D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Geli, your course co-operator. Welcome and thank you for joining the HepsiBurada conference call and live webcast to present and discuss the third quarter 2022 financial results. At this time, I would like to turn the conference over to Ms. Helene Selig-Pelec, Investor Relations Director. Ms. Selig-Pelec, you may now proceed.

Thanks, Geli. Thank you for joining us today for HepsiBurada's third quarter 2022 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, 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 State of Harvard slide of today's supplemental slide deck, today's press release, the 6K, our Form 20F filed with the SEC on May 2nd, 2022, and other SEC filings for information about factors which would cause our actual results to differ materially from these forward-looking statements. Also, we will reference certain non-average 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 measure, the relevant IFRS to non-IFRS reconciliations. As a reminder, a replay of this call will be available on our investor relations website. With that, I will hand it over to our CEO, Murat.

Thank you, Helin. Welcome, everyone, and thank you for joining us today. I will begin with a summary of our quarterly highlights and continue with an update on our operations. I will then turn the call over to Korhan for an in-depth discussion on our financial figures. Now, let's have a brief look at our third quarter performance. Next slide. In the third quarter, we showed consistent progress in our results despite continued challenges in the macro environment, when inflation in Turkey has continued to rise, reaching above 80%. On an unadjusted for inflation basis, our GMB growth was 66% in the third quarter and 68% in the first 9 months of 2022, compared to the same periods of last year. Adjusted for inflation, our GMB declined by 9% in the third quarter, bringing the first 9 months GMB growth to minus 1%. On an adjusted for inflation basis, revenue growth was 7%. We delivered 8.4% gross contribution margin in Q3 with a 4.5 percentage point year-on-year improvement compared to the same quarter of last year. Fueled by the continued momentum in active customers and order frequency, we achieved 26% order growth during the third quarter, contributing to 29% growth in the first nine months of 2022. Before I touch upon our EBITDA performance, I would like to summarize our recent development and point out its effect on our financials. As disclosed, we have reached a settlement agreement related to the both putative class action lawsuits in the U.S. Habsburg agreed to pay $13.9 million to resolve these lawsuits in entirety. The settlement remains subject to approval and or entry of judgment by the respective courts. As part of prudent management, we have booked a provision expense for the total at approximately 258 million TL, corresponding to 13.9 million USD. This expense had a one-off impact on our financials. TürkCommerce is expected to contribute 3,975,000 USD towards the settlement amount. Once all the relevant processes are finalized, the relevant amount will be accrued accordingly. Despite these one-offs, our EBITDA as a percentage of GMB improved by 4.6 percentage points year-on-year to negative 5.8%. Excluding the one-off, EBITDA as a percentage of GMB would have been negative 3.5% in Q3 2022, on an adjusted for inflation. and negative 1.8% on an unadjusted for inflation basis. On the cash flow front, following the positive free cash flow in Q2, we are glad to have delivered another quarter with a positive free cash flow. Let's move on the next slide to look at our progress on our path to profitability. Next slide. As a continuation from the second quarter, we continued our progress on our path to profitability this quarter as shown on the slide. I must emphasize that this performance was made possible through our commitment to continuously optimizing end-to-end customer experience, expanding our selection and merchant base, and improving the effectiveness of our marketing through smart use of data science capabilities. Let's move on the next slide to look into our operational metrics. Next slide. All four growth drivers continued their healthy rise, both on a year-on-year as well as quarter-on-quarter basis. Active customer base grew by 11% on a yearly basis, reaching 11.8 million in the third quarter. Order frequency reached 5.4, up from 4.4 a year ago. Continuous momentum in key growth drivers was attributable to few factors including our hybrid 1P-3P business model, attractive value propositions, and expansion in selection. Additionally, we have improved the effectiveness of our marketing through the use of data-driven marketing tools and a sharpened focus on retention and engagement with accuracy in acquisition. We have also developed our gamification capabilities such as tripstakes offerings, which encourage interaction with our relevant customer segments. Our platform has become home to nearly 95% After the third quarter, we held Hepziburada Merchants Summit in three large cities to showcase our valuable services for them. These summits also served to bolster our merchant relationship prior to peak shopping season. The rising number of merchants, as well as our efforts to ease the product listing procedure, have contributed to the 89% rise in SKUs to 145 million in the third quarter. Meanwhile, we continued our leadership in NPS, in the e-commerce sector in Turkey, thanks to our excellent customer experience on the back of our technology, robot logistics capabilities, and our broad affordability solutions. Also worth mentioning is our performance in gaining members to Hepziburada Premium Program. In only 5 months, Hepziburada Premium members exceeded 500,000. Hepziburada Premium members have access to a range of benefits that include free delivery and cashback subject to certain conditions and free access to an on-demand streaming service, among others in exchange for a monthly subscription fee. This program has been instrumental in driving higher engagement and order frequency. Now, I would like to switch gears and give an update on our robust logistics capabilities, which are essential enablers for our customer and merchandise propositions. Next slide. Our last mile delivery service, HepsiJet, serves through a nationwide network across Turkey with nearly 2,000 carriers. As of the third quarter, HepsiJet offers its customers the ability to live track their parcels prior to delivery. In the third quarter, HepsiJet delivered 62% of orders from the marketplace operations, compared to 57% a quarter ago and 53% a year ago. Regarding the next day delivery performance, HepsiJet delivered 84% of the orders from 1P operations on the next day. HepsiJet's Oversized Cargo Delivery Arm, HepsiJet XLarge, delivered nearly 73% of such oversized parcels in our 1T operations during this period. HepsiJet XLarge offers delivery by appointment for customer convenience. Meanwhile, Hepsi Logistics added another 138 clients to its portfolio during the quarter, providing the fulfillment services to 651 clients in total. On the next slide, I would like to give an update on our financial services. During the quarter, with over 9 million users, around 44% of GMB passed through our HepsiPay wallet. HepsiPay has continued its rapid penetration within the HepsiBrosa platform and marked a milestone by reaching 10 million users in November. Meanwhile, our buy now, pay later solution had been used by over 115,000 customers as of the end of the third quarter since its launch in January 2022. We continue to diligently manage credit risk while maintaining our focus on growth optimization. Post third quarter, Pepsi Pay announced new added features, enriching the shopping experience with improved customer verification and e-wallet capabilities. In addition to the existing ability to transfer money from credit or debit cards, HepsiPay users may now also top up their e-wallets by transfers from their bank accounts without needing to use a card. On the next slide, let's take a look at our progress with respect to other strategic assets, integral parts of our ecosystem. Next slide. Our strategic assets are cornerstones of our diverse ecosystem and suggest solid support to our growth potential. One of those is our ad tech solutions. Our HepsiAds portfolio includes search ads, display ads, and sponsored ads which were used by more than 10,000 merchants in Q3 2022 in line with the previous quarter. HepsiAds continues its focus on enriching product capabilities. In our international operations, we have been serving the Azerbaijan market since early this year, having chosen it as a proof-of-concept market. Through these efforts, we focus on testing and optimizing our playbook for cross-border execution. We will continue to evaluate our other international opportunities ahead. Our online grocery business, HepsiBrada Market, continues its focus on enhancing unit economics and customer experience with its new operating model. Under this model, HepsiBrada Market serves as a location-aware marketplace platform with minimal operational involvement. Its perfect order ratio in grocery was 82% in the third quarter, up by 3 percentage points compared to the second quarter. Our flight ticket service, HepsiBurada Seyahat, continued its focus on unlocking synergies in traffic and customer engagement for HepsiBurada's wider scale of operations over time. With its asset-like business model to expand product portfolio, it enabled sales of nearly 29,000 tickets in the third quarter, up from 9,000 during the same period last year. Overall, we remain committed to diligently operating our strategic assets to help fuel further monetization and growth for the overall ecosystem, and yet again with the focus on disciplined cost and cash management. Now, let me say a few words on our guidance for the full year. Next slide. Having recorded 66% GMV growth in the first 9 months compared to the same period of last year and considering the performance in our growth drivers, we are raising our GMV growth guidance once again from around 60% to around 70% for the full year. In line with our focus on the path to profitability, we expect to deliver this GMV growth while keeping our EBITDA as a percentage of GMV guidance within a range of negative 2.5% to negative 3% for the full year. A kind reminder that our guidance for GMV growth and EBITDA as a percentage of GMV remain on an unadjusted for inflation basis. As a final note for today, as I announced in June, I will be transitioning to a new role, and Nilhan Önal will be coming on board as CEO as of January 1st, 2023. I would like to say that I am grateful to have had the opportunity to lead HepsiBrada for nearly four years, and I am extremely proud of what we have accomplished as a team. Together, we have developed an integrated technology ecosystem with strong capabilities, not just in e-commerce, but also in fintech logistics, advertising, cross-border operations, and more. During my time at FC Burada, we have played a pivotal role in the digitalization of commerce in Turkey and fortified our strong position as the household brand of Turkey. Looking ahead, I remain excited about FC Burada's journey in the future. I will now leave the floor to Korhan. Thank you for listening.