Dogus Otomotiv Servis ve Ticaret AS

IST:DOAS.E

Earnings Call Analysis

Dogus Otomotiv's Strong Growth Amid Challenges

Dogus Otomotiv demonstrated a brilliant performance, with revenues reaching TRY 47 billion and net profit hitting a record TRY 9 billion, signifying an over 200% increase in both EBITDA and net profit margins. Market share stood firm at 13.9%, with a 52% surge in total sales to over 78,000 units by June's end. The passenger vehicle sector slightly lagged behind market expansion, but premium and commercial segments outperformed. Vehicle availability more than doubled, and dealership touchpoints expanded by 33 to 665. Gross profit margin increased to 24%, and shareholder returns were robust, with a 135% stock return and TRY 2.5 billion in advanced payments announced.

Robust Performance Amid Macroeconomic Uncertainties

The company has showcased an impressive performance in profitability, market share, and operational outcomes, demonstrating resilience despite concerns regarding the upcoming elections and macroeconomic policies that could impact the Turkish automotive market. With strong sales numbers, surpassing 95,000 units for Volkswagen Group brands in Turkey and an expansion of 33 new customer touchpoints, they have successfully navigated supply and sustainability challenges in their commercial vehicle segment, leading to a substantial increase in sales by more than 10,000 units. This triumph has not gone unnoticed in the market, with the company's stock yielding an impressive 135% return on an annual basis, and anticipatory dividends of TRY 2.5 billion being granted to shareholders.

Contribution and Growth Across All Segments

More than 70% of the company's revenue comes from passenger car sales, followed by a 17% contribution from commercial vehicles, and 12% from other segments including aftersales services and spare parts. Notably, the gross profit margins for these segments stand at 22%, 26%, and more than 30% respectively, with the latter heavily influenced by spare parts profitability. The company's sales performance in Q2 jumped by 48% to TRY 27 billion and 34% over the first quarter of 2023. Their year-to-date revenue soared by 150% compared to the prior year, reaching TRY 47 billion, largely attributed to the net effect of the sale of their Bursa facility and robust contribution from investment income and associates, propelling their net profit to a historic TRY 9 billion.

Associate Companies Catalyzing Financial Strength

Dogus Otomotiv's associate companies, particularly Yüce Auto and vdf, stand out with impressive earnings, contributing almost TRY 800 million to the financial fabric of the company. The overall liabilities have increased to TRY 6.5 billion, mainly due to the purchase of shares from Dogus Gayrimenkul Yatirim Ortakligi. However, the firm has managed its borrowing well, leveraging working capital turnover without significantly increasing liabilities. This fiscal discipline has resulted in an abundant return on assets at 24% and a return on equity exceeding 47%.

Strategic Moves and Sustainability Initiatives

Innovating within the product lineup, the company has reinstated the import and sales of Meiller tippers, complementing their existing Scania truck offerings. On the sustainability front, the company released an integrated report, reflecting not only financial but also sustainability information, with ongoing efforts like participation in the Scania Green Dealer development program and the piloting of Volkswagen AG's sustainability retail program accentuating their commitment to environmental stewardship.

Education and Compliance at the Forefront

The company takes social responsibility seriously, with a focus on human rights education and compliance regulations for employees and extending these programs to their dealer network. This diligent focus on in-company education underscores their proactive stance on corporate culture and responsibility.

Future Outlook Emphasizes Mobility and Digital Innovations

Looking ahead into 2023, Dogus Otomotiv is placing their stakes on the trending trifecta of mobility, digitalization, and sustainability. They have plans to manage an expansive network of electric vehicle charging stations across Turkey through a new company owned by Dogus Otomotiv. The corporation envisages enhancing its market footprint to 1 million automotive units, coupled with an expected sale of around 150,000 units in collaboration with Skoda and sustained investments worth TRY 2.3 billion in various sectors including renewable energy and technological advancements.

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Dogus Otomotiv's earnings conference call on the 22nd of August 2023. Please note that today's conference call is being recorded. After the call today, there will be an opportunity to ask questions.

So at this time, I would like to turn the call over to Mr. Kerem Talih, the CFO. Please go ahead, sir.

[Kerem Talih, executive]

Thank you very much, Michael. We are all welcoming all the participants to our analyst briefing presentation, and with our greetings in the name of Dogus Otomotiv finance team. We are really happy to be able to present to you such a successful and a brilliant performance of our company, both in terms of profitability, in terms of market share and operational results and also in the eye of sustainability.

Knowing that -- I mean, it's -- I'm happy to be able to say that all the rumors or question marks relating to the performance of Turkish automotive markets is to be, in this year, considering that in the first quarter of the year, we are going to have elections and some macroeconomic policies, may have some adverse effects to the expansion of the automotive market.

Considering that at the end of July, we have almost reached 700,000 units and at the end of June, we have almost touched 600,000 units, we can say that most of those doubts have been eliminated, within which, as a distributor of Volkswagen Group brands in Turkey, we have increased our sales to a figure of more than 80,000 units. But for the moment, we are definitely above 95,000 units together with Skoda.

And knowing that Dogus Otomotiv Group is the widest dealer network among all brands, we have increased our customer touch points on a yearly basis by adding 33 new points and reached a level of 665 customer touch points.

One of the biggest obstacles that we have been talking through last year was our supply and sustainability problems in our commercial vehicle segment. And as you can see, we have more than doubled the performance of the availability of those vehicles. And our sales figure has increased more than -- has increased a lot more than 10,000 units.

Not only Dogus Otomotiv, our associates have also prevailed a significant success, within which they have almost increased their profit contribution to a level of 300% to a level of TRY 1.4 billion, among which the total net profit -- consolidated net profit of Dogus Otomotiv Group, together with our subsidiaries and associates, had reached to a level of TRY 9 billion.

As a result of this performance, our stock return on a yearly basis has reached a return level of 135%. And by the liquidity availability, we are going to be granting TRY 2.5 billion advanced payments to our shareholders effective from this [indiscernible].

Having a glance at the performance of the market. As I have said, it has almost reached to 600,000 units. And as you can see in the presentation, only in the passenger vehicle segment, the performance of Dogus Otomotiv, it's a bit or slightly less than the performance of the expansion of the market. But in other segments, including premium, light commercial vehicles and heavy commercial vehicles, our performance is definitely much better than the performance of the market.

And at the end of June, our total sales has increased 52% and has reached to a level of 78 -- more than 78,000 units. Just to repeat once more, our availability and sales performance both in light commercial vehicles and heavy commercial vehicles is much above the performance of the market as you can see in the presentation.

In terms of market share allocation, as you can see at the bottom part of the presentation, the allocation in this subject has not changed as compared to the end of the year. We are still keeping our third level, with a degree of 13.9%, which is slightly lower than the performance of the previous year, considering that all competitors have also embraced their obstacles relating to vehicle availability.

In the passenger vehicle segment, as you know, Tofas, the consolidated Tofas/Stellantis group, is the leading market share group with a level of 37%, which is followed by Renault and Dogus Otomotiv, respectively. In the light commercial vehicle segment, Ford here is on the [ signs ] -- is on the table definitely and following Tofas with a market share of 20 -- almost 30%. And within that area, our brands are representing a market share of 6.7%, which is relatively higher than the performance of the previous year.

When we just consider the performance on a brand basis, as you can see in both brands, when you consolidate them all, which encompasses the consolidated Volkswagen Group in Turkey, our total sales is 58% higher than the previous year. And here, the leading brand is definitely the Volkswagen passenger cars, which is followed by Skoda and Audi light commercial vehicles, respectively.

But the important point here is -- to be worth noting is the performance of our luxury brands in Porsche, Bentley and Lamborghini is much above the performance of the previous year. And also, as you can see in Scania, our brand management has really made a great job, which enabled us to sell 1,600 units of Scania trucks in Turkey.

Knowing that July market information has already been revealed, as I have said in the beginning, the total market size has almost reached to a level of 700,000 units, which is 62% better than the previous year, among which the performance of -- consolidated performance of Dogus Otomotiv is even 2% better than the market itself. In its details, the general tendency is almost the same as the performance of the June results. In that effect, I am not going through the details of this issue.

Having a reflection of those operational performance into financials, as we have reviewed our financials yesterday in the evening, and luckily, I can say that we are getting the positive comments and notes from our -- both stakeholders, within which our revenue has reached a level of TRY 47 billion. And respectively, our EBITDA and net profit margin has almost -- and even more increased more than 200%. We are still continuing our capital expenditures and investments in line with our investment strategy.

And within that, as you can see, we have increased -- in line with the increase in the sales volume, we have increased the size of the balance sheet, but mainly -- which is mainly stemming from the increase in the working capital, as you can see, to a level of TRY 22 billion. As you can see, almost 75% of the total balance sheet of Dogus Otomotiv consolidated financial statements is computed by working capital, namely cash, receivables and inventories.

Coming to margins, which has always been under close investigations, or let me say, investigations, or I mean, analysis, our gross profit margin at the end of June is still above the performance of the previous year at a level of 24%, which is computed by the gross profitability of new vehicle sales, spare parts sales and used car and other activities under the umbrella of Dogus Otomotiv.

Our OpEx/sales is considerably at a low level, knowing that the total turnover has increased tremendously, but we are still managing our general and administrative, employee and marketing expenditures. They're really on a very controlled manner. But in nominal terms, of course, they are increasing in line with the inflation and with the adverse effects of devaluation of Turkish lira, which is there is no way to escape from that.

And as a result, our EBITDA and EBIT margin has increased to levels that you can see in the presentation, about 20%. And luckily, in line with the disciplined strategy and control of our financing costs and by keeping our open position as low as possible, our net profit margin has reached to a historical highest level of 19.4% in an area that we have sold almost 62,000 units at the end of June of this year.

As you know, this is a new page only for this presentation or in the -- this is the second time -- yes, thank you. This is the second time that we are sharing with you the details relating to the divisions of our gross profit on a division basis. As you can see, in terms of the allocation of our revenue, more than 70% is stemming from passenger car sales segment, 17% is stemming from commercial vehicle segment and 12% is stemming from other segments, namely aftersales services, spare parts sales and used car sales, mainly.

And relating to the gross profit allocation, as you can see, of course, the passenger segment is the leading one. And almost -- revenue division and gross profit division of the commercial segment is almost the same, which is followed by the other segments. And segment-based gross profit margins are, respectively, 22% for passenger cars, 26% for commercial segment and more than 30% in the other segments. But I must note -- I must here note that the gross profit margin of spare parts is the major component in the other segments.

Having a glance at income statement. In this page, as you know, we are comparing the quarters -- the performance as compared to the first quarter of this year and the same quarter of -- with the previous year. And in the second quarter of this year, our sales performance is 48% higher than the previous year and 34% higher than the first quarter of this year, which has reached a level of TRY 27 billion.

Our total operational expenditures has increased as compared to previous year. But here, I must note that the net of effect of the sale of our Bursa facility to a member of our dealer network and the related profit contribution has served for the positive sake of this P&L item. But this is valid both in comparison to the previous year and both in comparison to the first quarter of this year.

And as you can see, reported item here is the income from investing activities, more than TRY 700 million is coming from associates -- sorry, from investing activities. This is also relating to almost TRY 500 million of it is -- out of the TRY 738 million is stemming from the profit out of the sale of the Bursa facility.

And as important as it is, the income from associates has reached a level of more than TRY 650 million. Here as compared to the previous quarter, there is a slight, namely 15%, decrease, which is stemming from the performance of vdf associates, namely their -- in the [indiscernible], the average -- the tendency of the used car prices [indiscernible] has an effect on their profitability. And also, the pressure on the interest rates has just lowered some -- lowered their margin in that respect.

The second quarter's performance is slightly lower than the performance of the first year. And financial income and loss is at the net is TRY 1.3 billion. We will come to the detail of this figure in the following slide, but which is mainly computed by FX loss of the investment credit and also our interest expenditures. At the end, we have acquired TRY 5.1 billion by the performance of the 3 months of this year.

And having a glance of the P&L on semiannual basis as compared to previous year. As you can see, our total revenue has reached a level of TRY 47 billion, 150% higher than the previous year. Our total expenditures -- total operating expenditures, I mean, repeating once more by the net of effect at the sale of the Bursa plant, has also set for the advantage of this figure.

But by the advantage of -- sorry, by the adverse effects of inflation and also devaluation and also adjustments of salaries of white- and blue-collar employees has increased this figure to that level, as all the companies in Turkey, we are also having the adverse effects of the inflationary environment.

Income from investing activities. As I have said, out of this TRY 900 million, TRY 500 million is stemming from the sale of Bursa plant. And income from associates, as you can see, has definitely increased almost 300%, which has reached to a level of TRY 1.4 billion. And after financial and tax expenditures, our net profit for the year has increased TRY 9 billion, which is the nominal highest historical record level in the history of Dogus Otomotiv.

Having a glance of -- at the performance of our associates. As you can see, the performance of Yüce Auto, which is the Skoda dealer in Turkey that Dogus Otomotiv owns 50% of it, has increased to the level of almost TRY 800 million. With our shareholder, Yüce family, we are really taking care of a very successful business, which has resulted in such a high volume of profitability. And as you can see in the presentation, all of our associates have increased their performance. After Yüce Auto, vdf and TÜVTÜRK are the next big players in our consolidated structure.

Having a look at the balance sheet. As you can see, by the increase in working capital components, mainly increase in the trade receivables and inventories, which is definitely an inevitable result or natural result of the expansion in the sales volumes. Total balance sheet has just -- has increased to a level of almost TRY 38 billion. And we are all -- which is also followed by the increase in our liabilities.

As you can see the details in the right part of the presentation under the heading of borrowings, you can see that interest-bearing long-term borrowings at a level of TRY 3.5 billion, which is mainly -- which is computed by the EUR 150 million worth of long-term borrowing, which has been utilized to be able to buy the shares of Dogus Gayrimenkul Yatirim Ortakligi, has increased our borrowings and move to a level of TRY 6.5 billion.

But then we just consider without it, in the first line, as you can see, the bank liabilities. In total, it has only increased from TRY 2.3 billion to TRY 2.7 billion at a consolidated level. And as you compare the expansion in the total working capital, we are definitely taking advantage of the increase in the working capital turnover. And without increasing the liabilities so much, we are able to retain and turn over our working capital requirement.

Coming to the detail of financing costs. As you can see, interest expense on borrowings, I mean, in terms of Turkish lira perspective, I mean, it has increased TRY 102 million. But mainly, it is stemming from the additional interest costs of the new loan of EUR 150 million. And foreign exchange loss is also stemming from this investment loan. But as you can see, the rest of the financing cost items are relatively in line with the market developments.

Coming to financial performance in terms of turnovers. As you can see, we have almost keeping the same level of even 2 days better performance in receivable turnover. And inventory turnover in terms of days has increased from 43 days to 69 days, which is a result of the expansion of our sales performance. And as you can see, our payable turnover is almost same as the previous year.

And in terms of capital expenditures, we have new investment areas, both in terms of IT area, new test cars in D Power and so on and so forth and which is also influenced by the increase in the inflation. And also, the devaluation is also playing here a key role. And as a result of these operations in terms of financial perspective, our return on assets has increased to a level of 24% and return on equity has reached a level of more than 47%.

Coming to what's new. I will just keep those parts short since they have already been publicly announced that we are going to import Meiller's tippers. And we have already started to sell them. As some of you might remember, many years ago, we have been the importer of this brand. Then we have set up -- we set up a joint venture and set up a factory in Sakarya in Turkey.

But after the downsize in the market, mainly with the adverse influence of the 2018 and '19 crisis, we have liquidated the company. But since then, we are still continuing to sell Scania trucks since -- and just knowing that tippers are a complementary product, we are going to -- we will be selling -- we have started to sell Meiller tippers.

And we have revealed our sustainable report recently. I can say this is now an integrated report, which covers financial information and also sustainability information. And also, we have applied capital market of -- to be able to buy the preferred stocks of Dogus Gayrimenkul Yatirim Ortakligi, we have made official application to the Capital Markets Board of Turkey.

In general, relating to sustainability. I mean, this page is the same as the previous, so I don't have to add more on that. But mainly, under the heading of highlights, we have the recent developments that we would like to share with you under the heading of environmental, social and economic perspective. And we are proud to be able to announce that our Scania brand has been selected in the Scania Green Dealer development program. And Dogus Otomotiv has been selected as the pilot country for the Volkswagen AG sustainability retail program. And we have also made an application for the Zero Waste Certification application, along with this country program of Volkswagen AG.

In terms of social perspective, we are still very keen on and continuing our education and development programs under the heading of human rights. We are still complying our education programs in terms of in-company compliance rules and regulations. But we are not only doing this for our own employees, but we are also giving those related compliance education within the body of our [ outright ] dealer network since they are very important parts on so far total Dogus Otomotiv family.

And coming to year 2023 expectations are in terms of mobility, digitalization, sustainability. Here, I must -- I would like to note that our continuous works and investment program under the heading of those powers -- D Power, sorry, is continuing. Just to refresh our memory, we have set up a new company, just 100% owned by Dogus Otomotiv, which is going to manage the infrastructure and retail management and investments policies of electrical vehicle charging stations among Turkey, which will serve for all brands in Turkey under the umbrella of Dogus Otomotiv.

And coming to the figures, we have increased our total automotive market size to a level of 1 million units. And together with Skoda, our total sales performance, 110,000 from Dogus Otomotiv and approximately 30,000 to 35,000 units together with Skoda. Our total sales unit is going to reach the level of almost 150,000 units. And we will be keeping our investment expenditures to a level of TRY 2.3 billion, both in terms of renewable energy, machinery and equipment, test vehicles and so on and so forth.

So I just tried to keep the presentation session as brief as possible for you to be able to ask your questions if you have any. So me and my colleagues are more than happy and ready to be able to help you if you have any questions. Thank you very much for listening to me.

[Operator]

[Operator Instructions] Our first question comes from Mr. Cemal Demirtas from Ata Yatirim.

[Cemal Demirtas, analyst]

Congratulations for good results. My first -- my question is again about the demand side. And we see that you also revised up your estimates, which is a little bit lower than our estimate, but still it's a revision. I would like to understand the demand, especially in July. We also -- we still had strong volumes.

How do you see the outlook in August and September? Any indication in the Q? Because we know that we closely know that many people are waiting for buying cars from you. And there's the order book, it looks like it's full. Do you see any change in that front? Maybe you could give us some idea about the following quarters.

[Kerem Talih, executive]

Thank you very much, Cemal. Yes, this is an issue that you have underlined relating to the -- our expectations relating to demand is definitely very important for the last 4 to 5 months of the year. As compared to what has been happening on May or June or even as compared to July, I can say that in the total market, I'm just speaking in the name of total market, not for our brands, the demand has somehow been relatively normalized.

And for example, if you like, if we just would like to buy an Audi Q3, in each dealer, there is still a waiting list of more than 100 people. But if you just would like to buy a Volkswagen T-Roc or Taigo, in a couple of days maybe, you may be able to buy it immediately. But I can definitely note that even under those circumstances, current level of demand is definitely so strong in that perspective. And with this forecast view, we have increased our forecast of the market size to the level of 1 million units.

[Cemal Demirtas, analyst]

And do we see price increases lately? Or should we see just [indiscernible]?

[Kerem Talih, executive]

I mean, the following -- the coming months' performance is probably would be lower than the performance of the monthly performances of June and July. But definitely, knowing that there has been some regulation change for the vehicles of the used cars, knowing that, I mean, the sales price of the used car cannot be higher than the original new car price or it cannot be sold -- resell -- or resold, sorry, within 6 months if it is less than 6,000 kilometers, so on and so forth, and knowing that the oil prices has increased significantly and by the devaluation of Turkish lira, the [ turnkey ] price of the vehicles has considerably increased.

In that respect, the performance of the months to come would be probably lower than the performance of the previous months. But I mean, if you just forecast the yearly performance by just considering the performance of the first month of the year, the result is a market size of TRY 1.5 million -- sorry, 1.5 million units. But knowing that the normalization of demand, we have just revised our forecast to a level of 1 million units.

[Operator]

Our next question comes from Erim Isparta from Ata Portfolio. Okay, it looks like Mr. Erim dropped the call. [Operator Instructions] And we have a question from Mr. Evren Gezer from TEB Yatirim.

[Evren Gezer, analyst]

Kerem, you mentioned that the market is now normalizing. My question is regarding your margins. Where do you see your margins are heading now? And what would be the normalized levels in the coming months or quarters or years?

[Kerem Talih, executive]

Let me come back to the margins page in the presentation if you just would give me a couple of -- okay, so I mean, in the first 6 or 4 months of the year, gross profitability of new vehicle sales is 24%. And even in July, on a monthly basis, it was still 24%, which is the highest levels on a monthly basis among the year.

We are -- we have recently made forecast steady, within which it will be around 15%. But from brand-to-brand, it may vary between 12% to 17%. But knowing that this "crazy demand" is not on the market anymore, we believe that on a yearly basis, we may be able to keep a level which is hopefully more than 18% on a yearly basis, hopefully.

[Evren Gezer, analyst]

This is for 2023, right?

[Kerem Talih, executive]

Yes.

[Evren Gezer, analyst]

Yes. For the next year, you have any thoughts or guidance on that?

[Kerem Talih, executive]

Yes, I have many thoughts. I have many thoughts. It is difficult to make that make some predictions in such an environment. But the years in between -- I mean, effective from the March year 2020, we are definitely experiencing totally abnormal conditions, which has started with the vehicle unaided in the automotive sector, mainly stemming from chip crisis and so on and so forth and some sustainability problems, so on and so forth, which has then turned out to the kind of crazy demand structure in Turkey, knowing that buying a car is interpreted as an investment instrument. And everybody has just tried to buy a vehicle before the elections, which is still going on.

Because in March, there is one more election. And some macroeconomic policies may be changed in a way to downsize or to pressure the demands -- to demand, not demand for vehicles but demand in all perspectives to be able to combat with the inflation. But I mean, we cannot see in the presentation, but the sustainable gross profitability performance of Dogus Otomotiv is -- on average, was around 12% to 14% in the year 2020, before 2020, 2018 and 2019. So we will see. I cannot specify something specific for 2024.

[Operator]

[Operator Instructions] Okay, it looks like we have a follow-up question from Mr. Cemal Demirtas from Ata Yatirim.

[Cemal Demirtas, analyst]

Regarding the financing environment, do you see any changes in post for negative pay during the last 2 months compared to previous months now the Central Bank's actions or the bank regulations? Do you have some transactions like imports and local sales and maybe working capital issues? It's always valuable to hear your -- just views on the developments. And also, any normalization on that front?

[Kerem Talih, executive]

Yes. Thank you very much, Cemal. I specifically would like to thank you because this was a point that I was planning to underline, but I might have skipped it in the details of the presentation. It's such so valuable. I mean, the -- I must say that it is a -- this is a period -- in terms of liquidity and in terms of financing, I mean, this is the most -- one of the most liquid period of Dogus Otomotiv.

In the Page 12 of the presentation, you can see that the working capital of the company has reached to a level of TRY 22 billion. For example, as of now, our total liquidity in terms of Turkish lira has increased, not consolidated level only, for solo Dogus Otomotiv level, has increased more than TRY 7 billion. And we are carrying working capital loans at a level of TRY 1.9 billion.

And more than 50% of this portfolio -- of this borrowing portfolio has been renewed within this year. And the minimum maturity in those renewals was -- which used to be 1 month, has increased to 3 months and recently has increased to a maturity of 6 or even more than 6 months. So in each renewal, we are able to roll over our current debt, even we have more than sufficient liquidity to be able to close all these borrowings. This is our financing structure.

In terms of foreign currency transactions in the market, as all of you are aware of it, mainly until the elections, we have experienced an interesting period that we were not able to buy the required level of foreign currency in the market. But all these challenges, I can say, is totally over. And for the moment, we are able to buy and import our vehicles when needed on a daily basis with no problem. And we are totally [ written ] out of it. That's -- I mean, I'm -- that's it from my side as a reply to your questions.

[Operator]

Yes, since we have no more questions, again back to you, Mr. Kerem, for your concluding remarks.

[Kerem Talih, executive]

Okay, thank you very much. I mean, what we -- what myself and my team is feeling is that as long as there is not so many detailed questions, we feel that the presentation is sufficient enough. And more important than that is the operational and financial performances of Dogus Otomotiv is -- do not need to be -- does not need to be explained in that respect. Figures are talking. And we don't need to talk so much. So this is just kidding. But thanks for all your time, for your valuable time for listening to us. I mean, myself and my team, we are always ready to help you anytime that you know how to reach us. So thank you very much, and have a nice day.

[Operator]

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