D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I'm Poppy, your course call operator. Welcome and thank you for joining the HepsiBurada conference call and live webcast to present and discuss the fourth quarter and full year 2022 financial results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance, During the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Ms. Nilhan Onal Goksetekin, CEO, Mr. Korhan Oz, CFO, and Ms. Helene Çelikbilek, Investor Relations Director. Ms. Çelikbilek, you may now proceed.

Thanks, operator. Thank you for joining us today for Hepsi Broaddus fourth quarter and full year 2022 earnings calls. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gökçetekin, and our CFO, Korhan Öz. The following discussion, including responses to your questions, reflects management views as of today's date only. We undertake no 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 slide deck. Today's press release, the 6K, our Form 20, filed with the SEC on May 2, 2022, and other SEC filings for information on factors that could cause actual results to differ materially from these forward-looking statements. Also, we will reference certain non-IFRS measures during today's calls. 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 and the relevant IFRS and 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, Nilhan.

Thank you, Helen. Welcome, everyone, and thank you for joining us. I'm delighted to be addressing you today as the new CEO of HepsiBurada. HepsiBurada has always been in my radar as the company that established and contributed greatly to the development of e-commerce industry in Turkey. I particularly appreciate its innovative and entrepreneurial spirit. And I'm really excited to lead this company through the opportunities lying ahead. Before I joined HepsiBurada, I held multiple global and regional leadership positions in Fortune 500 companies, including Procter & Gamble, and my last eight years was with Amazon. During my career, I established and led various businesses in numerous sectors, including electronics, insurance, fast-moving consumer goods, fashion, cargo, and logistics. Having worked overseas for past 16 years, I am delighted to be back home. Over the past three months, I have been rigorously working with the team to explore all our businesses, projects, and opportunities. HepsiBurada has clearly made great progress in building a robust platform business and phenomenal household brand in Turkey. It established one of the largest last-mile delivery services and took initial steps in fintech services. The fundamentals of our business is very strong and components are highly scalable. Indeed, these assets form the basis of my strategic priorities for the next chapter in Hepsiburada. By executing on those, I'm confident that the company will deliver sustainable and profitable growth going forward. I'll discuss our strategic priorities in detail later in this presentation. Now, let me start off with our 2022 highlights. 2022 was a tough year of global and local challenges, particularly in macroeconomic arena. Continuously rising inflation in Turkey has curbed purchasing power, hence the consumer demand. Regardless, we have outperformed both our GMB growth and our EBITDA as percentage of GMB guidance. We achieved 81% year-over-year GMB growth on an unadjusted basis, which exceeded the average inflation rate of 72% during the year. Factoring in the monthly inflation rates and our monthly performance, GMB growth adjusted for inflation was 4%. In 2022, GMB growth resulted from over 80 million orders, marking around 50% year-over-year growth. Continued GMB growth, coupled with improvements in path to profitability, were driven by our commitment to continuously optimize customer experience, our wide selection, and range of affordability solutions. To this, we may also add our prudent marketing spend and measured customer discounts. Accordingly, on an unadjusted basis, we recorded a negative 2.1% EBITDA as percentage of GME. This was a 4.4 percentage point year-on-year improvements. In the fourth quarter, we recorded an EVDA of negative 7 million TF on an unadjusted basis. This is almost reaching breakeven levels. Two highlights of 2022 that merit your attention are one, our market leadership in MPS. And second, the performance of our loyalty program despite its very early days. Hep C premiums. Having attained a score of 74 in MTS in 2022, we now intend to raise the bar in terms of customer experience in this sector. Our paid loyalty program, Hepsiwurada Premium, which was launched in July, gained traction. reaching 615,000 customers by year-end. We value this program given the higher engagement and order frequency of its members. Now, I would like to give you an update on our performance on the customer front. In 2022, we gained over 900,000 additional active customers, raising our total base to 12.2 million. This customer growth performance resulted from one, our solid customer value proposition of a fast, reliable, frictionless experience, and second, availability of diverse affordability solutions, and third, improvement in our performance marketing. Our own logistics services, HepCJ, played a key role in our value proposition. HepCJET achieved an 83% next day delivery ratio in our 1P operations. This is an improvement on previous year's 79%. HepCJET also handles return collection service from customer stores free of charge in 2022. This corresponded to 56% of our total return. This was a clear attraction point for offline customers contributing to the development of e-commerce in Turkey. In 2022, we started introducing diverse affordability solutions, especially given the pressure on consumer wallets in a challenging economic climate. Our strong collaboration with leading banks in Turkey meant that we can offer Pay later campaigns with very satisfactory results. I'll elaborate more on how these solutions will be instrumental in our growth plan in upcoming slides. One of our strong customer retention tools is going to be Hepsiburada Premium Program. Its members enjoy access to a wide range of benefits that include free delivery, cashback subject to certain conditions, plus free access to an on-demand streaming service, among many others. Overall, our order frequency grew by 39% to 6.6 in 2022 from 4.7 in 2021. The expansion of our selection to digital products like sweepstakes and gamified lotteries contribute to this performance. Excluding these digital products, The frequency increase in 2022 was from 4.7 to 5.5, which was a still healthy 16%. Despite their relatively small average order value, this digital product generates repeat interaction with participating customer segments, supporting our key strategy of retention. Our active merchant base rose by 33% to nearly 100,000 merchants at the end of the year. This increased the number of scales to roughly 164 million, with a particular rise in non-electronics. Our merchants welcomed the comprehensive value proposition and the set of tools that ensure enhanced merchant lifecycle management. One new tool that ensures fast service for their customers is HepsiBrada's My Business Partner mobile app. This app gives our merchants access to self-service monitoring and campaign management tools and tutorials and an array of services at attractive rates. Important for our marketplace business, we improved the average duration of onboarding from 9.8 days in Q4 2021 to 6 days in Q4 2022. Exemplifying our merchant value proposition, HSDJ penetrated purchase to deliver around 60% of marketplace parcels in 2022. In addition, our newly launched two-man heavy bulky delivery company, HepsiJet X-Large, carried 40% of oversized parcels in Q4LO. Hepsi Logistics, which is fulfillment service of HepsiBurada for its merchants, 23% We remain committed to being a dependable partner for our merchants as we continue to enhance their experience. Now we defined our core priorities that set us on a path to profitability and greater contribution to the digitalization of commerce in Turkey. First, Central to this strategy is prioritizing customer-based loyalty over the acquisition of one-timers. Our loyalty program, Pepsi Premium, will play a fundamental role in achieving this. Second, we aim to win through our sustainable strategic differentiators. We believe our best-in-class affordability solutions and high-quality delivery service levels position us favorably in Turkish markets. Third, we will promote profitability through a prioritized focus on core commerce and conducting a step change in our OPEC steps. In our core business, we aim to increase our wallet share, particularly through focusing on sales of non-electronic categories. While doing so, we'll pursue a frugal approach, and we already initiated a very robust review of all cost centers across all the groups. Fourth, we will externalize our best-in-class payment services, lending solutions, and our last-mile delivery services to other online retailers. We see great potential for HepsiPay and HepsiJet to leverage their assets and increase their contribution to our group. Let me now elaborate further on each of these points. To start with loyalty, we intend to capture the full business potential of our program Hepsi Premium to strengthen our customer retention. It's encouraging to see that we currently have already 840,000 members by mid-March. Our aim is to expand this space significantly during 2023. HepsiBurada Premium Membership is a great value for our customers. Premium members tend to shop more often. Our data in December indicate that premium customers' monthly order frequency is 1.7 times of the frequency they generate before joining this program. It's worth to say that we'll obviously seek to continue growing our customer base, albeit through very prudent investments. Focusing on retention, on the other hand, will help us reduce and optimize our marketing and advertising staff. We strive to provide our customers with best value through our affordability solutions and superior delivery services. Our solutions enable us to set us apart from competition while demonstrating our commitment to our customers' satisfaction. We have capabilities such as payment with multiple credit cards, payment in installments, and instant shopping loans. And we are the only e-commerce player holding a payment services license to offer buy now, pay later service. That's critical for Turkey. While we have been highly cautious with the rollout of this service in terms of the limits offered, the demand is so far is encouraging. I'll elaborate on this more in upcoming slides. Our well-invested delivery network spans across eight cities in Turkey This 2,400 carriers is another distinct differentiation point for us. This level of penetration extends to our Xlarge services in addition to standard deliveries. I will talk more about our logistics network too, but let me first elaborate on payment services on the next two slides. During 2022, HepsiPay has continued its penetration reaching 11 million wallet base by the end of the year. In Q4, the GMV penetration of those with the HepsiPay wallet reached 84%, up from 66% during the same period last year. Meanwhile, HepsiPay's newly launched BMPL solution was used by over 150,000 customers. We continue to diligently manage this solution's credit risk while maintaining focus on its growth. While increasing our affordability solutions will grow mainly through using partner banks' balance sheets. Including the MPS, total non-card affordability solutions share in total GMV reached 3.9% in Q4 2022. With an expanding affordability solution set, we intend to remain relevant for our customers going forward in what we expect to be a tough economic environment. We target to double non-card affordability solutions shared in GMB 2023. This is also an important factor in reducing our credit card expense, which we estimate to be down by roughly 6% year-on-year in 2023. 22 was a significant year of key milestones on HepsiPay. In the fourth quarter, HepsiPay wallet was redesigned and relaunched with new features, enriching the shopping experience with improved customer satisfaction and e-wallet capabilities. HepsiPay users can now top up their wallets by transferring money from their bank accounts in addition to existing ability to transfer money from credit or debit cards. Furthermore, during the year, HepsiPay came closer to becoming a payment gateway by consolidating payment options under a frictionless experience for our HepsiBurada platform. HepsiPay also increased the visibility of its lending solutions across the buy journey. In 2023, we plan to expand our solutions by including in-house consumer finance loans in addition to those offered on our platform by leading banks. To externalize our services, we aim to launch one-click checkouts, integration with merchants, targeting online retail, as well as QR payments and prepaid cards. In the meantime, we aim to capture a share of the merchant acquiring market with enhanced payment services provider infrastructure. By delivering on this plan, our goal is to become leading fintech players in Turkish financial sectors. Now I want to come back to our logistics services. HepCGS operational footprint comprise seven strategically located fulfillment centers, 18 transfer hubs, and a network of over 190 cross-docs. We are covering 205,000 square meters. In 2022, HepCGS delivered 65% of Hep2Brother parcels overall, up from 50% in 2021. Our Xlarge arm delivered 47% of HepsiBuradas oversized parcels during the year. HepsiJet continues to introduce new capabilities that build on customer convenience. Among these is the ability to leave track parcels prior to delivery, postpone delivery, and change your address even while shipment is en route. With HEPCJET, we offer return pickup services at customer's address, which contributes significantly to our dedication to ensure frictionless experience. In 2022, HEPCJET achieved an MPS of 87.9 with its service quality, which contributed to our leading MPS at HEPCJET. As we grow, We intend to promote profitability through a very prioritized focus. We aim to increase our wallet share by focusing on sales of non-electronic categories and more through our marketplace. We will step back from any diluted businesses as we analyze their contribution to our performance. We believe there are several processes and actions that can be automated, and doing so would not only improve efficiency, but it will also help us optimize our human capital. Continued investment in our platform technology, particularly in search and navigation capabilities, will remain essential. Similarly, we'll improve our merchant app, which is vital to connect with our merchant base. As highlighted, we see great potential for Jet and Pay to leverage their assets and increase their contribution to our group. As we continue to improve the service quality of Jet and expand the solution portfolio of Pepsi Pay, we will gain new customers of platform by promoting these high-quality services. Externalizing these services is expected to facilitate economies of scale. improved operational efficiency, as well as establishing market share in respective businesses, and most importantly, contributing to the digitization of e-commerce in Turkey. SBA Execute will remain capable of taking any required action in response to macroeconomic volatility or change in market conditions. I don't want to repeat myself, but let me summarize one more time. Our building blocks on path to profitability, one, optimization of marketing with a focus on customer loyalty. Second one, focusing on affordability solutions. and services on our platform. Third one is improving our cost center and growth contribution. And final, very importantly, hefty jet and hefty pay of platform revenue. By executing on these priorities, we expect to deliver purchase sustainable growth, drive margin improvement, and remain committed to becoming a profitable company. Before I continue discussing the outlook we must acknowledge the disaster that struck Turkey in February. Two devastating earthquakes impacted 11 cities and the lives of around 14 million people directly. Once again, I want to express my heartfelt condolences to all the victims. Our sincere hopes are for the earliest possible relief and recuperation for all affected areas and individuals. As HepsiBurada family, we are fully committed to offering full support to the region to heal together. We are grateful that none of our colleagues have lost their lives in this disaster. Of our assets, eight HepsiBurada cross-dog points out of a total network of 192 were damaged. We plan to renovate and return to them operations swiftly as fast as possible. Also, as mentioned, we observed a temporary decline in overall customer demand on our platform in the wake of the disaster, as one would expect. The number of orders, particularly during the week of February 6, fell compared to previous week and the same week of last year. This decline likely resulted from the considerable loss of traffic and demand from the affected regions. and our decision to suspend major campaigns, events, and media advertising for two weeks to honor the nation's morning. By mid-March, platform traffic had gradually recovered to almost pre-earthquake levels. The order trend during this period was relatively volatile, which had also recovered and almost reached to pre-earthquake levels. As quickly as possible following the earthquake, Hepziburada has taken swift recovery measures, including the sale of aid goods, prepaid cards, facilitating public donations, as well as managing warehouses and logistic capabilities with our own resources to support government aid efforts. And we also made in-kind donations from our inventory. With the well-being of our 6,500 merchants in mind, we twice advanced outstanding payments by a week in February. As of today, 1,270 merchant stores on our platform are temporarily closed at their own request. To support our merchants, we wait commissions for those who meet certain sales criteria until the end of March. From a profound sense of responsibility to our wider society, we just initiated a two-year program to provide long-term assistance and economic support for the region. The program supports small and medium-sized enterprises, merchants, women entrepreneurs, women cooperatives, while boosting the region's e-commerce and logistics capacity. will be shifting employment, enhancing services and activities to the region, and providing educational and social support to children and families. Our program aims to boost regional GMB generation of a total of 10 billion lira during this period. Finally, I would like to give Q123 outlook Going forward, we will remain focused on sustainable GMB growth and profitability with a prudent approach to capital allocation. To that end, despite the earthquake disaster, we expect to deliver unadjusted EBITDA breakeven in the first quarter of 2023. Underpinning this performance, we also expect GMB growth around 70% in Q1, compared to Q1 2022. This is expected to be above inflation, considering the 12-month inflation rate of 55% as of February 2023. With this, I thank you sincerely for listening and leave the floor to our CFO Korhan Öz to give more color on our financial performance in 2022.