D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Mina, your Coruscore operator. Welcome and thank you for joining the HepsiBurda conference call and live webcast to present and discuss the second quarter 2022 financial results. At this time, I would like to turn the conference over to Ms. Helene Cholipilek, Investor Relations Director. Ms. Cholipilek, you may now proceed.

Thanks, Oprey Secretary. Thank you for joining us today for Hexiburada's second quarter 2022 earnings call. I am pleased to be joined on the call today by our CEO Murat Demirdağ 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, 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 deck. Today's press release, the 6K, our Form 20, filed with the SEC on May 2, 2022, 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 press release for presentation of the most directly comparable IFRS measure as well as the relevant IFRS to non-IFRS reconciliation. To enhance this call, we have posted our supplemental slide deck on the financial page of our company's Investor Relations website. As a reminder, a replay of this call will also be available on our Investor Relations website. With that, I will hand it over to our CEO, Murat.

Thank you, Aylin. Welcome everyone and thank you for joining us today. Before diving into dynamics and numbers of the second quarter, let me briefly remind you of our unique ecosystem that is well beyond an e-commerce platform. We built an ecosystem that includes a well-established logistics network, fast-growing financial services, cross-border operations, and key strategic assets that serve various purposes. Our diverse ecosystem has been instrumental in our solid performance in a challenging macroeconomic environment and underlines our future potential. Without further ado, let's take a closer look at the second quarter in more detail. Next slide. To provide a better understanding of the macro picture, let's take a look at some of the key indicators during the second quarter. consumer confidence index was at an all-time low level with 63 in June. Although it is still early to say, there are some signs of potential recovery with the consumer index rising to 72 in August. The annual inflation rate reached 79% by the end of June. We experienced 7%, 3%, and 5% levels in April, May, and June, respectively. And yet, the growth rate of inflation slowed down in the second quarter compared to the first quarter. Please note that the cumulative inflation during the past three years in Turkey surpassed 100% by the end of February, and this has triggered the inflation accounting requirement as per IFRS. So, we will discuss our financial performance as per the relevant standards of IFRS called IAS 29 in the upcoming slides. Next slide, please. It is important to understand the impact of inflation on consumer behavior as well as the basket patterns. One of the key changes in the consumer behavior is that customers tend to switch to lower segment brands in their purchase decisions. They also favor budget-friendly choices with reliable customer experience. Another important change in terms of the basket patterns is that the basket size in value does not grow at the rate of inflation. We believe that there are several reasons for this. First, the pressure on consumer spending triggers changes in shopping decisions, such as substitution for more affordable products or partial holdback in purchase decisions for certain categories. Second, we observe that the factors including, but not limited to, inventory carryover and competitive market dynamics affect the decision of sellers on the platform, on to what extent the inflation impact will be reflected. Last but not least, generally speaking, the pass-through effect of inflation is usually more imminent in categories such as grocery, food, and FMCG, which are actually limited in our GMV. Within this operating environment, Our capabilities ranging from 1P, 3P, Hubbit business model to affordability solutions and more have played a significant role in meeting the changing dynamics as we continued our order growth. Now, have a brief look at our H1 performance. Next slide, please. If we had reported on an unadjusted for inflation basis as previously, we would have reported 69% GMV growth and 72% revenue growth, resulting in a 8.3% gross contribution margin in the first half of the year. When adjusted for inflation, our GMV and revenue growth in H1 2022 were 3% and 5% respectively. In the same period, gross contribution margin was 4.3%. 29 million orders, which correspond to 31% growth, fueled by the continued momentum in the active customers and order frequency, was instrumental in our H1 performance. Now, let's have a look at the second quarter performance in more detail. In the second quarter, on an unadjusted for inflation basis, we had 57% GMV growth and 63% revenue growth. When adjusted for inflation, our GMV and revenue declined by 10% and 6% respectively compared to the second quarter of last year. While we continue to deliver solid order growth at 8% year-on-year basis in Q2, the revenue decline in 1P and 3P operations during this period was mainly due to the limited pass-through effect of inflation to our average order value. Gross contribution margin was 5% in Q2 with a 2.8 percentage point decline compared to the same quarter of last year, but with a 1.7 percentage point improvement compared to the first quarter of 2022. We believe this quarter-on-quarter improvement underpins the progress in our path to profitability efforts. Our CFO, Korhan, will touch upon the underlying reasons in more detail soon. Another key highlight in Q2 2022 is the fact that we had positive free cash flow with 185 million Turkish Liras. Let's move on to the next slide to look into our operational metrics. We are glad to see that our four growth drivers continued their healthy rise on a yearly basis. Our active customer base grew by 18% up to 11.7 million while frequency grew by 23% up to 5.2% on a year-on-year basis. This has been achieved with a lower marketing spending and higher marketing efficiency. Our active merchant base increased to nearly 89,000 this quarter. Our comprehensive merchant value proposition and our progress in enhancing merchant experience contributed to this solid increase. This has contributed to strengthening our product offering, where the number of SKUs more than doubled to 130 million as of June 30, 2022. Last but not least, we maintained our leadership in MPS in the sector, thanks to our excellent customer experience on the back of our technology, logistics capabilities, and our wide range of affordability solutions. While we are pleased to see our leadership in MPS, we continue to innovate for customers with breakthrough technology solutions and services. Let me now share two recent examples on the next slide. Post-second quarter, we achieved two important milestones in line with our customer-centric approach. In July, we marked a first in the market by introducing Türkiye's first new generation smart physical store, HepsiBurada Smart Store, solidifying our thought leadership in retail innovation. In Hepziburada Smart Store, all shopping related transactions are carried out using artificial intelligence, image processing, and digital weight sensor technologies for an easy and convenient shopping experience. Second, we launched our paid subscription service, Hepziburada Premium, replacing our earlier loyalty cloud. Hepziburada Premium subscribers have access to a range of benefits. We are glad to see the promising customer interest in this program as the number of members has exceeded 200,000 by mid-September. Now, I would like to switch gears and give an update on our nationwide logistics network, which is an essential enabler for our customer and merchant value propositions. Our last mile delivery service, HepsiJet, served through a nationwide logistics footprint and delivered 57% of our orders from the marketplace operations. Regarding the next day delivery performance, HepsiJet delivered 83% of the orders on the next day in the second quarter. With HepsiJet X-Large, HepsiJet's delivery of oversized items continued its fast penetrations. HepsiJet XLarge carried around 75% of oversize items in our 1P operations. We are proud to have registered a new patent for HepsiJet multi-vehicle route optimization technology, unlocking further efficiencies in our operations. On the fulfillment as a service, HepsiLogistics continued to scale its operations by adding 183 clients to its portfolio during the quarter, providing fulfillment services to 513 clients in total. On the next slide, let's take a deeper dive on our progress with respect to other strategic assets serving our customers as well as our merchants. Our ad tech solutions under HepsiAd were used by more than 10,000 merchants in Q2 2022. HepsiAd has been expanding its portfolio of services to include sponsored ads as of most recently. While the inbound arm of Hepsi Global continues to expand our selection to some 4.4 million, our cross-border outbound operations in Azerbaijan have gone live since the first quarter. Our primary focus in Azerbaijan has remained on advancing user experience and expanding our assortment during the second quarter. Our online grocery business, Hepsi Express, which has been rebranded as Hepsi Broda Market, continued to expand its ecosystem throughout the quarter to reach 105 retailers. Hepsi Broda Market's perfect order ratio performance was 79% in the second quarter, up by 5 percentage points compared to the first quarter of 2022. Our flight ticket service, Hepsi Broda Seyahat, enables sales of roughly 37,000 tickets in Q2 from 27,000 a quarter ago. In short, we will continue to diligently operate our strategic assets to help fuel further monetization and incremental growth for the overall ecosystem while consistently improving cost-effective business models. On the next slide, I would like to give an update on our financial services. Within our long-term strategy of becoming a leading fintech player across online and offline channels in Turkey, we are determined to continue to expand our payments and affordability solutions. Marking its first year of launch, HepsiPay Wallet reached 8 million users as of the end of June. Around 39% of GMV passed through the wallet. Launched in early Q1 2022, our Buy Now Pay Later solution is embedded within HepsiPay Payment Gateway and is currently available for purchases from our direct sales operations. Using Buy Now Pay Later, approximately 500,000 customers were issued a shopping limit and over 100,000 of those customers used their limits as of the end of August 2022. Regarding the solutions like Buy Now, Pay Later, we continue to diligently manage credit risks while maintaining our focus on growth optimization. Before I leave the floor to Korhan, let me say a few words on our guidance for the full year. Please note that at time of transition to inflation accounting, to provide more context on comparability, we refer to our guidance for GMV growth and EBITDA as a percentage of GMV on an unadjusted for inflation basis. First, based on our half-year performance, we are raising our GMV growth guidance from around 50% to around 60% for the full year 2022 compared to 2021. Second, while we continue to have the liquidity to fund our operations to help provide additional visibility on this year's performance, we will begin providing guidance for our full-year EBITDA in 2022. Accordingly, we expect to deliver an EBITDA as a percentage of GMV within the range of negative 2.5% to negative 3%, which was around negative 6.5% last year. With this, I now hand over to our CFO, Korhan, to give more color on our financial performance. Thank you all for listening.