D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Mina, your chorus call operator. Welcome and thank you for joining the HepsiBuddha conference call and live webcast to present and discuss the first quarter 2023 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 Mrs. Nilhan Onal Gökçetekin, CAO, Mr. Korhan Öz, CFO, and Mrs. Helin Çelikbilek, IR Director. Mrs. Çelikbilek, you may now proceed.

Thanks, operators. Thank you for joining us today for Hitsi Broda's first quarter 2023 earnings call. 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's 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 file with the SEC on May 1, 2023, and other SEC filings for information on factors that 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 a presentation of the most directly comparable IFRS measure and 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, Nilhan.

Thank you, Helen. Welcome, everyone, and thank you so much for joining us. I'm pleased to be with you on my second results announcement call today and present you our progress during the first quarter. The obvious highlight of this quarter that I'm particularly proud of is our guidance beat in EBITDA as well as in GMV growth. This EBITDA level marked the highest since our IPO in July 2021. It's worth noting here that we achieved this despite the unfortunate range of challenges faced by Turkey. In particular, the February earthquake was the largest such disaster to hit Turkey in over 80 years. Our robust GMV growth of 78% compared to the same quarter of last year resulted from 24.1 million orders on the back of our compelling value proposition. This growth exceeded average inflation of 70% over the past 12 months. First quarter GMV growth was at 15% when factoring in inflation. Continued GMB growth and our strict prioritization of profitability enabled us to surface our breakeven EBITDA guidance. This resulted from our focus on loyalty in optimizing marketing spending, growing non-electronics and marketplace operations, and our reduced operating expenses. This milestone represented a 4.8 percentage point rise in EVCA as percentage of GMV over the same period of last year. This performance was reflected in our sustained leadership of NPS in the e-commerce market in Turkey, where our high-quality services and solutions continue to win customer appreciation. Marking another milestone, the appeal of our value proposition led to a significant surge in the enrollment of PepsiBurra, the premium program, which surpassed 1 million members. We are proud to note that our program is the first membership-based loyalty initiative locally developed and implemented in the market. It's worth spending another minute on our guidance with this quarter. Our GME growth of 78% surpassed our guidance by eight points, and we delivered a strong positive EBITDA of 176 million lira. This performance confirms the strength of our strategy, effectiveness of our meticulous execution despite the challenging market conditions. This quarter, Our 12-month active customer base remained nearly flat 11.9 million, mainly due to earthquake impact, given its scale impacting over 14 million people in Turkey. We had seen signals of a return to pre-earthquake levels in March. Meanwhile, total orders at around 24 million on 61% growth year-on-year. Excluding the order of our digital products such as sweeps, steaks, and lotteries, the order growth in Q1 was still around 9% year-on-year. Our order frequency rose from 4.9 to 7.5, marking a 52% growth year-on-year and 14% growth quarter-on-quarter. I am confident in our ability to build customer loyalty and drive very strong customer engagement. These are being achieved with our customer value proposition, including super convenient delivery and return services, our diverse affordability solutions, and enhanced loyalty programs. On a yearly rise of 21%, the number of merchants who chose to capitalize on our platform had exceeded 100,000 by end of Q1. Consequently, our selection reached 180 million SKUs with a continued expansion of non-electronic categories. Our merchants welcome our end-to-end value proposition from logistic services to advertising solutions in addition to our tool set that enables better merchant lifecycle management. As shown on the slide, the February earthquake impacted 6,500 merchants on our platform, which almost one-third temporarily suspended their business. We have taken immediate action to help and support them, leveraging our tech logistics capability. In addition, we launched a two-year program to continue our support. Ultimately, we are in Turkey for the long haul. We are dedicated to leveraging all our capabilities to foster merchants' and women entrepreneurs' e-commerce abilities in the region. As you will recall, in early March, I outlined our refined strategies to win and achieve profitable growth. Before delving into the progress achieved on our priorities, let me summarize this. Number one is winning by customer loyalty through Hepsiburada Premium. Our current estimated volume share within our own consumers signals strong growth potential here, and we believe we'll be able to optimize our marketing space. Number two, we will focus on sustainable differentiators that include our affordability solutions, high-quality service levels on the platform, and our superior delivery services. Number three, we'll pursue profitability by focusing on core operations and cost optimization. And number four, we'll offer our best-in-class payments, landing, and last-mile delivery services to other retailers. These are our strong muscles that we believe will expect to deliver a very strong B2B income now and in the upcoming years. These strategies are pivotal in driving customer retention, securing our competitive position while we pursue sustainable growth and profitability. Now let's have a look at our progress in first quarter. Achieving one million member milestone in 10 months highlights the value for money for our loyalty program. We continuously look to improve this program's benefits to best serve our customers. Program members generate higher monthly order frequency than non-members, which helps us to optimize our marketing and advertising efforts. Growing our membership base remains the key objective for this year while we ensure retention. Since July, we have been offering Hepstiburada Premium and its great value for our customers. For only 14.9 lira per month, program members are offered free shipment, cashback on each transaction, and on-demand streaming TV subscription, and several other services and discounts. The independent analysis showed that the MPS of Hepstiburada Premium was 12 points above the company's overall MPS. This score of 8 to 7 indicates a strong satisfaction level from the program members. Now, let me share some highlights on one of our key other differentiators, HEPCP. On our platform, we are well-equipped with payment capabilities such as payment with multi-credit cards, payment in installments, and instant shopping loans. And through HepsiPay, we are the only e-commerce player holding payments and consumer finance licenses, and accordingly, we offer a buy now, pay later solution. Here are some highlights of the Q1 performance of HepsiPay. We witnessed continued growth of HepsiPay wallet users to 11.8 million. This was a remarkable 66% rise on Q1 2022, and 7% rise on previous quarter. Around 87% of our GMV was generated by HEPs to pay customers. The share of total non-card affordability solutions in our GMV now more than doubled and reached 5.8% in Q1 on year-on-year basis. Around 60% of this achievement came through shopping loans provided by banks with competitive rates for our customers. Meanwhile, our unique product in the e-commerce market, Buy Now, Pay Later solution, had been utilized by over 180,000 customers this quarter, on a quarterly rise of 30,000 people. some 152,000 orders generated by using affordability solutions during this quarter. We are diligently managing the credit risk also associated with this solution, and with our expanding range of affordability solutions, we continue to offer relevant, accessible options that meet our customer needs in AMI's tough macroeconomic conditions. Now, let's move on to HepsiJet, which is another clear differentiator for HepsiBrada. HepsiJet is one of the leading last-mile delivery companies in Turkey. Our customers enjoy the flexible delivery options and value-added services of HepsiJet. These include next-day delivery, scheduled same-day and next-day delivery, return pickup from customer's address, delivery rescheduling, parcel line tracking during delivery, and even address change or cancellation while on route and delivery to your neighbor. To the best of our knowledge, it's the only logistic company in Turkey to provide all of these convenient delivery options. With a strong MPS of 89.9, according to our internal reporting based on surveys conducted in Q1, we are reflecting its high quality of service. During Q1, our next-day delivery capabilities saw solid improvement, rising 3 percentage points to 84% year-on-year. This performance underscores our commitment to providing a fast and reliable service, particularly through HepCJET. HepCJET continued its penetration on our platform, delivering 63% of total quarterly parcel volume, up from 58% last year. Q1-22. Moreover, our X-Large arm, dedicated to oversized parcels, delivered 60% of such shipments, growing significantly from 23% in the same quarter last year. Launched only early 2022, HEPCJET X-Large's strong customer satisfaction level has contributed to its fast penetration in our marketplace. I find it very encouraging. Hefzijet's performance highlights our commitment to enhancing customer convenience and strengthening our market position. As we continued our growth, our primary focus remained on driving profitability. With this commitment, we prioritized our core commerce operations and adopted company-wide frugal spending policies. We already initiated a robust review of all cost centers to identify all improvement opportunities in cost management and operational effectiveness. This strategic approach has enhanced and will continue to enhance our financial performance and contribute to our long-term sustainable growth. Positive EBITDA milestone in Q123 was mainly through a stronger growth contribution, optimized advertising spending, and a prudent OPEC strategy, despite the continued high inflationary environment and earthquake in Turkey. We are glad to see this promising trend in our pursuit of sustainable growth and profitability strategy. As already mentioned, offering our logistics services and fintech solutions to third parties is a key strategic priority. By externalizing this strong muscle, we unlock new revenue streams, enhance our own operational efficiency, and reinforce Hepziburada's position in respective sectors. This strategic priority strengthens our brand while fostering valuable partnerships and creating a dynamic ecosystem for cross-selling opportunities. With this approach, we are well positioned to deliver sustainable results while shaping the future of e-commerce. Our first strong muscle, HepCJ, recorded a 3% point rise in Q1, reaching 22% of its total volume from off-platform customers. Total parcel volume delivered of third parties showed a solid increase by nearly 40% in units compared to same quarter last year. As a new service, HepsiJet initiated acceptance of payment at the door, which is also known as cash-on-delivery. HepsiJet is analyzing the possibility of making this service available for all of its customer portfolio. And by delivering exceptional value to all of our partners, we anticipate future expansion of HepsiJet throughout the year. Now let me move to our other strong muscle, HepsiPay. In the first quarter, Hep2Pay continued its progress to enhance payment experience of our customers while working to expand its capabilities of platform. Recently, we launched the Hep2Pay debit card for use in both physical and online retail transactions, providing another convenient option for users. HepsiPay debit card is also linked to the QR payment feature, allowing customers to use their debit card at any retailer which accepts QR payments. In addition, we introduced a new customer loan feature, offering our customers even greater flexibility and freedom in their financial decisions. With this offering, our customers will gain access to the funds that can be utilized for any purpose they desire, providing them with the financial support as and when they require. These developments, combined with our ongoing efforts to expand our product portfolio, consolidate payment options, and improve the user experience, will help us to meet our target of becoming leading fintech player in Turkey. I end my presentation with a few words on our Q2 guidance. Our robots' first quarter performance confirms our successful navigation of challenging market conditions. We entered the second quarter in a similarly tough macroeconomic environment, also compounded by election uncertainty. And yes, we remain cautiously optimistic based on our quarterly performance to date and strength of our strategy. Accordingly, we expect to generate around 95% year-on-year GMV growth in the second quarter. This is expected to be available inflation given the 12-month inflation rate of 44% in April 2023. Our positive EBITDA growth will also continue. We expect to deliver as a percentage of GMV within the range of 0.5% to 1%. These figures are an adjustment for inflation. With this, I thank you for listening and leave the floor to our CFO Korhonoz to give more color to our financial performance in the first quarter.