D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Geli, your chorus call operator. Welcome and thank you for joining the HepsiBorada conference call and live webcast to present and discuss the third quarter 2024 financial results. At this time, I would like to turn the conference over to Ms. Nilhan Onal-Goktetekin, CEO, Mr. Sechkin Koseoglu CFO, and Ms. Helene Zelik-Pelek, Investor Relations Director. Ms. Zelik-Pelek, you may now proceed.

Thanks, Geli. Thank you for joining us today for HepsiBrodas' third quarter 2024 earnings call. I am 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. 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 20F filed with the SEC on April 30th, 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 to non-IFRS reconciliations. As a reminder, a replay of this call will be available on our Investor Relations website. With that, I'd like to hand the call over to our CEO, Niha.

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. First, we are very proud to share a significant milestone in our journey. This quarter marks the first time we achieved quarterly positive operating income since our IPO in our IFRS financials. This accomplishment reflects the strength of our strategy, disciplined execution, and the dedication of our team. Now, let's dive into the details behind this transformative moment. We have successfully concluded another challenging quarter facing the continued macroeconomic pressures and curbed purchasing power. Notably, we delivered our GMV growth and EBITDA as percentage of GMV guidance in the third quarter. Diligent execution during the back-to-school shopping period and the celebratory campaign for the second anniversary of our loyalty program contributed to overall year-on-year GMV growth during Q3. On a 10.3% in the third quarter, we delivered 17.4% GMV growth in the first nine months compared to the same period last year, adjusted for inflation. On the profitability side, our gross contribution margin rose to 11.3% in the first nine months with a 1.9 percentage point improvement compared to the same period last year. Our EBITDA as percentage of GMV continued its rise, reaching 1% in the first 9 months of the year adjusted for inflation. Overall, we are very pleased to have demonstrated continued sustainable growth and improved profitability in the third quarter. Let me now go into our performance during the quarter as well. Let's look at a few of our operational metrics. Our active customers grew by 233,000 customers to 12.3 million. Meanwhile, we are glad to see growing interest in our phenomenal loyalty program, which has scaled to nearly 3.7 million members by November. As Turkey's most recommended e-commerce brand, we once again scored an MPS of 75. Customers identified our speed of delivery, range of affordability and landing solutions, and their trust in Hepsiburada brand as key factors in their preference for the platform. Continuing our appeal, in July 24, we launched our Renew Your Mobile at Your Doorstep product in 81 cities across Turkey. This marked Turkey's first-ever nationwide device renewal program at your home door. Its convenience was reflected in a vibrant customer satisfaction score. I am happy to note that this initiative is perfectly in step with our sustainability commitments. Returning to the third quarter KPIs, we recorded 32 million orders on a 19% year-on-year growth. Our order frequency over the past 12 months reached 10.8% up by 16%. With an active merchant base of Almost 100,000, we continue to expand our selection by 33% to 280 million SKUs through the onboarding of additional brands, particularly in passion and lifestyle categories. As I do every quarter, I would like to give a status update on our four strategic priorities to highlight our key achievements. First of all, let's consider our loyalty driver, Hepstiburada Premium Programme. Building on its momentum, we have reached nearly 3.7 million members by November end. Driving higher engagement, premium members' monthly order frequency rose by 31% after joining the program. Premium members' higher frequency significantly contributes to our overall order growth. To mark the second anniversary of the program, we held Hepsiburada Premium Days in mid-July. offering exclusive campaigns to our premium members. The 10-day event attracted 130 million visits to the platform and 4 million products were ordered through us. Our customer satisfaction is clear from the program's robust quarterly net promoter score of 84 points, which is 9 points above our overall MPS. We value this program for being a strong driver of frequency and catalyst for customer loyalty. Next slide, please. Let's consider another strategic priority, namely our differentiating logistic capabilities achieved through HepsiJet, both on-platform and off-platform customers. HepsiJet continued its penetration within our merchant base with a 6.8% annual rise HepCJET delivered 74% of total parcels dispatched during this quarter. It's confirming its integral role in our delivery ecosystem. Its volume expansion in oversized parcel delivery has also been super impressive. In Q3, HepCJET X-Large delivered 69% of our oversized parcels, up by 12.4% year-on-year. HepCJET's strong MPS underscores its value-added service excellence and confirms our commitment to flexible and convenient delivery options. As another key strategic pillar, HepCJET also continues its off-platform expansion and doubling its volume year-on-year. With 9.8 million parcels delivered, its off-platform volume corresponded to nearly 35% of total volume in Q3. Let's move on to our strategic priority, capitalizing on our clear differentiation through lending solutions. Our solutions include in-house buy-now-pay-later solution, in-house consumer finance loan, shopping loans from partner banks, and general purpose loans for shopping on our platforms. This proposition is unmatched in the Turkish e-commerce sector and has increased our relevance in this challenging economic climate. The quarterly share of these solutions in GMV rose to 8.8%, up from 8.1% a quarter ago. A superior user experience is enjoyed by our platform throughout the buy journey. HepsiBurada is Turkey's largest non-bank BNPL solution provider. Our BNPL volume more than tripled year on year during Q3. Moreover, in-house consumer finance loans have the highest conversion rates compared to all other partner banks providing shopping loans in our platform. Our BNPL cost of risk was around 2.6% in Q3 2024 in line with our projections and pricing assumptions. We aim to grow this business in line with profitability to claim a sizable share of Turkey's $40 billion consumer loan market. In this capacity, we will continue to leverage our solutions and those of our partner banks to grow our e-com business. On the payments front, HepsiPay continues to increase its penetration. HepsiPay stands out in the market with its 17.6 million vaulted customers storing around 21 million cards by the end of November. We are determined to scale our convenient one-click checkout solution, Pay with HepsiPay, among other retailers also beyond our platform. This solution is already live at 127 key retailers, doubling its total payment volume in Q3 compared to Q2. HepsiPay remains committed to becoming Turkey's go-to digital wallet in both physical and online retail. Let me take a moment to talk about our November campaign performance before I dive into our Q4 guidance. Our preliminary results indicate that this year we delivered yet another strong performance in November despite all the macroeconomic challenges. We recorded the highest daily traffic in our history on Singles Day, and our platform received 500 million visits during the month. We greatly welcome Turkish customer appreciation for our superior service and solutions and all our campaigns in the busy month of November. And now, our guidance for Q4 and its implications for the full year. As we executed on our strategic priorities throughout the year, we stayed very focused on achieving sustainable growth and enhancing our profitability. Accordingly, we expect to deliver around 75% GMV growth in the full year. This is roughly 13% growth as adjusted for inflation compared to 2023. Such growth will be the end result of our guidance of 50-55% GMV growth for the fourth quarter. On the margin side, our fourth quarter guidance for EBITDA as percent of GMV is 1.8-2%. Consequently, our full-year EBITDA as percentage of GMV is expected to be around 2.2-2.1%. Both Q4 and fiscal year signaled continued margin expansion. These figures are in adjusted for inflation. Before I hand over to Seçkin, let me say a few words on Hepstiburada's forthcoming ownership transition. As announced, Caspi has signed an SBA with our founder and the members of Doğan family to purchase a controlling 65.4% stake in Hepstiburada. Approval from the Turkish Competition Authority was granted on November 19th. The transaction awaits certain regulatory approvals and involved parties expected to be closed in early 2025. We are extremely excited about the synergies that will arise from this deal as Caspi is the preeminent in payments, marketplace and fintech ecosystem in Kazakhstan. Our shared customer centricity and service quality orientation confirm the strong cultural fix necessary for success. We believe Caspi's expertise in fintech, technological capabilities, and experience will be significant accelerators for us, and we are now in a stronger position to remain a preferred companion in the people's lives. With this, I thank you so much for listening us and leave the floor to Seçkin, our CFO, to provide further insights into our strong financial performance.

Thank you, Nilhan, and welcome everyone. I am delighted to be with you today to present our third quarter results. Despite the ongoing macroeconomic challenges, I am pleased to report that we maintained a strong upward trend across all key metrics in our third quarter and nine-month results. With 10.3% GME growth in the third quarter, our GME rose 17.4% in the first nine months compared to the same period of last year. On the profitability side, the gross contribution margin rose to 11.3% in the first nine months with a 1.9 percentage point improvement compared to the same period of last year. Our EBITDA as a percentage of GME continued its rise, reaching 1.2% in quarter three and 1% in the first nine months of the year. Let's go over the details of this performance. In the third quarter, GME growth came mainly through solid order growth and higher AOV when digital products are excluded. Fashion and lifestyle, appliances and mobile phones are the top three categories of growth. We achieved a gross contribution margin of 11.5% in Q3 2024, while our third-party logistics business was a key driver. This expansion was also supported by an easing inflationary impact on our cost of inventory sold in retail operations compared to the same period of last year. In Q3, we reached a milestone with positive operating income EBIT of 32 million TL in a first since our IPO. Our EBITDA as a percentage of GMB continued its rise to reach 1.2%. This is a 1.3 percentage point rise year-on-year when excluding the one-off contribution from TurkCommerce towards the settlement of class action losses in Q3 2023. Let's move on to the next slide to see our GMB breakdown. In Q3, around 10% of real GMB growth came through 32 million orders and a higher average order value. This performance results from our value proposition and investment in both our selection and user experience, supported by our loyalty program and affordability solutions. Our digital products contribute to the order frequency of participating customer segments. Excluding these, our order growth was at around 5%. During Q3, we saw a 4.9% point shift towards our marketplace operations compared to Q3 last year, and our 3P operations corresponded to around 70% of our business. This shift came as a result of a 2.6% point shift towards non-electronics, which is in line with our broader strategy. Let's have a look at our revenue and gross contribution dynamics. First, some color on revenues. Our revenue grew by 1.7% in Q3, bringing our revenue growth in the first nine months to 13.5% compared to the same periods of last year. Q3 revenue growth was mainly due to a 6% rise in 3P revenue, 47% increase in delivery service revenue, and 82% increase in other revenue. These were partially offset by the 9% decrease in our 1P revenue compared to Q3 2023. The decline in 1P revenue was mainly due to a 4.9% point shift in GMB mix towards 3P. The gross contribution margin improved by 2.1% points to 11.5% in Q3 compared to Q3 2023. This margin improvement was mainly attributable to our strategic priority to expand our logistics and fintech services to third parties, 1P margin expansion primarily due to the impact of higher discounts on cost of inventory sold due to purchases on credit, and scaling our advertising services and our loyalty program. Let's move on to our EBITDA performance on the next slide. We recorded 1.2% EBITDA as a percentage of GMB in Q3, with a 1.3% point yearly improvement, excluding the one-off item from Q3 of last year. A 2.1% rise in gross contribution margin, partially offset by a 0.4% point rise in payroll and outsourced staff expenses, 0.3% point rise in shipping and packaging expenses, and 0.1% rise in advertising expenses. The rise in payroll in outsourced staff expenses came from the rise of employee number in line with our talent onboarding for our subsidiaries. The increase in shipping and packaging expenses as a percentage of GMV was mainly driven by higher parcel volume and the rise in delivery fees per unit due to the fuel price and annual minimum wage rises outpacing average inflation in Q3 compared to last year. Next, let's have a look at our cash flow dynamics. In Q3 2024, cash provided by operations decreased by 1.2 billion compared to a year ago. This decrease was mainly due to a 1.4 billion decrease in monetary gains on operating activities mainly on trade tables due to lower inflation. 917 million TL decrease in realized FX gains against a 682 million increase in the change in networking capital and the 376 million TL increase in EBITDA. With 359 million TL in CAPEX, our free cash flow was around 1.6 billion TL in Q3 2024. Considering the first nine months, we delivered nearly 2.1 billion TL free cash flow on our continued cash discipline. Next slide, please. We'll leave you with the following takeaways from today's presentation. In Q3 2024, we recorded real double-digit GMB growth. Building on our strategic priorities, we marked a milestone with positive operating income in our IFRS financials for the first time since our IPO. Supported by the 2.1% point rise in gross contribution, the rise in EBITDA continued to nearly 508 million TL, corresponding to 1.2% of GMB in Q3. Having posted solid results in the third quarter, we remain committed to growing sustainably and profitably going forward. With the expected forthcoming ownership transition to Caspi, we are entering a new period in Hefsebroda's history. Thank you for listening. We can now open the line for questions.

There are no audio questions at this time. I will now pass the floor to Ms. Cedric Belek to read written questions. Thank you.

Thank you, Geli. One question is on our expectations for 2025. How do you think about macro landscape and your immunity to potentially shrinking demand in Turkey?

So first of all, Helen, we should remind that Turkey is a very high potential country for e-commerce, large population with 80 million, half of them is under 24 years old. high mobility, and with large interest to e-commerce. So we believe in long-term potential of the market. Next six to nine months, there will be shrinking in demand for discretionary products following the much more orthodox policy from the government. We think this is beneficial for long-term in Turkey and short-term. We have significant building blocks Two really rally through this period in a healthy way. One, Hepsiburada low prices offer a great value for customers during macroeconomic challenges. Second, we have the widest options for landing services, which means that consumers, in the time they need affordability, they'll get more and more. The third, our premium offers, premium loyalty program offers a great value service level for customers. So in a nutshell, yes, next six to nine months is going to demand certain immunity from the retailers' players, but HepsiBurada, with its 25 years experience in Turkey, has seen tough times and better times, and we are ready to rally through this period.

Thank you, Nilhan. Another question is about our loyalty program. The question asks about our long-term targets with regards to the program and its growth potential.

Perfect. So HepsiBurada premium program is very critical for future of HepsiBurada. Once a consumer enters this program, thanks to its amazing value proposition with free cargo, free return from your door, 3% cashback, and with Warner Bros. package included, and this offers great service. Consumers, when they enter this program, their frequency is increasing by 30%, and we have been in two years, just we exceeded our two-year mark, we already reached 3.7 million. When we look into very developed e-commerce marketplaces like Allegro, Mercado, we see that almost half of their active customers is now part of their loyalty program after a decade. Hence, we should definitely aspire ourselves to get at least half of our customers as well. That would be our long-term objective. But the key thing is sustaining an amazing value for customers, retaining very strong MPS, keeping premium as a growth flywheel for HepsiBurada Group.

All right, thank you for that. We have another question coming up. Geli, will you be reading the question, please?

Yes, of course. So we have from our webcast participant, Ronagadia, can you share data on volume of transactions on Hep C wallet and take rate on the same? Do you want me to read the rest of them as well? No, we'll answer this one. Okay, thank you.

The current transaction volume going over the wallet is basically predominantly our e-commerce volume. Based on our 30-plus million orders over the quarter, around 85% of this volume is going through the wallet.

Thank you. The next question is from the line of Evgeny Vasilev. With VR Capital, could you please clarify the 1.2% EBITDA in Q3 actual compared to 2.2% guided in September?

The difference is basically the adjusted and unadjusted numbers. We are giving guidance on unadjusted EBITDA and growth. So in terms of unadjusted EBITDA, Our result is in line with the guidance that we have provided, and 1.2 is in line with the adjusted numbers in our financials.

Thank you. And the next question is from our webcast participant, Muharrem Gusever with KCA. Why is there no increase in active merchants for the past eight quarters in a row?

I can answer this question. With our active merchants, we actually are covering most of the high potential hero merchants in Turkey. Our success with these merchants is quite adamant in our selection results, which is increasing every quarter. We are looking for quality of the merchants over quantity. We want to work with high-potential merchants that will be active, that will delight our consumers. And we believe that over time, our active merchant base will also increase. But for now, we have been working on monetizing this merchant base with high retention, serving them with our logistic services, bringing them to our successful one-click execution as well. Last quarter, I want to give some light to our active merchant numbers, why they didn't increase. So Turkish government created a new two-factor authentication and verification mechanism. Without it, we would have seen a different number, but with that new higher bar, which was quite safe for higher security of the transactions, we have seen a whole thing down.

Thank you. And another question is from Ayhan Tafik with Digitera. Do you think the collaboration with Blue TV will be affected by CASB's acquisition?

So our Blue TV collaboration is a very strategic and important one. As you know, recently Blue TV is acquired by Warner Bros., and we made a five-year deal with them, exclusive deal with them with Turkey. We don't expect any negative impact deterioration. And actually, Blue TV just announced transition to MEX with amazing content next year. And they also highlighted their partnership in this press release and their delight with Hepziburada premium program, how it helps to acquire new customers through their AdLight program as well. So we are quite excited about the MEX transition. And we think we will continue to have this strong collaboration in the coming five years as well.

Thank you. And the next question is from our webcast participant, Frederick Kotech with SGCM. What are your plans to insource your fintech segment through the help of CASB, as in stop securitizing or outsourcing to banks? Yes.

Sorry, I want to clarify what does in-source mean?

Let's move on to the next question while the... Frederick answers it, yes.

Okay, thank you. And the next question is from Muharrem Gulsever with KCA. The cash outflow from early collection... of credit card receivables is higher than EBITDA. When do you expect EBITDA CC commissions to turn positive?

Thanks a lot for this question. Actually, as you can see, we are improving our EBITDA quarter over quarter, and the interest rate has increased versus last year significantly, and the credit card costs have gone up as well. But going forward, as the overall interest rates in the country are going to be decreasing gradually in line with inflation, we will continue to increase our profitability. So this delta will close and we will definitely be having a positive EBITDA minus credit card cost in the next year.

Thank you. And from Ronak Gadia from Donros, what is the take rate of underlying interest rate on BNPL loans?

The BNPL loans have different annualized interest rates depending on the number of installments. So it ranges from 80 to above 100%, but on average we can quote around 95% including tax.

Thank you.

I think I got the gist of the question now from Frederick as well. So first of all, our BNPL and HepsiBurada finance loan solution is done through our own P&L. This is half of our outstanding loans and the other half which is constituted by shopping loans and GPS, is coming from banks. Our current strategy is continue offering our customers this widest spectrum of services, where we will continue with general purpose loans, which we will delight them with multiple banks. It's the marketplace getting the best rate. As much as we continue frictionless, very strong BNPL and HEPC finance loan proposition. So far, this is our strategy. We don't plan any change. And obviously, if we would have new news to share with you, we would share it in the following call.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

We want to thank so much for listening and trusting Hepstiburada. We are excited about our future, and in case we don't talk before, we would like to wish you all Merry Christmas and Happy New Year. Thank you.