D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I'm Myrto, your course co-operator. Welcome and thank you for joining the HepsiBurada Conference Call-in Live webcast to present and discuss the third quarter 2021 financial results. At this time, I would like to turn the conference over to Ms. Helene Celik-Bilek, Investor Relations Director. Ms. Celik-Bilek, you may now proceed.

Thank you, operator. Thank you for joining us today for Hepsiburada's third 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, reflects management 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 material from these forward-looking statements. The earnings release has been filed with the SEC on a form 6K and is currently available on the SEC's website and on our investor relations website. 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, are prospectus filed with the SEC on July 1st, 2021. and other ATC 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 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 HepsiBurada's website. With that, I will now hand it over to our CEO, Murat.

Thank you, Helen, and welcome, everyone. Before we dive into the quarterly update, some of which we shared in our pre-announcement on November 12th, let me start by saying that we, the HepsiBurada team, acknowledge the concerns of the market. Given the headwinds we previously reported on, we had a challenging Q3 and fell behind our expectations in GMV and EBITDA. Today, we will share actions to address those challenges in the market. Also, we will share with you positive news on the progress we have been making. With that, before passing over to Korhan for a more detailed look at our financials, let me provide some context around the third quarter. Since our IPO, There have been strong headwinds on multiple fronts in the Turkish market, which have presented significant challenges. There are three themes that particularly stand out. Firstly, following the full lifting of COVID-19 restrictions on July 1st, mobility increased and customer behavior began changing dramatically. The change was so drastic that the quarter-on-quarter market growth slowed to its lowest third-quarter growth rate in the past four years in Turkey, according to Turkey Statistics Institute Tweet and Interbank Cash Center BKM. In response to the slowdown, we increased the customer discounts to stimulate customer demand during that period, in particular in July and August. Secondly, the competition further intensified in Turkey. as evidenced by the fundraising announcement of our main competitor following our IPO. And thirdly, there was the impact of the overall macroeconomic environment in Turkey. In particular, the exchange rate becoming more volatile since September could have affected customers' consumption decisions in various ways. In light of these macroeconomic headwinds, customer discounts and competitive pricing became more essential. In response to these headwinds, we increased spending on total customer discounts, marketing, and advertising. As a result, we continued to generate strong GMV growth despite significant headwinds. But this came at the cost of lowering our gross contribution margin and flat revenue growth. Finally, as you know, we already informed the market with a pre-announcement on November 12th prior to this call. We now want to share with you the context regarding the timing of the announcement. Our business has always shown a strong and loaded seasonality. Historically, the second half of the year is higher than the first half in terms of GMV. And within the second half, the last four months of the year generally make approximately 40% of annual GMV due to key shopping occasions such as back to school, legendary November shopping month, and New Year season. Taking this seasonality into account, we made the pre-announcement after we had full visibility on the business performances in the months of September and October. Despite these major headwinds in the third quarter, we also have positive news regarding the progress we made in multiple fronts, including as follows. Accelerating our growth drivers such as increase in customer, order frequency, merchant, and selections. strengthening our key differentiators such as NPS performance, unique services like frictional return, merchant and customer experience, scaling our new strategic assets including our wallet companion HepsiPay and our on-demand grocery delivery service HepsiExpress, and also expanding our logistics footprint. Before we move into details on business updates, please let me re-emphasize two things. Firstly, With a sharpened focus on key differentiators and drivers of sustainable GMV growth, managing customer discounts, marketing spend, and cash flow more efficiently, we will deliver our long-term value proposition. Secondly, following our IPO, the market conditions have changed, but the attractive business opportunity did not. 90% of total retail is still offline. and the remaining online 10% is expected to double its penetration within total retail by 2025, offering a sizable and timely market opportunity ahead. This keeps our equity story intact, and we remain fully committed to it. Now, I would like to share a few highlights from our financial and operational performance in the third quarter. Total number of orders in the third quarter marked an all-time quarterly high at 13.8 million. With this strong 72% order growth, this generated a 50% GMV growth in the third quarter compared to the same period of last year. Considering the strong baseline effects last year, our two-year CAGR growth rate was 84%. While increasing our active customer base, we also noted that we had successfully engaged our customers in terms of GMV per active customer across the platform, as it grew by 33% year-on-year compared to the same period last year. On the other hand, the 50% GMV growth came in more costly than we anticipated given the market headwind I briefly mentioned. In the third quarter, we gain more customer discounts in total and spend more advertising to stimulate demand and also cope with the intensified competitive environment. This is visible in the EBITDA as a percentage of GMV reaching a negative 10.2% in the third quarter compared to the same period of last year. Taking EBITDA to a negative 5.7% of GMV in the nine months cumulative period in 2021. Korhan will address our financial performance in more depth in his section. Let's move to the next slide where I would like to discuss our performance in key growth drivers. Accelerating our drivers of sustainable GMV growth is an important focus area for us. This means we aim continuously to attract more customers, drive further order frequency, and add more merchants and enrich our selection. Over the past year, we continued to progress in these drivers. Our investment in growth, brand, marketplace, and customer experience paid off given the strong momentum in our active customer base, order frequency, active merchant base, and selection. Let me now share a few data points here. Active customer base grew by 26%, reaching 10.7 million in the third quarter. Order frequency grew by 21%, reaching 4.4 in the Q3. Active merchant base grew by 87%, reaching 67,000 in the third quarter. The rise in the number of merchants facilitates a wider selection with improved availability across long-tail products and services. As a result, our total number of SKUs more than doubled by reaching 77 million at the end of the third quarter. These robust trends in our key growth drivers give us confidence for our path ahead. Let's move to the slide where I would like to highlight how we continue to develop and benefit from our key differentiators. As a household brand name in Turkey with 99% total awareness, We had welcomed 240 million sessions on a monthly average in the third quarter. In September, based on the study conducted for our company, our NPS performance marked the highest in the Turkish e-commerce market at 65%. This score shows our superior customer experience but also underlines our robust logistics capabilities as key differentiations in customer experience. Friction's return service, where we pick up returns from customer stores at their preferred schedule across the country, is unique to Hepsi Broda in this sector. With this service, we were awarded with the Golden Award at the International Business Awards in the Best User Experience category in October. With its coverage of 81 cities and 1,800 carriers, Hepsi Pay is HEPCJET is highly focused on increasing its delivery speed. In the third quarter, HEPCJET delivered 75% of 1P orders on the next day. In addition, HEPCJET expanded its city coverage for its two-man cargo handling service called HEPCJET X-Large and began offering scheduled return pickup for such oversized products as well. Offering a high-quality and reliable service in that particular segment, Hepsijet XLarge has made a significant difference in customer experience and achieved over 97% customer satisfaction score in September, according to our internal reporting. While we are encouraged by the strong progress in our growth drivers, we will certainly keep on differentiating with our best-in-class customer experience powered by our robust logistics, reaching over 190,000 square meters at this point. Another important opportunity for us to further differentiate is the merchant experience. We regard our merchants as our long-term partners. As such, we pursue a constructive approach with our value proposition, which has helped us to significantly grow the number of active merchants. I would like to share some data points that will shed light on the level of integrated offering. In the third quarter, our last mile delivery service, HepC Jet, delivered around 53% of our total marketplace parcels. This corresponds to the largest share in delivered parcels volume on a quarterly basis by HepC Jet. HepC Logistics, our fulfillment service, has increased its focus on scaling its volume from merchants on our platform. It has significant room for growth and is running its operations at our six fulfillment centers. Our advertising service has been increasing its popularity. Nearly 12,000 merchants use our sponsored ads through our advertising platform, Hepsi Ads, in the search quarter. We believe our strategic collaborations with Facebook and Google on advertising technology and solutions will contribute to the growth of the business. Moreover, we continued our merchant training to accelerate their integration onto our platform. As such, in the first nine months of 2021, around 39,000 training sessions were completed on our training portal, Hep C Academy. Now, I would like to update you on our new strategic assets, in particular HepsiPay and HepsiExpress. Let me begin with HepsiPay first. Since its debut in June 2021, HepsiPay has made strong progress reaching 2.7 million HepsiPay wallet base. As of the end of October, 2.4 billion Turkish Lira GMB passed through HepsiPay wallet. With its license to operate as an open wallet, HepsiPay aspires to evolve into best-in-class payment companion, enabling frictional experience across payments, money transfers, and other incremental fintech capabilities across online and offline worlds. Accordingly, in November, HepsiPay agreed with PaySell, which is a fintech subsidiary of Turkey's leading telecom operator Turkcell, to enable direct carrier billing capability at HepsiPay Wallet. By doing so, Turkcell customers will be able to shop at HepsiBrother without a credit or debit card. With HepsiPay, we are extremely excited about the future opportunities ahead across online and offline. Another asset we are excited about is HepsiExpress. HepsiExpress is our on-demand grocery delivery service with instant and slow delivery options. We regard HepsiExpress as a strategic asset as we believe it is well positioned to drive further order frequency and new customer acquisition for the platform. At HepsiExpress, we are focused on enhancing our customer experience, selection, and ecosystem synergies. Accordingly, we developed a new cross-service search capability. This allows customers to discover products and compare prices among different stores in a frictionless way, which is an essential part of the multi-store model. Further, Hepsa Express began accepting payments via debit cards, which enlarged its addressable audience. In addition to internal developments, HepsaExpress expanded to over 50 retailer brands and roughly 1,950 stores including regional retailers as well as national retailers such as Carrefour and Choc. And just this month, HepsaExpress made a new partnership deal with Migros, a leading national retailer. We can't wait to welcome the Migros shop on our platform moving forward. Before I finish, let me reiterate a few key areas. 90% of total retail is still offline, and that remaining online 10% is expected to double its penetration within total retail by 2025, offering a sizable and timely market opportunity. I want to wrap up here by reassuring you that with our strong customer and merchant base, our hybrid 1P and 3P model, our differentiated services for customers and merchants, our robust logistics network, our continued investment in technology and data science alongside with the talent, and our strategic assets emerging from our ecosystem such as HepsiPay, HepsiExpress, HepsiJet, and HepsiAd. We are well positioned to capture the business opportunity ahead. We believe that our equity story is intact and we remain fully committed to it. Regarding 2021, in light of current market conditions, we are forecasting a full year 2021 GMV to be around 24 billion Turkish Liras as previously disclosed. With this, I would like to thank you for listening and leave the floor to our CFO, Korhan.