, but also to maintain the process of electrical vehicle sales of Volkswagen Group in Turkey. Just to inform you by some figures. For the moment, we have almost 300 charging stations. Next year, we are going to add up 400 more. And at the end of next year, we are going to reach to a level of 700 EV charging stations in Turkey. And the consolidated project of the company is in a ramping phase. Next year, it will also be creating profitable results in the consolidated financial framework of Dogus Otomotiv Group. And finally, as we have recently announced the dividend, in line with our dividend strategy by the help of Extraordinary General Assembly Meeting, which will be held at the 20th of November. We will be distributing an additional TRY 1.2 million (sic) [ TRY 1.2 billion ] dividend to our shareholders. And by the addition of this figure, the total dividend, which would have been paid will reach to a level of TRY 5.7 billion. So as a glance of the key takeaways, as you can see, the total sales performance of Volkswagen Group in Turkey together with Skoda has reached to a level of almost 126,000 units with an expansion of 7% (sic) [ 70% ]. And this sales performance has brought us to a historical highest level of net profitability, which is above TRY 15 billion. Among this figure, the strategic part of our associates is strictly important, as you can see in the presentation with an expansion to a level of almost 350%. This income level from associates has almost reached to a level of TRY 2.4 billion. And as a reflection of these financial and operational outcomes, our stock return on a yearly basis has reached to a level of 215% and earnings per share in terms of Turkish lira has expanded almost 160% and reached a level of almost TRY 72. And within that, we are still continuing -- we are not only performing our sales activities, but we are also performing our capital expenditures, which is still continuing, mainly consists of some infrastructural developments, IT infrastructure and also the new test cars, which are bought by Dogus Otomotiv itself. And not only we are -- we had -- we made a successful job in the sales of volume brands, but also in our big segments like Audi and Porsche, our sales performance has almost doubled itself. Knowing that the October market information has been revealed, I will just go very quickly in this part. At the end of September, the total market has reached to a level of [ 885% ]. As you can see, the expansion both in the market and also in the Dogus Otomotiv performance in the retail area is 63%. You can follow the segment basis details respectively. And within that, our volume brand is definitely, and as always, is Volkswagen passenger cars with a market share of 7.8%. And in the premium segment, Audi is again ranked as a third line with a share of 26%. And in our light commercial vehicle segment, we are just following the Stellantis, Ford and Renault Group with a market share of 6.4% respectively. Coming to the performance of the recent market information in October, I'm just going to the related page. Okay, as you can see, in our previous meetings, as you can recall, we were saying that we are expecting the total market size to reach to a level of 1 million. And at the end of October, as you can see, we have almost touched to a level of 1 million. So at the end of this information, we can easily say that the total source -- the total size of the market is going -- is almost going to reach to a level of 1.2 million units, among which our sales performance, which is almost 60% better than the previous year, has reached to a level of 133,000 units together with Skoda. And then we just consider the brand basis performance. As you can see, Volkswagen passenger cars is the leading one, almost reached to a level of 60,000 units, which is followed by Skoda and Audi with an expansion of more than 80% and 90% respectively. And in light commercial vehicles and sales, as you can see, the expansion is just following with the rates of more than 25%. And -- but more important than -- as important as those, as you can see, the performance in our -- both Porsche and Scania and CUPRA brands are really worth appreciation, and Scania is really performing so well. So at the end of the year, we are hoping to reach to a level of more than 2,500 units. And the new brand in Volkswagen family, CUPRA is also -- is -- started to be brought in the market and with a comprehensive sales performance more than 8,000 units respectively. So at the end of these sales figures, we are still keeping our third position among the competition with a market share of 13.7% that we are as -- I mean, this picture is almost the same for many years that we are just following the Stellantis Group and the Renault Group respectively. Coming to the financial area. This market and operational performance has just brought us to a revenue level of more than TRY 82 billion with a net profit of TRY 15.2 billion, which is the highest profit level in the history of Dogus Otomotiv. And while doing so, the total assets has reached to a level of TRY 46 billion, and the working capital has reached to a level of almost TRY 30 billion. As you can see, the expansion in the working capital and the assets are in line with the expansion of our increase in total revenue and also net profitability. Coming to margins. As we all know, and I'm totally aware that you also have questions in your mind relating to the sustainability of gross profitability, not only for Dogus Otomotiv but also for the whole Turkish automotive market. But at the end of the third quarter, we have proven that we are still keen on and successful to be able to maintain this profitability level, which is computed by the sales of our new cars plus spare parts and other activities to a level of more than 23%, which is definitely a very successful and sustainable level. Our OpEx over sales is historically at the lowest level in the history with the level of 2.5%, considering that the revenue has expanded too much and despite the adverse effects of inflation and revaluation on our operating activities, considering that our sales performance and total revenue also is expanding more than that. Our OpEx over sales ratio is also at a very low level at the end of third quarter. Our EBITDA and EBIT margins are more than 21%. And our net profit margin has also reached to a historical highest level of 18.5% in an area that we have almost sold -- almost touched sales performance of 100,000 units. This is excluding Skoda because this is fully consolidated -- I'm sorry, this is an equity pickup company, which is the sales units and sales revenue is not consolidated in our financial statements. There are talks in the market relating to the size of the automotive market and also the sustainability of margins, but knowing that we are at the 10th of November, I can say that in overall, our sales performance and also the gross profitability is also -- is tracked on a sustainable level. There has been a kind of normalization process that you can easily follow in the media and as per the explanations or [ situations ] of the players in the automotive market. There has been a kind of normalization process, which is a natural output of some actions taken by the regional authority and also the increase in the interest rates has led the [Technical Difficulty] to be more keen on some investment -- sorry, in some savings instruments more than buying a car. But I can definitely say that the current market conditions are totally normal market conditions. What has happened in the first 3 quarter itself was, as I was trying to explain in our previous meetings was not an issue or an output or in bracket a problem of supply, but it was a kind of uncontrolled demand issue. Normally, for the moment, I can say that the market conditions are somehow normalized in a quiet manner. For used car hand -- sales, we are all aware and seeing in the market that the prices have decreased almost to a level of 20%, which is normal considering that the availability of new cars are definitely flat in the market. But which at the moment, it does not create any inventory burden for us, but we are taking the related measures and actions as to a degree that the competition standards required. In this page, you can -- after this information related to the recent structure of the market, we can have a glance at the allocation of revenue and margins. In fact, as compared to the performance of previous year, at the end of third quarter, our revenue is mainly stemming from passenger car segment and -- to a level of 76%. And gross profitability is stemming from passenger segment to a level of 20 -- sorry, 67%. And gross profitability in terms of segment is 22% for passenger car segment, 26% for commercial segment and 32% in other segment. At this point, I must note that in other segment, our spare parts sales are an important component in the computation of this information. When we have a look at the quarterly performance of our P&L. Just a second, please. I just would like to turn off my website, I'm sorry for the inconvenience. Okay, now I am back. On a quarterly basis, as we had been generating TRY 5.1 billion net profit, which is stemming from a sales performance of 35,000 units, has now turned out to be performance of almost 38,000 units sales performance, which is 7% higher than the previous quarter with a revenue of almost -- not almost, but more than [ TRY 36 billion ]. And as you can see, the performance of gross profitability in an area that we have almost sold the same amount of cars, which is like 200 -- 2,500 more. We have kept the gross profit margin again almost to a level of 23%, within which the total operational expenditures has -- it seems to be doubled itself, but when you consider the one-off -- one-time effects like the income from the sale of our Bursa agency to a current dealer network when we eliminate the sales return out of this sales transaction, the total increase in operational expenditures are in line with the increase in the inflation. And here the income from associates are an important component of our P&L. And there is an expansion of 40%, and which has almost touched a level of more than TRY 900 million in the last quarter. And the variance that I would like to note is the income from investing activities, it seems to be decreasing from TRY 700 million to TRY 100 million. Again, the explanation is the -- when we eliminated sales income of our Bursa plant, the income from investing activities is only consists of the income from [indiscernible] transactions. And after the taxation effect, we have reached a level of one of the historical highest level of quarterly performance of TRY 6.2 billion. In fact, the previous page was comparing on a quarterly basis, so this is the yearly performance comparison. So in terms of revenue, we have reached a level of consolidated TRY 82.6 billion. And the consolidated gross profit margin is definitely higher than the performance of the previous year at a level of 23.5%. We have almost touched a level of TRY 20 billion gross profitability. And our operational expenditures are TRY 2 billion -- at a level of TRY 2 billion. But in an area that the inflation is more than [ 5%, 7% ], and the exchange rate has almost doubled itself and in line with the increase in the employee cost and operational and marketing expenditures, this is a natural output I can say. But more important than that, I just would like to put your attention to the income from associates that I will put it in the detail in the following pages that our associates are really performing very well both in terms of operational and financial perspective. As you can see out of this profitability performance of more than [ TRY 15 billion ], 2.3% is really a very successful output for us as well. And our financial income and costs as a net has reached to a level of [ TRY 1.9 billion ], as in the next page, we will come to the detail of it, so I will put the preliminary information relating to it. Coming to the breakdown of the performance of our associates, the leading one is the Yuce Auto, which is, as you know, is the distributor of Skoda brand, and its performance has reached to a level of TRY 1.1 billion. As of now, the performance -- the sales performance of Skoda, both in terms of sales volume and profitability is still the same and right track. And we at the end of the year, we will be seeing very satisfactory result out of the performance of Skoda, I must say. And also the second leading one is the Vdf Servis, which is a consolidation of vdf consumer finance, factoring insurance brokerage and lead services. This category is also has got a very significant growth and also in terms of profitability. And the major income which is driving from -- which is definitely more than 900% better than the previous year is coming mainly from the remarketing activities of the operational rental activities in financing business, but also in factoring business as well. Just to remind, they are also performing the dealer risk and limit management of all this turnover goes to Dogus Otomotiv Group in line with our dealers. And TUVTURK and other categories are also following respectively. Then you have a look at the balance sheet, the size of the balance sheet as compared to the end of the year, we have reached a level of more than TRY 46 billion. So the increase in working capital components is mainly trade receivables and cash and cash equivalents. The expansion in those 3 components are in line with the increase in our sales performance, I must say. In terms of inventories, which used to be almost 9,000 units at the end of the year -- at the end of 2022, now has reached to a level of 15,000 units. But if you just consider the sales performance, it is -- I can say it is even less than a required figure. In line with it, our financing -- the inventory is also at a level of [ 12.2% ], which is driving out of the 15,500 units. And any other -- in the other components, the increase in financial liabilities from TRY 2.5 billion to TRY 6.7 billion is the new [Technical Difficulty] [ EUR 50 billion -- EUR 50 million ], which was utilized for us to be able to buy the shares of [ Dogus Gayrimenkul Yatirim Ortakligi ] company. And respectively, the increase in the trade payables are in line with the increase in our volume, which is mainly computed by the unpaid inventory that we are keeping in the bond area in our back-cast. And as an output of the total increase in the profitability and also knowing that the value of the sold stocks of [ all liquidity ] to a level of TRY 4 billion is also included -- I'm sorry, this is just after -- it was in October, not at the end of -- at this point, I just like to get a support from my colleagues to [indiscernible]. Sorry. Okay. So sorry for the hesitation. By the contribution of the almost -- after taxation effect, almost TRY 3 billion is also included in our liquidity as the total collection from the sale of our shares of 7%. Our total liquidity has reached to a level of TRY 25 billion. Next page. So as a detail of the financing costs, which has increased from -- increased to a level of TRY 1.9 billion. The important component here, the exchange losses on borrowings, this TRY 1.4 billion foreign currency loss is coming from the valuation effect of this 150,000 -- EUR 150 million borrowing for the acquisition of Dogus Gayrimenkul Yatirim Ortakligi. The other important point which is worth noting is the interest expense on borrowings, which has increased 54%. But I can say that is not, I mean in line with the Turkish central bank policy, the average exchange interest rate, I'm sorry, is also has created the adverse effects, even though in terms of working capital, we are carrying the same almost volume of borrowings, which has reached to a level of TRY 2.5 billion, which is almost 100% nominated by Turkish lira-based borrowings to Turkish banks in the market. And as you can see, in line with the surplus of liquidity, we are also taking the advantage of interest revenue among the liquidity that we are keeping in hand. So just having a glance at the financial performance in terms of working capital and net cash position, [ Dogus ] expansion is totally in line with this -- with the market developments and -- which is supported, I believe, which has already been supported by information I have tried to make. We are still keeping almost the same level of turnover, but our inventory turnover is slightly only 10 days increased as compared to the end of the year, which I can say, which is a kind of normalization process. And this, as I have said in the beginning, the TRY 700 million worth of capital expenditures are mainly used by -- to maintain some purchase of new test cars, IT infrastructure expenditures and maintenance activities respectively. Next page -- I'm just -- sorry. At the end, we just would like to inform you relating to the expectations, as I just tried to explain, the total size of the market, considering that at the end of October, we have almost reached a level of 1 million. It is -- we can say that at the end of the year, it will be around 1.2 million units, and our sales performance without Skoda is expected to reach to a level of 120,000 units. For the moment, I can say, it is almost more than 110,000 units. So which, for the moment, seems is a kind of very achievable target when we add Skoda to a total of [ 20,000 to 25,000 units ]. Total Volkswagen Group sales performance is expected to reach more than 150,000 units and investment expenditures will continue in the remaining last quarter of the year that many new test cars will be renewed, and there will be some infrastructure investments mainly in the form of construction in process for our new Scania facility plus some infrastructure investments, both for electric charging stations and information technology digitalization and also in the form of machinery and equipment. So I think I have completed the presentation on a quick manner. I hope it would be satisfactory for you, but please let us note if you have any questions. Thank you.

[Operator Instructions] I'm not seeing any questions. So perhaps I can hand back for closing comments. And last chance, if you have any questions, let us know.

The presentation was [ I expect enough ] and knowing that although, I mean, I can see the list of all the participants. So I would like to thank them one by one, again, once more for your time that they have enabled us to be able to put some supplementary information relating to the performance of our company on a consolidated manner. Thank you for listening us and for your time. If you have any further questions, you are always -- please feel free to call us and myself, you know our Investor Relations specialist, [indiscernible], our Manager in our Investor Relations and myself as well, we are always more than happy to be able to help you if you have any questions. So thank you very much, and have a nice weekend.

Thank you. That concludes the call for today. Thank you, and have a nice day.

Bye-bye.