Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Tofaş Türk Otomobil Fabrikası A.Ş. conference call and live webcast to present and discuss the first half 2024 financial results. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Cengiz Eroldu, CEO, Mr. Fabrizio Renzi, CFO, and Mr. Mehmet A. Agyüz, CFA, Investor Relations Manager. Mr. Renzi, you may now proceed.
Thank you, operator. Good afternoon. Thank you all for joining the call. We closed the semester below our expectation, mainly because of the weak performance realized in the quarter two. Our financial performance was severely affected by the contraction of the margin due to the strong competition, in particular, coming from the new Chinese brands, combined with the expensing campaign to clean vehicles not compliant with the GSR regulation. On top of that, the absence of tangible fiscal advantage for local passenger cars due to the missed revision of the Special Consumption Tax bracket does not create a favorable context in this critical period. Last but not least, the negative effect of the hyperinflation that on the first semester was particularly high due to the high monetary and cash position. At this stage, we decided to lower our PBT guidance to 68% for the current year.
That is, for Tofaş, a year of transition. Of course, we are not happy with this result, but we are looking forward, and we remain focused on the main target of the year, that is to finalize and execute the strategic agreement with Stellantis. On the domestic market, with the 12.3% market share, we are still leader in a market that is changing quickly and with the newcomers now at the top of the ranking. In the PC segment, Egea continued to perform well, but in the coming months, we need to fully exploit the potential of new imported models launched by Stellantis, such as Fiat 600, Alfa Romeo Junior, and very soon, Panda Full Electric. In the LCV segment, we performed well in H1, thanks to Fiorino, able to fill the gap created by locally produced Doblò.
After 17 years of production, Fiorino was phased out, but on the other side, we are planning to launch a new generation of LCV in Bursa, starting with K0 in Q4. Regarding export in H1, the volumes are in line with expectation, with an increased weight of the quota commercialized in the MENA region. For the H2, we see some risk coming from the weak demand of European market and also some technical issue related to the export to Algeria, reason why we decide to lower our guidance. Even for exports, we can say that we are in a transition period, and we are now focused on the launch of the new generation of commercial vehicle in Q4.
Regarding the new vehicles, the refurbishment of the LCV line in Bursa is at the final stage, and technically, the Bursa plant will be able to start the production of the new model in Q4. Finally, the strategic agreement for the acquisition of Stellantis Türkiye. As we have already disclosed, we are waiting for the final approval of the transaction by the Competition Authority. We provide the authority with all the requested data and information, and we remain confident that the process will be concluded positively. Now, I will give the floor to Mehmet for the presentation, and then we can take your questions.
Hi. Good afternoon, and good morning, everybody. In the first half of the year, Turkish automotive industry registered by around 4% growth and with a total production of 707,000 units. During this period, Tofaş production constitutes around 13.4% of the industry, with a total production of 95,000 units. In terms of production mix, 2/3 of the production was passenger car, and the remainder was LCV. In the first half, total shipments was parallel to the production, and it contracted by 23% to 101,000 units. This was mainly due to weak shipments in the domestic side, which contracted by 28%, whereas the contraction in the export side was much more milder at 5%. In the second quarter, the contraction in the shipments were 38%, and this was evenly distributed between domestic and the export shipments.
In terms of our shipment volumes by business, the most notable change was observed in the domestic business. The LCV share increased by around nine percentage points to 38% of the domestic shipment. In total shipment volumes, 38% was from LCV, and the remainder was from the PC segment. Moving on to domestic markets. Despite the tightening cycle and the worsening economic conditions for the consumer, light vehicle was able to register 4% growth, reaching to 580,000 units. This was mainly due to passenger car shipments, which grew by 8% to 463,000 units. Whereas LCV demand was lower by around 9% and reached 115,000 units. The main enabler of this performance was a couple of drivers.
Number one, at the beginning of the year, tax exempt sales to the disabled citizens, especially in the first couple of months of the year, was quite robust given the very high inflation level last year. Also, heavy sales campaigns, especially accelerated in the second quarter by the automotive companies ahead of the safety regulations, GSR-II-B, to be able to deplete their inventory before the deadline of July 7th. In the first half, Tofaş in the local market, underperformed the local market and registered 30% decline in the total shipment with total shipments of 73,000 units. Our performance at the LCV side was similar to the market, which was down by 11%. Whereas passenger car shipments contraction was more severe at 38%, reaching to 46,000 units. Moving on to domestic market conditions and the market share in the first half.
Fiat brand was able to maintain the market leadership position in the combined light vehicle market with a 12.3% market share. This is lower compared to last year due to heightened competition, especially in the passenger car market with the new entrants, especially from the Asian producers. Also, given the very high inflation level, there hasn't been any adjustment in the Special Consumption Tax rates for almost two years now. So, this essentially reduces our local producer advantage, as our vehicles tend to be in the 60% SCT range. Whereas now we are competing at 80% SCT, already reducing our pricing advantage. In the first half, the brands under Stellantis umbrella, their market share was slightly above 28%. Nevertheless, it was down around 11 percentage points versus last year.
In passenger car markets, Fiat brand moved down to second position with a market share of 9.4% versus 16.3% in the same period of last year. The brands under Stellantis umbrella market share registered at 25.3%, which is also 12 percentage points lower compared to the prior year. At the LCV markets, we were able to defend our position with a number two position in the market and 23.9% market share, which is slightly lower compared to the previous years. This was quite a successful performance given the phaseout of Doblò. Very strong performance of the MCV, as well as better availability and good penetration of the imported vehicles were the main drivers of this performance. For the brands under Stellantis umbrella, LCV market share stood at slightly above 40%, slightly around 600 basis points lower compared to the prior year. Moving on to export business.
Overall, in the first half, demand was quite buoyant in the European markets where passenger car registrations grew by 5%. This was mainly enabled by the hybrid registrations, which were up by 22%, especially after the expiry of incentives. Full electric vehicle demand starts to weaken, but nevertheless, hybrid registrations were quite robust, supporting the underlying registrations in the European passenger car market. LCV market conditions were even more robust, with 13% growth in the registrations and all the main markets registered robust performance in the first half of the year. As Tofaş, even though our export performance is now less correlated with the underlying demand in the Europe, our export shipments were down by around 5% and we shipped 26,000 units.
Despite 5% growth in our passenger car shipments, thanks to strong penetration to the MENA region, especially in the first quarter of the year, the phaseout of Doblò to the North American market results in 18% contraction in our LCV shipments, which was slightly below 10,000 units in the first half of the year. This shows the monthly evolution of our export shipments. As you can see, in the first four months, we had a strong recovery in our export shipments. Nevertheless, in the last two months of the quarter, we registered declines in our export shipments due to the temporary regulatory hurdles at our main export destination in MENA region. This shows the regional breakdown of our exports. Although the export figures are quite low at 26,000 units, minor changes make a big difference.
But two of our main markets remain MENA, which constitutes 42% of our export shipments, and the second-biggest market remains Italy with 36% of our export shipments. Moving on to our shipment volumes by the model. On the left-hand side, our export business, essentially, we shipped 1,300 less exports with 26,000 units. And the main driver you can see is the phase out of Doblò to North America than from Ram ProMaster City. Other than that, our passenger car and the MCV performed in line with the prior year. On the right-hand side, we shipped 29,000 units less in the domestic market, and the main driver of this is our best-selling vehicle, passenger car, Egea. Eight years in a row, we shipped 25,000 units less. Whereas, despite it's probably the last quarter, is the commercial vehicle, Fiorino, registered a robust 20,000 units of sales in the first half of the year.
And I should mention that the Doblò, which seems to the volumes were down more than half. In the first half of last year, Doblò shipments were our own production, whereas in the first half of this year, it is imported Doblò, and the number is quite satisfactory for an imported vehicle. So, all in all, we shipped 30,000 units less with 101,000 units in the first half of the year. Moving on to our financial performance. In a nutshell, we shipped 23% less vehicles, which translates into 21% decline in our top line. Whereas the contraction in the EBITDA was higher with 39% decline and TRY 7.6 billion, due to the pricing pressure in the local market, pressuring the gross margin and translation to the EBITDA margin.
Whereas higher contraction in the profit before tax with 65% versus last year at TRY 4 billion, mainly due to the application of inflation accounting, which is due to our high monetary position in anticipation of the closure of the merger. We recorded high monetary losses, as probably you have seen in our P&L and pressured our profit before tax. This shows the snapshot of our P&L in the first half. So essentially, 21% decline in the revenues flow through to the bottom line due to the operational leverage at a higher rate. Whereas I can say gross margin and the EBITDA margin decline is the more indicative of our operational performance, whereas operating margin and PBT margin is additionally pressured by the application of inflationary accounting. This shows the second quarter performance, also, which 42% decline in our revenues results in a higher pressure in the bottom line.
This is a snapshot of our balance sheet. Our cash position declined by TRY 12 billion, still at a quite healthy level of TRY 18.5 billion. Note that we distributed around TRY 10 billion of dividends in the first half of the year. And the remainder was due to worsening in the networking capital due to weak domestic market conditions. It put pressure on the cash flow of the company. For CapEx, we spent EUR 43 million in the first half, bulk of which constituted from our ongoing investment for our upcoming commercial vehicle, K0. EUR 27 million was spent on this project. Whereas most of the remainder was made to our passenger car, Egea, in the first half. Moving on to outlook.
Considering higher than our expected light vehicle demand in the first half of the year, which was around slightly below 600,000 units, we decided to increase our local market expectation by around 10% to 900,000 to 1.1 million units. Given our first half performance, we decided to reduce our local sales expectation by 20,000 units to 120,000 - 140,000 units. Also, on the export side, to take into account the unexpected temporary regulatory issue at our export markets, we decided to be conservative and reduce our export shipments by around 20,000 units. Now we are expecting 40,000 - 50,000 units of exports in 2024. In line with these revisions, we are reducing our production volume expectation by around 30,000 units. Now we are projecting 140,000 - 160,000 units for this year.
Given the slightly lower than anticipated CapEx spending, I should mention that our plans for the new generation vehicles remain on track. We are reducing our EUR 200 million CapEx assumption by EUR 50 million -EUR 150 million. Also, looking at 6.6% PBT margin we registered in the first half due to the higher-than-expected pressure from the inflation side, due to the slight delay in the acquisition of Stellantis Türkiye, as well as uninspiring local market conditions, we decided to reduce our PBT margin guidance to 6%-8% for this year.
This concludes our remarks, and we are happy to take your questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star then two. Please use your handset when asking your questions for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of [Kilikira Hande] with JPMorgan. Please go ahead.
Hello. Thank you very much for the presentation. I have two questions if I can. The first one is about your margin guidance. What are the drivers for the expectation of margin repairs in the second half of the year versus the second quarter? Because I do not see a much different sales volume expected for the second half of the year according to your guidance. The second question is about the new project. How much production would be reasonable to assume in 2025 for this model? Do you think that as production normalizes, you may also generate around 10% PBT margin, or is your guidance downgrade structural downgrade? Thank you.
Good afternoon, [Hande]. About the PBT margin, as you know, usually we are very conservative. We like to be conservative on the guidance. This new guidance, 6%-8%, I do not want to say that it is optimistic but imply a certain assumption, I will say positive assumption. First of all, better condition on the market in term of competitiveness, in particular, coming from the China's brand. Second, we expect a lower impact from the hyperinflation, for two reasons. Downtrend of the inflation on one side and on the other side, lower net monetary position. Based on this assumption, we believe that we can keep this level from 6%-8%. That, by the way, is what we realize in the first half. Also take into consideration that in the second quarter, we encounter many headwinds at the same times.
For example, the regulatory step related to GSR also create a big problem in terms of profitability because we were forced to clean the stock. These are the reason why we believe that this 6%-8% is still achievable in the second half. About the new project, of course, as you know Cengiz, do you want to-
Yeah. Hi, good afternoon. This is Cengiz speaking. Thank you, Fabrizio, for your explanation regarding margin guidance. For the new project, we are working on a project capacity of 150,000 per year. Of course, in 2025, there will be also certain ramp-up issues for different market and so on. What can I say for a moment is that the production install capacity will be 150,000, but we do not have yet budget for 2025, so we need more time in order to define what can be forecast of 2025 as a production. Thank you.
Thank you. Can you also comment around this margin guidance downgrade? I understand this is not a structural downgrade, but do you also expect it to go back to around 10% levels in 2025 when production normalizes?
This is mainly will be directed also from the inflation level in the country because as you are reading also from financials, we have a heavy impact of inflation. In the first six months, the inflation rates were very high. According to Central Bank program, this will help us, if the Central Bank and the government will succeed to reduce the inflation. That will make more normalized financial statements for the company. If we will see one digit inflation number in the coming year, we can deliver better margins, of course.
Thank you, Cengiz. Just to clarify, as inflation declines, do you expect your monetary losses to decline as well, so this is going to help your PBT margin, right?
[Hande], could you please repeat your question? We couldn't understand.
I mean as inflation declines, I mean, as this inflation starts in Turkey, you also expect your monetary losses to decline, helping the PBT margin. That is the reason you see a normalization in PBT margin.
Yes, you are right.
All right. Okay. Thank you very much.
Thank you.
The next question comes from the line of [Demitrij Jamal] with Ata Invest. Please go ahead.
Thank you for the presentation. My first question is rather technical about your monetary loss recorded in first and second quarters. When I look into your details of your balance sheet, I see that your monetary assets are lower than your monetary liabilities. Normally, we should have expected monetary gain in your balance over the quarters. Could you maybe elaborate that to give the reason behind that, the negative or monetary loss you recorded concerning to balance? Is there any off-balance item effect on your numbers? That is my first question. The second question is about the exports side you revised down. Maybe it is the first time I see that you revised down the market share estimates while you are increasing the market. You mentioned some details, but could you further elaborate the reasons behind those downwards revisions?
Where should we see the sustainable margins going forward, in this new normalization stage? Considering the inflation declining or possible, do you expect some margin normalization at a higher level or at current levels? Thank you.
First, I would like to answer to the second one, because first one is very technical, but I like to talk about the hyperinflation calculation and the impact and so on. First of all, on the export side, the company is passing from a transition period. Because transition period, we made a sale out of Doblò in 2023. Starting from this month, we also stopped producing Fiorino. Those were the two important elements of Tofaş exports. Hopefully, we are also working for new commercial projects, which, starting from 2025, will give us possibility to recover and come back to the past years' numbers. For the second half, we have only Tipo version to export in our hand. Unfortunately, Mehmet also said, in the different market, there is a different regulatory issues.
One of the important markets for us was Algeria, but the government decided to stop importation of new cars. For this reason, we are facing a problem on the Tipo export side. Because our range is not so much suitable for the West European market, that is the problem that we are facing. Unfortunately, Egypt and Algeria and Morocco, which are the important MENA markets, are facing some regulatory problems. This is what is happening on our export side. But this is a problem for the second half of 2024, and hopefully, as I said, with the new commercial project, it should be overcome. On the local market side, we are accepting to lose market share.
As you know, we lost also our competitive advantage on the Special Consumption Tax because compared last year, we benefited from the Special Consumption Tax brackets advantage, and mostly we sold our cars with a 50% of Special Consumption Tax. But due to the higher inflation, we increased the prices, and the brackets remain at the historical values. Now, we are not seeing any adjustment, although, we convince government to put additional taxes on for the Chinese importation, that will help us in the second part of the year because we will see lowering Chinese competition in Turkey after this 40% additional taxes. But all local producers, mainly Tofaş, has lost the competitive advantage compared 2023. Unfortunately, also, I personally, I do not wait any adjustment on this because also government want to calm down the economy.
Probably they will keep this level until end of the year, when we will see in numbers and how we will end up after we can continue to discuss with the government. Accepting losses in the market share means that also we do not want to enter so much price competition. Of course, we are not 100% out of the price competition. But we are also trying to balance between the profitability and the market share. Our main issue, of course, is the production capacity and saturation of this capacity. You are seeing also from our numbers, we are working in the unsaturated levels with the plant. This is also impact of our fixed cost. This is also the resulting from the normal sales.
But as I said, we are always trying to balance profitability and the production, because for us, the market share is not the first priority. We are looking and taking care also our margins. This is what I can say regarding local market. Your first question, impact of the hyperinflation on the financials. First of all-
Yes.
-fact is not only monetary items, is on non-monetary items. Because theory says that monetary items can protect their selves against inflation. So, for example, if you have a certain Turkish lira money in your bank account, you are getting interest. If this interest is lower than inflation, you are losing. If higher than inflation, you are making money. But in our case, we are the important industrial company, and we have an important equity. So, in the industrial company balance sheets, impact of the hyperinflation is coming from mainly difference between the equity value and the fixed asset and inventory values. So, in the Tofaş case, this equity is much higher than the fixed asset and inventories. So, we can add also deferred tax, asset on this. For this reason, due to the disposition in our balance sheet, we are generating, unfortunately, monetary loss.
We will continue to generate monetary loss because I repeat, but I will repeat, but our equity is bigger than our fixed asset and inventory because they are end of our investments. So, we are very low level of fixed asset than the normal one. For this reason, we are, let's say, at the unprotected situation. When the company will continue to invest, then we will see balancing this. So, when our fixed asset will increase and total of fixed asset plus inventory will be equity or, let's say, close to equity, then we will see no impact on the financials of Tofaş, which is company now in this direction. Now we are already entered, and we will continue as our guidance also. You are seeing we are going to invest EUR 150 million, and we will continue also in 2025.
We are entering into the from unbalanced situation of hyperinflation through balanced level of hyperinflation. For this reason, we will see better margin as I try to explain also to [Hande]. So better margins and less impact of the hyperinflation in Tofaş.
Thank you, Cengiz Bey. Regarding the Competition Board, we have been asking that question many times, and I understand you that you are giving the same answers. I want to point out that I called the Competition Board today just to understand the process, to see the answer. I didn't specifically Tofaş, but I just mentioned that, how long this process. I see that apart from me, many investors even, investors maybe, the individual investors or maybe some others are calling them. So, they even don't want to hear about this case. That's a comment I'm just making. At least, I can say that the investors especially are whenever we know that this year is going to be weak, understand. But we think about the strategic perspective of, and you do better than us and you know for middle long years.
But I just want to highlight that. I don't have any question about this Competition Board anymore or anything, but at least, I understand that everybody is trying to just say that "When are you going to finish it?" And of course, they are the public servants, I can say. But on the other side, it's the public company, so they need to care of it. And you mentioned that you prepared everything ready, so they should answer it as soon as possible. But I just want to make comment that there's the public just support or anything, that it's not going to accelerate the process. But at least I just want to point out that they are receiving many calls from many people related to that. That means everybody is worried, and they care about this company's prospects, not only as a investor or as just a company.
I just want to point out this maybe personal anecdotal issue.
Oh, thank you for your comment. When I also having a contact with the Competition Authority guys, I am also hearing the same because they are also following Instagram and they have also their personal Twitter account and so on. They are also claiming to me that everybody's writing to them because there is also individual investors now. They are following the issue and so on. But probably also we should understand this at the Competition Board side, there is a lot of cases. I don't know what is their order, how they are managing and so on. But I think there is also overloaded activity at the Competition Board side. So also, this is we think we should understand. Okay. Thank you.
Thank you.
Thank you.
Thank you, Cengiz Bey.
As a reminder, if you would like to ask a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Renzi for any closing comments. Thank you.
Thank you, operator. Thank you all for the participation. I wish you a good day, a good summer break.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.