Dogus Otomotiv Servis ve Ticaret AS

IST:DOAS.E

Earnings Call Analysis

Dogus Otomotiv Boasts Strong 2023 Recovery

Dogus Otomotiv's earnings call reveals a resounding recovery in 2023, with significant operational successes and strategic expansions leading to a 25% increase in net profit to nearly TRY 20 billion. The year witnessed a 70% surge in total sales, especially with SKODA, and customer service visits hitting 1 million entries. Growth was fueled by recovery post-COVID-19, addressing supply chain issues, and focusing on electrification, including upcoming launches like the Audi 7 and Audi 5. New distributorship agreements in marine products and a foray into the semi-trailer segment with Bilton enriched their portfolio. The company's presence flourished with the Volkswagen Group's performance in Turkey outpacing market development, achieving a 13.7% market share. Amidst political elections and an inflationary macroeconomic environment, the company continued its upward trajectory with a February sales performance rising by 30% over the previous year.

A Robust Recovery and Expansion in a Post-Pandemic Market

The company has successfully navigated through the pandemics' aftermath, boosting investor confidence with strong financial and operational performance. It was a year of recovery as the company dealt with supply chain struggles and operational expenditure adjustments. The auto industry's attention remains fixated on the burgeoning electric vehicle (EV) segment, an area where the company is poised to make a mark with forthcoming Audi models.

Broadening Horizons Beyond Automotive

Expanding its portfolio, the company has ventured into the marine industry, solidifying its presence with corporate maintenance services and a new distributorship for a Norwegian speed boat brand. Additionally, Dogus Otomotiv has integrated a real estate firm's preferred stocks, diversifying its business operations and financials.

Historic Sales Performance and Strategic Growth

Dogus Otomotiv recorded one of its highest total sales performances, escalating earnings per share to TRY 96. Increased customer touchpoints and service entries have fueled this upsurge in net profits by 25%, leading to substantial gains for stakeholders.

Topping Records in Governance and Market Success

The company's corporate covenants have risen to impressive levels, achieving a nearly unmatched rating in sustainability. In the auto market, robust performance allowed a 56% market expansion for Volkswagen Group sales. As for market share, Dogus Otomotiv is third in Turkey with clear leadership from its Volkswagen and SKODA segments.

Surging Sales and Profitability Despite Macroeconomic Headwinds

Amidst electoral transitions and inflation concerns, the company's sales have increased by 30% year-over-year, echoing strong market traction and unit profitability. Revenue growth reached an all-time high while grappling with narrowed net profit margins due to operational and financial pressures.

Financial Fortitude with Record-Breaking Revenues and Assets

The company's total assets expanded by 37%, with revenues achieving a historical peak. However, financing costs surged, reflecting a broader industry trend. The firm's overall performance, including contributions from its SKODA partnership and sustained cost management, has remained robust against the backdrop of normalizing operational expenditures.

Sustainability Efforts and Corporate Governance Leadership

Corporate governance and sustainability form the bedrock of Dogus Otomotiv's strategy, earning it top rankings and reflecting an enduring commitment to environmental, social, and economic goals. With initiatives like the de-charge brand for EVs and a focus on renewable energy, the company is at the forefront of sustainable practices in the automotive sector.

2024 Outlook: Cautiously Optimistic Amid Market Uncertainty

Looking forward, the company sets a conservative expectation of 700,000 units despite seeing solid initial performance in the year. Forecasting remains cautious until post-election fiscal and monetary policies become clearer, but preparations for market adjustments are in place to ensure continued success.

Engagement and Expectations: Closing Remarks with Anticipation for the Next Quarter

With no further questions from attendees, the call concluded on a note of gratitude for the interest in Dogus Otomotiv's strategic direction and results. The executive team expressed eagerness to reconvene in two months to discuss the first quarter's results, indicating a positive look ahead.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Dogus Otomotiv 4Q 2023 Analyst Briefing Presentation on the 18th of March 2024. Please note that today's conference call is being recorded. After the call, there will be a chance to ask any questions. At this time, I would like to turn the call over to the company's CFO, Mr. Kerem Talih. Please go ahead, sir.

[Kerem Talih, executive]

Thank you very much. I'm also welcoming all the participants. For the moment, we have almost 25 participants from online meeting, and I'm welcoming you all in the name of Dogus Otomotiv. For the moment I'm together with my colleagues from the Investor Relations and Reporting Department. I'm just wishing you a very nice week in this shiny day of Istanbul.

So after revealing our financial statements at late hours of Friday evening, I can say, we have started to get positive feedback from all of our investors and stakeholders. And we are very happy out of this, both financial and operational success of performance. And we are -- we will do -- we will continue to do our very best for us to be able to sustain this successful performance in the IFR stakeholders and investors. As we all know, as we all know, year 2023 was a year of kind of recovery after the elimination of COVID-19 or, let me say, the pandemic adverse effects together with the obstacles of supply chain problems that we were facing in the manufacturing area in the automotive world, both in terms of being able to provide more [vehicles] to be able to keep the demand of our customers and also in terms of normalization of our working standards and also in terms of the new structure of our operating expenditures, it has turned out to be a new area.

Together with that, as it has been in the focus of automotive industry for many years, the electrification is definitely in our main agenda despite the fact that the sales units in Turkey and Turkish automotive market is not material for the moment. The sector worldwide is very keen on the development of electric vehicles that I will touch this point in the coming pages of our presentation.

When you just have a glance of the major highlights of year 2023 and 2024 in the name of new launches as some of you might recall, there have been several questions relating to the new model development. Last year, even this is the presentation of '23, we have just put the information of the coming year. As you can see in the page, there are almost new launches amounting to more than 25 facelifts or new models. And one of the important -- all of them are, of course, important for us, but coming to electrification. As you can see, the Audi 7 is going to be in the market in the third quarter. And also the Audi 5 is also -- is expected to be in the market in the second quarter of this year.

This brings the fact that I will touch this point in the detail of operational expenditures. We will have a sustainable platform in the form of our marketing expenditures, I must say. The -- when we have glanced at what is new in the agenda of Dogus Otomotiv for the moment is as they have already been disclosed in the public disclosure platform. We got a new distributorship agreement of the new speed boat brand [indiscernible]. This is an extension of our Marine business. As you may have all recall, like 3 years ago, we have started to provide corporate, I must say, maintenance services for private boats in the Asian part of Turkey in Göcek, and we have expanded this facility to [indiscernible]. And for the moment, we are in phase of opening up a new branch in Bodrum.

At the top of this retail activity in terms of, let me say, not the retail, but at the top of this maintenance services, we have decided to add up the distributorship of new brands and Norway is the first one of this strategic decision. Secondly, in the second quarter of -- sorry, in the last quarter of last year, we have acquired the preferred stocks of those real estate company. By mean of it, it has started to be fully consolidated under the financial statement of Dogus Otomotiv. And thirdly, we have -- we also add a very well-known and precious brand in semi-trailer segment in the commercial vehicle segment, namely Bilton from Poland.

Maybe some of you might recall that many years ago, we were importing. And also were manufacturing the Krone branded semitrailers in Turkey, and we were distributing them. After the cancellation of this distributorship or joint venture agreement after the completion of noncompetition period, we have decided to jump into this area since this is an important complementary product together with our Scania brand.

Sorry, next page. Yes. When we have a glance at the takeaways of year '23. We have reached one of the historically highest level of total sales performance together with SKODA, which is almost 70% more than the performance of the previous level to a level of almost 175,000 units. As being one of the widest customer touch point organization in Turkey, we have increased our customer touch points 33%, sorry, 33 units and reached to a level of 684 customer touch points. And on a yearly basis, our ultra vehicle service vehicle entries has reached to a level of 1 million entries.

As a result of this operational huge developments, our net profit in terms of [indiscernible] million Turkish lira has just increased 25% and has almost touched to a level of TRY 20 billion after tax. Under the -- we have many associates under the umbrella of consolidated Dogus Otomotiv framework. And together with these associates TRY 3.9 billion out of this TRY 19.7 billion profit is stemming from [indiscernible]. And as a result of it, our earnings per share has increased to a level of TRY 96 Turkish lira.

At the top of this operational and financial successful reports in terms of corporate sustainability, we have increased our corporate covenants compliant rating to a level of 1.76 level. And we are ranked as the second highest grade in Turkey after Garanti Bankasi. And as per the survey and statistics of Refinitiv, we had this corporate sustainability score at a level of almost 85%. I will come to the detail of this in the coming pages.

Next slide. I mean since the market information has already been revealed so far, I will just go quickly in those slides. But as you all know, while we were -- I mean during last year, I mean, while we were discussing whether the automotive market is going to touch to a level of 1 million it has increased the score and has just touched a level of more than 1.2 million units, which represents an expansion of 56%. And -- but the performance of Volkswagen Group in Turkey is even -- was even more successful than that, and we have reached to a level of 171,000 units with an expansion of 62,000 units within the detail of it.

As you can see, all of our segments' performance is definitely much better than the performance of the market development itself. Within the detail of it, in the competition area, we are ranked among the -- in the -- we are ranked at the third level following Tofas Stellantis group, Renault Group respectively, with a market share of 13.7% market share. Our -- in the passenger car vehicle segment, we are ranked among the third position following Renault and Tofas Group with a rate of 15.6%. And in the light commercial vehicle, we are again, respectively following Tofas, Ford and Renault Group with a market share of 6.7%.

In terms of total sales performance, as you all know, our volume brand is for [indiscernible] passenger cars, and SKODA respectively, and amount is 174,000 unit sale, Volkswagen passenger cars with the magnitude of almost 72,000 units and SKODA with a magnitude of more than 36,000 units is the leading one. But just having a glance at the performance of Cupra. Since this is a new brand under the umbrella of Volkswagen family. We have, as you can see, increased our sales performance tremendously and has reached a level of more than 10,000 units. And I must also name the performance, the successful performance of Scania since even we have some difficulties in our price index we have increased our sales performance more than 50% and has reached a level of 2,700 units.

Coming to what has happened in February. I must say that last year and this year is a kind of typical year in terms of having the elections last year in the presidential area and this, let's say, like 1 or 2 weeks later in the area of municipality elections. At the end of the first quarter, we are going to have the elections as we had last year. And the macroeconomic environment and all the participants in the market is very keen on the developments and the decisions of the fiscal authority, [monetary] authority by means of their actions as a reflection of the unfortunate development of the inflationary environment in Turkey, which is, of course, very crucial for us since the customer behavior is also very influenced by the level of prices of the product that we are selling, not only the price of the new cars, but the used cars as well, together with the price levels of the aftersales services activities.

And at the end of February, our sales performance has increased 30% more than the previous year. Normally, the first year -- the first quarter of every year is the lowest performance in terms of quarters, but we are, of course, very happy to be able to see the result of market development, which was also surprising for the [indiscernible] in the area of all participants. At this point, I must say that the suspended cement coming from the period of 2020 to the end of 2022 is also influencing, but also our availability or the ability of the manufacturers to be able to provide more vehicle to the market has also played a crucial role in that area.

And at the end of February, we have sought in total, more than 27,000 units and being in the almost 3rd week of March, I must say that our sales performance is definitely performing very well, both in terms of units sold, but more as important as that both -- also in terms of profitability of our sales units. And at the end of February, we are again and still ranked at the third automotive group with a market share of 13.6% in Turkish automotive markets.

Now we have -- I mean, after having this market and operational overview, we would like to inform you relating to the financial performance. At this point, I must refresh that this year in terms of financial analysis of Dogus Otomotiv both from the perspective of balance sheet or income statement performance covers two new areas, which is embedded for all the companies in Turkey in terms of the application of the inflationary accounting policies, which is valid at the end of year 2023, and in terms of being able to make comparison apple-to-apple, the previous year financial performance is also subject to inflation indexation.

The second development, which is solely, that is for Dogus Otomotiv is that as you know, last year in March, we have acquired the shares of Dogus real estate company. And in the last quarter, in October, we have acquired their privileged shares, which brought us to the technical point that Dogus Real Estate company is 100% consolidated as we do for Dogus Oto Pazarlama company under the umbrella of financial statements of Dogus Otomotiv Group. So from this point on, as you're all aware, I will be presenting the consolidated financial statements of Dogus Otomotiv Group. Within which Dogus [indiscernible] Dogus Real Estate company is also consolidated and all those figures from now on are reflecting the inflation accounting figures as well.

So our revenue has touched to a historical highest level of almost TRY 150 billion with an expansion of almost 7%. And our EBITDA has just followed it, respectively and has just reached the level of TRY 28 billion in the consolidated arena. And our next -- our net profit after tax has reached to a level of TRY 19.7 billion. And our -- we are still keen on continuing our capital expenditures both in terms of making some dealer developments, purchasing of new test cars in our retail company and also in the distributor company. But as important as that in the area of IT, both in terms of hardware and software, we are still continuing our investors -- investments in this technology arena.

After the consolidation, our total assets has increased 37% and has reached to a level of TRY 68 billion and working capital is definitely a reflection of the development of all these components. Coming to margins, which is definitely a very, of course, an important and focused area -- arena that we were always having many questions and interpretations on that. At this point, as I have always been trying to explain. For the last 3 years, we are just trying to relax or maintain the questions of our investors and stakeholders in a way to secure the sustainability of this gross profitability. But at this point, I must inform you related to the performance of not only year '23, but also the performance of year '24.

In May, we will be able to announce you the first quarter results of the current year, which is going very successful both in terms of sales and also profitability, but I cannot state any figure at this point, assistance, it is forbidden. But I must say that, it means during the normalization after the adverse effects of the pandemic area, our gross profit is still about 20%, which -- but the important thing here is the evaluation of our operational expenditures. Why?

Because the years of the year 2021 and '22 was under the adverse effects of COVID-19 within which almost none of the employees were going to office. We were not making any kind of marketing activity and all the operational expenditures were kept on the minimum level under such abnormal and critical circumstances. But this year as I have presented to you the developments of the new model launches of the year, having more than 25 new model launches together with [indiscernible], our marketing expenditures has normally increased to normal market conditions, together with the incentives provided to employees as a result of this financial and operational performance.

In line with it, we have kept our EBITDA margin to a level of 18.7% and EBIT margin at 17.8%, and respectively, with the influence of OpEx over sales and with the influence, of course, increased financing costs that I will come to the details of which in the coming pages. Our net profit margin has decreased to 13.2%, which is that we believe a normal output. The breakdown of revenue and gross profit allocation. This is that we have a kind of update in this page that we used to be providing information both in terms of passenger car sales and light commercial vehicle sales.

But from this point on, knowing that those real estate company is being consolidated. As you can see in the page, almost all of the revenue is stemming from vehicle sales activities from the automotive business, I must say. And in terms of gross profitability. As you can see, we are keeping a level of 21%, both in year '22 and '23 as well. So coming to income statement. Just a second, please.

Coming to income statement. As you can see, we have increased our total performance. This is just not without SKODA because it's an equity company, not 100% consolidated. We have increased our sales units to a level of 138,000 units and the consolidated turnover has reached -- has increased 70% to a level of TRY 150 billion. As gross profitability. As you can see, in terms of gross profit margin is almost the same as compared to previous year, and we have increased our gross profit from TRY 18.5 billion to TRY 32 billion. The level of operational expenditures, as I have said in the previous page has increased by the influence of inflation more than 65% by the effect of devaluation as we own more than 75% and by the influence of additional and normalized, let me say, marketing expenditures in line with the new launches and designs and activities and campaigns together with these incentives provided to the employees.

And respectively, as you can see, our income from investing activities has increased almost 40%. This income from investing activities is the interest deposits from deposits yes, from FX protected deposits and income from associates has more than doubled itself to a level of TRY 3.9 billion. At this point, as you can see, our financing cost has increased considerably. The reason why is, as you can see in the right low part of the presentation, last year, our average cost of funding was 21.9% and last year -- I mean, the year before it was. The last year, it has increased more than 6% and it has reached to a level of 27.5%.

But also knowing the fact that we have injected a fixed term borrowing to a level of EUR 150 million to our balance sheet. The FX loss stemming from this additional borrowing is also TRY 2 billion, which is also included in this TRY 5.1 million. So then if we just eliminate the effect of the currency loss, the variation would be from TRY 2.4 billion to TRY 3.1 billion, which is easily explained by the increase in the average interest rates in terms of Turkish lira.

And after a tax increase in the tax expenditures in between which I must note, the corporation income tax has increased from 23% to 25%. And also since this is the IFRS financial statements, we have the influence of the deferred taxes as well under the office, a TRY 6 billion. And after all these influences our net profit is almost TRY 20 billion. So as we have always been trying to explain and trying to emphasize and underline our income from our associate is really a really critical and important component of our Dogus Otomotiv strategy. And as you can see, not only do the distributor and the retail company, Dogus Otomotiv and Dogus Oto Pazarlama has increased their performance but also our associates has also shown very successful performance within which the auto, the SKODA deal is the leading one. And having the 50% of this company as Dogus Otomotiv, we have [indiscernible] up with us. We have acquired TRY 1.6 billion.

And also since this is a kind of holding company that covers consumer financing, operational leasing, issuance brokerage and factoring fleet services, together with financials -- Volkswagen Financial Services AG. Having 49% of this subsidiary, we have acquired TRY 1.5 billion as well, which is followed by Dogus Technology and Dogus Sigorta, respectively.

Coming to balance sheet. As you can see, the size of the balance sheet has increased and which is an influence of the normalization after the scheduled year of -- due to pandemic of year 2022 because, as you can see, our cost level of -- I mean, the expansion is mainly stemming from the increase in our working capital, both in terms of cash trade receivables and inventories, which is a natural output of the expansion of sales units together, which is supported by the increase in our trade payables and financial liabilities. But at this point, I must refresh or provide the information that bank liabilities this time also covers since this is 100% consolidated -- is also covers the bank liabilities of Dogus Real Estate company as well at a level of, as you can see in the detail of it, TRY 9.8 billion.

And as you can see, the total magnitude of our investments in equity accounted investees has increased from TRY 5.2 billion to TRY 8.5 billion at the end of 2023. And the size of our balance sheet has reached to a level of 67 points TRY 8 billion at the end.

The -- at the detail of financing costs. As you can see, the foreign exchange loss of [indiscernible] is at a level of TRY 3.9 billion, which is the consolidated figure, which is stemming from Dogus Otomotiv and also Dogus Real Estate company as well. And interest and borrowing costs is 15% more than the previous year, which is the development of the increase in the average interest rates provided by banks. And the rest of the figures I must say, are in line with the total flow of our business, respectively.

On the financial performance, our working capital in line with the EP sales units has reached to a level of TRY 32 billion. And the turnovers are both in terms of receivable inventory and payable turnover are in line with the development of our sales performance, and there is not any specific at this point, I must say.

Coming to sustainability management, Arda would you please help me so that I can drink a cup of coffee meanwhile.

[Yavuz Arda Yildiz, executive]

Of course. Hello, everyone, and greetings from Dogus Otomotiv Investor Relations department. As you follow corporate governance and corporate sustainability are milestones for our company strategy, that is why we would like to start with a sustainability management effort of Dogus Otomotiv. The Chinese we conclude that we can divide our strategy is five parts. As you can see in the presentation as well, double materiality, find opportunities, stakeholder engagement, business model and impact on value chain. These points are highly correlated to each other.

And the milestone of this cycle is risk and opportunities. We are aware of the importance of risks and opportunities well. If you take a closer look to highlights of our sustainability journey, in the environmental line, we have created the de-charge brand, and it has been operating on charging units, charging stations, charging networks and provision of charging services. And additionally, we had electric vehicle sales of approximately 1,000 units. And last of all, we have been using renewable energy sources on our headquarter and dealer network.

It will be understanding the [indiscernible] resources will be very important in terms of cost saving of Dogus Otomotiv. On the social line, we are the first company in Turkey which declared its human rights priorities. And additionally, we have been implementing the corporate governance and corporate sustainability assessment program in authorized dealers and services. It means 20% of the dealer network. And in the economic line, we are included in the sustainable '25 Index. And according to Refinitiv evaluations, we are ranked the first among approximately 300 companies worldwide in the retail sector. And last of all, we are the first company that has the highest corporate sustainability rating score in Turkish -- in Turkey automotive sector.

If you take a wide way in the slides, we are really honored and I'm glad to share great news with you. As Kerem Talih has emphasized in the beginning presentation as well, the Dogus Otomotiv at the end of December, Dogus Otomotiv is the second company with the highest corporate governance rating score in Turkey. It does not mean only being in second place, it also means that 12 years off consistently increasing remarkable performance, as you can see in the presentation as well, we have reached to the level of 9.76 points. And we have -- on employer representation at the level of Board of Directors, presentation and disclosure scope of [minority] rights in terms of annual report.

And last of all, again, a presentation and disclosure scope of the evaluation of company performance in the context of annual reports. Just like corporate governance rating coupled understanding the importance of corporate sustainability will be very crucial for Dogus Otomotiv and shareholders. Just like corporate governance, we have been increasing our rating score. As the beginning of March, we have reached the level of 84 points from 66 points. As you can see in the -- as you can see in the right line of the screen, we have been improving ourselves and our rating score for each segment of corporate sustainability rating.

[Kerem Talih, executive]

So thank you, Arda. Coming to the expectation of 2024. These days all the participants in the market is kind of discussing whether the performance of the first 2 months can easily be reflecting to the remaining cost year or not. At this point, I must share the information that I believe most of you is aware of this information. The proportional sales, which is exempted from taxes, the vehicles that are sold to disabled people constitutes in January like 70% of the total sales, but this percentage has decreased almost to a level of 20% in February, but the total sales performance of the market has not increased.

And in March, even it is performing definitely on a sustainable level. In that respect, we believe that we had better see the performance and the probable actions, which are to be taken by the fiscal and the monetary policymakers just after the elections. But it will be more easy for all of us to be able to make a kind of forecast for the remaining of the year, maybe in April and May.

In that respect, we are still keeping our expectations at the level of not more than 700,000 units, but we are definitely closely monitoring the market together with the OEM. And both -- in both terms, in terms of downsize of expansion, we are ready to take the related measurements I must say. So this is the end of our presentation from this point on. We can -- we are more than happy to respond to your questions if you have any. Thank you very much for listening to us.

[Operator]

[Operator Instructions]

Our first question comes from Mr. [indiscernible] from [indiscernible]. I think he has dropped line. We will just wait for him to reconnect.

[Operator Instructions]

[Kerem Talih, executive]

If you may be having some technical obstacles, please, if you can hear me right now, but cannot be able to express himself, he can call myself, my colleagues any time. We are more than happy to provide any information. So I think there is no question, if I am not wrong.

[Operator]

Yes, correct. It seems Mr. Kerem, your presentation was very comprehensive, as always. And it looks like we see no questions at this point. Actually, we do have a question, that just came in. If you don't mind, Mr. Kerem will take it. The question is from Cemal [indiscernible] from [indiscernible] Invest.

Unfortunately, Mr. Cemal has dropped when we unmuted him. Just one second, we will maybe wait for him to reconnect. No, it looks like indeed, there are no questions. Perhaps we'll pass the line back to you Mr. Kerem for any concluding remarks.

[Kerem Talih, executive]

So thank you very much for your time because it was a pleasure for us to be able to present the successful results. And like 2 months later, we will be back on stage, we will by the results of the first quarter. So thank you very much for your time, and we all wish you a nice week. Thank you and bye-bye.

[Operator]

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