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spk04: Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your chorus call operator. Welcome and thank you for joining the HepsiBurada conference call and live webcast to present and discuss the first quarter 2024 financial results. All participants will be listening only more than 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-Kokcetekind, CEO, Mr. Sechkin Kyoseoglu, CFO, and Ms. Helene Tselikbilek, Investor Relations Director. Ms. Tselikbilek, you may now proceed.
spk00: Thanks, Operators. Thank you for joining us today for Hepstibora's first quarter 2024 earnings call. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gökçetekin, and our CFO, Seçkin Köseoğlu. The following discussion, including responses to your questions, reflects management's views as of today's date only, and 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, are Form 20, filed with the SEC on April 30, 2024, 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, non-IFRS reconciliations. 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, Nitin.
spk01: Thank you, Helen. Welcome, everyone, and thank you for joining us. I'm delighted to be with you today to present our first quarter results. It has been a strong start to the year as reflected on all our results. Notably, we beat our GMV and EVTA guidance for the quarter. Good execution, accelerated by the favorable base effect of last year due to a tragic earthquake, drove 138% year-on-year GMV growth. Adjusted for inflation, our GMV growth was a solid 43%. Our gross contribution margin improved by 150 basis points to 12%, marking the highest since our IPO. Our EBITDA continued its uptrend, rising 120 basis points year-on-year to 2.4% of GMV on an unadjusted basis. Adjusted for inflation, our EBITDA as a percentage of GMV improved by 70 basis points year-on-year to 0.8%. These results are a clear sign of our winning strategy. Now let's have a look at few of our operational metrics. Being Turkey's most recommended e-commerce brand once again with an MPS of 73 is a great source of pride. We are committed to advancing this performance to the next level. Our active customer base was 12.1 million on an additional 171,000 customers. We are glad to see growing interest in our appealing loyalty program, which has scaled to 2.6 million members by the end of May. We recorded 29.3 million orders with 22% growth during the quarter. Our order frequency over the last 12 months reached 9.8. This is up 30%. year over year. With an active merchant base of almost 102,000, we expanded our selection by 38% to nearly 248 million SKUs. Now let me provide a snapshot of our quarterly progress on top four strategic priorities. First is our loyalty program, Hepziburada Premium. The program's growing customer base signals customer satisfaction with our proposition. This is also evidenced by program's strong MPS. Also, premium members' higher frequency significantly contributes to our overall growth. Moving on to second priority, which is differentiation with superior delivery services. Our superior delivery services is realized with our in-house company, Hepstijet. Merchant preference for Hep C Jet services has risen significantly this quarter. Jet delivered 68% of total parcels on our platform. This is up by 5.1 percentage point year on year. Its 82% next day delivery ratio among retail orders also confirms its integral role in our ecosystem. HepsiJet brings wider satisfaction to the HepsiBrother customer. Its fast, reliable, and high-quality service reflects in our strong customer satisfaction score of 87. Our third differentiator is HepsiPay. It's scaling its offering with additions to its already comprehensive suite of payment and landing services. Fourth is offering our strongest muscles to off-platform customers. Let me start with HepCJ, which has more than doubled its volume year-on-year in Q1. Accordingly, with 3.2 million parcels delivered, its off-platform volume corresponded to nearly 33% of its total Q1. On the next slide, I'll elaborate on HEPCP, including its off-platform performance. Let me dive into how we are providing these cutting-edge solutions with HEPCP. In the current economic climate of high interest rates, being able to offer a suite of alternatives is a huge advantage. In January, we took the further step of including our consumer finance loans to this debt. Meanwhile, our BNPL solution is the largest non-bank BNPL solution in the market. Overall, our BNPL and shopping loans were utilized in over 1.1 million orders over the last 12 months. On a broader scale, over last 12 months, total lending volume through our platform tripled compared to the same period of last year, and it reached 8.1 billion lira. That's roughly equivalent to 290 million U.S. dollars. HepsiPay aims to grow this business, line in a profitable manner, and take a sizable share in Turkey's $34 billion consumer loan market. In this capacity, we will continue to leverage HepsiPay solutions as well as those of our partner banks to grow our e-commerce business. Aside from the affordability aspect, our financial services also encompasses the payments business. In offline retail, FTP leads the market with its 15.7 million wallet space covering 18 million store cards. Our one-click checkout solution, Pay with FTP, is also live at 28 key retailers just within less than a year of its launch. HepsiPay aims to capture a substantial share both in key accounts as well as in Turkey's sizable online SME market. And now, I'll end my part with our guidance. As we live through the second quarter, we observe the continuation of challenging macroeconomic conjecture, cooling of consumer demand to a certain extent. And yet, our platform preserves our relevance for consumer purchases as their trusted household brand. Accordingly, we expect to deliver growth around 75% year-on-year in Q2 2024. With that, GMV growth in the first half is expected to double year-on-year. With continued prudent cost management in place, we foresee an EBITDA within the range of 1.8% to 2% of GMV. As a reminder, our GMB in Q2 last year was 1.5%, so we expect to deliver a year-on-year improvement in our profitability in Q2, and these figures I've referred to are adjusted for inflation. With this, I thank you very much for listening and leave the floor to Seçkin, our dear CFO, to provide further insights to our financial performance.
spk02: Thank you, Neha, and welcome, everyone. I'm glad to share that we had a robust start to the year with solid performance across all metrics. Adjusted for inflation, GME grew by 43% in Q1. Strong GME growth was through 17% average order value growth and a 22% increase in total orders. Given the tragic earthquake in February last year and its inevitable impact on our business, last year's low base also has a positive impact on this growth performance. Growth contribution margin continued its improvement trend and reached 10.5%. Higher margins coupled with disciplined OPEX management resulted in 289 million TL EBITDA at 0.8% of GMB. For more color on each of these, let's move on to the next slide. First, our GMV performance. 43% of GMV growth came through 29.3 million orders in quarter one. Last 12 month order frequency also increased by 30% to 9.8. Our marketplace operations corresponded to 68% of our business in Q1 2024 at around the same level of Q1 last year. There was nearly 1.4 percentage point shift towards non-electronics within GMB this quarter, in line with our strategy. Let's have a look at our revenue growth dynamics. 45% revenue growth in the first quarter was achieved mainly through 38% retail and 32% marketplace operations revenue growth. Delivery service revenues, which correspond to 14% of total revenues, nearly doubled year-on-year. This was mainly due to the solid momentum in our off-platform business coupled with annual rises in unit delivery service charges above inflation. Our advertising services revenues doubled during this period as well. Meanwhile, other revenue lines grew by 148%. Such performance was mainly through four-fold growth in loyalty subscription revenues and higher fulfillment service revenues compared to Q1 2023. On the margin side, adjusted for inflation, we recorded 1.2 percentage points rise in the gross contribution margin, reaching 10.5%. Margin improvement was mainly attributable to higher contribution of delivery service revenues from off-platform as well as advertising revenues. Let's move on to our ABCA performance on the next slide. We recorded 0.8% EBITDA as a percentage of GMB in quarter 1-24, with 75 basis points improvement on a yearly basis. This was mainly through 1.2% point rise in gross contribution margin, partially offset by 0.5% rise in shipping and packaging expenses. And now let's look at our cash flow dynamics in the next slide. The cash generated from operations was 1.5 billion TL in Q1 2024, up from 102 million TL a year ago. 778 million TL improvements in the change in net working capital year-on-year accounts for more than half of the increase. Others include 277 million increase in EBITDA, 137 million TL increased in the change in operating monetary gain, 136 million TL increased in other non-cash items, and 26 million increased in realized ethics gains. With 426 million TL in CAPEX, our free cash flow was around 1 billion TL in Q1 2024. Let's move on to the next slide and let's take a look at our key takeaways. We would like to leave you with the following from today's presentation. Our robust top line growth in the first quarter exceeded our guidance. Adjusted for inflation, we recorded 42.5% GMV growth on a year-on-year basis. Our gross contribution margin continues to improve by 1.2 percentage points and reach 10.5%. We recorded 289 million TL EBITDA, corresponding to a 0.75% rise in EBITDA as a percentage of GMB. With this performance, we generated a strong free cash flow of 1 billion TL. Our solid overall performance confirms our sharp focus on winning with loyalty, cultivating our sustainable differentiators, and expanding our B2B services as a turnkey e-com solution partner for merchants. As we reflect on the good start to 2024, we are committed to growing on a sustainable and profitable manner going forward. Thank you for listening. We can now open the line for questions.
spk04: Ladies and gentlemen, at this time we'll 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 the webcast, you may type your question via the live feedback box below the presentation. For those participating in the audio questions and answer session, please use your hands when asking your question for better quality. Anyone who has a question, may press star 1 at this time. One moment for the first question, please. The first question comes from the Land of Good Server Muharrem with Kona Capital. Please go ahead.
spk03: Thank you very much for the presentation. My question will be regarding the 8th holiday that's moving from 3Q to 2Q this year. What would be the impact on the GMV for the second quarter in your view? Thank you.
spk02: The impact of the 8th holiday is actually incorporated in our quarter 2 guidance. As you know, we had two eight-hole days in quarter two, both of which are already incorporated in our top-line guidance.
spk03: I understand that, but my question is, if the eight-hole day would stay in the third quarter, what would be the GMV growth for this quarter?
spk02: This typically impacts our business as during holidays offline sales go up and online sales are impacted. So probably if one was in July, we would have at least a percentage or two upwards in the growth trajectory.
spk03: OK, thank you very much.
spk04: As a reminder, if you would like to ask a question, please press star 1 on your telephone. Ladies and gentlemen, there are no further audio questions at this time. We will now proceed with the written questions from our webcast participants. The first webcast question comes from Asif Sattar, who is a private investor, and I quote, what is our market share in the online retailing in Turkey? We operate in the category in the market. How is our performance versus strong competition Amazon in Turkey? Thank you.
spk01: Dear Asif, thank you so much for your question. So for Amazon, they are not publishing their results for Turkey. We will not be able to give a conclusive comment, but from the public data, like if any active customer usage, we are seeing that they are still staying as a very small player in Turkey. That's number one. Number two is how we are looking into different segments that we have right to win. Obviously, number one is electronics. We get GFK data in Cuba. We have significant share growth. We are already around 32%. On top of this, we gain share in all of our key categories. The other data source we look into is Nielsen for non-electronics categories. As you guys know, home and mom and baby are very critical segments for us. The needs of the females, households, we have right to win that. We are winning shares there. For home products, other home products, we are also triangulating different data sources, and we are seeing that we are gaining significant shares there as well. So overall, we had a strong quarter. We are not able to share exact online share in Turkey because it's not reported, but we are clearly beating our competitors with the share rates.
spk04: The next webcast question comes from Maxim Nekrasov with Citi, and I quote, in what categories do you see higher slowdown starting from 2024? Do you see consumers trading down or decreasing frequency?
spk01: Maxim, thank you so much. So generally the slowdown, we can say it started. The critical part is endurables, and endurables is, when you dive deeper, number one category I would call out is computer. As you know, computer is more discretionary, and there is some deferral of the demand, delayed demand. The other one has been TV. among our categories, which we are expecting some recovery with Euro Cup and Olympics demands in Q3 as well. The trend we are seeing is trading down and deferral of the demand rather than significantly decreasing frequency of online shopping. Thank you, Maksim.
spk04: The next webcast question is a follow-up question from Maxim Nikrasov, and I quote, when do you expect to start booking tax expenses?
spk02: Sure, I'll take this question. We do not expect to pay corporate taxes in 2024, as we have tax incentives, and these are typically our R&D center tax incentives without any time constraints. And most likely, we will start paying taxes in 2026.
spk04: The next webcast question is again a follow-up question from Asif Sattar, who is a private investor, and I quote, what is our EBITDA margin on U.S. GAAP basis in this quarter, and what is expected EBITDA on U.S. GAAP basis forecasted for the next quarter? Thank you.
spk02: We do not report our financials in U.S.-based.
spk04: The next webcast question is from Badar Shamim with Generation PMCA Corporation, and I quote, any plans to grow your services in developed markets including North America?
spk01: We don't have plans at the moment, Badar, to expand Hepsi Burada and launch in North America. Having said that, Turkish collections is very, very popular in different parts of the world. We started doing some tests with integrations to other marketplaces to facilitate micro-exports from Turkey. So if you go to Walmart today, you can see our private label June already being sold in those stores. And we will continue to expand our cross-border services with smart integrations versus large investments to this new market.
spk04: The next webcast question is a follow-up question from Massif Sattar, and I quote, what is the expected incremental GMV increase due to Jumia partnership in this year? Thank you.
spk01: Look, Asif, we are very, very excited about CUMYA partnership. First, let me tell that. MENA is the region for Turkish collections. We are winning in home category in Turkey. Small domestic appliances that are exportable. And CUMYA has been a huge potential in building this partnership with us. We are still in the building phase. I am expecting most of the impact to come starting to come next year, because we are entering fulfilled by Jumya. So, we are doing the first shipment. It will take some time for this product to be inbound. We are selecting very, very cost-efficient methods to win in Jumya and with relevant customers. So, nothing significant this year, but definitely watch this space for improvements next year as we complete our integration. and leverage their existing traffic of different partners.
spk04: The next webcast question comes from Grant Felgenhauer, who's a private investor, and I quote, are you considering a local equity listing in Turkey? Thank you.
spk01: So we recognize the potential benefits that a dual listing could bring very well, and we are actively exploring various options to determine the best course of action for our stakeholders. As part of this process, we are evaluating market conditions as well as regulatory requirements involved in a dual listing. At this point, we haven't made a concrete decision regarding a potential listing in Borsa Istanbul, but we will keep the market informed as we progress and make any definitive decisions. In the meantime, we appreciate your continued support.
spk04: The next webcast question comes from Sinancin with Amber Road Investors. And I quote, what drives management's confidence that it will continue to grow share as global cross-border e-commerce platforms consider entering the Turkish market? Thank you.
spk01: Thank you, Sinan. I think there are a couple of things that gives us confidence that we will sustain and continue to grow shares despite global cross-border platforms. Number one, Turkey has a very, very competitive supplier base. As you look into this global cross-border success stories, absolutely they have strong playbooks, but they don't have competition like Turkish fashion and home very, very economical. Second, affordability is critical solution for Turkey. We are the only online company which has the payment license, which can do installment in categories like cosmetics, FMCG, mobile phone. Third, quality matters a lot. In Turkey, This is still number one purchase intent driver for Turkish online shopping. And as you know, we are winning with all our quality metrics. We are year-over-year MPS champion in Turkey. So, we are up for competition. We appreciate the new entrance that will continue to raise the bar for Turkish customers. We have strong rights to it. And finally, We are also building cross-border capabilities, which is helping us. So we just launched our first products in a test environment in Namche. We signed some partnership with Jumya to build some business together. So we will also grow our cross-border business as we grow our Turkish business as well.
spk04: The next webcast question is from James Hayes with Lucerne Global Capital, and it's a series of questions. And I quote, thank you all for doing the call. Can you please provide an update on the various regulatory initiatives which may constrain the activities of your larger competitor in the market? Second question is, which are the items which have only kicked in early 2025? And are there any additional regulations to take effect later this year? Third and final question is, finally, the free cash flow in the quarter was quite impressive. Can you provide any medium term thoughts around free cash flow generation capacity or for the full year of 2024? Thank you.
spk01: Thank you, James. Very good question. So 2025, there will be various regulatory initiatives that will constrain the activities of the larger competitor in Turkey. Multiple things. Number one is license fee is kicking in in Turkey. So for the large, largest online players, which has disproportionate shares, there will be significant amount of payment to make as license fee to the government. The secondary is, as you know, private label, which was a stronghold of Alibaba in Turkey, is banned. We are expecting that there will be continued impact as of 25. The continued impact of advertising promotion reductions will also have an impact. So these are the three I would say that with a much more democratic environment in Turkey that is supporting small, medium-sized enterprises could continue to make an impact on the large competitor in the market. And for your cash-related questions, I want to turn the floor to Seçkin.
spk02: Thank you so much for the question. As you know there are two components for the free cash flow generation. One is EBITDA and the other one is Networking Capital Management. We will continue to grow our EBITDA year over year on a full year basis as well. So definitely we will be improving on this key pillar of the cash flow for the full year. On the net working capital side, what I can say that as the higher interest rates and the government actions to minimize the inflation has started to take a bigger impact in the market, all companies will be looking into their working capital requirements with increased focus. But we will always continue to be a negative net working capital business. So as our business continues to grow in the top line, this will also be the second layer and the key pillars to increase our free cash flow. So, there can be some seasonality impact from one quarter to another, but on a full year basis, we will continue to improve our free cash flow position in 2024.
spk04: Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.
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