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Ladies and gentlemen, thank you for standing by. I am Yota your chorus call operator. Welcome and thank you for joining the Koç Holding conference call to present and discuss the First Quarter 2018 financial results. At this time, I would like to turn the conference over to Ms. Gizem Poyraz, Investor Relations Manager at Koç Holding. Ms. Poyraz, you may now proceed.
Thank you, welcome, everyone. Thank you for joining us this afternoon. I am Gizem Poyraz and I have here with me our CFO, Mr. Ahmet Ashaboglu; our IR coordinator, Gülsevin Tunçay; and Fatih Sertdemir, our Finance Coordinator. I would like to remind you that our presentation and the Q&A session might contain forward-looking statements. Our assumptions are based on the environment and our businesses as we see them today, and this might be subject to change. Before the call, we have sent our e-bulletin, which contains the link to our earnings presentation. After the call, you can access a replay facility on our website, together with the transcript. Now I would like to hand over to Mr. Ashaboglu to start the presentation by commenting on our positioning and recent actions. At the end of the presentation we will have a Q&A session.
Thank you, Gizem. Welcome and good afternoon. As you all know, we put a lot of emphasis on sustainability. In this regard, we managed our balance sheet to ensure that we always remain resilient while also benefiting from opportunities to strengthen our portfolio. One of our key principles is to have a sustainable and efficient level of net cash at the holding level. We managed this taking into account 2 levers. One, our dividends in and out; and two, our investments and growth opportunities. The first part of this equation is our dividend income. We have been saying for a long time that our dividend income would have a step-up in 2017 and this is exactly what happened this year. In fact, we had a doubling of our dividend income, up to TRY 2.5 billion. This was due in part to the full repayment of this EB debt, which was obtained as an acquisition-financing tool for Tüpras back in 2016. However, a much larger part was due to the significant improvement in the performance of our underlying companies, especially leveraging on the investments that they have made over the last 5 years.
We expect the strong free cash flow generation of our underlying companies to continue also this year. Therefore, we expect to generate solid dividend income into holding. The second part is dividend payment Koç Holding. We've been very consistent in this regard over the years. And we will continue to manage this, taking into account our investment opportunities and our net cash position. Even though our dividend payouts declined slightly this year, it is still relatively aligned with our historic average payout ratio of 20%. This was to ensure that while generating dividends for our shareholders, we maintained our strong positioning. Strengthening our businesses, while ensuring sustainability is of utmost importance to us. The third important point therefore, is our net cash position. We like to keep a specific level of cash to serve as a war chest against volatility and firing power in case we find a good investment opportunity. Our net cash over the last 2 years covered around $515 million. This increased to $1 billion in the first quarter of this year and stood at $800 million including our dividend payment, which was made at the beginning of April. I am sure you are all aware that YKB, the bank in our portfolio announced a $1.5 billion capital strengthening plan at the beginning of this month, $1 billion of this will be through a right issue, where both ourselves and UniCredit will participate 100%. Our own share corresponds to around $345 million. This means, that our adjusted net cash position currently stands at around $455 million. A level which is aligned with prior years and can easily serve as a war chest and firing power. This approach will strengthen further with our dividend income in 2019, and we don't foresee another capital strengthening action in our portfolio until then. If we touch upon YKB shortly, we have seen a marked improvement in profitability over the last few years, but there's still improvement potential that we want to unlock. Considering our positive view of banking sector dynamics going forward, we believe that this capital strengthening, together with the bank's clear strategic roadmap, which has been announced, will ensure every rating of YKB and further contribute to our portfolio strength. The bank is targeting return on equity about 17%. And we are confident that this plan is achievable. For Koç Holding, this will mean a great return of our capital, a boost in our net asset value, and an increase in our consolidated profitability. Additionally, it is yet another indicator of our capability to make bold investment decisions to transform businesses and ensure strong returns.
With a net cash position of around $455 million, we are also very clearly in a position to benefit from growth opportunities as they arise, while not keeping excess cash on our balance sheet.
As I already mentioned our disciplined approach in terms of how we manage our balance sheet, let's move to Slide 3 to look at some numbers regarding risk management. I don't want to go into detail of our cash position but just to mention that it is very solid, and in fact, our only debt is 2 Eurobonds where the proceeds have not yet been used but also generating negligible negative tariff. We currently have a gross cash position of $2 billion. Three other areas, which we monitor closely, both on combined basis as well as for each specific underlying company are: liquidity, leverage and FX position. You can see that all of these indicators are very conservative. In terms of FX, we have a long position currently both on a solo and consolidated basis, well within our risk management rules.
Going forward, we will continue to adhere to our prudent risk measures and maintain our solid balance sheet profile. Maintaining this disciplined approach gives us great resilience in terms of currency and market volatility.
Now I would like to quickly summarize our first quarter 2018 performance focusing on the flagship companies in our main sectors, let's start with energy and Tüpras on Slide 4. In the domestic market, we saw robust demand for all of our refined products, there was around 13% year-on-year growth in diesel, driven by ongoing infrastructure investments. Jet fuel sales volumes surged by 25% year-on-year, thanks to uptick in number of tourists and gasoline increased by 14%. When we look at the refining margin in the first quarter, we can see a $1 decline in the Med complex margin to $4 per barrel due to lower gasoline and fuel oil cracks.
On the other hand, diesel and jet fuel cracks infilled due to a mix impact of refining -- of refinery maintenances globally, strong global demand, growth in aviation as well as cold-weather conditions. In the first quarter Tüpras undertook important maintenance activity. The last similar one was in 2014. In order to be prepared for the high season and effectively position for the upcoming IMO 2020 market opportunity. These maintenance shutdowns has an impact on net refining margins as a result of lower production and higher cost per barrel. Margins were also impacted by narrowing crude differentials. However, both of these indicators -- for both of these indicators, we expect an improvement in the remainder of the year. Year-end expectations incorporates these impacts. Net refining margin is expected to be $7.5 to $8 for the full year compared to Med Complex level of $4.75 to $5 forecast. Capacity utilization will be around 100%. On the LPG side, consumption expanded by 8%. Aygaz, the leading player in the LPG sector focused on profitability during the quarter. The company had a 7% decline in total volumes but domestic sales volume remained flat. Aygaz has maintained it's full year target of 330 to the 335 tons per cylinder gas and 750 to 785 ton for Autogas. These figures point to relatively stable volumes year-over-year. Accordingly, if you look at the Energy segment contribution to Koç Holding, we can see share and combined operating profit and consolidated net income are 27% and 14% respectively. There was a decline year-over-year in both of these items, mainly due to the impact of plant's shutdowns and narrowing crude oil differentials at Tüpras.
Let's move to Slide 5 and discuss the developments in the auto segment. Again, starting with the sector trends, we can see that the Turkish auto market grew by 2% in the first quarter. Looking at the segment, passenger cars sales grew by 5%, while light commercial vehicle sales declined by 10% in the same periods. Exports displayed a slightly weaker performance with 3% year-on-year decline, again due to the high base of last year when growth was 33%. In this period, we focused primarily on profitability. In the domestic wholesale market, we had relatively flat volumes overall, while the retail market share declined slightly. In terms of exports, we gained market share supported by 10% year-on-year increase in Ford Otosan export volume.
Tofas exports declined due to high base impact, where growth was 35% last year. Looking at the total revenue performance of Ford Otosan and Tofas, we can see 35% and 8% growth, respectively. This performance was driven by both domestic and international revenues. For both companies international revenues contributes around 80% to total revenues, with growth driven by solid volumes and currency impact. On the domestic front, both companies were able to record strong growth, thanks to their focus on pricing. Regarding 2018 expectations, domestic market is expected to remain relatively flat Ford Otosan kept its domestic volume guidance, but raised it's export volume guidance on export units positive outlook by 3% to 305,000 to 315,000 units, which indicates around 4% growth in exports. Previously announced capacity increase climb is on their way, and will be completed by the end of September '18.
Total CapEx guidance is around EUR 220 million. Tofas made no changes to its previous 2018 guidance, whereby the company expects slight decline in domestic volumes both flat to 7% growth in its exports.
CapEx will be around EUR 116 million. Let me also touch upon our tractor company, TürkTraktör. Total revenues grew by 9% year-on-year, supported by pricing focusing the domestic market and currency impact for exports. Although tractor market in Turkey had a slow start to the year, first quarter is down by 13%. For the full year, it is expected to be flat to slightly up. In summary, we can see that the successful performance of all of our auto companies resulted in solid contribution of auto segment for Koç Holding. Overall our auto segment accounted for 25% of the combined operating profit of the group. The auto segment operating profit increased by 20% year-on-year and consolidated net income contribution reached TRY 429 million, with 66% year-on-year growth. I would like to highlight that we had a one-off positive benefit from the favorable purchase gain of auto Koç on its acquisition of a car-rental business in Greece. This impact is TRY 109 million with a consolidated net income level, and therefore adjusted growth is 24% year-on-year.
The main drivers of this positive performance were: Solid international revenues, higher euro-TL parity, pricing focus, and tight OpEx control more than offsetting increasing raw material prices during this period. On the next page, we can look at the Consumer Durable segment on Slide 6. In this sector, domestic white goods sales decreased by 19% year-on-year, due to high base impact of the special consumption Tax Cuts last year, whereby the market grew by 36% year-on-year. Important markets like Western Europe recorded a slight decrease due to weaker volumes in U.K., Germany and Italy, but this was offset by the strong performances of Eastern European markets especially Poland and Ukraine. Overall exports increased by 7% year-on-year. Looking at Arçelik revenue figures. Domestic revenues declined by only 3%, due to price increases despite sluggish domestic volumes. On the international front, revenue growth was strong at 26%, driven by both organic growth and currency impact.
Eastern Europe, South Africa and Pakistan were the main markets contributing to the organic growth. First quarter also marked the successful period in terms of market share gains all across Europe. And Beko was the top market share gainer. In terms of 2018 guidance, domestic market is expected to remain flat to 5% down year-on-year. Revenue growth is expected to be around 20% and EBITDA margin of around 10% with improving performance to continue in the following quarters. Arçelik management reiterated price adjustments will continue, should raw material prices increase further. Overall, the Consumer Durables segment operating profit increased by 9% year-on-year and contributed 10% to the group's total combined operating profits. This performance was driven by price hikes in Turkey, stronger euro-dollar parity and effective OpEx management despite pressure from raw material prices. Finally, let me also briefly talk about finance segment and the developments at Yapi Kredi bank on Slide 7.
Yapi Kredi's net income grew by 24% year-on-year to an all-time high of TRY 1.2 billion and the return on total average tangible equity was 17.1% with 126 basis points improvement, decreasing cost/income by 3 percentage points to 36% and positive trend in cost of risk supported this performance. The bank focused on selective and balanced growth and market shares remained relatively stable compared to the end of 2017.
Loan growth was well diversified among segments. Deposit growth was driven by increasing TL deposits, with continuing focus on demand deposits. Bank only capital adequacy ratio of close the quarter with a slight decline at 14%, incorporating the one-off IFRS 9 impact and sub-debt amortization offsetting the positive impact of return on capital generation. For 2018, YKB revised up its full year guidance. Accordingly, the bank now expects high teens net income growth driven by better cost income performance, leading to further improvement in return on average tangible equity. Capital adequacy ratio is now expected to be above 15% via capital strengthening plan and internal capital generation.
Overall, Finance segment operating profit increased by 38% year-on-year. And the share in total combined operating profit was realized at 40%. In terms of consolidated net income, the total contribution reached TRY 459 million with 33% year-on-year growth. If you move to Slide 8, we can talk about the overall results of the group as a result, incorporating all of the segment trends we just discussed. On a combined basis, Koç Group registered TRY 57.5 billion in revenues, TRY 4.1 billion in operating profit, and TRY 2.9 billion in net income. The consolidated net income performance on a year-on-year basis was relatively flat, minus 8% excluding the one-off related to Auto Koç that we mentioned earlier. This is mainly impacted by the Energy segment. Excluding the Energy segment, consolidated net income growth is 20%. In fact this is exactly the reason why we formed our portfolio incorporating companies and sectors with different cyclicalities and sensitivities. We as Koç Holding are able to manage our performance and record sustainable results even when there are seasonal impacts in 1 specific sector.
On Slide 9, we can see the breakdown of the consolidated net income performance. Our consolidated net income remains relatively flat in Q1 at TRY 1.1 billion. The biggest contributor to this performance was the finance and auto segments. Energy segment on the other hand contributed negatively due to the impact of Tüpras that we mentioned earlier.
I would like to wrap up our presentation on Slide 10. In summary, we recorded a sustainable performance in Q1, we have taken a step to strengthen YKB's performance and we are confident that it's contribution to Koç Holding will increase going forward. Also incorporating the announced capital increase, where we will participate fully, our net cash position remained solid and at efficient levels. This allows us to continue to scan the market for further growth opportunities, to further enhance our shareholder return. We of course, maintain our risk discipline as always. Thank you for listening. And now we can open the floor for questions.
[Operator Instructions] The first question comes from the line of Memisoglu Osman with Bank of America Merrill Lynch.
I have 2 questions. One on how you see the current macro environment, where you see any upside or downside risks to your budget in the core businesses as much as color you can give us? And on the second part, how do you see your strategy on the utilities business investment? I know you've been relatively active recently on that front with the hydropower tender win, but any color you could give me on that front -- on a medium-term level would be helpful.
Thank you for the question Osman. As to the macro environment obviously, it is a bit of a difficult question to answer given the upcoming elections and the volatility that we have been seeing in the past few weeks in the marketplace. But having said that, our base case scenario remains intact. We think that 2018 overall when everything is said and done is going to be a fairly okay-ish year for the Turkish economy for the GDP growth, it will be below last year most likely. But at the same time, probably at or around it's -- medium to long-term average potential.
As to the energy generation sector, as you know that has been a sector in the marketplace that has gone, and somewhat still continues to go through some difficulties. We have been saying for a long time that the assets valuation has been a bit irrational so therefore higher than where they needed to be and while we had been seeing in the past year or so, a bit of rationalization along those lines and the valuations have started approaching to fair value in our opinion. Our recent investment in [indiscernible] is an example of this view. We have -- we do believe that we have acquired very good assets at fair valuation and we are quite bullish about the potential of that sector. So we will continue to scan the marketplace for good assets, which we do believe we'll be able to fetch good and favorable valuations for our shareholders. But we will continue to be very selective along that dimension.
We will continue with a question from our webcast participant Myra Chen with AIG asset management and I quote "Will Koç consider to enter real estate sector?"
Okay, thank you for that question as well. Real estate sector is not currently within our strategy.
We have another question from our webcast participant, Salim Kantar with Genesee Invest. "Thank you for the presentation, could you please elaborate on your investment plans, if any, for the 2 Hydroplants? And would it be possible to give some color on the profitability expectations of these assets?"
Okay. For us the EBITDA margin, for that sector is around 30% and this is our forecast for this year. In terms of evaluating, while there are evaluating assets in that sector, we are looking a note of 16% IRR.
Ladies and gentlemen, there are no further questions at this time. I would now turn the conference over to management for any closing comments. Thank you.
Thank you everyone for joining us this afternoon, again. So we are looking forward to meeting with you again in our second quarter results in August. Thank you. Bye-bye.