Ladies and gentlemen, thank you for standing by, and welcome to Doğuş Otomotiv 2Q 2024 Conference C all on the 29th of August, 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's CFO, Mr. Kerem Talih. Please go ahead, sir.
Thank you very much, Michael. Good afternoon. This is Kerem Talih speaking. I am here with my colleagues from the related departments, and we are all welcoming you to the second quarter's financial and operational results performance presentation. Yesterday evening, we have revealed our financial statements together with our audit report, and we are happy to be able to share those results with you. Those results will be covering the performance of the first half year. Considering that, the market performance relating to July has already been known. I just would like to put a few words before I go into the details of the presentation. Knowing that at the end of July, the market performance has almost reached a level of 700,000 units.
Remembering several doubts whether the performance of the year 2024 in automotive sector will be satisfactory or not, after an historical high level of performance of a level at the end of 2023, with a magnitude of 1.2 million units sold. It seems that the market perception is going on a really very positive manner. Knowing that at the end of first six months, seven months, we have almost reached 700,000 units, reaching to a level of more than 900,000 units or almost a level of 1 million units, will be or seems to be possible. Not only the sales performance, but also profitability is also an important factor in our sector.
Knowing that, after an historically highest level of gross profitability, both in terms of new vehicle sales and also in used cars, the Turkish automotive market is also experiencing a period of normalization, that we have or we are approaching to the normalized levels of profitability that we will be trying to explain you a bit in further details in the coming pages of our presentation. Just to start with what is new, stepping onwards from what has happened after March. We have acquired a new distributorship in e-foil products. With the brand of Aerofoil recently, within our marine business, in after- sales services. We will be selling those new products in our new facilities. Saying so, we have established new marine after sales services workshop in Turkey in Göcek, the second one in Didim, and recently, last month, we have launched the third service point in Bodrum.
Both of them are located in the Aegean Coast of Turkey, within which boats are plenty and many customers are available for their services. The second point is, in order to be able to create an alternative source for liquidation if needed, we have applied to the Capital Markets Board of Turkey for a license of TRY 2 billion , up to three years for us to be able to issue bonds. Our application is still in progress. In a couple of months maximum, we are expecting the permission to be granted. As I might have said before, this is just an alternative mean of liquidity availability. At that date, market conditions, we will decide whether we are going to utilize this or not. Finally, two weeks ago, we have revealed our first sustainability report, in integrated format.
From now on, effective from the reports of year 2021 that will be on table in year 2025, we will be issuing integrated sustainability reports. Coming to key takeaways, our total sales performance together with our Škoda brand, is slightly higher to a level of 4% more than the second year's performance to a level of more than 83,000 units. Within which the performance of our commercial vehicle sales is really beyond expectations, and we have expanded our size there to a level of almost +40%, that has exceeded 14,000 units. At the end of June this year, our total vehicle park, without Škoda in Turkey, has reached to a level of 2.4 million units. In the last one year, we have added 140,000 new units to our customers.
Coming to financial highlights, I will come to the details of it, but our net profit is realized to a level of TRY 5.2 billion , which is 58% lower than the previous year. Here we are having the effects of the inflation accounting that I will put in detail in the coming pages. But also the normalization in gross profit profitability is also a key factor at this point. Together with that, our income from associates is unfortunately at a negative level. I will also put the details of it. Within that, we are still keeping our capital expenditures, and keeping our financial liabilities portion as compared to equity, 2% lower than the previous year. That I must say, we are still keeping a low financial leverage within the scope of the size of the balance sheet of the Doğuş Otomotiv group at the consolidated level.
At the end of June, the market has increased 3% and has almost reached a level of 600,000 units. Within which you can see that the passenger and the premium market has slightly expanded, but the light commercial vehicles and heavy commercial vehicles have shrunk and downsized. When you consider the performance of Doğuş Otomotiv, you can see that we are just following the expansion size of the market against 3%. Our sales, at the end of June, has reached a level of 81,000 units. Our performance on passenger vehicle market is a bit lower than the market itself. But in the premium segment, our sales performance is quite lower than the expansion of the market, which is relating to vehicle availability.
But as you can see, in both light commercial and heavy commercial vehicles, in a market which is downsizing, we have increased our sales more than 30% and 8% respectively, as you can see in the presentation. Coming to the allocation of the market share. For many years, as most of you might have recalled, our market share is rated at the third level, at the consolidated level, together with the passenger cars and light commercial vehicles, to a level of 13.7%, which is only 0.1% lower than the previous year. We are, as you can see, following Tofaş/ Stellantis Group and Renault Group, respectively. Considering that the presentation has been revealed beforehand, I am not going into the details one by one, and I am just try to show you the market-based performance.
As you can see, our passenger car leader is the Volkswagen brand, and has sold more than 31,000 units, which is followed by Škoda Light Commercial Vehicles and our CUPRA brand. Those are the four leading volume brands, as you can see, which is followed by Audi and SEAT and Scania and Porsche, respectively. So the total expansion, as I have said, is 4% better than the performance of the previous year. Knowing that the July performance is also as we realized, as I have said, the market has reached a level of almost 700,000 units, which is in the same size of the previous year. Respectively, in the related segments, both automotive performance is also going in parallel with the market. The brand performance allocation is almost identical to what has happened at the first half of the year.
In terms of market share allocation, as you can see, we are keeping our third position in the market. Also at this point, I must note that the electrification developments in the Turkish automotive market is going further. As you can see, Chery, the market percentage of which was zero at the end of 2023, which was 4.2% at the end of last year, has reached to a level of 7.7%. As you can see, they have acquired some market share, mainly from Tofaş/ Stellantis Group, and also mainly from the other segments in the Turkish automotive market. Coming to financial performance. As you can see. Just a second, please. Yeah. Our total turnover is almost TRY 76 billion , which is 10% lower than the performance of the previous year's six months performance.
The main reason here, even though we have sold almost the same volume of cars, our gross profitability, which used to be more than 22%-23%, is somehow normalized and turned out to be level of 14%. This is the main reason of this variance in our total revenue. As a natural output of it, the total EBITDA is at a level of TRY 10.4 billion, which is more than 43% less than the previous year. Here within this, the increase in our operational expenditures, that I will come to the detail of it, and also the normalization of gross profitability has played an important role. Respectively, our net profit is at a level of TRY 5.2 billion .
But as you will be able to see in the next two pages, influencing most of the variance is stemming from the inflation accounting indexation that we are adding up to the performance of the year 2023 in the first half of the year. We still keep on increasing our capital expenditures at a level of TRY 1.3 billion . At the end of the year, this figure will be more than TRY 4 billion , both in terms of test cars, infrastructural investments, both in terms of hardware, software, IT, digitalization, and also in our facilities as well. And as a natural result of it, our both working capital and total asset size is normalized in line with the expansion of those figures.
Page 14 is an important reconciliation of the performance of the previous year, because when you have a glance at the financial report of June 2023, our profitability was TRY 9 billion . But in this year's June financial statements in comparative format, the figure is indexed to a level of TRY 12.4 billion . The most important determinant here is the inflation indexation, which is at a level of 72%. So all the P&L performance has been indexed, and TRY 6.5 billion is mainly stemming from indexation. At the top of it, this is a plus figure. But on the minus side, the important variance is coming mainly from the indexation of our shareholders' equity, which is minus almost TRY 5 billion , which is generating monetary loss.
But despite to it, from the asset side of our balance sheet, mainly from the indexation of our fixed assets and investment subsidiaries, TRY 2.4 billion monetary gain is stemming from. So the TRY 2.6 billion is the net of between this TRY +5 billion and TRY - 2.4 billion, which is serving to the disadvantage of the performance in the comparative format. So when we just add these figures, the historical TRY 9 billion is turning out to be TRY 12.4 billion. On the next page, the previous one that I have already tried to explain is the performance of the previous year's first half year's performance. Now, in this page, we are trying to explain you the movement from this historical last year's performance to a level of TRY 12.4 billion to the year-end net profit. And the important determinants are here.
As you can see, the yellow ones are the decreases and the blue ones are the increases. So TRY 5.8 billion is coming from the decrease in gross profitability. As I have said, the gross profit margin, for new vehicle sales, which used to be 22%, it has been realized at a level of 14.6%. Our operational expenditures in the first half of this year has increased TRY 2 billion as compared to the previous year. So TRY 1 million of it, as you can see in the footnote, and as you may recall, I have tried to explain this in the previous conference call, is relating to the donations under social- cultural format for the compensation of the damages of the earthquake in Hatay region, which is amounting to TRY 1.1 billion .
As you can see, even more than the half of the variance is stemming from this one-time effect donation. The remaining portion is the effect of the increase in the operational expenditures of the inflation, which is more than 70% on a yearly basis, and also some foreign currency-based expenditures. Our income from affiliates and business partners is TRY 2.7 billion less, which covers some portion of some normalization in their business fields as well. Also, to a positive manner, in our financing expenditures, our financing costs are TRY 3.5 billion less than the previous year. Here the major determinant is the foreign currency loss, which was valid, which was more than TRY 2 billion, which was valid last year. But this year, as you know, since the currency rate is somehow stabilized, we are not having the adverse effects of this foreign currency loss.
The remaining part is the influence coming from monetary loss, knowing that we have a strong structured equity, which is generating monetary loss. The change in taxation expenditure is mainly relating to the increase of the corporation income tax rate from 22%- 25%, unfortunately. Coming to margins, as you can see, our gross profit margin, by the way, it is a combination of both new vehicle sales and also spare parts sales. As I have said, we are experiencing a normalization. So 18.5% is still a very quite satisfactory gross profitability level for us. Within the volume of operation over sales, which goes up to 6%. This TRY 1.1 billion donation is also influencing. So without it, the OpEx over sales would be around 4%.
The deviation from 3%- 4% is mainly coming from the increase in our operational expenditures, mainly coming from increase in foreign currency and mainly from inflationary effects. Respectively, as you would be following our EBITDA and EBIT margins, has decreased to a level of 13.8% and 12.6%, respectively, and 6.9% net profit margin is a national output of it. As a perception to what is expected for the remaining half of the year, as we have already experienced in July, and we have almost completed August, our gross profitability is still going and performing at a satisfactory, high level above the limits, above the figures that we have targeted for our budget studies. In fact, in those couple of last four slides, I have already tried to explain you the major variances and the output of the P&L.
In this page, you can see the detailed breakdown of our financial performance, which has resulted a level of TRY 5.2 billion. Our total sales volume without Škoda, of course, together with Scania, is almost same as the previous year. But the gross profitability is five, as you can see, TRY 5 billion lower since the normalization has decreased its rate from more than 23%- 18.5%. I have already explained the variance in the total operational expenditures and also in financial expenditures. You see that there is a quite amount of savings.
The influencing factor here is the influence of the elimination of the foreign currency loss and also the advantage of demand deposits that we are getting from banks, within which, of course, in line with the policy of the Central Bank of the Republic of Turkey, our financial expenditures interest rates have increased respectively. Coming to the performance of associates.
As you can see, there are a few points that should be noted. I would like to start with vdf Servis. vdf is a combined structure with four companies, namely Consumer Finance Company, Insurance Services , vdf Fleet, and vdf Faktoring, which is definitely the four important complementary products in our service scheme and strategy. Unfortunately, considering that they are booking some provisions in their operational rental segment, knowing that the used car prices has decreased significantly this year, the provisions has unfortunately provided negative results for vdf Servis. Also knowing that interest rates are quite high, which is more than 5% on a monthly basis, the penetration rate of credit sales among total sales has decreased to historically low levels to a level of around 15%. In that respect, unfortunately, vdf Servis is generating negative results.
Also in Yüce Auto, they are still positive, but they are also experiencing the normalization influences of the Turkish automotive market. Coming to balance sheet. As you can see, the total size of our balance sheet is 8% lower than the previous year. We are still keeping our strong equity position. We are, as you have all aware of, cash trade receivables and inventories, I mean, the working capital instruments are almost encompassing more than 60% of the total balance sheet of Doğuş Otomotiv. The liquidity is 50% lower than the previous year, just because we have paid the dividends. Also trade receivables is relatively lower, which is in line with the performance of the market.
Inventories are increased to a level of 11,000 units- 1 8,000 units, which is totally in line with our plans that we are trying to keep an inventory level to the sales volume of the forthcoming two months. So this figure is even lower than the inventory level that under normal circumstances that we should be keeping. In financial liabilities, you can see that there is a 14% decrease, which is relating to some, I must at this point refresh you that this is the consolidated financial liabilities, mainly stemming from the borrowing structure of Doğuş Otomotiv, and together with Doğuş Gayrimenkul Yatırım Ortaklığı. There had been some several debt re-service which has caused this variance as well. Coming to the breakdown of our financing costs.
As you can see, our financing income, which is stemming from interest revenue, has increased more than to a level of 240% to a level of TRY 1.2 billion . Our interest and borrowing expenditures has increased from TRY 900 million -TRY 1 billion , which is a result of the increase in the interest rates, which is in line with the market. As you can see, the decrease in the foreign exchange loss on borrowings has also served for our advantage. The remaining figures are the natural results of our financial operations. So at this point, I will leave the microphone to my colleague, Arda, who is responsible from investor relations. He will be guiding you through our strategy on Doğuş Otomotiv sustainability.
Thank you. Hello, everyone, and greetings from Investor Relations Department of Doğuş Otomotiv. I would like to start with sustainability strategy of our company. As you can see in the screen as well, our sustainability strategy mainly consists of six core elements as customer focus, operational excellence, employee participation and development, sustainability commitment, innovation and digitalization, and last of all, stakeholder engagement. As you can be aware, these points are highly correlated and link each other. The main priority of our strategy is to create value. Thanks to our efficient processes, strategy, and process management, we have been creating value for more than 15 years. Additionally, our sustainability strategy is really important to understand our sustainable process management. Sustainable process management of Doğuş Otomotiv will be determinative to reach future goals, foresights, and practices.
In the slide, I would like to underline the highlights of our integrated sustainability report for the year 2023. For instance, about performance indicators, we reduced our Scope 2 emissions by approximately 30% compared to 2021, and our waste recycling rate is 91%, which is reflecting our increased focus on circular economic principles. About economic impact, approximately 7% of our total sales came from sustainability-focused products in 2023. About supply chain sustainability, we achieved approximately 13% reduction in carbon emissions from our logistics operations. About sales and service network, thanks to ISO standards and its best practices of Doğuş Otomotiv, we increased our energy efficiency approximately 30%. Last of all, we have realized approximately 1.46% electric vehicle market share in 2023.
In the previous slide, I have underlined the highlights of our integrated sustainability report, and in the slide, I am going to underline the highlights of our sustainability activities and recent news. Under the environmental heading, thanks to our solar energy power investments, we met the 67% of our electricity needs through renewable energy sources. Additionally, climate change strategy and reporting in accordance, such as IFRS S1 and S2 and TSRS, will be the main priority for our sustainability activities and Doğuş Otomotiv objectives. Under the social heading, we have increased volunteer hours by approximately 60% and training hours per employee, approximately 23%. Last of all, under the economic heading, we have realized approximately TRY 88 million Green CapEx and TRY 125,000 Green OpEx.
As I have mentioned in previous presentations, in terms of corporate governance rating score, we have reached a level of 97 points in 2023. From 85 points in 2012, thanks to good practices and best applications, we became the second company with the highest corporate governance rating score in Turkey. The main priority will maintain and keep this success in 2024 and 2025 as well. Last of all, just like corporate governance, corporate sustainability rating score is a determinant of our Investor Relations activities. At the end of August, we have reached 83- points level, and our point was 66 points in 2020. We have one of the highest points in Turkey in terms of corporate sustainability rating score. Thank you for listening to me, and I am giving the word to Mr. Talih for guidance 2024.
Yeah. Somehow I have already pointed out that we are expecting the performance year 2024 to reach a level of 1 million units. So in the last four to five months, an additional 300,000 units is a target which is reasonable. I believe that we will all be seeing this. And within that, we have increased our sales target to a level of 110,000 units. When we just add up the budget, or the targets of Škoda, which is at a level of 4,000-5,000 units, we can say that Volkswagen Group performance in Turkey will be around or even more than 160,000 units. As I have said, our investment expenditures are still continuing, and will reach a level of almost TRY 5 billion . The half of this figure is stemming from the purchase of company cars, test cars, and so on and so forth.
The remaining portion, as I have said, is relating to the infrastructural expansion investment, mainly for our Scania, together with the renovation of our education facility and territories, respectively. Also we will always sustaining our expansion and development spendings in digitalization, as well together with the latest electrification investments, in line with the developments of the market. So those are the information that we have planned to pass to you, and this is the end of our presentation. If there are any questions, we are more than happy to help you. Thank you very much for listening us.
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 dialed in via the telephone, please press star two. That is star two. If you are dialed in via the web, you may also ask a voice or a text question. Okay, we will give a moment or so for the questions to come through. Thank you. Our first question comes from Mr. Aytunç from Ata Yatırım. Please go ahead. The line is open.
Hi. Thank you for the detailed presentation. My question is, I know it is too early at this point, but can you share your thoughts about 2025 domestic market? I do not mean any specific numbers, just the trends you are seeing. For example, do you think 10%-15% year-over-year decline is reasonable in 2025?
It may be early at this stage to make a forecast for the performance of next year, knowing that the temp up demand coming from previous year is also still on the market. The macroeconomic policies, mainly relating to the level of interest levels in the market, will be the key determinant of it. If the interest rates will be at the same level, there may be some slight normalization in the total size of the market. I don't know whether it will be 10% or more than 10% lower than this year. We will see.
I see. Another question is before pandemic, EBITDA margin was around 5%-6%, if I remember it right. What would you consider as a normalized EBITDA margin in the future? Maybe 8%-9%? Does it sound reasonable?
8% is under normal. The period of COVID was an abnormal period. The period just after COVID that we have been experiencing in year 2023 and this year as well is also an abnormal market conditions just because there is still demand coming from those years due to lack of availability, which is pushing up our gross profits. Under normal market conditions, 8% EBITDA margin is, we can say, somehow normal conditions.
Thank you.
You are welcome.
Okay, thank you very much. Just a reminder once again, star two for any questions. Our next question comes from Mr. Lütfü Gazioğlu from HSBC. Please go ahead, sir.
Thank you for your presentation. My question is about equity pickup income or loss in the second quarter. When I saw Škoda, Yüce Auto contribution of TRY 165 million net loss in the second quarter. There was around TRY 200 million net income contribution in the first quarter. What was the reason in the second quarter with the net loss contribution? Is it related to a one-off item? What should we expect from the remainder of the year for Yüce Auto contribution?
In the remaining of the second half of the year, they will be recovering this performance. The main influence is the campaigns. They have revealed many new brands, and they also inject some campaigns for them. When you are having a campaign, and when you are trying to launch a new product in the market, namely the new Superb, the new Kodiaq, and the Kamiq models, have been new in the market with some facelifts as well. Those models, those volume brands, gross profitability was low. This was the reason. In the second half of the year, we are expecting them to close this gap.
Thank you. I guess I missed it. Sorry for that. What was the reason for the vdf Servis loss in the second quarter?
Yeah.
There was a loss in the first quarter as well, but the loss is very high this quarter. Is this related to the inflation accounting?
For both of them, as knowing that they also have a strong equity structure in their balance sheet, inflation accounting, as we do in Doğuş Otomotiv, is working to their negative in those financial statements. At the top of it, mainly for vdf, since credit penetration is low, is still low, just because interest rates are high. Also, the provisions coming from their vehicle portfolio in operational rental activities is generating some non-cash expense in the form of provisions. This is the reason for their negative performance in our consolidation.
Thank you, Kerem Bey.
You are welcome.
Okay, thank you very much. Just once again, a reminder for any additional questions or follow-ups, please press star two. We will give another minute or so for any additional questions to come in.
I think that is all what we have had.
Yes, indeed. No further questions, Mr. Kerem. I will pass the line back to you for your concluding remarks.
Thank you very much for listening to us. Looking forward to see you. For the coming quarters, we are planning to go back into stage, and instead of maybe not maybe for the performance of the third quarter, but I can say this for the year-end performance, we are planning to make those meetings again face-to-face as we used to do. Thank you very much for listening to us and our greetings in the name of Doğuş Otomotiv. Have a nice day. Bye-bye.
Thank you very much. This concludes today's conference call. We will now be closing all the lines. Thank you, and goodbye.