Welcome and thank you for joining us today for Koç Holding's Q3 and first nine months 2025 earnings call. This is Nursel, IR Coordinator of Koç Holding. I'm joined by our CFO, Polat Şen, our IR Coordinator, Helin, Finance Coordinator, Özge, and our IR Manager, İsmail. We'll take you through our presentation and answer your questions during this Q&A session. Our presentation covers the company's unconsolidated financial results for the nine months of 2025, prepared in accordance with Turkish
accounting and financial reporting standards, including the application of IAS 29 Inflation Accounting. Please note that our presentation and Q&A session may include forward-looking statements and assumptions based on the current business environment, which are subject to change. As a reminder, a replay of our webcast will be available on our website following the call. With that, I would now like to hand the call to Polat Şen to begin the presentation. We'll take your questions at the end of the session. Polat Şen?
Good afternoon, everyone. I would like to begin with a brief overview of the macroeconomic environment and its effect on group performance. Global economic activity remained stable during the Q3, though uncertainty and volatility persisted. Economic activity in Europe was slightly stronger than expected, but remained weak overall. In Turkey, disinflation is progressing slowly. Inflation remained elevated throughout the Q3 and rose sharply in September. Meanwhile, policy measures under the disinflationary framework continued to weigh on the economy, particularly on producers. Domestic demand was broadly stable this quarter. Demand for automobiles was particularly strong, while industrial production remained subdued. The central bank maintained its strong Turkish lira policy. In July, the central bank began lowering its policy rate. Market interest rates declined alongside the policy rate, but remained elevated.
Consequently, despite modest improvements in financing conditions, high input costs in FX terms, and elevated borrowing costs continued to put pressure on producers. In this tough environment, we generated TRY 14.4 billion of net income on a consolidated basis in the first nine months, up by 54% compared to the same period of last year. While the contribution from consumer durable and automotive segments was lower due to the challenging market conditions, stronger contribution to our energy operations, along with substantially lower monetary losses, were influential in this performance. Looking at the Q3, we delivered a net income of TRY 7.7 billion this year on a consolidated basis, compared to the net loss of TRY 4.4 billion in the same period last year. Let's start on slide five with some key indicators for Koç Holding.
The chart on the left shows the sectoral breakdown of our diversified business portfolio as of end of September. Our portfolio diversification is not limited only to the sectors, but also includes international positioning. On a combined basis, we generated 31% of revenues from international sales in the first nine months, including Tüpraş, which operates as an FX-linked commodity business. Roughly 46% of our revenues can be considered high currency-based. Moving on to slide six, you can see that we had a net cash position of $874 million at the holding level at the end of September. In the first nine months, our dividend income, in nominal terms, amounted to approximately 21.3 billion Turkish liras, including dividends from our unlisted companies, excluding dividends for the remainder of the year. Port Otosan already announced the second dividend, which remains subject to its General Assembly approval.
Assuming its approval and including the already received dividend from Eyas our dividend income is expected to reach $805 million this year. On slide seven, you can see the main pillars of our balance sheet. Around 68% of $874 million is in hard currency. To further strengthen our liquidity, in mid-October, we secured a five-year club loan of $600 million at an annual interest rate of 0.95%. With a 2.5-year grace period, the loan will be repaid in six equal and consecutive six-month installments. The funding remains available for Koç Holding for six months. We strictly apply and regularly monitor our prudent risk management policies at each underlying company, and on a combined basis,
in terms of liquidity, leverage, and foreign exchange position, we preserved our conservative levels. On a combined basis, our current ratio is 1.2 times, and our net financial debt to EBITDA is at 1.4 times, excluding the finance segment, of course. In terms of FX position, we remain well within our risk management rules. With that, I'll hand over to Helin to walk you through the key sectoral developments of the first nine months.
Helin, let's begin with the energy sector on slide nine. The energy segment contribution to Koç Holding's consolidated net income was strong in the first nine months, mainly supported by favorable Crack margins capturing strong demand, high utilization, and improved white product yield, despite continued narrowing of differentials and elevated energy expenses year on year. Domestic demand for refined products grew around 5% in the first eight months, as the gasoline and jet fuel demand was boosted by 17% and 12%, respectively, and diesel demand was resilient at 17.5 million tons. Tüpraş delivered a strong Q3 performance with improved margins. Capacity utilization was around 100%, surpassing the global capacity utilization rate during the quarter. Middle distillate Crack margins were higher, driven by strong demand and low utilization due to higher-than-expected maintenance. Accordingly, net refining margin of Tüpraş reached $9.7 per barrel, bringing the nine-month average to $6.5 per barrel.
Given this solid performance and strong margin environment, Tüpraş revised its net refining margin guidance range upward to $6.5 per barrel for 2025. As to the volumes, Tüpraş's domestic sales in the first nine months were almost flat year on year. Including the international sales, Tüpraş's total sales volume was down by 4% at nearly 22 million tons. Tüpraş continues to hold its sales volume guidance of around 30 million tons for the whole year. On the LPG side, in the first eight months, consumption remained weak, decreasing 6% year on year. Aygaz domestic retail sales volume was down 2%, and including the wholesale as a contribution from Bangladesh operations, total sales volume was slightly up by 1% in the first nine months. During this period, Aygaz maintained its market leader position in Turkey with a total market share of 26.2%.
Let's move to slide ten and discuss the developments in the auto segment. The auto segment remains the highest contributor to net income, albeit with a significant year-over-year decline in the first nine months. Despite solid volume growth, profitability in the segment declined, mainly due to an intense competitive pricing environment, competition of sales, and higher cost of goods sold amid inflationary pressures. The domestic automotive market grew by 9% to reach 965,000 units in the first nine months. The strong volume growth was driven by an intense competitive environment, volatility in inflation and exchange rate expectations, and over-demand ahead of the announced taxation increase. While our total share in the domestic market through the first nine months was at 27%, September figure of 34% truly reflects our scale post-Stellantis and Türkiye merger.
On the export side, the European passenger car market grew modestly by 1%, whereas the commercial vehicle market declined by 9%, reflecting ongoing economic pressures and last year's high base. Our group market share in the exports increased 5 percentage points to 42%. In the first nine months, Ford Otosan's export sales volume increased by 13%, representing 38% of Türkiye's total vehicle exports. Meanwhile, Tüpraş witnessed a 5% decrease in its export volume, mainly due to the decline in its HC exports. Tüpraş expects an acceleration in volume with the introduction of polypropylene later this year and the kicking off exports to North America in 2026 under the amended K0 production contract. Another key development on the Tüpraş front was the signing of a manufacturing agreement with Stellantis in September to produce a K9 Light Commercial Vehicle model in multi-annual platforms for Citroën, Fiat, Opel, and Peugeot brands.
Total production is expected to reach 660,000 units between the Q3 of next year and the fourth quarter of 2034, with a planned investment of €250 million. Additionally, Tofaş will continue to manufacture the Tipo/Egea model in its Bursa plant until the end of June 2026. Turkish tractor revenues declined 41% year over year, mainly driven by a contraction at a similar rate in tractor sales volume, reflecting continued weakness in both domestic and international markets. The domestic tractor market continued to contract and was down 36% in the first nine months amid challenging market conditions. Regardless, Turkish tractor has maintained its market leadership in Türkiye for 18 consecutive years, remaining farmers' top choice. AutoCar, our leading defense company, registered peak amount revenue growth year on year, 61% of which was from international sales. Defense vehicle revenue rose to 17%, up from nearly 10% a year ago.
Otokar holds a solid backlog of EUR 857 million in current vehicle orders, where the majority is for the Ford project in Romania. In September, Otokar signed a three-year production agreement with Mercedes-Benz to manufacture Mercedes-Benz Sprinter at its Sakarya factory, starting from September 2026. This new collaboration is another strategic move for Otokar to boost production efficiency and reinforce its global standing. On slide 11, let's look at the consumer durables segment. Consumer durables segment performance was adversely affected by soft demand driven by a challenging market environment throughout the nine months. White goods unit sales in Türkiye contracted by 6% year on year in the first nine months, largely due to high interest rates, limitations on monthly installments, and diminishing disposable household income. Exports also declined by 8% during the same period due to weak demand and challenging competitive environment.
Looking at Arcelik performance, Turkish revenues declined by 9% in the first nine months in an unfavorable pricing environment and product mix, despite a moderate demand in the Q3. International revenues, constituting 67% of the total, also declined 4%. Arcelik preserved its market leadership in its European markets despite underperformance. And further,Arcelik delivered margin improvements with easing raw material costs, favorable euro/dollar parity, and the ongoing recycling efforts during this period. Arcelik adjusted leverage came down at 4.2 times on the back of improved operational cash flow, and the company anticipates further improvements through the end of the year. Lastly, a few words on the finance segment, with a particular focus on year-over-year on slide twelve.
The finance segment contribution to our bottom line was negative TRY 1.4 billion in the first nine months of the year, which significantly improved compared to negative TRY 28.3 billion in the same period last year. As mentioned during our call, we consolidate year-over-year with inflation-adjusted financials. Accordingly, their bottom line is impacted by monetary losses given their net monetary position, although this year it's a much lower amount compared to the same period of last year. As a second note, Yapi Kredi contribution to finance segment results may differ from bank's IFRS results, mainly due to purchase price allocation adjustments regarding our additional share purchase transaction in February 2020. In this presentation, references to credit KPIs are based on its BRSA financials, where banks remain excellent from inflation accounting.
In the first nine months, total performing cash loan growth was around 34%, and total customer deposits growth was around 32% year on year basis. The bank maintained its leadership position in Turkish lira demand deposits among private banks at the end of September with a 17% market share. With the reintroduction of rate cuts and consolidated liability management, its swap-adjusted net interest margin widened by 130 basis points year to date, bringing the cumulative level to nearly 2%. Loan deposit contribution to NIM was at 3.9% for the full year. This credit expected to deliver a minimum 200 basis points net interest margin improvement. Net fee and commission income growth was robust at 50% year on year, with operating costs rising at around similar levels. Accordingly, operating costs were almost fully covered by fees at 97%.
On the asset quality, maintaining prudent provisioning despite improving MPL inflows, total coverage was at 3.7% in the first nine months. Net cumulative cost of risk, including current hedge, was at 163 basis points, well within guidance range. The credit preserved its strength in capital and liquidity ratios. The FX Liquidity Coverage Ratio was 308%, while the total Liquidity Coverage Ratio stood at 125%. On the capital side, the consolidated capital and equity ratios stood at 59%, and the Tier 1 ratios stood at 11.7%, which excludes the contribution from temporary regulations, and these levels were comfortably above the regulatory levels. The credit successfully completed a $600 million Additional Tier 1 issuance in September, which is also worth highlighting. Including this, the credit secured approximately $4.7 billion of funding from international markets in the first nine months.
During this period, Yapı Kredi tangible return on equity stood at 23.7%, in line with its guidance of mid-20s, and the return on assets was at 1.7%. With that, I'd like to hand the floor back to Polat Sen .
On slide thirteen, I'll walk you through the overall results of the group in the first nine months of the year, incorporating all the segment trends we have just discussed. On a combined basis, the Koç Group registered TRY 3.2 billion of revenues, TRY 77 billion in profit before tax, and TRY 21.5 billion in net income. As highlighted in our Q2 call, the first nine months' financials of the last year included provisional accounting for the recognition of Whirlpool EMEA and Whirlpool EMEA acquisition in accordance with TFRS 3 business combinations following their closing in April 2024. The actual figure was finalized this year and financials.
Same reporting standard requires its restatement to nine months 2024 financial statements to reflect the actual final figure. The impact of this adjustment is an additional gain of TRY 9.8 billion at the consolidated net income level for last year. We believe excluding this one-off item enables for a like-for-like comparison of our underlying performance in 2025. Accordingly, excluding this one-off, our combined profit before tax and net income growth in the first nine months would have been 30% and 73% respectively higher. These figures are noted on the right-hand side of the slide. Our consolidated net income after the non-controlling interest growth in the first nine months was 54%. Excluding this one-off item I just discussed, the first nine months of last year would have resulted in a net loss, further underscoring the strength of our performance in 2025 despite the challenging environment.
Moving on to slide fourteen, you can see our Q3 results with consolidated net income substantially improving to TRY 7.7 billion, as I highlighted at the beginning of the call. On slide fifteen, you will see the evolution of the net asset value discount as Koç Holding will leverage our market proxy status, which positions us as a key reflection of overall market dynamics. Accordingly, our NAV discount has narrowed in periods of improving investor sentiment. In the first nine months of 2025, the weekly average NAV
discount was wider at 34% when compared to the long term of 14%. We believe that the current level of discount is at a higher side and does not fully reflect the strength of our underlying operations. In summary, in the first nine months, with a disciplined focus on balance sheet strength and profitability, we continue to generate value through a diversified and balanced portfolio designed to withstand market volatility. Thank you all for listening now. We can open the floor for questions.
The first question, please from the line of Hanzade Kılıçkıran with J.P. Morgan. Please go ahead.
Yes, thank you so much for the presentation. I have a few questions. So the first one, more of a technical one on the financial segment. Maybe if you could clarify the impact on the Q3 because the impact that you created was pretty strong in the profit from inflation accounting in the Q3. And with the impact on consolidated numbers from the financial segment to normalize to what the company has been receiving. Yeah, maybe just a little bit more clarity on how we should lay out the report and the impact on the financial.
Okay. Of course, Maksym we have I mean, Yapı Kredi, as you rightly suggested, is not using IFRS inflation accounting. While we are consolidating, we have to. So the inflation-adjusted numbers, I'm just looking at my colleagues right now so that they can help me on the numbers, are significantly lower due to the inflationary environment in Turkey. I think the first nine months' inflation was north of 25%. So that is impacted. You can see in the performances across the segments that the finance sector is net income is -TRY 1.6 billion. So consolidated net loss on the finance side value come to the inflation accounting. So there's an important amount of difference there.
And would you expect this difference to somewhat normalize if inflation goes down?
Of course. When the inflation accounting is not going to be mandatory anymore, which the earliest possibility looks like according to the IFRS, it's like '27, 2027. We are not going to see any difference between those numbers.
Thank you so much. Just on the retail discount, as you presented, we can also calculate the discount closer to 40%, which is probably close to the historical lows. So I wonder if you would consider any tools to try to improve it, for example, like a pilot program, anything on the table at the moment?
Yes, you're right. It's historically very close to the historical low still, as you rightly suggested. Right now, we think that this is mainly due to the country's situation rather than Koç Holding itself because we see that our balance sheet is quite strong. But unfortunately, the foreign investment on equities in Turkey is still very limited, especially on the long-term funds. So this is mainly affecting companies like Koç Holding, which is seen as a proxy to Turkey. So therefore, even if we do anything, we don't see that it's a sustainable way to keep the NAV discount at a higher level. So therefore, there's no plans right now to really make a move like that.
Thank you. And just a very final question on the conditional question on the portfolio, whether you would plan to make more adjustments or maybe certain segments you plan to add or to anchor some opportunities in the current one?
As you have seen, we have increased our liquidity with the $600 million club loan through various institutions. So right now, we have the availability of almost more than $1.5 billion. So because it's so volatile, it's a war chest. But at the same time, we have the appetite to grow our business. And the intention is to look for the right targets that contribute positively to our EBITDA and cash flow. So therefore, we are always. I mean, it's not the best situation. We are always looking for suitable targets that we may be
interested in. We are not specifically interested in a sector mainly. We are looking at more financial fundamentals of the company rather than a specific sector because we are already operating in a very diverse environment. Adding one more sector to it with strong financial fundamentals, I don't think that it's going to be a tough thing to handle for Koç Holding because we know how to operate in different sectors.
Thank you so much for your answers.
The next question is from the line of Hanzade Kılıçkıran with J.P. Morgan. Please go ahead. Koç Holding, thank you very much for the presentation. And we are now looking ahead to 2026. I'd love to hear your early thoughts on how you see the domestic consumption shifting up, what do you expect for European exports, and how confident are you in your pricing policy across your main businesses? Just a quick name, Koç, for 2026, both for Turkey and also Europe. And I have two more questions.
All right. Let me start with that one. For 2026, I mean, 2025 was tough, especially on domestic and our main export market for Europe. I mean, the expectations let me start with Europe first. The expectations for Europe compared to 2025 and 2026 is better. Not too much better, but slightly better, which we think could be a positive sign for us as well. For domestic markets, definitely challenges will continue. Disinflation will continue. As we understand from the economy management, the intention to keep the monetary tightening is going to be there for some more time. Our thinking is we do not really expect the, let's say, rejuvenation of domestic markets in the first half of the year. The second half of the year is more promising for us as there are possibilities for political changes in Turkey.
And there is always. We expect the Turkish economy to get more vibrant if we are getting closer to elections. So we think that that may start the second half or maybe the last quarter of 2026 would be better. But when you look at our businesses, we are mainly operating in four big sectors because sector by sector it's different. It was really hard in 2025, but we have a record-breaking automotive market this year. So it's not really translating into positive or negative when we talk about only macro. So when you look at these four big businesses that we have, on the energy side, we do not really expect a big change, let's say. For automotive, it's been a very important year. We are still working on our budget. We're going to see what we are going to be waiting for.
But again, with Tüpraş ramping up with Türk Traktör at its lowest when you look at the last five years, those businesses are going to be contributing better. But export side is going to be the deciding factor. We're going to see what happens. But we are hopeful on automotive. Plus, when you look at the consumer durables, it's been tough for our Turkey to do a restructuring year. They are ahead of their friends in terms of restructuring energies. So we do not see a reason in a lower interest rate environment for an average family like ours to operate worse than what they have done this year. So most probably, we should be expecting a better year for our Turkey compared to 2025. And it's the same for the bank. The banking sector is very much depending on the interest rate, policy interest rates to go down.
And at some point of time, the regulations are going to be if we're going to see some economic movement in Turkey. Banks are going to be the engine of that, let's say, the last quarter in the worst-case scenario. And with the falling interest rate environment on the policy rates, banks are definitely going to be making more money than they are doing this year. So overall, when you look at the portfolio, we do not see a reason for a worse year than 2025, to be honest. It should be normally a better year. But still, I have to say that the budget is still in progress. We're going to see better. But the political agenda sometimes is more, let's say, decider. So the political agenda items are not included into this quadrant, I have to say.
On the pricing power, again, the purchasing power of people in Turkey especially has declined, and on the pricing power side, it's getting harder in terms of pricing compared to the years before, but as I told you, if the expectation is going to be a better economic rejuvenation, let's say, after the second half of next year, then that should be also possible.
Thank you, Maxime. I want to make a follow-up on the M&A activity. So I noticed that a lot of our finances are still tight. Should there be any M&A next year on Koç Holding side or in any of your companies? Because I don't know if Arçelik is still keen to grow its global footprint, for example. I think we're doing the export for sale currently. Okay.
For the existing businesses to grow with an acquisition, we do not have anything on our agenda, to be honest. I mean, the companies work on it, and they bring it to us. But Arçelik is not a candidate for an acquisitive growth. We are still at the phase of digesting the last project with Whirlpool. So I don't think that in the short term, that would be a possibility if there's not any, let's say, a lottery kind of possibility comes in front of us. But for the other businesses, some of them are JV, so it's not easy to comment on it. We do not really see anything on the agenda yet. As I answered to Max's question before, the main intention is to grow in new areas rather than what we have as of today. Thank you very much. Thank you.
Ladies and gentlemen, there are no further audience questions at this time. We will now move on to participant questions from the webcast participants. Our first webcast participant question is from Evgenia Byshovets with Arcus, and I quote, "Thank you for the presentation. What is the why now take on your capital structure strategy? Are you still considering coming to the Eurobond market? And how do you view current financial conditions?" Thank you.
To be honest, the financing conditions right now are available. Our balance sheet is very strong and do not have any issues in financing our new activities. And securing this five-year club loan of 600 million with a very, very competitive cost is a sign of that. And that's why, actually, right now, the amount of money that we have is going to be enough for our needs. So we do not have an intention to get into the Eurobond market soon unless we have a new project to exercise structure. But today, we do not see that in the foreseeable future.
Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Hanzade. Thanks for any closing comments.
Right. I would like to thank everyone who were listening. If you have any more questions, our IR team is going to be available whenever you want.