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spk02: Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call Operator. Welcome and thank you for joining the Hepsi Burda conference call and live webcast to present and discuss the third 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-Kirshetekin, CEO, Mr. Shechkin Kirsholou, Vice President of Strategic Finance, and Mrs. Helene Chalik-Pilek, Investor Relations Director. Mrs. Chalik-Pilek, you may now proceed.
spk04: Thanks, Operator. Thank you for joining us today for Hipsy Brothers' third quarter 2023 earnings call. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gökçetekin, and our Vice President of Strategic Finance, Seçkin Köseoğlu. 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 date. Today's press release, the 6K, our Form 20, filed with the SEC on May 1st, 2023, and other SEC filings for informational factors that could cause our results to defer material 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 reconciliation. As a reminder, a replay of this call will be available on our Investor Relations website. And with that, I will hand it over to our CEO, Nilhan.
spk03: Thank you, Hayley. Welcome, everyone, and thank you for joining us. I'm pleased to be with you today and to present our quarterly progress. AM is continued challenging macroeconomic environment where yearly inflation scales to 61.5%, we delivered a robust financial performance. Our GMB more than doubled by 126% growth year-on-year. Adjusted for inflation, our GMB growth remained solid at 45% year-on-year. The operational agility afforded by our strategy led to an outstanding performance that exceeded expectations. Our orders numbered 77 million. It was up 55% year-on-year, confirming a continuous demand for our differentiated services. With an 11.6% gross contribution margin and through frugal of tax management, our EBITDA as percentage of GMB rose by 690 basis points year-on-year to 2.7%. Adjusting for one-time other income, our quarterly EBITDA guidance was still 2.2%. Our Hep Ciburda premium program with over 2 million members as of November end aligns seamlessly with our expectations. The program continues to play a pivotal role in elevating our order frequency and improving our customer retention. Overall, I'm very pleased to demonstrate sustainable growth and improved profitability. Let me now take you through our delivery versus Q3 guidance. Through diligent execution, we surpassed our guidance for both GMB and EBITDA. Our GMB growth exceeded guidance by 16 percentage points. This performance was a result of our solid strategy that boosted loyalty to our platform. On top, in July, the announcement of the VAT increase across all goods and services triggered a higher demand for e-commerce. Furthermore, through prudent cost management, our EBITDA as percentage of GMB reached 2.2%, adjusted for one of income. This doubling of the upper end of our EBITDA guidance clearly highlights our operational efficiency. The quarterly performance validates our commitment to sustainable growth and positions us favorably to achieve a positive full year 2023 EBITDA on an unadjusted basis. HepsiBurada is the key trust brand for e-commerce. In line with our pledge to customer centricity, we announced HepsiBurada Promise Initiative as a marketing campaign. As part of this initiative, we promoted key consumer benefits that encompasses next-day delivery guarantee, convenient return pickup services from consumer doorsteps, and an assurance of authenticated products. To drive higher engagement, we partnered with one of Turkey's most confident, inspiring celebrities for this initiative. We believe this initiative addresses the primary concerns of Turkish e-commerce consumers while underscoring our commitment to meet their expectations. This commitment is clearly reflected in our KPIs. 59% growth in order frequency, 55% order growth prove that our consumer engagement and loyalty strategy is clearly working. In the third quarter, with our 101,000 active merchant base, our total SKU count climbed to nearly 211 million. Our merchants can now proactively create coupons which are a proven attraction point for customers. Self-management of campaigns, coupons, and all advertising facilities drive higher conversion to sales for our merchants. On top, we advanced our operations with automated inclusion of products in the next day delivery coverage. This benefited customers while freeing our merchants of a manual process. In our commitment to elevating the visibility and reach of our merchants, we reintroduce our advertising solutions in a more effective format this quarter. These initiatives underscore our commitment to a deeper merchant relationship as we help them grow their volume on HepsiBrada. As always, we remain focused on execution excellence and our recent results affirm the effectiveness of our four pillar strategies. Just to recap briefly, our strategy centers around loyalty, cultivating our sustainable differentiators, streamlining our costs, and expanding our B2B revenue in FinTech and logistics. In the next few slides, I'll provide a snapshot of our progress, highlighting our key achievements. First, our Hepstiburada Premium Program. It's a key loyalty driver and continues to gain momentum and exceed the 2 million members by end of November. The program's success goes beyond mere expansion. It significantly influences customer behavior. Premium members' monthly order frequency rose from 1.8 to 2.6 after they joined the program. This emphasizes the program's potential to position HIPs abroad as customers go to e-commerce platforms. The program's quarterly net promoter score remained at about 81 points, which is 10 points above our overall NPS. We remain dedicated to keep this program as a compelling proposition for our members. Let's now look into one of our key differentiators, HepsiPay. In today's economic landscape, affordability takes center stage, and our in-house fintech expertise clearly sets us apart. Leveraging our unique e-money payment services license, we offer a comprehensive suite of payment and affordability solutions. These include our prepaid cards, buy-now-pay-later solutions, top-up to wallet loans, and point-of-sale shopping loans. A noteworthy addition is the HepsiPay prepaid card in collaboration with Visa. We are encouraged by the demand for this card with 708,000 cards issued in just six months. HepsiPay card users can earn 3% cashback in all their online and in-store payments if they are a premium program member. A tool that customers use to top up their prepaid cards is a general-purpose loan from our partner banks, which can be reached with one-click solution from our app. This quarter, we integrated four major banks. Hexapay Wallet gives customers the freedom to spend these loans everywhere, both physical stores and online, combined with the ease of QR payments. With our customer-centric state, our commitment to delivering strongest tailored payment and affordability solutions remains firm. Next, let's consider our affordability solutions, highlighting some performance indicators. The quarterly share of total non-card affordability solutions in our GME was 5.6%, up from 5% a quarter ago. This increased penetration is a result of our improved incorporation of non-card affordability solutions throughout our buy journeys. Over the last 12 months, 762,000 orders came through these affordability solutions. As to our BMPL solution, Hepziburada remains the first provider of Turkish e-commerce. Since its inception, over 245,000 customers have utilized their BMPL limits. In September, during iPhone 15 launch, we were the only platform to offer a BMPL solution for this high-value item. I would like to move to now our next differentiator, Hepzijet. HepCJET's strong MPS of 86.2 in Q3 underscores its acknowledged service excellence. HepCJET continued to invest in expanding its geographical coverage by additional municipalities. Total municipalities covered exceeded 600 by the end of the quarter. In Q3, HepsiJet continued its strong next-day delivery performance with 82% ratio among our 1P orders. Out of the total parcel volume on our platform, HepsiJet delivered 67%, confirming its integral role in our delivery ecosystem. Notably, HepCjet XLarge delivered 57% of our oversized parcels. This is confirming greater merchant preference for our two-man handling capability. In Q3, as a result of all our actions, We saw continuous progress in profitability, posting a 2.2% EBITDA as percentage of GMV, excluding the one-off item. The positive signal clearly demonstrates the effectiveness of our strategy, confirming our core strengths and our diligent cost management. Now, let me take you through the fourth pillar of our strategy, which is generating B2B revenue from FinTech and logistics. First, let's start with PepsiJet. We continue to expand our external customer base, adding other retailers and doubling our customer count and doubling our volume year on year. This is confirming our ability to generate B2B revenues of platform and clearly showcases PepsiJet's strong momentum as an appealing logistics partner. Now, let's turn our eyes to HepsiPay's off-platform expansion, enabling a swift payment experience. HepsiPay offers a one-click checkout solution. Pay with HepsiPay to other retailers. This solution became available at the online checkout of five major Turkish retailers in Q3, as seen on the slide. A leading Turkish home appliance brand Karaca, leading Turkish fashion brand Defacto, leading baby brand Ebebek is just few of the examples. Moreover, we also offer our lending capabilities as part of HepsiPay's one-click checkout solution. This take-up aligns with our vision of providing fast, reliable, versatile payment and lending experience beyond HepsiBurada platform. HatsyPay's features extend beyond one-click checkout. The seamless use of pay prepaid card both online and in-store payments clearly diversify our payment options for consumers. The top-up to wallet with loans offer enables users to top up their wallet with general purpose loans from multiple partner banks. These funds are then available to spend anywhere that accepts QR payment in addition to platforms with HepsiPay at their checkout. An upcoming feature is the integration of shopping loans within the Pay in HepsiPay network. Before I dive into Q4 Outlook, let me take a moment to talk about our November campaign performance. Our business is characterized by strong Q4 seasonality like all other e-commerce players. We delivered a higher sales volume during the fourth quarter of the year. Our preliminary results indicate that this year we delivered yet another very strong performance in November. We doubled the GMV compared to the same period last year. The number of orders was two times that of the monthly average of the prior months in 2023. Our platform attracted almost 500 million visits and we sold over 30 million pieces. Our affordability solutions and loyalty program were particular attraction points. 46% of GMV generated through sales with credit cards came through installment sales. The most significant service and orders compared to the same period of last year were among clothing, appliance, home garden, and FMCG. We greatly welcome the consumer appreciation of our superior services, solutions, and campaigns in the busy month of November, where Hepsi Burada clearly puts its name to the word legendary, which was created by us seven years ago. And now I want to close my presentation with our guidance. So with another robot, legendary November behind us, we expect to deliver a solid and profitable growth also in fourth quarter. Accordingly, we expect to deliver a GMV growth within a range of 93-95% compared to the same period last year, and EBITDA as a percentage of GMV within a range of 0.5-1%. These figures are adjusted for inflation. Consequently, for the full year 2023, we expect to double our GMB year-on-year on an unadjusted basis and delivery with the highest percent of GMB at 1.5%. These figures are also unadjusted for inflation. With this, I thank you for listening. Leave the floor to Seçkin, our forthcoming CFO, for more color on our Q3 financial performance, then I'll do my closing remarks.
spk05: Thank you, Nihan, and welcome everyone. It is a pleasure to meet with all of you today for the first time. As I embark on my new role as DFO, I look forward to many more such occasions. Despite the prevailing macroeconomic challenges, I am pleased to say that we continued our uptrend across all metrics during the third quarter. Unadjusted for inflation, our GMB rose 126% in Q3 on a yearly basis to 24.3 billion TI. Similarly, our IS29 unadjusted revenue growth was at 137 on a yearly basis. When adjusted for inflation, GMB and revenue growth were at 45% and 52% respectively. Strong order growth coupled with faster than inflation rise in the average order value and a strong e-commerce market growth in July on the back of a VAT rise resulted in a 126% GMB growth. The growth contribution margin came in at 11.6% on a 1.8 percentage point improvement on the same quarter of last year. Adjusted for inflation, this metric rose to 9.4% on a 1 percentage point improvement. Quarter 3 was the third consecutive quarter of positive ABCA unadjusted for inflation. Accordingly, our ABCA as a percentage of GMV reached 2.7% on a 6.9 percentage point rise year over year. Excluding the impact of one of income item, our ABCA as a percentage of GMV was at 2.2%. Also, when adjusted for inflation, this metric was at 0.3% on a 6.2% improvement year-over-year. On the next slide, let's elaborate on our GMB growth performance. 45% of GMB growth came through 27 million orders in Q3. This performance results from our value proposition supported by the HepsiBurada Premium Loyalty Program and our affordability solutions. Our digital products contribute to the order frequency of participating customer segments. Yet, excluding these orders, our order growth was still strong at around 18%. During the third quarter, we saw a 2.7 percentage point shift in GMV mix towards 1P. While we continue our growth in non-electronics, during this quarter, we also leveraged our strong 1P model to meet the demand in the electronics market. On the next slide, I will discuss our revenue and gross contribution performance. First, I would like to give some cover on revenues. Revenue growth of around 52% was achieved mainly by a 50% rise in retail revenue and 61% growth in marketplace revenue. Our retail and marketplace operations comprise 87% of our revenues. Our delivery service revenue, comprising 10% of total revenue, rose 43% compared to Q3 2022. Meanwhile, other revenue, which mainly consists of our advertising services, fulfillment services, and loyalty program subscription fees, grew by 116% compared to Q3 2022. Our Q3 gross contribution margin was at 9.4% on a 1% point improvement on the same quarter last year. This was mainly attributable to a higher rediscount impact on cost of inventory sold due to purchases on credit, a change in the 3P GMV category mix towards higher margin products, and a higher other revenue stream. Faster inventory turnover partially compensated for the margin-deteriorating impact of significantly higher quarterly inflation that we have witnessed in Q3. Let's move on to the EBITDA performance on the next slide. Together with strong top-line growth, our focus on costs and marketing spend optimization enabled us to deliver positive EBITDA for yet another quarter. The 6.2 percentage point year-over-year improvement in ABTA as a percentage of GMB was mainly due to a 1 percentage point rise in gross contribution margin, 1.1 percentage point decline in advertising expenses, 0.1 percentage point decline in shipping and packaging expenses, 0.6 percent decline in payroll and outsourced stock expenses, and 3.3% improvement in other OPEX items, which includes the settlement contribution from TurkCommerce in Q3 this year, and the provision expense related to the same litigation in Q3 of last year. OPEX as a percentage of GMB was 9.1% in this quarter, thus 5.1% lower compared to 14.2% in the third quarter of last year. Our continued efficiency in marketing spend was achieved through our focus on customer retention and loyalty strategy, data-driven marketing and co-marketing partnerships. Next, a few words on our cash flow dynamics. Compared to Q3 2022, our cash flow from operating activities increased by almost 1.4 billion TL to 2.2 billion TL in Q3 2023. This increase in cash flow from operating activities mainly resulted from a 1.1 billion TL improvement in EBITDA, 1.2 billion decrease in change in networking capital mainly due to increase in BNPL receivables and an increase in inventory in anticipation of high demand in Q4. 0.7 billion TL increase in operating monetary gains due to inflation accounting and other items. And finally, 0.8 billion TL increase due to realized ethics gains. CAPEX was around 234 million TL at 0.9 percentage point of GMV. Overall, our free cash flow was a positive 2 billion TL in Q3 2023. Before we end our call, I would like to leave the word back to Nilhan to highlight the key takeaways from today's presentation.
spk03: Thank you, Seçkin. In Q3, we delivered a strong top-line growth at EBITDA through diligent cost management exceeding our guidance. Our IAS 29 unadjusted GMV growth marked the highest quarterly growth since our IPO. On the margin side, we improved our gross contribution margin by 1.8 percentage points and the BCAS percent of GMV by 6.9 percentage points. We generated a substantial improvement in free cash flow on a yearly basis thanks to our improvement in operating profitability. We are committed to creating long-term value for all our stakeholders, and we work diligently to deliver our best possible results with our whole team. And finally, I take this opportunity to wish everyone seasonal greetings. Thank you for listening. We can now open the line for questions.
spk02: Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Those participating via webcast, you may type your question via the live feedback box below the presentation. For those participating in the audio question and answer session, please use your handset when asking your question for better quality. Anyone who has a question may press star and 1 at this time. One moment for the first question, please. The first question. I am so sorry. There was a question, but it was withdrawn. As a reminder, if you would like to ask a question, please press star and 1 on your telephone. Once again, to register for a question, press star and 1 on your telephone or type your question on the live feedback box below the presentation. As a final reminder, to ask a question, please press star and 1 on your telephone or type your question on the question box under the webcast page. Ladies and gentlemen, there are no audio questions at this time. We will now proceed with the webcast questions from our participants. The first webcast question is from Maxim Negrasov with Citi. And I quote, what drives growth deceleration in Q4 2023 compared to third quarter 2023? Thank you.
spk03: This is Nihan speaking. We have a couple of factors. One of them is our base in Q4 2022 was extremely strong. That's number one driver. Number two driver is in Q3, Maxim, we had a VAT change, as I explained in July, which accelerated our growth as Econ platforms, which won't be repeated from our expectations in Q4. And lastly, with the rising interest rates, We are expecting also some minor impact to the demand in Turkish market. Hence, with these three, our expectation is the GMV growth ratio.
spk02: Once again, to register for a webcast question, please type in the webcast box. Thank you. The next webcast question is from Ule Adamson with T. Rowe Price, and I quote, any thoughts on possible local listings to improve the liquidity of shares?
spk03: A local possible listing in Istanbul Stock Exchange is one of the ideas that we are always evaluating, like other options. There are pros and cons we are investigating, Ule. As we crystallize our thinking, if there is something to share, we will obviously come back, but this is one of the things we are obviously looking into based on the feedback we received today.
spk02: Once again, to ask a question, please press star and 1 on your telephone or type your question on the question tab. The next webcast question is from Tim Raskak with Frontara Capital, and I quote, Hi, could you please, excuse me, could you provide me color on September sales and how the legendary November event was relative to your expectations? Thank you.
spk03: It was almost spot on versus our expectations in November. We have done a couple of assumptions for November growth. One of them was increased uptake from our premium consumers. Both our premium membership increase and the frequency increase from premium consumers has been in line with our expectation. Non-electronic, new categories that we have been driving have been strong. That has also been in line with our expectation. And in terms of our marketing plan, the number of sessions we plan for legendary November. also was in line with our expectations. So I would say we invented Legendary November seven years ago and since then we have been getting stronger and stronger in our execution and in line with our plans we delivered a strong November campaign.
spk02: Our next webcast question is from Christian Andrews with Frontada Capital and I quote, digital orders represented a significant portion of order growth. Could you expand on what these orders relate to and would their contribution to revenue growth be similar?
spk03: The digital orders, yes, they represent significant portion of order growth, but in terms of GMB, it's immaterial. It's less than 0.7% of our GMB, so we can't talk about any relay contribution to our GMB growth. It's strategic. It drives frequency. It drives consumers to come back, create loyalty retention, so we'll continue driving that.
spk02: Thank you. We also have a question from Mr. Hassan Bayahan, and I quote, how do you invest in the U.S. cash you have? What is the return on that?
spk05: Hi, we typically use time deposits in banks and I think the yield is the question. We are close to 5% on our yield for USD deposits.
spk02: Thank you. The next question is from Mr. Maxim Nekrasov with Citi, and I quote, what are your expectations regarding consumer demand in 2024 considering recent interest hikes?
spk03: Our progress and results clearly prove that our strategy works in 2020, and as we look forward to the coming year, Although the interest rate increases could diminish consumer demand, consumption can also impact Turkish economic growth. We have several key initiatives reinforcing our position. I maintain our commitment to strategic priorities, affordable shopping options, benefits from premium programs, and also e-commerce is in this place is very suited to serving consumers in this type of environment.
spk02: Our next webcast question is a follow-up from Mr. William Adamson with T. Rowe Price, and I quote, ìWhat is the outlook for ABTA margin in 2024? Also, where would you like to see the margin over the longer term?î
spk03: For 2074, we are going to talk about our guidance, our expectations as part of our Q4 earnings results. But what I can say, we are extremely committed to sustainable, profitable growth. We have built a very strong initiative pipeline for 2024 and also upcoming years. In line with the presentation we have done, that is including the advertising platform, that's including non-electronics in our mix. that is including incremental margin from our services and B2B revenues that will continue to enhance our margin situation. For granular details and expectations, we'll come back in Q4.
spk02: Thank you. Our next webcast question is from Christian Andrews with Frontara Capital, and I quote, HEPC premium rates 2 million members. Could you please speak a bit about any targets for the program? Is there a target number of members? Is this program break-even yet on a consolidated basis?
spk03: In terms of HepsiBura, the premium program, obviously we are quite bullish about creating a great, amazing program that will be sticky for our consumers. We are not chasing a specific number. We are looking into sustainable profitability of the company, sustainable profitable growth using loyalty retention initiatives in a mix that also includes premium. Hence, I'm not going to share a specific number that we are chasing for next year, but we will continue to enhance both the benefits of the program and also members. in the program. In terms of premium profitability, we don't share the details for a specific consumer segment. In future, we could look into giving different cuts in our profitability, but so far, we are only sharing a consolidated view.
spk02: Our next question is an audio question from the land of Kilikira Hansante with J.B. Morgan. Please go ahead.
spk01: Nilan Hanım, Seçkin Bey. Apologies, I had a technical issue. I couldn't ask my question initially. I would like to follow up on the growth contribution margin. There was a robust improvement here. Would it be reasonable to say that a large part of this expansion in the growth margin contribution comes from the inventory gains? There was a very high inflation in the third quarter and I just tried to understand whether this expansion is one-off or not. And or otherwise, have you observed some structural changes in your business like a higher share of clothing category or better take rates that may continue to support the margins going forward? And the second question is, some sort of update on the recent competition uh authority investigation what it is about and do you expect some negative results from this investigation thank you
spk05: Yes, as I mentioned in my presentation, the rediscount impact on cost of inventory sold due to purchases on credit has an impact on the improvement in gross contribution. But the key structural improvements that we are making are related with the 3P GME category mix towards higher margin products, and this is going to continue in the future as well. And definitely other revenue stream is something that we are continuing to expand, especially a word of note, our premium fee, our hefty ads, which is very important for our future profitability, and expansion of our delivery services. So these are structural key interventions that we will be continuing to have in the coming quarters as well.
spk03: Let me come back on the second question, which is the competitive authority investigation. There has been an investigation in Turkey for price recommendation for merchants from e-commerce platforms. We have been one of the that competition authority wanted to better understand the logic. We have been sharing all the data we have. This is a recent capability we developed in order to enhance merchants competitiveness, in order to enhance competitive prices. with right ambition, with right material. So we are very comfortable in terms of the potential outcome. There could be a situation, Hanzade, in the worst case scenario, the competition notaries could say, we would like platforms to hold this application, but nothing beyond that. So even the worst case scenario, obviously we are ready for that, but we wouldn't recommend that.
spk01: And thank you very much.
spk02: Ladies and gentlemen, there are no further questions at this time. The conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.
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