D-Market Elektronik Hizmetler ve Ticaret A.S. Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 5, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome and thank you for joining the Hebsi Berda Conference Call and Live Webcast to present and discuss the Q3 2023 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.

Operator

By pressing star and to your point of telephone. At this time, I would like to turn the conference over to Mrs. Nilhan Onal Kjerstetekim, CEO Mr. Kjerstekim Kyoshoglou, Vice President of Strategic Finance and Mrs. Helene Celik Pilek, Investor Relations Director.

Operator

Ms. Cielek Pilek, you may now proceed.

Speaker 1

Thanks, operator. Thank you for joining us today for Hepsiburda's 3rd quarter 2023 earnings call. I'm pleased to be joined on the call today by our CEO, Nihan Onal Gokcekinn and our Vice President of Strategic Finance, Tejkim Koseoglu. The following discussion, including responses to your questions, reflects management's views as of today's date only. We undertake no obligation to update or revise this information except as required by law.

Speaker 1

Certain statements made on today's call are forward looking statements and actual results may differ materially from these forward looking statements. Please refer to today's earnings release as well as the risk factors described in the Safe Harbor slide of Today's supplemental slide deck, today's press release, the 6 ks, our Form 20 F filed with the SEC on May 1, 2023 and other SEC filings for informational factors that could cause our results to differ materially from these forward looking statements. Also, we will reference certain non IFRS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's press release for a presentation of the most directly comparable IFRS measures and the relevant IFRS to non IFRS reconciliation. As a reminder, a replay of this call will be available on our Investor Relations website.

Speaker 1

And with that, I will hand it over to our CEO, Nihan.

Speaker 2

In Q3, AIM's continued challenging macroeconomic environment, where yearly inflation scaled to 61.5%, We delivered a robust financial performance. Our GMV more than doubled by 126% growth year on year. Adjusted for inflation, our GMV growth remained solid at 45% year on year. The operational agility afforded by our strategy led to an outstanding performance that exceeded expectations. Our orders numbered €77,000,000 It was up 55% year on year, confirming a continuous demand for of our differentiated services.

Speaker 2

With an 11.6% gross contribution margin and through product management, Our EBITDA as percentage of GMV rose by 6 90 basis points year on year to 2.7 percent. Adjusting for onetime other income, our quarterly EBITDA guidance was still 2.2%. Our extraordinary premium program with over 2,000,000 members as of November end aligns seamlessly with our expectation. The program continues to play a pivotal role in elevating our order frequency and improving our customer retention. Overall, I'm very pleased to demonstrate sustainable growth and improved profitability.

Speaker 2

Let me now take you through our delivery versus Q3 guidance. Through diligent execution, we surpassed our guidance for both GMV and EBITDA. Our GMV growth exceeded guidance by 16 percentage points. This performance was a result of our solid strategy that boosted loyalty to our platform. On top, in July, The announcement of the VAT increase across all goods and services triggered a higher demand for e commerce.

Speaker 2

Furthermore, through prudent cost management, our EBITDA as a percentage of GMV reached 2.2 percent adjusted for one off income. This doubling of the upper end of our EBITDA guidance clearly highlights our operational efficiency. The quarterly performance validates our commitment to sustainable growth and positions us favorably to achieve a positive full year transitory EBITDA on an unadjusted basis. Hebsie Broda is the key trust brand for e commerce. In line with our pledge to customer centricity, We announced Hepsiburda Promise initiative as a marketing campaign.

Speaker 2

As part of this initiative, we promoted key consumer benefits that and competitive next day delivery guarantee, convenience return pickup services from consumer doorsteps and an assurance of authenticated products. To drive higher engagement, we partnered with 1 of Turkey's most confident inspiring celebrity for this initiative. We believe this initiative addresses the primary concerns of Turkish e commerce consumers while underscoring our commitment to meet their expectations. This commitment is clearly reflected in our KPIs, 59% growth in order frequency, 55% order growth proved that our consumer engagement and loyalty strategy is clearly working. In the Q3, with over 101,000 Apti merchant base, our Sales management of campaigns, coupons and all advertising facilities drive higher conversion to sales for our merchants.

Speaker 2

On top, we advanced our operations with automated inclusion of products in the next day delivery coverage. This benefited customers while freeing our merchants of a manual process. In our commitment to innovating the visibility and reach Our merchants will introduce our advertising solutions in a more effective format this quarter. These initiatives underscore our commitment to a deeper merchant relationship as we help them grow their volume on Hebsi Berda. As always, we remain focused on execution excellence as our recent results affirm the effectiveness of our 4 pillar strategy.

Speaker 2

Just to recap briefly, our strategy centers around loyalty, cultivating our sustainable differentiators, streamlining our costs and expanding our B2B revenue in Fintech and Logistics. In the next few slides, I'll provide a snapshot of our progress highlighting our key achievements. First, our Hepsiburda premium program It's a key loyalty driver and continues to gain momentum and exceed the 2,000,000 members by end of November. The program's success goes beyond meal expansion. It significantly influences customer behavior.

Speaker 2

Premium numbers, monthly order frequency rose from 1.8 to 2.6 after they joined the program. This emphasizes the program's potential to position Hepsiburda as customers go to e commerce platform. The program's quarterly net promoter score remained at about 8 to 1 points, which is 10 points above our overall NPS. We remain dedicated to keep this program as a compelling proposition for our members. Let's now look into one of our key differentiator, Hepsiburda.

Speaker 2

In today's economic landscape, affordability takes standard stage and our in house fintech expertise, clearly sets us apart. Leveraging our unique e money payment services license, we offer a on Johan Sys suite of payment and affordability solutions. These include our prepaid card, buy now, pay later solution, top to all the stores and point of sale shopping laws. And noteworthy addition is the Heps Paper Prepaid Card in collaboration with Visa. We are encouraged by the demand for this card with 708,000 cards issued in just 6 months.

Speaker 2

Hepsbaycard users can earn 3% cash back in all their online and in store payments in their premium program number. A tool that customers use to top up their prepaid cards is a general purpose loan from our partner banks, which can be reached with 1 connect solution from our app. This quarter, we integrated 4 major decks. Hepsiburda gives customers the freedom to spend these loans everywhere, both physical stores and online, combined with the ease of QR payments. With our customer centric stake, our commitment to deliver stronger tailored payment and affordability solutions remains firm.

Speaker 2

Next, let's consider our affordability solutions, highlighting some performance indicators. The quarterly share of total non card affordability solutions in our GMV was 5.6%, up from 5% a quarter ago. This increased penetration is a result of our improved incorporation of non card affordability solutions throughout our life journey. Over last 12 months, 762,000 orders came through this affordability solution. Adding to our BNPL 145,000 customers have utilized their BNPL units.

Speaker 2

In September, during iPhone 15 launch, we were the platform to offer a BNPL solution for this high value item. I would like to move to now our next differentiator, Hepsberger's strong NPS of EUR 86.2 in Q3 underscores its acknowledged service excellence. Hepsige continues to invest in expanding its geographical coverage by additional municipalities. Total municipalities covered exceeded 600 by the end of the quarter. In Q3, Hepsigeq continued its Strong next day delivery performance with 8.2% ratio among our 1P orders.

Speaker 2

Out of the total After volume on our platform, Hepsijet delivered 67% confirming its integral role in our delivery ecosystem. Notably, Hepsprojects ex large delivered 57% of our oversized parcels. This is confirming greater merchant preference for our full mass handling capability. In Q3, as a result of all our actions, we saw continued progress in profitability, posting a 2.2 percent EBITDA as percentage of GMV, excluding the one off item. The positive to the brand Clearly demonstrates the effectiveness of our strategy, confirming our core strength and our diligent cost management.

Speaker 2

Now let me take you through the 4th pillar of our strategy, which is generating B2B revenue from Fintech and Logistics. First, let's start with Hepsberger. We continue to expand our external customer base, adding other retailers and doubling our customer count and doubling our volume year on year. This is Firming our ability to generate B2B revenues of platform and clearly showcase the Techsagate's strong momentum as an appealing logistic partner. Now let's turn our eyes to Hexi Pay's off platform expansion, enabling a swift payment experience.

Speaker 2

HepsiPay offers a valid checkout solution, paying HepsiPay to other retailers. This solution became available It's online checkout of 5 major Turkish retailers in Q3 as seen on the slide. A leading Turkish home appliance brand Karaca leading Turkish fashion brand, De Paz Sold leading baby brand, Aysevek is just a few of the examples. Moreover, we also offer our landing capabilities as part of TextePay's marketing checkout solution. This take up in line with our vision of providing fast, reliable, versatile payment and lending experience beyond HEXBORDA platform.

Speaker 2

HEXBORDA's features expand beyond one click checkout. The seamless use of paid Prepaid cards, both online and in store payments, clearly diversify our payment options for consumers. The top up to wallet with loans offer enables users to top up their wallet with general purpose loans from multiple partner banks. These funds are then available to Spans anywhere that accepts QR payment in addition to platforms with Hex2Pay at their checkout. An upcoming feature is the integration of shopping malls within the pay in Hexapay network.

Speaker 2

Before I dive into Q4 outlook, let me take a moment to talk about our November campaign performance. Our business is characterized by strong Q4 seasonality like all other e commerce players. We delivered a higher sales volume during the Q4 of the year. Our preliminary results indicates that this year we delivered yet another very strong performance in November. We doubled the GMV compared to the same period last year.

Speaker 2

The number of orders was 2 times that of the monthly average of the prior month in 2023. Our Piedad score It attracted almost 500,000,000 visits, and we sold over 30,000,000 pieces. Our affordability solutions And loyalty program were taking retraction points. 46% of GMV generated through sales with credit cards came through installment sales. The most significant surge in orders compared to the same period of last year were among clothing, of Lions HomeGuardian and FSJ.

Speaker 2

We greatly welcome the consumer appreciation of our superior services, Solutions and Campaigns in the busy month of November, where Hebsi Berda clearly puts its name to the word legendary, which was created by us 7 years ago. And now I want to close my presentation with our guidance. So with another robust, legendary November behind us, we expect to deliver a solid and profitable growth also in 4th quarter. Accordingly, we expect to deliver GMV growth within a range of 93% to 95% compared to the same period last year And EBITDA is a percentage of GMV within the range of 0.5% to 1%. These figures are unadjusted for inflation.

Speaker 2

Consequently, for the full year 2023, we expect to double our GMV year on year on a non adjusted basis and delivery with With this, I thank you for listening. Leave the floor to Tejkin, our forthcoming CFO, for more color on our Q3 Financial Performance, and I'll do my closing remarks. Thank you,

Speaker 3

Michal, and welcome, everyone. It's a pleasure to meet with all of you today for the first time. As I embark on my new role as CFO, I look forward to many more such occasions. Despite the prevailing macroeconomic challenges, I am pleased to say that we continued our uptrend across all metrics during the 3rd quarter. Unadjusted for inflation, our GMV rose 126% in quarter 3 on a yearly basis to TRY 24,300,000,000.

Speaker 3

Similarly, our IAS 29 unadjusted revenue growth was at 137 on a yearly basis. When adjusted for inflation, GMV and revenue growth were at 45% 52%, respectively. Strong order growth coupled with factors and inflation rising the average order value and the strong e commerce market growth in July on the back of a VAT rise resulted in 126 percent GMV growth. The gross contribution margin came in at on a 1 percentage point improvement. Quarter 3 was the 3rd consecutive quarter of positive EBITDA unadjusted for inflation.

Speaker 3

Accordingly, our EBITDA as a percentage of GMV reached 2.7% on a 6.9 percentage point rise year over year. Excluding the impact of one off income item, our EBITDA as a percentage of GMV was at 2.2%. Also, when adjusted for inflation, this metric was at 0.3% on a 6.2 percentage point improvement year over year. On the next slide, let's elaborate on our GMV growth performance. 45% of GMV growth came through 27,000,000 orders in quarter 3.

Speaker 3

This performance results from our value proposition supported by the Hebse Burda Premium Loyalty Program and our Affordability Solutions. Our digital products Contribute to the order frequency of participating customer segments. Yet excluding these orders, our order growth was still strong at around 18%. During the Q3, we saw a 2.7 percentage point shift in GMV mix First, I would like to give some color on revenues. Revenue growth of around 52% was achieved mainly by a 50% rise in retail revenue and 61% growth in marketplace revenue.

Speaker 3

Our retail and marketplace operations comprised 87% of our revenues. Our delivery service revenue comprising 10% of total revenue rose 43% compared to quarter 3 2022. Meanwhile, other revenue, which mainly consists of our advertising services, fulfillment services and loyalty program subscription fees, grew by 116% compared to quarter 3 2022. Our quarter 3 gross contribution margin was at 9 point 4% on a 1 percentage point improvement on the same quarter last year. This was mainly attributable to a higher rediscount impact on cost of inventory sold due to purchases on credit, a change in the 3P GMV category mix towards higher margin products and the higher other revenue stream.

Speaker 3

Faster inventory turnover partially compensated for the margin Deteriorating impact of significantly higher quarterly inflation that we have witnessed in quarter 3. Let's move on to the EBITDA performance on the next slide. Together with strong top line growth, Our focus on costs and marketing spend optimization enabled us to deliver positive EBITDA for yet another quarter. The 6.2 percentage points year over year improvement in EBITDA as a percentage of GMV was mainly due to A 1 percentage point rise in gross contribution margin, 1.1 percentage point decline in advertising expenses, 0.1 percentage point decline in shipping and packaging expenses, 0.6% decline in payroll and outsourced expenses and 3.3 percentage improvement in other OpEx items, which includes the settlement contribution from Turk Commerce in the quarter this year and the provision expense related to the same litigation in quarter 3 of last year. OpEx as a percentage of GMV was 9.1 percentage in this quarter, that's 5.1 percent points lower compared to 14.2 percentage in the Q3 of last year.

Speaker 3

Our continued efficiency in marketing spend was achieved through our focus on customer retention and loyalty strategy, data driven marketing and co marketing partnerships. Next, a few words on our cash flow dynamics. Compared to quarter 3 2022, our cash flow from operating activities increased by almost CLY1.4 to TRY 2,200,000,000 in quarter 3, 'twenty three. This increase in cash flow from operating activities mainly resulted from TRY 1,100,000,000 improvement in EBITDA, dollars 1,200,000,000 decrease in change in net working capital, mainly due to increase in BNPL receivables and an increase in inventory in anticipation of high demand in quarter 4. TRY 700,000,000 increase in operating monetary gains due to inflation accounting and other items.

Speaker 3

And finally, TRY 800,000,000 increase due to realized FX gain. CapEx was around TRY 234,000,000 at 0.9 percentage point of GMV. Overall, our free cash flow was a positive TRY 2,000,000,000 in quarter 3, 2023. Before we end our call, I would like to leave the word back to Nilhan to highlight the key takeaways from today's presentation.

Speaker 2

Thank you, Sachin. In Q3, we delivered a strong top line growth and EBITDA through diligent cost management exceeding our guidance. Our IAS 29 We improved our gross contribution margin by 1.8 percentage points and EBITDA as percent of GMV by 6 We generated a substantial improvement in free cash flow on a yearly basis, thanks to our improvement in operating profitability. We are committed to creating long term value for all of our stakeholders, and we work diligently to deliver our best possible results with our whole team. And finally, I take this opportunity to wish everyone seasonal greetings.

Speaker 2

Thank you for listening. We can now open the line for questions.

Operator

Ladies and gentlemen, at this time, we will begin the question and answer session. Question box under the webcast page. Ladies and gentlemen, there are no other questions at this time. We will now proceed with the webcast questions from our participants. The first webcast question is from Maxim Nekrasov with Citi.

Operator

And I quote, what drives growth deceleration in Q4 2023 compared to 3rd quarter 2023. Thank you.

Speaker 2

This is Nihan speaking. We have a couple of factors. One of them is our base In Q4, 2022 was extremely strong. That's number 1 driver. Number 2 driver is in Q3, Maxtin, We had a VAT change.

Speaker 2

As I explained in July, we accelerated our growth as e com platform, which won't be repeated from our expectations in Q4. And lastly, with the rising interest rates, We are expecting also some minor impact to the demand in Turkish market. And with this 3,

Operator

The next webcast question is from Ule Adamson with T. Rowe Price and I quote, Any thoughts on possible local listings to improve the liquidity of shares?

Speaker 2

A local possible listing in Istanbul Stock Exchange is one of the ideas that we are Always evaluating like other options. There are pros and cons we are investigating, Ole. As we crystallize our thinking, if there is something to share, we will obviously come back. But this is one of the things we are obviously looking into based on the feedback we received today.

Operator

The next webcast question is from Tim Rasak with Frontera Capital, and I quote, Hi. Webcast. Could you please provide me color on September sales and how the Lenti Teri November event was relative to your expectations. Thank you.

Speaker 2

It was almost postponed versus our expectations in November. We have done couple of assumptions for November growth. Both of them are Increased uptake from our premium consumers. Both our premium membership increased and the frequency increase New categories that we have been driving have been strong. That has also been in line with our expectation.

Speaker 2

And in terms of our marketing plan, The number of sessions we plan for legendary November also was in line with our expectations. So I would say We invented legendary November 7 years ago and since then we have been getting stronger and stronger In our execution and in line with our plans, we delivered a strong November campaign.

Operator

Our next webcast question is from Christian Andrews with Frontera Capital. And I quote, digital orders represented a significant portion of order growth. Could you expand on what these orders relate to? And would their contribution to revenue growth be similar?

Speaker 2

The digital orders, yes, they represent significant portion of order growth. But in terms of GMV In material, less than 0.7% of our GMV, so we can't talk about any related contribution to our GMV growth. It's strategic. It drives frequency. It drives

Operator

Thank you. We also have a question from Mr. Hassan Bayahan, and I quote, How do you invest in the U. S. Cash you have?

Operator

What is the return on that?

Speaker 3

Hi. We typically use time deposits in banks and I think the yield is a big question. We are close to 5% on our yield for USD deposits.

Operator

Thank you. The next question is from Mr. Maxime Nycresto with Citi and I quote, what are your expectation regarding tumor demand in 2024 considering recent interest hikes.

Speaker 2

Our progress and results Clearly proved that our strategy works in Telenetri. And as we look forward to the coming year, To impact Turkish economic growth, we have several key initiatives reinforcing our position. I maintain our commitment to strategic priorities, affordable shopping options, benefits from premium program And also ecom is in best place, very sweet to serve consumers in this type of environment.

Operator

Our next webcast question is a follow-up from Mr. Ulla Adamson with T. Rowe Price and I Quote, what is the outlook for EBITDA margin in 2024? Also, where would you like to see the margin over the longer term?

Speaker 2

For 2074, We are going to talk about our guidance, our expectations as part of our Q4 earnings results. But what I can say, we are extremely committed to sustainable profitable growth. We have built a very strong initiative pipeline for 2024 and also upcoming years, in line with the presentation we We have done that is including Heps advertising platform, that's including non electronics in our mix, that is including incremental margin from our services and B2B revenues that will continue to enhance our margin situation. For granular details and expectations, we'll come back in Q4.

Operator

Thank you. Our next webcast question is from Christian Andrews with Frontera Capital. And I quote, Hepse Premium reached 2,000,000 members. Could you please speak a bit about any targets for the program? Is there a target number of members?

Operator

Is this program breakeven yet on a consolidated basis.

Speaker 2

In terms of Hepsiburda premium program, Obviously, we are quite bullish about creating a great amazing program that will be sticky for our consumers. We are not chasing a specific number. We are looking into sustainable profitability of the company, Sustainable Profitable Growth Using Loyalty Retention Initiatives in a mix that also includes premium. Hence, I'm not going to share a specific number that we are chasing for next year, but we will continue to enhance both The benefits of the program and also numbers in the program. In terms of Premium profitability, we don't share the details for a specific consumer segment.

Speaker 2

In future, We could look into giving different cuts in our profit, but so far, we are only sharing a consolidated view.

Operator

Our next question is an audio question from the line of Kilikiran Hazante with JPMorgan. Please go ahead.

Speaker 4

Nila Luvsi, Itchenbay. Apologies, I had a technical issue. I couldn't ask my questions initially. I would like to follow-up on the gross contribution margin. You had a very strong I mean, that was a robust improvement here.

Speaker 4

Would it be reasonable to say that some I mean large part of this expansion in the gross margin contribution comes from the inventory gains? Because There was a very high inflation in the Q3, and I just tried to understand whether this expansion is runoff or not. And or otherwise, have you observed some structural changes in your business like higher share of clothing category Or better take rates that may continue to support the margins going forward. And the second question is, is it possible to provide some sort of State of the recent competition authority investigation, what it is about and do you expect some negative results from this investigation? Thank you.

Speaker 3

Yes, as I mentioned in my presentation, The rediscount impact on cost of inventory sold due to purchases on credit has an impact on the improvement in gross contribution. But the key structural improvement that we are making are related with the 3P GMV category mix towards higher margin products. And this is going to continue in the future as well. And definitely other revenue stream is Premium tea, our hefty ad, which is very important for our future profitable tea and expansion of our delivery services. So these are structural key interventions that we will be continuing to have in the coming quarters as well.

Speaker 2

Let me come back on the second question, which is the competitive authority investigation. There has been an investigation in Turkey for price recommendation for merchants from e Commerce Platform. We have been one of the companies that competition authority To better understand the logic, we have been sharing all the data we have. This is a recent capability we developed in order to enhance merchants' competitiveness, in order to enhance Competitive prices with right ambition, with right material. So we are very comfortable In terms of the potential outcome, there could be a situation, Hanrat, in the worst case scenario, the competition not only if you could say, We would like platforms to hold this application, but nothing beyond that.

Speaker 2

So even the worst Okay. And are you obviously we are ready for this, but we wouldn't recommend it.

Speaker 4

And thank you very much.

Operator

Ladies and gentlemen, there are no further questions at this time. The conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.

Powered by Quartr

Key Takeaways

  • Q3 financial outperformance: Gross merchandise value (GMV) rose 126% YoY (45% inflation-adjusted), orders +55% to €77 million, and EBITDA margin improved by 690 bps YoY to 2.7% (2.2% adjusted).
  • Premium loyalty program momentum: Hepsiburda Premium surpassed 2 million members by November, driving order frequency from 1.8 to 2.6 per month and maintaining a net promoter score ten points above the company average.
  • Fintech differentiation: Leveraging its e-money license, the company issued 708,000 Visa prepaid cards in six months and grew non-card affordability GMV share to 5.6%, supporting 762,000 orders via point-of-sale loans and BNPL.
  • Logistics and B2B expansion: Hepsijet now covers over 600 municipalities and handled 67% of marketplace deliveries (57% of oversized parcels), while external logistics and advertising customers doubled year over year.
  • Q4 and full-year outlook: The company forecasts Q4 GMV growth of 93–95% and an EBITDA margin of 0.5–1% (unadjusted), aiming to double 2023 GMV on a non-inflation-adjusted basis.
AI Generated. May Contain Errors.
Earnings Conference Call
D-Market Elektronik Hizmetler ve Ticaret A.S. Q3 2023
00:00 / 00:00