D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the Hespiburada conference call and live webcast to present and discuss the second quarter 2021 financial results. At this time, I would like to turn the conference over to Ms. Helene Selik-Bilek, Investor Relations Director. Ms. Selik-Bilek, you may now proceed.

Thanks, operator. Thank you for joining us today for Hespiburada's second quarter 2021 earnings call. I'm pleased to be joined on the call today by our CEO, Murat Emirda, and our CFO, Korhan Öz. The following discussion, including responses to your questions, reflect management's views as of today's date only. We do not undertake any obligation to update or revise this information, except as required by law. Certain statements made on today's call are forward-looking statements. 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 presentation. Today's press release, the 6K, in our prospect is filed with the SEC on July 1st, 2021 and other SEC filings for information about factors which could cause our actual 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 earnings press release, for a presentation of the most directly comparable IFRS measure, as well as the relevant IFRS to non-IFRS reconciliations. As a reminder, a replay of this call will be available on the Investor Relations page of HIPPSI Brada's website. With that, I will hand it over to our CEO, Murat.

Thanks, Helene. We are so excited to have our first earnings call ever as the only Nelzak listed Turkish company. Before we dive into the second quarter results, I would like to take a moment to give an overview of our SuperApp ecosystem and focus on some of the key fundamentals that contribute to the success of HepsiBrada. HepsiBrada is a homegrown company that has played a fundamental role in the development of e-commerce in Turkey over the last 20 years. Our name Hepsi Burada literally means everything is here and is synonymous with a seamless online shopping experience and benefits from very strong brand awareness. Our vision is to lead digitalization of commerce. To that end, we have evolved from an e-commerce platform into an integrated ecosystem of products and services centered on making people's daily life easier. We operate in an attractive market that has a large, young, urbanized, and tax-savvy population. The Turkish market is at an inflection point, with a growing e-commerce penetration expected to exceed 20% within total retail by 2025. That said, roughly 90% of total retail is still offline, offering a large opportunity for growth. Our super app is at the center of our value proposition and acts as a one-stop shop for customers by offering a broad range of products and services and by creating differentiated user experience. Today, we are a one-stop shop for customers' everyday needs, from products and services to groceries and payments. We constantly seek new ways to differentiate our customer experience with valued services such as frictional return pickup, expedited delivery services, card splitting, instant customer loan, and our loyalty club offering. Also, we continue to expand into new strategic assets, including Hepsi Express, our on-demand grocery delivery service, Hepsi Pay, our digital wallet companion solution, Hepsi Fly, our A-line ticket sales platform, and Hepsi Global, our inbound and cross-border business. With our growth-oriented business model, we recorded a GMV growth at 64% CAGR between 2015 and 2020, as we disclosed in our IPO prospectus. Our solid operational execution, capital efficiency, robust logistics network, deep technology capabilities Household brand name, hybrid business model, and integrated ecosystem have positioned us as a homegrown company to emerge as the first ever NASDAQ listed Turkish company. Let me stop here and now turn to our second quarter results. Next slide, please. In the second quarter, our GMV grew by 38% compared to the same period of last year to 5.9 billion TL in line with our plan. This performance brings the first half GMV growth to 58% on a yearly basis. Total number of orders in the second quarter were 13.1 million, which is the highest we have recorded to date in a single quarter. It is important to highlight that these results have been against a strong baseline effect of COVID-19 pandemic last year and are driven by a greater active customer base, order frequency, active merchant base, and total number of SKUs compared to the second quarter of last year. HepcJet, our in-house last-mile delivery service, achieved presence in every city in Turkey by the end of June 2021. Parallel to our super app ecosystem value proposition, we continue to invest and scale our strategic assets, particularly Hepsi Express and Hepsi Pay, which are well positioned for strong growth. Within that context, we launched our digital wallet, Hepsi Pay Cüzdanım, embedded in Hepsi Brada in June 2021. Hepsi Express, our on-demand grocery delivery service, has expanded its partner network to over 40 brands across over 1,800 stores. Overall, these results indicate our ability to deliver strong growth across the ecosystem. Let's have a detailed look into key assets. We operate a large, fast, and scalable in-house logistics network with last mile delivery, fulfillment, and operations capabilities powered by our proprietary technology. We believe that our nationwide logistics network is key to our success. We operate six fulfillment centers covering more than 120,000 square meters strategically located across Turkey. In the second quarter, HepsiJet achieved presence in every city in Turkey, reaching 137 crosstalks, whereas HepsiMAT, our nationwide pick-up and drop-off network, expanded to more than 1,500 branded pick-up and drop-off points across lockers, partner local stores, gate stations, and retailers. As a result of its expansion, HeftyJet conducted more of retail deliveries and more of marketplace deliveries in Q2 2021 compared to the same period of last year. With HeftyJet, we are able to offer a variety of valued services including same-day, next-day delivery options, delivery by appointment, including weekends, and frictionless return, which is HEPCJET picking up your return from your door at your preferred schedule. In line with our efforts to enrich valued services, HEPCJET also began rolling out two-man cargo handling service in Q2. addressing the need for high quality and reliable service in relevant categories. We believe that our robust logistics network gives us a significant competitive edge in offering strong customer experience. Let's take a look at another strategic asset, HepsiExpress. At HepsiExpress, we aim to become a mainstream grocery shopping destination. Embedded in HepsiBrothers Super App, HepsaExpress offers both instant and scheduled delivery options addressing grocery needs for on-demand and planned grocery shopping. By the end of second quarter of 2021, HepsaExpress has become one of the strong players in this market with around 2,600 outsourced picking and delivery agents and has expanded its ecosystem to over 40 brands and roughly 1,800 stores with presence across more than 50 cities in Turkey. We believe HepsiExpress will be a key enabler to attract new customers, to engage our existing audience, and to unlock further synergies across services in Hepsi products. Let's take a look at HepsiPay. HepsiPay is designed to be a companion wallet to spend save and mobilize money in a flexible way across online and offline channels. Having acquired its license in 2016, HepsiPay marked an important milestone by launching HepsiPay Juzanım, which I will refer to as HepsiPay Wallet, as an embedded digital wallet product on our platform on the 10th of June. Its daily penetration amongst eligible audience has been faster than our expectations. HepsiPay Wallet enables instant returns, cancellations, and cashback. Along with HepsiPay Wallet, HepsiPay also introduced HepsiPapel, a cashback points program that allows customers to earn and redeem points during purchases with the wallet on the HepsiBroada platform. The HepsiPapel program has been instrumental in the rapid growth of HepsiPay Wallet. Hapsipay will enable peer-to-peer money transfers and will constantly explore new use cases across online and offline. I will now leave the floor to Korhan, our CFO, to run you through the financial performance in Q2.

Thank you, Murat, and hello. What inspires us in our mission of being reliable, innovative, and sincere companions in people's daily lives? In our view, this broad mission boils down to focusing on key three aspects of online shopping, selection, price, and delivery. On selection, with our compelling value proposition, we doubled our active merchant base as of June 30th compared to the same day a year ago. This is reflected in our offering to customers as almost doubling our SKUs on our platform during the same period. On pricing, we seek to provide the best value for our customers by offering competitive prices, which we have continued to uphold in Q2. On delivery, our large, fast, and scalable in-house logistics network stands out as one of the key strengths, which we have done by increasing our overall footprint across Turkey. These key strengths have been instrumental in driving continued customer growth on our platform as well as higher order frequency on a yearly basis. As such, our total number of orders grew by 38%, reaching a record 13.1 million in the second quarter. A combination of these factors has resulted in 38% GMV growth in the second quarter. This performance was achieved against an already strong second quarter of 2020 due to baseline effects of COVID-19. To normalize this effect on growth figures, we have shown here two-year compounded growth rates. So for the first and second quarter of 2021, compared to the same period last year, compounded two-year growth rates were 68% and 86%, respectively indicating a continued quarter-over-quarter momentum. It is worth mentioning that we will continue to see the baseline effect of last year on the growth figures for the upcoming two quarters as well. Let me now walk you through our hybrid business model. Our hybrid business model offers a healthy combination of retail and marketplace. Having launched our marketplace six years ago, we have gradually increased its contribution to GMV, bringing it to 69% in the second quarter of 2021. The GMB Shift to 3P is expected to have strategic advantages on our business in the long term, facilitating a wider selection, availability, and its competitive pricing. Since our launch of the marketplace, we have always regarded our merchants as our long-term business partners. With this mindset, we have focused on creating value-added services for our merchants. We empower them with our comprehensive end-to-end solutions to thrive digitally. Our set of advanced tools and services include the merchant portal with merchant store management tools and advanced data analytics. In Q2, we upgraded our merchant portal by introducing new modules that further contributed to overall efficiency by increasing self-service actions. We also offer them advertising services through HepsiEd so that they can effectively advertise inside and outside HepsiBurada to drive their sales. We give them access to our last mile delivery service, HepsiJet, as well as our fulfillment service, HepsiLogistic, where we can take care of storage, handling, and packing of the merchandise on their behalf. We also help them get better with e-commerce by providing comprehensive training sessions through our training portal. Last but not least, we provide them with financing options to help them in their effective working capital management. In 2020, our financing program exceeded 1.3 billion TL in volume with an 11.4 times growth in merchant and supplier financing options. from 2018 to 2020. All these value-added services have contributed to HepsiBurada shaping into one of the most attractive digital platforms for merchants to access 33 million members on our platform as of last year end. We will continue to work towards growing our merchant base through these capabilities. Now let me elaborate on our GMV and revenue growth in the second quarter. As we have stated already, our GMV growth was 38.2%, whereas our revenue grew by 5.2% in the second quarter compared to the same period 2020. Our GMV refers to the total value of orders, products sold through our platform over a given period of time, including value-added tax, without deducting returns and cancellations, including cargo income, and excluding other service revenues and transaction fees charged to our merchants. Our revenue consists of sale of goods, which is our retail model, and we refer to it as 1P, plus marketplace revenue, which is our marketplace model and we refer to it as 3P, plus delivery service revenue and other revenues. In direct sale of goods, which is retail, we act as a principal and initially recognize revenue on a gross basis at the time of delivery of the goods to our customers. In the marketplace, revenues are recorded on a net basis, mainly consisting of marketplace commission, transaction fees and other contractual charges to our merchants. Our revenue grew by 5.2% in Q2 2021 compared to the second quarter of last year. This was mainly driven by a 67.2% increase in our delivery services and other revenue and a 2.3% growth in our marketplace revenue whereas the revenue generated from sale of goods, which is retail, remained as flat, also detailed in the next slide. On the upper part of this slide, we show the dynamics and factors that have had an impact on our revenue growth in the second quarter. While our GMV grew by 38.4% in Q2 2021, our revenue growth was 5.2%, reflecting the 11% point rise in the share of marketplace GMB. Please note that marketplace revenues are recognized on a net basis, i.e. representing commissions and other fees, whereas the direct sale of goods, that is the retail, is recognized on a gross basis. The contribution of the electronics domain to overall GMV was around the same level as the same period last year. However, we sold more electronics, including appliances, mobile, and technology, through Marketplace in Q2 2021 than the same period of last year. We continued to widen our selection with expanding merchant base and competitive prices in the market by our strategic margin investments as well as discounts given to our customers for temporary marketing campaigns. Accordingly, we invested in certain non-electronic categories such as supermarkets to drive order frequency and also invested in electronic categories to fortify our market position. Additionally, we observed higher customer demand for lower-margin products across different categories, such as digital products, gadgets and appliances, including accessories, Bluetooth devices, and robot vacuum cleaners. There is 60% increase in delivery service revenue compared to the second quarter of last year, but primarily attributable to 38% rise in number of orders, as well as higher delivery service revenue generated from third-party operations during the same period. At the bottom part of this slide, we disclosed the EBITDA as a percentage of GMV bridge between Q2 2020 and Q2 2021. EBITDA was negative 189 million TR compared to positive 71 million TR in Q2 2020. This corresponds to a total 4.9 percentage point decline in Q2 2021 compared to the same period in EBITDA as a percentage of GMV, which is driven by 2.4 percentage point decrease in gross contribution margin, 1.5 percentage point rise in advertising expenses, and approximately 1 percentage point rise in other OPEX items, excluding the cost of inventory sold and depreciation and amortization. The 2.4 percentage point decline in gross contribution margin is driven by strategic margin investments, the shift in electronics GMV to 3P, and the discounts given to our customers for temporary marketing campaigns offset by other revenue streams. 1.5 percentage point margin impact through advertising expenses was to accelerate key growth drivers in core business and also to scale new strategic assets. We consider this expense as an investment in our long-term growth while strengthening our market position. Negative 0.7 percentage point margin impact through shipping and packing expenses was mainly driven by changing some of our delivery partner mix to improve customer experience and around 23% rise in unit costs. Negative 0.4 percentage point margin impact through payroll and outsource staff expenses was mainly due to additional around 1200 employees over the past year along with the impact of annual salary rise in February 2021. As a result, EBITDA as a percentage of GMB resulted as negative 3.2%, amounting to negative 189 million TL. Now, let's have a look at our networking capital and free cash flow generation in the next slide. This quarter, We generated a strong operating cash flow through effective working capital management. Accordingly, net cash provided by operating activities increased by 595 million TL, reaching 749 million TL in Q2 2021. This increase was primarily due to increase in changing working capital through change in trade receivables of 355 million TR, which is mainly driven by credit card receivables, change in inventories of 301 million TR, and change in trade payables and payables to merchants by negative 97 million TR. Our net capex is 44 million TR in Q2 2021. During this period, our investments were mainly in product development across app, website, and mobile platforms as a result of our growing operations, and purchase of property and equipment mainly consists of hardware and intangible assets arising from website development costs. As a result, our free cash flow increased to 569 million TL as of Q2 2021 from 136 million TL year on year. Now I will leave the floor back to Murat to share our guidance with you.

Now let's look ahead to the second half of the year. As the second half of the year began, the Turkish e-commerce market has encountered several challenges. These included the nationwide extension of the bank holiday period during the celebration of Eid al-Adha in July and the liftoff of lockdown measures as of July 1st. both of which adversely impacted consumer behavior in online shopping. The tragic wildfires on the Mediterranean coast of Turkey and later the devastating floods in the Black Sea region have altered the priorities of the public agenda in early August. While these adverse circumstances impact the markets, we will continue to prioritize GMV growth in the second half of 2021. We believe This to be especially important given the seasonality of our market, which favors the second half of the year. As a result, our key principle remains to prioritize growth to create long-term value by attracting more customers, increasing order frequency, adding more merchants, expanding our selection of catalog, maintaining price competitiveness, and scaling our new strategic assets. We are committed to invest in and delivering strong full-year GMV within 28 to 29 billion Turkish Lira range. With this, we end our presentation. We can now open the line for questions. Thank you for listening.

The first question is from the line of Cezar with Bank of America. Please go ahead.

Yes, hi. Good morning or good afternoon, everyone. Thanks for the call and the opportunity to take questions. I have four questions. Sorry about that. The first one is on the outlook for the market in 2H. By reading the press release and also from your comments, Do I understand correctly that the outlook for H2 seems to be a little bit tougher than what you expected probably one or two months ago and that you need to invest more than expected to achieve the same GMV number? I just wanted to check if I understood that right. My second question would be on the tech rate. For 2Q, can you please give us some – indication on the tech rate and also help us probably understand. It looks like it dropped a little bit. Third question would be on the contribution margin comments from the press release. Just wanted to understand better the mention of discounts that you've given to your customers for temporary marketing campaigns, if you can help with that. And then the last question would be on the mention from the press release that you've observed some increased demand for lower margin products. I just wanted to understand if that has reversed into Q3 and what you attribute this to. Thank you so much. I'm sorry for the many questions.

Thank you, Cesar, for your questions. For the first one, whether Outlook looks tougher or not. While the recent trends we observed in Q2 and early Q3 are reflected on the outlook, as well as the seasonality of our market, which favors the second half of the year. The Turkish market is an inflection point, and this is the right time for us to prioritize our growth. That is why we raise capital and are focused on investing and delivering long-term value creation. In terms of the take rate, Our growth contribution margin declined 2.4 percentage points to 8.3% compared to the second quarter of last year, mainly due to underlying dynamics in revenue growth. This 2.4 pp decline in growth contribution margin is driven by, as you said, strategic margin investments in certain categories like electronics to fortify our market position. and in non-electronics to drive further frequency by our customers, and also into CRM, which we call this as temporary margin investment, and this will be gradually reduced throughout the time, and also shifting electronics GMV into 3P, meaning marketplace, We sold more electronics from the marketplace unit and therefore this affected our gross contribution. And finally, the discounts given to our customers to widen our selection with expanding merchant base and competitive prices in the market by our strategy margin investments as well as discounts given to our customers for temporary marketing campaigns. In terms of lower margin products, those lower margin products are mainly gadgets, appliances, Bluetooth devices, and robot vacuum cleaners, and also once the electronic products shift into the GMB, mostly those products consist of appliances, mobile devices, and technology devices, which has lower margin compared to non-electronics. Well, depending on the market evolution, we expect this trend map may continue in the third quarter as well, but we have always been prioritizing our growth to create long-term value by attracting more customers and increasing our order frequency and adding more merchants, expanding our selection of catalog, maintaining price competitiveness, and scaling our new strategic assets. Thank you.

Thank you. The next question is from the land of Addis and Miriam with Morgan Stanley. Please go ahead.

Hi, everyone. Thanks for taking my questions. Firstly, just following up on the take rate, you mentioned that you've seen a shift from electronics from 1p to 3p. I was wondering what has been driving that, and do you see that specifically as a permanent shift? And then also just on the discounts that you also mentioned as well, how much of this was driven by any competitive pressures? Were there more competitive pressures than you anticipated at the start of the quarter? And if you could just comment on the current competitive environment that you're seeing at the moment. And then finally, just on the payments, I think you mentioned there that the development was ahead of expectations. If you could just give a bit more color on that, that would be great. Thank you.

Thank you, Miriam. For the take rates, well, we continue to widen our selection with expanding merchant pays and competitive prices in the market by our strategic margin investments. as well as discounts given to our customers for campaigns. Accordingly, we invested in certain non-electronic categories such as supermarkets to drive our order frequency and also invested in electronic categories to fortify our market position. Please note that we are very strong in electronics and in electronics the biggest opportunity comes from offline. On the competitive environment, let me hand over to Murat.

Thank you, Korhan. Let me just quickly address competition and then we take next question. I mean, let me remind you that we operate in this attractive market that has a large, young, urbanized, and tech-savvy population. We have been operating in this market along with several players for many years and proven our growth trajectory. So the Turkish market is an inflection point with a growing e-commerce penetration. expected to exceed 20% within total retail by 2025. That said, roughly 90% of total retail is still offline. Hence, our largest opportunity is offline retail. And we would like to capitalize on this opportunity and create long-term value by expanding our customer base order frequency, merchant base, our selection, and maintaining our price competitiveness and scaling our new strategic assets. And of course, our solid operational execution, capital efficiency, robust logistics network, deep technology capabilities, household brand name, hybrid business model, and integrated ecosystem well positions us for success. Third question, if I'm not Mistaken is about Pepsi pay Pepsi pay is correct Yes, it's correct So if the pay is designed to be a companion wallet to spend save and mobilize money in a flexible way across online and offline having acquired its license in 2016 and HepsiPay marked this important milestone by launching the username HepsiPayWallet as an embedded digital wallet on our platform on the 10th of June. As said, as we mentioned, the daily penetration amongst eligible audience has been faster than our expectations, but yet it's too early to disclose numbers. But HepsiPayWallet enables instant returns, cancellations, and cashback. Along with HEPC Pay Wallet, HEPC Pay also introduced HAPEL program, a cashback points program that allows customers to earn redeem points during purchases with the wallet on our platform. HEPC Pay will enable peer-to-peer money transfers and will constantly explore new use case scenarios across online and offline. Actually, in line with our super value proposition, we'll continue to invest and scale our strategic assets to the benefit of our customers, including HepsiPay, which is well positioned for strong long-term growth.

Got it. Great. Thank you very much.

Thank you.

The next question is from the line of Tunsera Atli with Goldman Sachs. Please go ahead.

Hi. Thank you very much for the presentation, and congratulations on the first set of results post your IPO. So I have a couple of questions. First, on the active user base, are you able to share some sort of granularity around the actual growth rates, as it will be important to track anything sort of anecdotal would be helpful as well. I know that there were a couple of questions on the take rates, but I couldn't hear clearly. My line was breaking up. So the implied take rate for the second quarter is quite low. Is this a pure mix effect or is there any change in the take rates across categories potentially due to competitive pressures? And is that something that will imply lower take rates going forward for the rest of the year and potentially beyond that? And my next question is, what are your expectations on profitability for the rest of the year? Where do you see most of the pressure coming from and related to that? How is the profitability profile across your new business lines, especially Hep C Express?

Thank you, Asghar. For the active user base, Unfortunately, we do not share our active user base on a quarterly basis, but we will share the increase by the end of the year as a year-end figure. However, our active user base and frequency keeps on increasing. I can give you this guidance. On the margin investment and the take rate effect, I can say our gross contribution margin declined by 2.4 percentage points, reaching 8.3% compared to the second quarter of last year. This is mainly due to dynamics in revenue growth. There is a 2.5 percentage point decline in gross contribution margin driven by strategic margin investment. because of CRM, which we call temporary margin investment. And those strategic margin investments are done in electronics to fortify our market position and in non-electronics to drive frequency to bring additional GME for our company. We continue widen our selection with expanding merchant space and competitive prices in the market by our strategic margin investments, as well as discounts given to our customers for temporary campaigns. And accordingly, we invested in certain categories, non-electronic and electronic categories, such as supermarkets and some electronic categories. Please note that we are very strong in electronics. And in electronics, the biggest opportunity comes from offline. And in order to capture these offline customers, we have been making, on and off basis, margin investments to gain additional GMV. On the third question, expectations about the profitability. The Turkish market is an inflection point and this is the right time for us to prioritize our growth. That is why we raise capital and we are focused on investing in and delivering long-term value creation. As a result, our key principle remains to prioritize growth to create long-term value by attracting more customers, increasing order frequency, and adding more merchants on our platform.

The next question, maybe I can take the next question. It was about the profitability for new businesses, right? Let me remind you. At HepsiExpress, we aim to become a mainstream grocery shopping destination. For HepsiPay, it is designed to be a companion wallet to spend, save, and mobilize money in a flexible way across online and offline. So with this strategic mindset, we will certainly prioritize growth for our strategic assets. In line with our super value proposition, we will continue to invest in and scale our strategic assets to the benefit of our customers. And HepsiPay and our HepsiExpress are particularly important to us because they are valid positions for strong long-term growth.

Okay, thank you. So basically, from my understanding, these strategic margin investments, sort of the temporary discounts, they could continue as long as you see the growth opportunity from these.

Exactly. Exactly. If you see the growth opportunity, they can continue those campaigns and margin investments.

The key principle always will remain that we're going to increase our customer base, merchant base, frequency, selection, And that is our core principle.

Thank you. And going forward, from what I understand, sorry for the follow-up, so you will be tracking, we will be tracking growth in GMV, obviously, but we will be seeing disclosure from you on the total orders rather than breakdown of things like active user base and the frequency. We will see the total order numbers.

That is true. By the year end, we will be sharing our customer base increase and the frequency numbers in detail. But on a quarterly basis, we don't disclose. We only give the overall growth figures.

Okay. Thank you.

Thank you. The next question is from the line of Kilit Kiran Khanzadeh with JP Morgan. Please go ahead.

Thank you for the presentation. Majority of my questions were asked, but I have some more. The first one is about competition. How are you planning to respond to accelerated last mile and fulfillment investments by TransOil? I think they are now much bigger than you on the fulfillment side. And how many merchants have been already on board for fulfillment services? Because you have given some sort of statistics during the IPO, and I just wonder the development here. And what is the share of total orders delivered by HEPCJET? What is the progress here? And you also mentioned about some share incentives to management, I think, which is now included in your payroll costs in the second quarter. Can you please give some details about this? And finally, about your working capital, there was a big release in the second quarter. So how should we think about this developing in the second half from a cash flow perspective? Thank you.

Yeah, let me take the first question. Maybe let me just first remind you our well-defined use of proceeds plan. As you remember, we have a very strong, well-defined use of proceeds, which includes exploration of our growth flywheel, scaling of our strategic assets, investing and scaling our operations, logistics and technology infrastructure, and of course, driving further talent. Within that context, as we discussed briefly so far, we also definitely invested and scaled our capabilities across these lines. We operate a large, fast, and scalable in-house logistics network with last mile delivery, fulfillment, and operations capabilities powered by our proprietary technology. I mean, as you remember we mentioned, as a result of its expansion, now HepsiJet achieved presence in every city in Turkey, reaching 137 crosstalks, whereas HepsiMAT, our nationwide pick-up and drop-off network, expanded to more than 1,500 pick-up and drop-off points across the country. And as a result of its expansion, HepsiJet conducts more of retail deliveries and more of marketplace deliveries in Q2. compared to the same period of last year. And also with FCJet, with our logistic capabilities, we are able to offer a variety of valued services, especially frictions return, delivery by appointment, same day, next day delivery options. And also, let me remind you, at international business awards in 2021, we were awarded with a gold award for our frictionless return service in the best user experience category. So we believe our robust logistics network gives us a significant competitive edge in offering strong customer experience and will continue to do so.

Murat Bey, thank you. But is it possible for you to share some statistics there? Because I really want to understand the upside in HEPSI. So what is the current status on the last mile? What is the share of total orders delivered by HepCJET? And how many merchants have you already onboarded for the fulfillment services to understand the potential growth?

Yes, thank you so much again for the question. Let me tell you, HepCJET actually, as you remember also shared in the prospectus, is in the early phase of its journey. and it keeps scaling the number of merchants getting onboarded. On the other hand, with FCS Jet, it kept increasing its contribution to retail deliveries as well as marketplace deliveries compared to the same period of last year. So it keeps growing year over year with respect to Q2, both in 1P and 3P contribution-wise in terms of number of deliveries. Hopefully this was helpful.

The next question is about management incentive plan and how much we recognize in our P&L. Is it correct, Anzadeh?

Yes, that's correct.

In total, we have 132 million recognized in our P&L as management incentive plan expense. And out of this, 98 million Turkish lira is based on discounted cash payments, which is projected to be done within the year 2021. And the second part is 34 million. It's based on share-based payments, which will be made within the next 18 plus 12 plus 12 months, according to our plan. So in total, we recognize 132. And discounted cash payments, 98. Share-based payments, 34. This is recognized based on vesting plan disclosed in the agreement. On the working capital side, yes, our working capital will keep on improving in the second half due to the fact that our GMV will continue to grow in the second half and with a better management, we expect to improve our operating cash flow in the second half.

Okay, so there shouldn't be any seasonality impact in the working capital, right? I mean, in the second half of the year. So we can assume the similar type of working capital management.

There is always a seasonality in the second half, especially in the fourth quarter. Having said that, our procurement increases significantly, and we are growing significantly in the third quarter. And based on the seasonality experiences in the past, we expect a better networking capital by the end of Q4. It will improve gradually.

Thank you very much. And can I finally ask about the HEPSA Express? You mentioned about new brands to be on board in grocery delivery. So is there any national brand here that you managed to onboard recently?

Because we are referring to Q2 results, we cannot actually disclose any future or forward-looking plans at this point.

But I can tell you, HEPSA Express already actually achieved over 40 brands and roughly 1,800 stores across more than 50 cities. And also, as you remember, we launched water service, water delivery service as well.

Thank you very much, Murat Bey.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Thanks operator. I would like to recap what you have heard from us today.

Our vision is to lead digitalization of commerce. Today we are one-stop shop for our customers' everyday needs from products and services to groceries and payment solutions. Our solid operational execution, capital efficiency, robot logistics network, deep technology capabilities, household brand name, hybrid business model and integrated ecosystem have positioned us as a homegrown company to emerge as the first-ever NASDAQ-listed Turkish company. We operate in an attractive market that has a large, young, urbanized, and tech-savvy population. Again, let us remind you, the Turkish market is at an inflection point, with a growing e-commerce penetration expected to exceed 20% within total retail by 2025. That said, roughly 90% of total retail is still offline, offering a large opportunity for growth, and this is the right time for us to capitalize on this opportunity. Our key principle remains to prioritize growth to create long-term value by attracting more customers, increasing our order frequency, adding more merchants, expanding our selection of catalog, maintaining our price competitiveness, and scaling our new strategic assets. With the use of funds raised in our recent IPO and our strong balance sheet, we will continue to invest in our vision. Thank you, everyone, for your time today, and we look forward to speaking with you again next quarter.