D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Geli, your chorus call operator. Welcome and thank you for joining the Hepsi Burada conference call and live webcast to present and discuss the fourth quarter and full year 2021 financial results. At this time, I would like to turn the conference over to Ms. Helene Celik-Pelec, Investor Relations Director. Ms. Celik-Pelec, you may now proceed.

Thanks, operator. Thank you for joining us today for Hepsi Burada's fourth quarter and full year 2021 2021 Earnings Call. I'm pleased to be joined on the call today by our CEO Murat Emir Dağ and our CFO Korhan Öz. The following discussion, including responses to your questions, reflects 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, our prospectus filed with the SEC on July 1, 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 presentation 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 HepsiBoroda's website. With that, I will hand it over to our CEO, Murat.

Thank you, Helen. Welcome everyone and thank you for joining us today. 2021 marked an important milestone in our company's over 20 years of history as we went public in July. As a national champion in a highly competitive market with significant growth potential, we laid out three strategic priorities. First, accelerate growth drivers such as adding more customers, driving further frequency, attracting more merchants, and expanding our selection. Second, differentiate via logistics and technology capabilities to offer best-in-class customer experience. Third, expand our strategic assets such as FCPA. As part of our continued focus on accelerated growth drivers, we achieved 53% annual order growth, which was instrumental in our GMV growth. Such order growth was on the back of 25% annual growth in active customers, and 23% annual growth in order frequency. By leveraging our robust logistics and technology capabilities, we continued our NPS leadership in the Turkish e-commerce market with 68% in December 2021. We believe that this score underpins our superior customer experience on our platform and our ability to drive the service quality further even during the high season of Q4 2021. Being one of our key strategic assets, HepsiPay has achieved 5.2 million open wallets based on Hepsi product platform as at the end of 2021, an impressive level in just six months. Overall, through solid execution of our strategic priorities, despite a fairly turbulent operating environment, we conclude the year with encouraging growth across our key operational metrics, delivering 26 billion Turkish lira GMV. This corresponded to a 54% year-on-year growth in 2021. On a two-year basis, the annual GMV growth was at 80%. We are glad to see that we recorded higher GMV than our guidance. This was possible through our strong execution and our products and services in line with customer needs and expectations throughout the year. Our revenue growth in 2021 was 19 percent at a 7.1 percent gross contribution margin. It is worth mentioning that our focus on sustainable growth has also resulted in a 2.7 percentage point improvement in the gross contribution margin in the fourth quarter compared to the third quarter of 2021. Now let's take a closer look at the fourth quarter dynamics and our actions. Next slide, please. We faced several challenges in the fourth quarter, including currency volatility, supply constraints to an extent, and a highly competitive market environment. We navigated through these headwinds successfully with our hybrid 1B-3B business model, strong execution experience through a nationwide logistics network, and data-driven marketing, as well as diverse affordability solutions addressing the needs of our customers. Our 1D retail operation has served well particularly at the time where rapid price changes were inevitable, mostly relevant for imported merchandise as well as supply shortages due to global supply chain issues. Our diverse affordability solutions such as the credit card split, instant customer loans, and our ability to offer installments were strengthened by the Buy Now, Pay In January campaign in November. which we delivered through our collaboration with banks. We also achieved a broader active merchandise and wider selection, resulting in improved availability across long-tail products and services. Our investment in growth, brand, selection, and exceptional customer experience paid off well, showing strong momentum in all key growth drivers. Active customer base grew by 25%, reaching 11.3 million, Our order frequency grew by 23%, reaching 4.7. Active merchant base grew by 68%, reaching 75,000. Total number of SKUs more than doubled, reaching 90 million as at the end of the fourth quarter. Next slide. 2021 was a year during which we accomplished a great deal towards ensuring fast reliable and frictionless customer experience through our services, selection, and convenient solutions. Having our own robust logistics capabilities provides us with a competitive edge and flexibility to introduce and deliver differentiated services to the market. One example is our frictionless return service, in which we pick up returns from customer stores at their preferred schedule. And we do this across the country. By doing so, we have observed a 40% lower contact ratio through all our after-sales channels due to return requests in the fourth quarter compared to the same period of the last year. Next, we introduced a filter product feature highlighting the availability of products for next-day delivery. In 2021, Hexajet delivered around 79% of our orders through our retail operation on the next day. In 2022, we plan to enlarge the selection available for the next day delivery and our capability to do so. Furthermore, we began to offer our customers an exchange option for products they purchased from our 1P operations for another size or color. New convenience product features of drop-off at neighbor store and change the delivery address while shipment underway were introduced by Heptijet in early 2022. making life easier for our customers. Availability of wide selection on our platform is highly critical for us. Having onboarded over 30,000 merchants in Q4, we ended the year with some 19 million SKUs. During the fourth quarter, we launched new digital products and services including gamified lotteries and raffles as first in the market. These have resonated well with our customers and contributed to our engagement with them. Equally important is to ensure our customers can find what they are looking for in a swift manner. For that purpose, we have redesigned our Hexy Brother app, increasing the visibility of our non-electronic categories and on-demand grocery service. Moreover, we invested in our skills to personalize the content, banner ranking, and recommendations increasing the click-through rate and order completion. Last but not least, our diverse affordability solutions serve well to facilitate financial flexibility of our customers. I will talk more about our Buy Now, Pay Later solution on the upcoming slides. Before I do that, I would like to give an update on the experience of our merchants. Next slide. Our value proposition for our merchants is designed to serve their entire lifecycle. Our approach is to be their end-to-end solution partner, maximizing returns for both sides. It all begins with a smooth onboarding experience. With improvements in the process throughout the year, the average onboarding speed is reduced to half by February 2022. An efficient and effective interaction with our merchant base is highly crucial to ensure fast service for our customers. The deployment of FCPartner, our merchant app, has enhanced this interaction. Through FCPartner, our merchants can view their transaction summary, handle inventory management, respond to any customer questions, review their financial summary, and connect customer services as well as our training portal. All these have contributed to the rise of the number of active merchants from 45,000 in Q4 2020 to 75,000 in Q4 2021. Besides, our comprehensive suite of value-added services for merchants has continued their penetration within our base. I would like to share some data points here. HepsiJet delivered 52% of total marketplace parcels in the fourth quarter, totaling 43% in 2021 versus 16% in 2020. HepsiLogistik served fulfillment to some 191 merchants at all seven distribution centers located across strategic locations in Turkey. Nearly 25,000 merchants use our sponsored ads through our advertising platform, Hepsi Ads, in 2021. Our collaborations with Facebook and Google on advertising and technology solutions contributed to the growth of our ad services business. Over 68,000 training sessions were completed on our training portal, Hepsi Academy, during 2021. and was instrumental in accelerating the integration of our merchants to our platform. In 2022, we will continue our focus on attracting more merchants to our base by further improving merchant lifecycle management and services, and by doing our selection in electronic and long-tail products on our platform. Next slide, please. We invested in strengthening our logistics footprint in 2021. Including our fulfillment centers, transfer hubs, and crosstalks, our total service area reached over 190,000 square meters in 2021, up from 135,000 square meters a year ago. Instrumental to our strong performance, fast and on-time delivery, HCGES has partnered with 2,150 carriers. FCJET expansion has been diligently constructed in line with our needs across the country, including nearly 2,700 drop-off points. This year, FCJET delivered roughly half of our total parcels, up from 27% a year ago. In addition, HepsiJet continues to raise the bar in customer experience and introduced two-man handling cargo service under the name HepsiJet X-Large, addressing the need for a high-quality and reliable service in that particular segment. Recently, this service became available in all 81 cities in Turkey. HepsiJet X-Large service quality is evidenced by its 98% customer satisfaction score in the fourth quarter of 2021, according to our internal reporting. Initially, having started with our retail business, HepCJet xLarge will serve the merchants on our platform, which is expected to contribute further to customer satisfaction, given its service quality and easy return options. Now, let me elaborate on another strategic asset in our portfolio, HepCJet. Next slide. Again, HepsiPay is one of the most strategic assets in the sense that it is addressing a sizable market opportunity in payments. Since its debut, HepsiPay has displayed strong momentum in the uptake of customers, reaching 5.2 million open vault accounts by the end of the year. And this resulted in around 37% of total GMV passing through HepsiPay wallets in the fourth quarter. During the year, HepsiPay signed collaboration agreements with two prominent parties. One of those is PaySat, the fintech subsidiary of Turkey's leading telecom operator TurkSat, to enable direct carrier billing capability at HepsiPay wallets. TurkSat subscribers are able to shop at HepsiBurada without a credit or debit card up to a certain monthly limit and pay back through their mobile-only voices. Second one is Istanbul Cards by Istanbul Metropolitan Municipality, which is a contactless prepaid card estimated to be around $18 million for public transportation payments in the city. Istanbul Cards will soon become another payment tool at FC Brada, and this will take us one step further in bringing e-commerce experience to a broader audience. Another exciting development is the first in-the-market launch of the Buy Now Pay Later solution by FC Pay. This new feature is an important milestone for the Turkish e-commerce industry in terms of innovative affordable fee solutions. The user limits at Buy Now Pay Later are defined based on the credit scoring records at Credit Bureau of Turkey and shopping history at FC Brother. The initial demand has been encouraging. By now, Paylater has resonated well with our audience, particularly in an environment where affordability solutions are more vital than ever. Our plan is to scale it gradually as we continue to learn and improve. In addition, we will also continue our focus on advancing with new features in 2022. As disclosed, we have taken the first step to tap the consumer financing sector by acquiring Doris Finansman, a license holder company. We are in the process of taking the next steps to launch our consumer financing solution in addition to those offered by Leading Bank already on our platform. By doing so, we aim to further diversify our affordability solution. As shown on the next slide, These actions actually reflect on our strategic roadmap at FCPA moving forward. Next slide, please. In 2021, we made good progress on FCPA. It was the initial step in our journey to evolving into a best-in-class payment companion across online and offline. Going forward, We intend to build on this momentum and expand the use of already-launched solutions and develop further fintech capabilities in 2022. We believe HEPC-Pay is well-equipped to enable a frictionless platform experience across payment, money transfers, and other fintech capabilities across online and offline. Next slide. As another strategic asset, HEPC-Express expansion continued in 2021. through integration of strong retailers and wider selection products while making solid steps towards unique customer experience. Its ecosystem now includes over 60 brands from both leading national and regional retailers across roughly 2,100 stores. Along with advancements in its user interface, Hepsa Express provides grocery, water, and flour delivery in a hyper-localized experience with easy product discoverability and price comparison features. During the fourth quarter, Pepsi Pay Wallet was integrated into EpsiExpress experience, contributing to convenience at checkout. EpsiExpress contributes to our platform in acquiring new customers, increasing order frequency, as well as engaging strategic segments such as women. While we remain focused on customer journey and end-to-end experience, We will gradually optimize our service model that will lessen the dependency on our delivery resources. On the next slide, I would like to elaborate on our strategy for 2022. In line with our strategic priorities, we aim to deliver strong and sustainable growth in 2022. Operating with discipline cash and cost management in mind, it will continue to strengthen our value proposition in the market with our hybrid 1C-3P business model, our household brand name, our strong customer experience, our robust nationwide logistics network, our diverse affordability solutions, our innovative gamification tools, our efficient marketing via segment-based initiatives including women, family, and youth, targeted marketing campaigns, and in-house data science capabilities, and finally, with our super-wrapped ecosystem of integrated services. Before I finish, let me summarize how we see the current outlook on the next slide. Let us remind you that Turkey offers an attractive market with a sizable, young, urbanized, tech-savvy, and growing population. With the majority of retail still being offline, the online penetration within Total Retail is expected to exceed 20% by 2025, indicating great potential for growth. In 2022, despite the inflationary environment, we have started the year with solid performance and expected GMV growth in Q1 to be higher than the growth rate for the rest of the year in 2022. Based on our current view of the market dynamics and macroeconomic environment, they expect to achieve around 50% GMV growth compared to 2021 for the full year of 2022. As we grow, we currently have no plans to raise capital during the next 18 months. On our path to profitability, we expect to improve our margins by accelerating growth drivers, differentiating via logistics and technology, and expanding our strategic assets with disciplined cash and cost management. With this, I would like to thank you all for listening and leave the floor to our CFO, Korhan.