Dogus Otomotiv Servis ve Ticaret AS

IST:DOAS.E

Earnings Call Transcript 2023-Q1

[Unknown Executive]

Ladies and gentlemen, thank you for standing by. I would like to welcome you to Dogus Otomotiv's earnings conference call on the 10th of May 2023. [Operator Instructions] The format of today's recorded call will be a presentation by Dogus Otomotiv team, followed by a question-and-answer session.

So without further ado, I would now like to pass the line to CFO of the company. Please go ahead, sir.

[Kerem Talih, executive]

Thanks very much. So kind of you. I'm also welcoming all the participants in the name of Dogus Otomotiv, together with my colleagues who are already together with me and some of them are online. With our best greetings from Istanbul to all the participants. And we are happy to be able to present you the first quarter's operational and financial output that we hope and we believe that which are quite satisfactory and beyond the expectations of the market.

So still in such a hectic markets and macroeconomic environment, we have sustainably achieved to be able to our sales performance as compared to the first quarter of the previous year with an expansion of almost 75% to a level of almost 37,000 units which brought us to a level of market share, which is 1.5% better than the previous year's quarter at a level of 15.2% together with Skoda in retail markets that we are ranked among third level in the allocation of market share. And not only in terms of new vehicle sales, but we are also able to attain vehicle entries to our services, workstations to a level of almost 210,000 units.

At the end of these operational and financial outcomes, the Dogus Otomotiv's financial performance together with its fully consolidated together with the performance of our retail company, Dogus Auto, and plus the equity pickup contribution of our subsidiaries has reached to a net profit volume of TRY 3.9 billion, which is almost 300% better than the previous year's performance that really made us so happy and brought out of this the financial performance.

As we have all known, not only the financial and operational performance of the company is important, but together with it our policies relating to the sustainability has also rebuilt a sustainable score, which has improved from B- to A level. And together with that, we are happy to be able to increase our corporate governance compliance rating 0.4% to a level of 9.74 million within which we are still ranked amongst the first 3 companies to compliance the governance compliance rating is the highest in Turkey.

And also relating to electrifications, electrification since this is for so long, which is the hot topic in the automotive market, not only for Turkey, but worldwide. We have increased to our electric vehicle charging stations to a level which is more than 450 level. So in the following pages, I will also come to the details of this information.

So those were the key takeaways as we had always been doing so considering that the presentation has been reviewed beforehand, and you were able to review the presentation for a while. I will just go through it smoothly, and we'll let you to be able to take some more time for your questions.

Relating to the market share performance, at the end of March as you can see, the total market has expanded to a level of 55%. And considering the [ DP ] of production allocation to those automotive from Volkswagen group, our sales expansion is more than 70% to a level of 367,000 units. In related segments, you can see that our performance is almost at the same performance of the market that is mainly in light commercial vehicle and heavy commercial vehicle and this is followed by our passenger vehicle segments. Our expansion is even beyond the performance of the market.

When you then consider the competition breakthrough, as you can see at the end, in the light vehicle segment, which is the consolidation of passenger retail segment and light commercial vehicles, we are ranked among the second level, which is just after the consolidated Tofas and Stellantis group respectively.

So when we just go into the details what competitors have done meanwhile, as you can see, Renault has increased his market -- sorry, has decreased his market share from 24% to 17.6%. We were able to increase our market share to a level of 17.6%. So in that respect, we are sharing the same ranking together with Renault. But as you all know, the consolidation of Tofas Group and Satellites Group, which is computed by, if I'm not wrong, with 8 brands brought us -- which brought them to achieve a market level which is 38%, which is a quite high figure.

In the light commercial vehicle segment, we are -- as I think this historical performance is almost the same for many years, that we are still the third player in terms of market share allocation just after Tofas and Ford group respectively.

When we just consider the allocation of this sales performance among our different brands, the table is just going from less upside from maximum performance to the lower performance in terms of total sales unit sales. Our total sales has increased to a level of almost 37,000 units, which is more than 70% higher than the previous year, among which our passenger car segment, our Volkswagen passenger car segment has increased its share to a level of almost 12,000 and Skoda has increased his share to a level of almost 10,200 units.

And this is the remaining brands you can see in the table. But the important point here is our expansion seen in our Scania from 117 units to 800, which is almost close to the performance of the whole of previous year is also an important factor. And also in our Porsche brand, the performance in the first 3 months to a level of 388 units is also almost close to the performance of a yearly performance. That is an output that we were able to, I mean, not only the level of demand in the market but are available to be able to supply units from OEM in line with the related demand is going satisfactorily.

And at the end of April, since this is a more updated information, the total market expansion has almost increased -- has just reached to a level of 60% to a level of 345%. And what we are performing here is we have reached a level of, together with Skoda, 51,000 units, which is 66% higher than the previous year.

At this point, there has always been discussions and questions going among in between the market players, whether the -- relating to the sustainability of this sales performance and market demand. Of course, the coming elections a couple of later is also -- and is a wider determinant sector. So I'm not going into the details of the politics, but the effect of the election will definitely have some implications or will have a definite impact on the macroeconomic dynamics of Turkey, that will, in both manners, in both directions, may affect the automotive sector in Turkey.

But if we just concentrate on what has happened till now under normal year circumstances in the first half of the year, almost 40% to 45% of the total sales takes place. And in the second half of the year, this is 60% of the total sales takes place. But this year, considering the effect of the devaluation and knowing that buying a vehicle in Turkey is considered as buying an investment instrument and the uncertainty just after the election, just brought us a level that the first 5 months or 4 months of the year, the performance is definitely going much better than the performances of the previous year. So when we consider the listing in terms of market share, those automotive has been ranked at the third level with a market share of 15%.

And just after this market information, coming to the financial performance, when we just have a look at the financial highlights, as you can see, the total revenue has almost reached to a level of TRY 19.5 billion, which is 170% better than the previous year. So when we just make a forecast on a yearly basis, today's total revenue is expected to reach to a level of TRY 65 billion, and our EBITDA and net profit is in line by the outlet of our controlled operational expenditures and also efficiency of our financial expenditures.

And also together with the contribution from our fully consolidated companies and subsidiaries, we have reached to a level of TRY 3.9 billion level of net profit, which is almost 300% than the previous year. We are still continuing our capital expenditures, but the important point here is that our working capital and total assets has only increased 50% despite the fact that we have almost tripled the level of profitability.

Coming to margins that we have always been discussing in our investor presentations and in such meetings, whether the sustainability, whether we will be able to sustain these figures, at the end of first quarter of this year, the output is, yes, as you can see, we have reached to, again, an historical highest level of gross profitability, which has reached to a level of almost 23.5%, which is a composition of new vehicle sales, used car sales, spare part sales and also maintenance charges in our working stations, plus, of course, the light commercial vehicle is at.

OpEx over sales is 3.5%, which is in line with our 5% to 6% historical threshold. And our EBITDA and EBIT margin, in line with the increase in gross profitability, has just increased to a level of beyond 20.0%. And our -- as I have said, we have acquired this performance, the sales performance with a sales growth almost 27,000 units at the end of first quarter.

So this page is new for you that we have added in line with your comments and questions, which we believe will be satisfactory for you. And this is a segment basis information. So you can see the revenue division, gross profit division and our margins, respectively, as compared to the previous quarter. But when we just focus on the performance of this year, you can see that 67% of our revenue is stemming from our passenger car segment. And with that revenue are 62% of the gross profit is stemming from passenger car segment, the gross profit of which is 22%.

And then we just follow the trucks. In commercial segment, our sales performance is -- revenue performance is 20%, which composes 21% of our gross profitability, the gross profit margin of which is 24%. The remaining businesses, I mean the used car sales, spare part sales, both used car sales in Dogus Otomotiv or in our -- in the body of our retail company Dogus Auto plus spare part services and service fee charges of maintenance services composes like 13% of our total revenue, which ends up with a level of 17% in gross profitability with a margin of 32%.

Coming to the income statement. As you can see, the net profit at the end of last year was TRY 1 billion. Profit before taxes was TRY 1.3 billion. So at the end of this sustainable and successful operational and financial results, we have reached to a level of profit before tax level of TRY 4.5 billion. So I mean since you can see the details of the table, so I'm not going to the figures one by one.

This page is also covering the same information, but maybe as a highlight, the gross profit margin, which has been realized to a level of 23%, the increase was also stemming from the increase of 170% increase in revenues. So the devaluation of Turkish lira is almost 30%. Also the model mix and also the tremendous level of the demand is also supportive or sustaining forces beyond this successful gross profit margin management and relating to the financing costs, financial costs, that maybe we can have a look at the balance sheet. So I will give the highlights that we are still keeping our controlled manner in the management of our financial expenditures.

Within that, as you can see, the performance of our associates has really increased tremendously to a level of almost TRY 800 million. Within that, our Skoda brand is Yuce Auto that we own 50%. And just afterwards, vdf Servis that we own 49% has really encompasses almost 75% of this equity pickup consolidation financial output that our subsidiaries are also -- since they are the -- I mean, I can say apart from Yuce Auto and vdf Servis, they are not 100% business lines, which is expanding in line with the developments in the automotive market. Since TUVTURK is the vehicle's inspection stations, Dogus Teknoloji is the company which is serving to the whole of Dogus group and also third parties and Dogus Sigorta as well, but their performances are also continuing successfully.

When we consider the balance sheet. As you can see, the total balance sheet size has increased to a level of more than TRY 30 billion, among which you can see that our working capital instruments like cash trade receivables and inventories are almost 50%, 51% of it. And the increases relating to the previous year is definitely stemming from the expansion in our sales performances.

In our financial investments, we have a new player. As you know, we have acquired the shares of Dogus real estate company, investment trust company, more than a month ago. So I mean, in our financial investments within the area of the TRY 7.7 billion, we are keeping the shares of Dogus Holding and plus the almost more than 95% or almost 95% of the shares of this real estate company. Since we have -- there were some questions relating to the details of this issue.

Since we have not acquired preferred stock yet, which is less than 1%, we still have not gathered the management rights of the company. In that respect, it's regarded as a financial investment. But we have just started to buy this preferred stock, which is less than 5% after the acquisition of [indiscernible]. The management -- Dogus Otomotiv will be -- will have also have some rights and probably under this scheme and within our plans, at the end of second quarter we will be fully consolidating Dogus real estate company.

And relating to the financial liabilities, the level has increased from TRY 2.5 billion to TRY 5.6 billion because, as you know, as we have disclosed in our public disclosures, we have acquired a borrowing at a level of EUR 150 million with a maturity of 5 years, which has -- which is an investment credit with no principal payments in the first year that we are going to pay the related interest in every 6 months. So in that respect, the remaining portion of the working capital financing is still Turkish lira based, so a level TRY 2.2 billion in that scheme and there is no change in our strategy respectively.

Coming to the breakdown of financing costs, as you can see, which has increased to TRY 250 million. So the major -- I mean, the things that I only would like to note is the interest revenue since we are having some Turkish lira deposits since we are quite liquid has just ended up with some interest revenue and also the TRY 139 million loss is stemming from the devaluation of Turkish lira throughout this TRY 150 million borrowing [indiscernible].

So I have already pointed this financial highlights. So when we just come to what is new, as I have already said, we have acquired the shares of Dogus real estate company. And so considering the development in the real estate sector in Turkey and knowing that Dogus Otomotiv has already a large real estate portfolio, both in the body of our logistics center and also both in the body of our dealer network under -- which is run by Dogus Pazarlama which is a subsidiary of Dogus Otomotiv, we believe there is a huge potential when we just consider that 2 important components of those related company, namely Dogus [indiscernible] and also their [indiscernible] facility is also being granted by Dogus Otomotiv insight.

So as you have known, 2 years ago, we have started a new initiative, namely D-Marine, which has started its operation in Gocek in Turkey. And now we are going to expand this business under which we are providing maintenance services to boat. So in line with the developments in this business in this new greenfield business, we have -- we are going to set up a new branch, which is the second station in Didim.

And also in line with electrification, we have decided to set up a new company, the brand of which will be D-Power and Dogus Sarj Sistemleri Pazarlama will be the official entity name of the company with the initial capital of TRY 50 million because just to remind participants, Dogus Otomotiv was the first company who has started to import electrical vehicles with our Porsche brand with Taycan model a couple of years ago, which then last year we have started to sell the EV of our Audi brand, namely the e-tron models that we have 3 models in sales area in that field. And both in our passenger vehicle segment and light commercial vehicle segment, all of our brands are working on electrification.

For the moment, as we all know, the total sales of -- worldwide total sales of the electrical vehicles market share is almost 10%, which is expected to be 25% next year. This is a worldwide information. Relating to Turkey, the share of EV sales is like 1% to 2% among the total. But next year, within our brands, we are going to import the Volkswagen ID. model, which is an EV vehicle of Volkswagen passenger car brand, and that we will -- in that respect, we have decided to set up a different company, namely the power, which will maintain and manage the electrical vehicle charge stations on a professional manner that we believe which is a quite business field which is full of opportunities and expansion portfolio.

Our strategy relating to sustainability, digital transformation, risk management and sustainability is the same. So for many years, we have always been trying to explain you the details of the strategy. So we are still on track, I must say. So I don't have any new highlight to add on this.

So relating to the expectations of this year, I mean knowing that the first 5, let me say, or 4.5 months of the year, it really was beyond our expectations that there is huge -- really huge demand in the market, which is beyond our expectations. But the important point here is that we were able to acquire and manage to attain additional vehicles to be able to meet with this additional demand. And what is to happen just after the elections and its operational and financial or macro output, I mean, we will close. We, of course, will monitor it. And we are -- I can say really for each scenario on [indiscernible] negative manner, but we are, of course, definitely wishes the best for our country.

In that respect, we have not officially changed our total market forecast, so the well of almost 800,000 units. But if market performance is in the second half is also beyond the expensation to a positive manner, we are in close contact with our brands in a way that -- we will hopefully be able to attain additional vehicles. But at this level, without knowing what would happen effective from next week in Turkey, it is early to announce different information of these different comments in that respect. On a yearly basis, we are just keeping our sales target to a level of almost 100,000 units.

And in line with it, we are still keen on continuing our investment expenditures, both in the fields of IT, infrastructure, test cars. And also in Gebze, we are going to construct a new Scania facility in the buildings that we have recently moved our headquarter of the company in the old plant. We will be constructing a large and very effective Scania sales and after-sale services facility respectively.

So that's it from my side at this stage. Thank you so much for listening to me. So we are happy to answer your questions if you have any. Thank you.

[Unknown Executive]

[Operator Instructions] Our first question comes from Aytunc Uz from Ata Invest.

[Aytunc Uz, analyst]

So I have 3 questions. I have 3 questions. I'll go one by one, if it's okay. So how much earthquake tax have you paid in first quarter.

[Kerem Talih, executive]

How much earthquake tax?

[Aytunc Uz, analyst]

Yes, exactly.

[Kerem Talih, executive]

Yes. Yes, it is like TRY 10 million which is quite growth in -- it is calculated over the exemptions in the corporation income tax calculations since we do not have so many exemptions or dislama in Turkish, I can say. The related tax is at an immaterial level, around TRY 10 million.

[Aytunc Uz, analyst]

So my second question is what is the reason behind the deterioration in working capital?

[Kerem Talih, executive]

What do you mean by deterioration in working capital? I'm sorry.

[Aytunc Uz, analyst]

I mean the receivable days, inventory days, I see that they are all increased in my calculations. So is there a specific reason?

[Kerem Talih, executive]

Quarter-over-quarter, by the way. Okay. I mean on a quarterly basis, I mean, are you comparing the last quarter with the first quarter or 2 quarters of the 2 years?

[Aytunc Uz, analyst]

First quarter '23 versus fourth quarter of '22 basically. I also annualize it, but we have different -- we may have different calculations.

[Kerem Talih, executive]

Yes. Okay, no. I get your point. I mean when you just -- I'm also going to the related page. When you just consider the sales performance, it's just -- I mean, in the first quarter of last year, we have sold only 17,000 units. But this year, we have sold 10,000 units more almost to a level of 26,400 units. In that respect, the maturity position of Dogus Otomotiv is in line with the expansion in our sales performance. But apart from that, I do not see any deterioration in our working capital turnovers.

[Aytunc Uz, analyst]

My last question will be about Dogus rate -- the Dogus real estate. So I see that you have recorded TRY 5.1 billion as long-term financial assets. So I -- as far as I understand, you have recorded the assets -- the fair value of asset side of Dogus real estate, right? You haven't deducted the net debt of Dogus real estate, right?

[Kerem Talih, executive]

No, is it position costs under financial investments, you are right. So after the completion of purchasing this preferred stock, which is less than 1%, which probably will take place until the middle of the year, then we will be 100% consolidating Dogus real estate company.

[Unknown Executive]

[Operator Instructions] It indeed seems like the presentation was very comprehensive currently. I'll pass the line to -- I see no further questions at this point.

[Kerem Talih, executive]

Thanks. Likely, okay. So thank you very much for your patience and for listening to us. We wish to be back on stage with the performance of the half of the year. So have a nice day and bye, bye.

[Unknown Executive]

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.