speaker
Mina
Chorus Call Operator

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.

speaker
Helene Chalik-Pilek
Investor Relations Director

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.

speaker
Nilhan Onal-Kirshetekin
Chief Executive Officer

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.

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