Ladies and gentlemen, thank you for standing by, and welcome to the Doğuş Otomotiv Q3 2024 conference call on 12 November 2024. Please note that today's conference call is being recorded. After the call, there will be a chance to ask questions. At this time, I would like to turn the conference call over to the company Chief Financial Officer, Mr. Kerem Talih. Please go ahead, sir.
Thank you very much. Good afternoon. I am welcoming you in the name of Doğuş Otomotiv. I am here with my colleagues from the investor relations department. Initially, we would like to thank you for your participation to our financial performance presentation meeting at the end of the third quarter. Considering that the presentation has been revealed beforehand, I will be going through the presentation smoothly, and will be letting you to ask your questions at the end of the session, of course, if you have any. Before going into the details of the slides, we are in a kind of area. Again, the Turkish automotive market has already touched the historically expected highest level of total market size. At the end of October, the market size has almost reached to a level of almost 1 million units. As you all would remember, last year, the figure was 1.2 million units.
At this point, it is not difficult to perceive or assume that at the end of the year, the total size of the market will again be at a level of, again, 1.2 million, respectively. The second point I would like to highlight is, of course, the main agenda of the market is, as it has been for the last couple of years, the electrification and the recent developments. There are new players in the market, and both of the current players in the market are launching their new models. As Volkswagen Group's representative in Türkiye, we are doing our side as well. I will come to the related information in the forthcoming pages. But in the first quarter of next year, I can say at this stage that all of our brands will be in the EV market, in the Turkish automotive market, respectively.
The third headline I would like to underline at this stage is, as you know, for the last couple of years, we are trying to play the game in such a high inflationary environment. The Ministry of Finance of Türkiye is very keen on lowering the figure of inflation. They are playing all the cards, both in terms of interest rate policy and also with fiscal policy instruments, within which the liquidity availability and the cost of funding is considerably high in such a period. In that respect, our customers are somehow preferring to buy the cars, as compared to previous periods, of course, in cash. This is also an important determinant in the market. Coming in line with the presentation, what is new?
As it has already been disclosed in the Public Disclosure Platform, we have got the permission from Capital Markets Board of Türkiye to be able to issue a bond with a maturity of three years amounting to maximum TRY 2 billion . We have just made this specific application and got the approval in order to be able to create an alternative liquidity instrument. For the moment, as you can also see in our financials, our liquidity position is so strong. If needed, this instrument will be a kind of alternative source of funding. Considering that the current quotations in terms of cost of issuing a bond is not so much different than acquiring a bank loan. In that respect, we have not activated it yet, I can say, and we are just monitoring the developments in the market.
Knowing that interest rates and the yield curve is downwards, we are not expecting an increase in interest rates for the following period. In that respect, we will continue to monitor the market respectively. Coming to the dividend payment, advance dividend payment, sorry. We have already paid TRY 2.2 billion , which is the distributable profits, 50% in the form of advance. Yesterday in the Public Disclosure Platform, we have announced that with the figures of the third quarter, we are not going to perform any advance payment of our dividends. Since the third item is the directors' and officials' liability insurance that the authority forces us to enhance it, we have renewed the related insurance policy respectfully and successfully.
When we have just have a look at the key takeaways, we are in a market rollout or circumstances within which the sales performance is almost the same of the previous years. This 126,000 units is a figure including our Škoda brand. Just to refresh, Škoda brand is being represented in Türkiye by Yüce Auto, which is a joint venture between Doğuş Otomotiv and Yüce family members. So we have sold the same amount of vehicles as compared to the previous year in the same period. But the important point here is that our performance in the commercial vehicle sales is really going very successfully, which is more than 30% better than the previous year, which is in line with our supply availability, which has been better off as compared to last year. Knowing that we have more vehicle availability in our leading models, namely Crafter, Amarok, and Caddy.
As a result of this sales performance, our total vehicle park has almost reached to a level of 2.5 million units in Türkiye. Coming to financial highlights, I will go through the details of them in the coming pages, but I must underline two major headings, which is the normalization of profitability in line with demand conditions and also the influence of the inflation accounting, which is applicable and influential, I must say, not only for Doğuş Otomotiv and Doğuş Pazarlama and Doğuş Gayrimenkul real estate investment company , but also our from associates as well. In that respect, we have a considerable decrease in net profitability. But I presume that all those participants in this meeting are totally aware that in line with the, for the moment, we have 36 participants, by the way.
In line with the influence of the inflation accounting for companies like us, the capital structure of which is so strong in our financial statements, we are definitely having the adverse effects of inflation accounting. This is also applicable for our associates as well. For all the companies who are quoted İstanbul Stock Exchange and who are under the regulation of inflation accounting, just to remind you, for example, banks are exempted till the end of this year, at the beginning of next year, they will start to apply the new inflation accounting regulations. Most of the companies who has a strong equity position in their balance sheets are in the comparative form in their financial statements are facing this downtrend in their net profitability.
But as the management of Doğuş Otomotiv at this point, I must say that we do not name it as a kind of problem or a challenge, but definitely it is a normalization phase. Because for the moment, even the current margins in terms of gross profitability, not only for vehicle sales, but also for used cars and also spare parts sales are definitely above the historical average of the last 20 years, I can say. But even there is a slight decrease in our net profitability. We are still keen on maintaining our capital expenditures, both in the form of purchasing new test cars, the new facility of our Scania brand in Şekerpınar in our headquarter campus, plus the related infrastructural investments in the digital arena as well.
One good news here is that since our equity performance is going successfully, since in inflation accounting, since it has been restated, the portion of financial liabilities has decreased 3% as compared to the previous year. On the next page, in fact, we have the details of the September market information, but knowing that we have already the figures which is more up-to-date at the end of October, I just prefer to go to the details of the October market performance. As I had said, it has almost reached to a level of 1 million, which is almost only 2% less identical to the performance of the previous year. As you can see, our sales figures has increased even 5% and has reached to a level of 140,000 units.
As a perception of what is going to happen at the end of the year, we are planning to sell 125,000 units, our Škoda brand is planning to reach to a level of almost 45,000 units. When we add them up, at the end of the year, our total sales performance will be around 170,000 units, which is almost similar to the performance of the previous year, I can say. When you just consider this performance on brand basis, as you can see, our leading and volume brand is Volkswagen passenger cars, has reached to a level of 56,000 units. In light commercial vehicle segment, the performance is more than 35% better off than the previous period, as I have noted, in line with the increase in vehicle availability and with the overcoming of some supply obstacles in the body of the OEM.
There is still some shortage of supply in our Audi, relating again to the planning of the German management, I can say. But in the next year, we are expecting these obstacles to be overcome. As you can see, even the slide figures are less. Lamborghini is really performing so successfully, and we are getting the related market share in the luxury segment as well. At this point, I must note the performance of Scania, because this is in the import segment. In the total high commercial, heavy commercial, sorry, vehicle segment, this is the most expensive vehicle with the highest price index. But we are still being able to maintain our sales performance as we did last year at the end of the third quarter of the year.
When we just consider the allocation of market share performance, both in passenger car segment and light commercial vehicle segment, and in the total, by the way, this allocation is the same at the end of September as well. We are keeping our third share after Tofaş and Stellantis Group, and Renault Group, respectively, at a level of 14.6%. Coming to financials. Of course, the normalization of gross profitability has decreased our total revenue to a level of TRY 120 billion, which is 20% less than previous year. At this point, I must say that in the previous year, maybe I will come to the details of these figures in the margins page, but there is a decrease in our gross profitability, mainly in our new vehicle sales.
Respectively, in line with the increase in the operational expenditures, in such an inflationary environment and with the influence of devaluation of Turkish lira against U.S. dollar and euro, our EBITDA has decreased to a level of TRY 14.2 million. After financing expenditures, our net profit is at a level of TRY 6 billion. In the next page, I will just be informing you, going through a bridge, which we believe, which will be easier for you to be able to understand. As I have said, our capital expenditures are definitely almost doubled as compared to previous year. With the normalization in the total market, our total assets have decreased slightly to a level of 10%, within which working capital is a component of it.
In this slide, we just would like to go through to the moment of historical profitability performance of third quarter 2023 to the indexed figure of this historical performance. When you just go through the disclosed report, our previous year's third quarter performance is TRY 15.2 billion. From that day onwards, in the last one year, we had, let's say, almost, not almost, 50% inflation. All this performance has been increased by the coefficient to a level of an additional TRY 7.5 billion. The September of last year, the majority of the shares of real estate investment company has been acquired, but the privileged shares has not been acquired. In that respect, last year, it did not used to be consolidated. Knowing that at the end of last year, we started to consolidate it.
In terms of comparative financial statements, the related company is also consolidated in our financial performance, financial statements, which brought additional TRY 400 million . The net of inflation accounting policy change, which is the presentation of our real estate in the market value as compared to the minus effect of inflation accounting at the net, has brought TRY - 934 million . As a result of it, this historical performance of TRY 15.2 million is now in inflation reporting has turned out to be TRY 22.2 billion . In the following page, as you can see, we are just bridging this TRY 22.2 billion to the net profit of the third quarter of 2024. Changing our growth profitability is almost TRY -14 million .
At this point, I must note that the gross profitability last year for new vehicle sales, was more than 20%. At the end of third quarter, it has decreased to a level of 14%. As I have tried to explain in the beginning of the presentation, even this 14% is above the minimum last 10 to 15 years' average. We are still getting advantage of this surplus in our gross profitability. Three, as you can see in the presentation, our operational expenditures in total is TRY 3 billion more than the previous year. But within that, one time effect of the social cultural donations to Hatay region, as you can see in the footnote, is TRY 1.8 billion TRY. When we just eliminated it, the incremental effect in the last year was only TRY 1.2 billion .
When we just consider the launches of new models, so on so forth, and the salary adjustments and so on so forth, it is just in line with the increase in the inflation. The profit arising from investing activities, which is mainly dominated by the sale of test cars and the performance of time deposits and fixed preventive deposits, it just ended last this year. In that respect, there is a slight decrease. More important than that, we will see the detail in the coming pages. If the contribution coming from affiliates and business partnerships is TRY 5.1 billion , lower than the previous year. Here at this point, more than the normalization of growth profitability in Turkish automotive market, the adverse effects of inflation accounting is really playing a very key role, unfortunately.
On the positive side, the financing costs are TRY 3.6 billion lower than the previous year. Again, at this point, for clarification, I would like to note that all those figures are inflation accounting embedded figures. In that respect, the historical financial costs have already been indexed, and this comparative figure is the difference between the performance of the end of that third quarter 2024. Within which one key point is the relatively lower interest rate, but more than that, the normalization of currency loss, knowing that the value of devaluation last year was definitely was much more than the degree of devaluation this year. At the end, the monetary loss, which is mainly driven from the indexation of shareholders' equity, and the other instruments at the net is TRY - 2.2 billion .
Knowing that there is considerable decrease in our profitability, our taxation expense, of course, which also covers deferred taxes as well, is TRY 4.7 billion, less than the previous year. At the end, we end up with a profitability performance of TRY 6 billion. In fact, with those two slides, I have already increased all the variances and important financial takeaways, in the P&L comparison. Coming to the performance of our margins, our gross profitability, which is the weighted average of new vehicle sales, most importantly, plus spare parts, plus used car and other service areas, has decreased to 16.6% from more than 22%. As I said, the major determinant here is the normalization of new vehicle sales profitability, which used to be more than 20%, which is for the moment, 6% less than the previous year, which is definitely underlined by the market conditions.
As you just can consider the financial performance of the competitors, as we are doing so, we are kind of really in a better position as compared to them. When you just consider the OpEx over sales performance, here the Donation to Hatay region after this devastating earthquake. When this TRY 1.8 billion is eliminated, the OpEx over sales is, in fact, since this is a one-time effect, is TRY 4.6 billion. As you may recall, our historical threshold or upper ceiling is 5% in the average of last 10 years. So in such an inflationary environment with more than 50%, I can say that operational expenditures are 100% under the control of our management. Respectively, our EBITDA margin and EBIT margins has decreased to the respective levels of 11.8% and 10.5%.
After the financing costs and after the material and devastating influence of inflation accounting, our net profit margin has decreased to a low of 5% respectively. In the detail of the income statement. In fact, in the related pages that I was explaining the reconciliation of the previous year and this year and the effects of inflation accounting, I have already gone through all those information. But here, as you can see in the footnotes on the revenue side, the yearly increase of euro to Turkish lira rate is at a level of 30%. The variation in our model mix and also inflation accounting has really, somehow, how to sell, has really created a different scheme in the financial statements of all companies. As you can see here, our financing costs are definitely considerably lower than the previous year.
As you can see in the explanation chart in the right side of the table, the average cost of funding, which used to be 22% in the third quarter of previous year, it has increased to a level of 50% this year. But as I have already said, since the FX loss is at a very lower level, we are just having the cost out of the interest rate, interest paid to working capital loans, and also to the loans acquired for investment purposes. This page is only a comparison of the quarterly performance, which is of course, a reflection of the third quarter as well. As you can see, the profitability in line with the normalization and in line with the monetary gain and loss. Not only the gross profitability, the profit contribution coming from main activities, but also the income from associates has also decreased considerably.
Coming to the performance of the associates. As you can see, the positive contribution is coming from TÜVTÜRK, which is the vehicle inspections company at the consolidated level. The major variance we can see here is in VDF and Yüce Auto. in Yüce Auto, the output is almost the explanation is identical to what has happened in the financials of Doğuş Otomotiv, which is the normalization of their gross profitability. More than that, the monetary loss, which is stemming from the inflation accounting, unfortunately. In VDF Servis, this more than 200% deviation is mainly coming from VDF Servis company, which is vehicle operational rental company under which they are unfortunately getting the adverse effects of their residual value provisions.
Knowing that in the last two years, in the second-hand, in the used car market, the average vehicle prices has decreased considerably in line with the more availability of the new cars. By the booking of additional residual value provision, their consolidated performance has unfortunately turned out to be negative. Here also, they also have the adverse effects of inflation accounting again on equity, as we have in Doğuş Otomotiv and in Yüce Auto as well. Coming to the balance sheet. As you can see, the total size of the balance sheet has decreased 10% to a level of TRY 83 billion . We just consider the major variances. The decrease in cash and cash equivalents is definitely driven by the payment of our dividends. We have paid or allocated all the distributable profit of year 2023 in April this year.
In that respect, our liquidity has decreased to a level of TRY 1.5 billion at the end of third quarter. Our trade receivables are relatively low, which is in line with our turnovers and our inventories. As you can see in the explanation of the right side, the total vehicles has increased from 11,000 to 18,900 units. When you just consider the operational performance of a distributor or a retail company, mainly the level of inventory should at least cover your sales performance of the forthcoming two months. For knowing that we have already sold more than 100,000 units at the end of third quarter of the year, having an inventory level of 11,000 units, is less than the requirement of the forthcoming of the two months.
As knowing the performance of November as well, I can definitely say that our sales performance is really going very successfully. The other variance is relating to financial investments, which is 22% less than the previous year. Here we are keeping our share in Doğuş Holding company, which is 3.69%. Also the book value of it is relatively lower than the previous years. Also in the investment property, which is TRY 13.9 million . Just for clarification, I must note that these are the real estates ready for rent or sale, which is mainly completed by our buildings in Kartal, and in Ankara, Etimesgut region, respectively. We have paid some portion of our debt in line with the payment schedule, in payment schemes of our borrowings. Therefore, our total liabilities are 20% lower than the previous year.
At the right side of the page, you can see the breakdown of our financial liabilities, both in terms of currency type or both in terms of their maturity. Coming to financing costs, as you can see, our interest expense on borrowings is only 13% higher than the previous year, despite the heavy increase in financing in the Turkish lira based working capital loans. The other figures, in fact in this page they have already said, more than half of the foreign currency loss has not occurred this year. The major saving is coming from the elimination of foreign currency loss out of foreign currency denominated borrowings. In this page, as you can see, the variances in our working capital net cash, the change in our receivable inventory and payable turnovers, which is definitely determined by the market conditions.
Here I do not have much to add on that. Coming to our sustainability strategy and policy, we are not going to repeat what we have tried to explain in the last meeting. Under this heading, everything is going as planned, and we have already revealed our sustainability report, so on and so forth. In that respect, I am not going to take your time additionally, since we do not have much to add on this headings. Coming to the expectations of this year and what is being planned for next year. As I have said, we are expecting the total market size to reach 1.2 million units and we are expecting that our sales performance will be around 125,000 units. We are still continuing our investment expenditures, both in the form of machinery, equipment, test vehicles, digital infrastructures, so on and so forth.
Also in the body of D-Charge, we are continuing to make the related investments in the form of electrical vehicle charging stations. Having said so, just a second please. Sometimes my voice is getting tired out of speaking. I am sorry. Relating to electrification, the performance of charging stations is also in line with the performance of the new vehicle sales for our brands. At the end of this year, we would have sold more than 3,500 cars. For the next year, we are expecting our new EV sales to be around 15,000 units. Within which, just to make a quick recap, the EV model of Porsche is already in the market for many years. The EV models, the e-trons of Audi has already been in the market effective from 2023.
This year, last month, we have already revealed the EV of ID. Buzz, which is the light commercial vehicle, recently. Next month, in the passenger car segment of VW passenger cars, the ID.4 will be the new family member. In the first quarter of next year, at the top of it, ID.7 and ID.3 will come. Respectively, again, in the first quarter of next year, the EV model of CUPRA will, CUPRA, okay, w ill be in the market. As a result of these new launches, all the models of Volkswagen Group of companies in forms of EV cars, will be in the market for Turkish citizens. That is all I have tried to explain to you, and this is the end of the presentation. We are going to have Q&A session if you have any additional information you would like to get.
Thank you for listening.
Thank you. Thank you very much for the presentation. We will now be moving to the Q&A part of the call. If you have any questions and you are dialed in via the telephone, please press star two. That is star two on your keypad. If you are dialed in via the web, you may also ask a voice question through the ask button. We will now give a moment or so for the questions to come through. Okay. We have a question from Mr. Mehmet Misoğlu from TEB Portföy . Please go ahead, sir. Your line is now unmuted.
Oh, hello. Could you hear me well?
Yes. [Foreign language].
[Non-English content].
Let's proceed in English, please, for our—
Let's proceed. Okay, perfect. Regarding the elevated inventory, should we expect more aggressive pricing in the market in the last quarter of 2024?
For the market, we can expect so. At this point, I must underline the fact that, as one of the biggest players in the Turkish automotive market, we are always trying to make realistic budgets. When you just consider the same period that we were talking about the total size of the market of year trend, of this year, I mean, many players were revealing much higher market perceptions. We were expecting the market to be at a size of 750,000 to 800,000 units. Which has turned out to be 1.2 million, which has brought us to a level of, we really have no inventory obstacle. In that respect, we are not in a position to impose aggressive campaigns.
Of course, our brand groups are managing or monitoring the market in terms of competition, which is based on the price index of your product. But definitely, we have no inventory pressure which forces us to impose aggressive sales campaigns. There are campaigns already, but which are not somehow different than the normal campaigns that we have been going through every year.
Okay. Thank you very much for the answer.
You are welcome.
Okay. Thank you very much. Just a reminder for star two, if you are dialed in via the telephone to ask a question or by a button you will see if you are dialed in via the web.
By the way, the photograph on the screen, let me fill in the blanks in the silence. This is an EV, Ada? The Scania in the photograph. It is not, okay. Scania has already In fact, maybe I need to make a correction. We have not started to sell the EV models of heavy commercial brand, Scania, because it is not so common for the transportation sector, not only for Türkiye but also all around Europe. But with the rest of the passenger cars and light commercial vehicles, we have started or will be selling all the EV models respectively. I think there is no-
Yes. Yes. Thank you.
Any new question as we can see.
Any further questions? I will now pass the line for the concluding remarks to Mr. Kerem Talih. Please go ahead.
Thank you very much for listening and for your time. Hope to see you with hopefully better results in an area that the inflation is lower and the adverse effects of it in our financial statements would definitely be lower. Have a nice day. In the name of Doğuş Otomotiv, we are all thanking you, and bye-bye.
Thank you. This concludes today's call. I am now closing the line. Goodbye.