Tofas Türk Otomobil Fabrikasi : First Quarter 2022 Financial Results Webcast Q&A Section Transcript

TOFAŞ Türk Otomobil Fabrikası A.Ş. 4Q21

Financial Results Conference Call and Live Webcast

Friday, 4th February 2022, 17:00 (TR Time)

Conductors:

Mr. Cengiz Eroldu, CEO

Mr. Fabrizio Renzi, CFO

Mr. Mehmet Ağyüz, CFA - Investor Relations Manager

Conference Call Conducted by Chorus Call Hellas

CHORUS CALL HELLAS

PROVIDER OF TELECONFERENCING SERVICES TEL: [phone]FAX: + 30 210 94 27 330

TOFAŞ 4Q21 / Financial Results Conference Call and Live Webcast

Q&A SESSION

OPERATOR: The first question is from the line of Lanka Sashank with Bank of America, Merrill Lynch. Please go ahead.

LANKA S:Yes, thank you very much for the presentation, and the opportunity to ask questions. I have three questions if I may. The first question is, are you updating your PBT margin guidance given what we saw this year, I think the previous guidance you gave us was around 8% if I am not wrong.

The second question is on your volume's expectations for both the domestic and the export shipments. You are expecting a pick-up in both of them year-on-year, so what is the downside risk to this and what is your assumption that you are having on the return of the semiconductor chips and the shortage being solved. That's the second question?

And the third question is, I think Stellantis has their strategy update in March, so should we expect an update from your side as well at that time? Thank you.

RENZI F:Good afternoon, Fabrizio Renzi speaking. Thank you for your questions. Let me start from the PBT. As you have seen from the presentation, we achieved an outstanding level, 11.8% well above our previous guidance of 8%. Of course, this… and believe our result is the combination of different factors, some of them are, we can consider permanent, so we will carry on this. Some of them, it's temporary.

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TOFAŞ 4Q21 / Financial Results Conference Call and Live Webcast

So, for sure we can consider that now the level of profitability of the local market is much better than the previous years, so we can consider this part as permanent. We can expect similar… or we are targeting similar performance in the future.

Second factor is the take or pay. Take or pay is there, so in case of drop of the volumes, we will have this protection. We had this protection in 2021, in 2020 so no doubt about the protection of the export volumes. And we had also another factor in December… and November and December that is the strong devaluation of the Turkish lira that support this result. So, this is the reason why in the full year but also in the last quarter we achieved these very good results.

In terms of future expectation, yes, you're right; we are revising our sustainable level of PBT. From now on our target will be 2-digit target, so this is what we are planning for the next year in terms of PBT guidance. This was the first question.

About the volumes 2022, in this moment, in the guidance that we released, we prefer as usual to have a very, very conservative approach, both in local market, in export. In the local market we have two main risks that are in our guidance, in our expectation of the industry for 2022.

First of all, the macroeconomics evolution, so the inflation, the trend of the currency, but on top of that the increase of the cost due to the commodity is something that could affect the market. We have seen the markets in January losing around more than 10%, so this is the reason why we are very

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TOFAŞ 4Q21 / Financial Results Conference Call and Live Webcast

conservative, and this is our concern from the point of view of the demand… commercial demand and customer. Remain also some concern in terms of production capability, so the micro chips electronics crisis is not finished yet.

In the first quarter we are experiencing more or less the same problem we had in the second half 2021. So as a combination of some potential risk in the demands, and some potential risk in the production capability at the shortage of the electronics component, for the moment this 700,000 to 750,000 cars for 2022 is our guidance that, to summarize imply some risk in terms of demand and production capability.

Last question was related to Stellantis. As you maybe know 1st of March will be presented the strategy for the coming years from Stellantis in the Capital Market Day. Of course, we are already working with Stellantis in some projects and some in a multiple scenarios.

So, for the moment what I can say is that we are in line, we are cooperating with Stellantis for the electrification strategy and also for the software strategy. I can make sure that with our R&D center, for example, we are working already in this strategy to reinforce the skill of the company for the future development of the software skills in the company.

So, for the moment, this is… that's all. We don't have any news in this moment that we can officialize in term of future product plan, but we are working on multiple scenarios, if this is the question, and this is what we can share with you today.

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	TOFAŞ 4Q21 / Financial Results Conference Call and Live Webcast
LANKA S:	Thank you for that. If I can just follow up on the PBT margin
	guidance, you mentioned double-digit, I think you did 11.1%
	in 2021. So, I guess, given you are expecting volumes to be
	higher and also the fact that there could be some inflationary
	and depreciation of the currency impact, should we assume
	that it should be ideally higher than this 11% and maybe close
	to mid teens in terms of percentage or it's…or is that a very
	bullish assumption?
RENZI F:	Okay, I repeat what I mentioned before. So, we need to
	differentiate permanent effect and what I mentioned
	temporary effects. In this moment I cannot guess if the
	temporary effects will be present again in the future. So, for
	the moment I confirm what I said before. So, the target is
	double digits, then it depends on which will be the
	environmental condition, the macroeconomic condition, the
	export and so on.
LANKA S:	Thank you for that.
OPERATOR:	The next question is from the line of Demirtas Cemal with ATA
	Invest. Please go ahead.
DEMIRTAS C:	Thank you for the presentation. Hold on. Thank you for the
	presentation. My first question is about the margin side.
	While you look at the fourth quarter and when we all look at
	the details of the FX sides, you know, the gains s on the cash
	flow hedges below the net income line in the total
	comprehensive income side, I see around 500 million Turkish
	lira FX losses from hedges. Could we assume that went
	through the balance sheet and that just had a positive impact
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