Jumia Technologies AG

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's results conference call for the third quarter of 2020. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. And I'd like to turn the call over to Saifat Damir, Head of Investor Relations for Jumia. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for our third quarter 2020 earnings call. With us today are Sacha Pranonek, co-founder and co-CEO of Junia, and Antoine Maillé-Mébré, CFO. This call is also being webcast on the IR section of our corporate website. We will start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the risk factors section of our recent 20S filings. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our investor relations website. With that, I'll hand over to Sacha.

Thank you very much. Welcome, everyone, and thanks for joining the call. I hope that you are all staying safe and well. About a year ago, we took several decisive actions in order to accelerate our path to profitability and strengthen our foundation for long-term success. Those were not easy decisions to take and to implement, but they are now starting to pay off. And this, despite the very volatile environment in Africa where COVID-19 has rather been a headwind for us so far. Today, we bring results which show that we are very well positioned and that our path to profitability is becoming clearer and clearer. I want to thank all our teams, all our partners for their discipline, their dedication and hard work. We are immensely grateful for their continued support. Together, we are on a great mission to make e-commerce successful in Africa, as was the case elsewhere in the world. and drive positive impact in the process. Let's turn to page three. We have been very consistent in the strategy outlined to the market. Now, I appreciate this may sound a little bit repetitive to some of you, but I think it's very important to reiterate that the strategy remains unchanged. It's a balance of four pillars, growing the usage of our platform, driving the penetration and development of JumiaPay, gradual monetization, and cost efficiency. Obviously, those four pillars are linked to each other and to some extent conflicting with each other. And we manage this equation on a dynamic basis, placing more or less emphasis on each pillar as we progress. Everything we do is geared towards building a very strong platform with a very strong foundation to create long-term value. If we take a look at some of the key actions, and I'm now on page four, some of the key actions that we took about a year ago and how they position us for the years ahead. First, we have initiated in late 2019 a business mix rebalancing. In order to place more focus on everyday product category, drive higher consumer lifetime value, and to support margins. The result of this action is we have increased the diversity of our product mix category. We have reduced reliance on phones and electronics, which went from 56% to 43% of GMV in Q3. And we have gained more than 500 basis points of gross profit. Our gross profit was 7.3% of GMV in Q3 last year. Now it's 12.4%. Secondly, we have made significant progress in terms of operational efficiency and we have generated very substantial cost savings. We reduced fulfillment expense by 20% year over year. We reduced sales and advertising expense by 55% year over year as we drove improvement in terms of programmatic marketing and we leveraged the strength of the Jumia brand. And last, One of the key initiatives that we undertook last year was the portfolio optimization initiative where we wanted to enhance our business focus and capital allocation. We took the decision to exit three geographies. We took the decision to exit the flight and hotel booking vertical. We streamlined our organizational structure. We implemented overhead rationalization. And this is now paying off as our G&A are down 24% year-over-year in Q3. Combined, these initiatives, we think, have really enhanced the fundamentals of the business and setting strong foundations for the long-term and for the long-term profitable growth of Jumia. If we turn to page 5, we've been repeating also in the past that the path to profitability is including milestones. And whenever we reach one of those milestones, we bring it forward. And today, we are very pleased to share with you a new milestone. In Q3 2020, for the very first time ever, we reached breakeven before GNA cost at group level. And I will add that the majority of countries of our portfolio were breakeven at this level in the third quarter of 2020. Now, this is Obviously, good news. And as you know, and I will detail that, this is not driven by a surge in volume. This improvement is driven by improving our unit economics and working on the fundamental drivers of the P&L. Those drivers and the fundamentals of the unit economics, you can see them on page 6. We are now making, this is the third line before last, we are now making 10 cents of profit before GNA on a per-order basis. A year ago, we were losing 2.2 euros per order. On average, each order costed us 53% less sales and advertising to generate, drove 29% more gross profit, and was 15% cheaper to fulfill. if we compare the two quarters, and all this without any surge of volume, all driven by underlying improvements of fundamentals and efficiency. I think this positions us very well for the future. A year ago, our losses were getting wider as we were growing, and today, the more we grow, the more profitable we become. And not only do we expect these unit economics to continue to improve as we drive effective monetization, cost efficiencies, but we now know that growth means profitability. And the result of all those improvements on page seven is our path to profitability. A year ago, once again, we said very clearly that our objective was to reduce our loss in absolute terms. And I think it's very clear that we are delivering strongly against that objective. We reduced our adjusted EBITDA loss by 10% in Q1 year-over-year, 26% in Q2, and by 50% in Q3. All this achieved thanks to structural enhancements to our business rather than support from external factors. As you know from the previous release, COVID-19... provided limited to no tailwind to the business. And in a number of respects, actually, it's rather a headwind from a P&L perspective. You have on page eight an update on the COVID to remind you that across most countries of our footprint, governments opted for partial movement restrictions or localized lockdowns rather than nationwide or all-encompassing lockdowns. And this did not lead to any drastic changes in consumer behavior on our platform or any meaningful acceleration in consumer adoption of e-commerce at Pan-African level. Instead, COVID rather drove localized supply chain and logistics disruptions And there was still significant disruption with restaurants in the third quarter of 2020. Obviously, we don't know the future development of the virus and its impact in the future, but we expect it to drive continued uncertainty on our operating environment. We also expect the macro challenges it has created to weigh on consumer sentiments. We believe that all the actions that we took a year ago and that I just detailed and the current strategy have actually enhanced our resilience and positioned us very well for long-term whatever happens. Let's now deep dive in more details on the Q3 performance, and we will start with the trends on usage. We are now on page 10. As we have just said, look at the usage dynamics in the context of efficiency and monetization. One of the major drivers of usage is, of course, the marketing investment. We have built over the last eight years one of the strongest brands in Africa, and this now makes it possible for us to drive usage with record level of marketing efficiency. We reduced sales and advertising expense by 55% year-over-year. A year ago, we were spending about 2 euros of sales and advertising to drive each order. Now, we spent 0.9 euro. That's an improvement of 53%. If we take the 12-month perspective, we spent 5.6 euro per active consumers. A year ago, this number was almost 10 euros. So, that's an improvement of 43%. Now, in terms of usage metrics at group level, TMV was down 28%. down 5%, and active consumers grew by 23%. Those evolutions obviously have to be put in perspective with the actions we are taking, and in particular, the business mix rebalancing. Let's turn to page 11 to review those usage dynamics in a bit more detail. First, we are making significant progress on the rate of cancellations, failed deliveries, and return, the ratio that we call If you look at this ratio as a percentage of GMV, it decreased from 31% to 23% in Q3 2020. If you look at it on an older basis, it came from 23% to 14%. And typically, this ratio tends to be lower for olders as the higher average item value tend to show higher cancellation rates or CFDR rates. There can be always quarterly fluctuations obviously in this ratio, but as we drive more operational efficiency, as we drive more penetration of JumiaPay, we are able to drive improvements in this ratio. And it's a very good news for us because it means that a higher proportion of the usage that we generate on the platform can be monetized and that our marketing investment is more efficient on a net basis. Then secondly, When you look at the trends of GMV and orders after CFDR by category, you can see very strong resilience, particularly in key focus areas. Food delivery is growing by 37% in value, 48% in volume. And this, despite in Q3, still a lot of headwinds from night curfews, which have impacted dinner deliveries. I think we would have grown even faster without those disruptions. Digital services growing by 14% in value as we continue to see faster growth in higher tickets on the JumiaPay app. And holders contracted by 20% as a result of a concentrated decline in airtime reach-out transactions. And these airtime reach-out transactions were reduced as a result of reduced consumer incentives from us within this category because this category tends to be more promotionally intensive. And this is a good example of our disciplined approach regarding consumer lifetime value. Physical goods, which is a big part of our core business. Outside phone and electronics, we were flat in value and growing 15% in volume terms as categories like beauty, fashion, home and living continue to support the volume growth. Phones and electronics, declined by 41% in value and by 8% in volume as the effects of the business mix rebalancing continue to play out over the quarter. So overall, we drive usage as a balancing act between, of course, the marketing efficiency, the profitability gains on the one hand, and the long-term platform relevance and growth on the other hand, as we lean into categories and business that supports consumer lifetime value. We are pleased with the diversity achieved on the marketplace and the meaningful step up in unit economics that you can see on page 12. And here I will go fast because we have to some extent already talked about those numbers. You can see the evolution of the reliance on phones electronics, which has gone from 56 to 45%. And you can see that with that, our average order value has decreased by 24% as the everyday product categories have been gaining share. And you can see our holders are now much more profitable. In Q3 2020, after GNA and sales and advertising, we are now positive, whereas a year ago we were losing more than €2. So again, we're very pleased to achieve this milestone, especially knowing that the trend is quite consistent across our portfolio with the majority of the countries breaking even at that level. The diversification of our mix and assortment always goes hand in hand with the meaningful improvement made on the supply side of the marketplace. And on page 13, you can see how we are reinforcing Jumia's positioning as the destination of choice for brands in Africa. In the Q3 2020 alone, we onboarded over 60 brands on the platform. We hosted the Jumia Brand Festival, over a full week in September, with more than 200 participating brands offering promotions, special promotions, free shipping across product categories. And we had many great brands participating, including L'Oréal, Nivea, Johnson & Johnson, Reckitt, Nestle, Pernod Ricard, Pepsi, Nike, and many more, and participated, of course, across multiple geographies. And to give you a sense of the success and the impact in Egypt during that week, orders grew by more than 70% compared to the prior six-week average with fashion, beauty, and FMCG categories accounting more than 80% of the items sold. So for us, it was a very big success and a lot of brands experiencing triple-digit volumes uplift during the event. This partnership with brands, but also with SME sellers, as well as our cross-border sellers are extremely valuable to us. And as a marketplace, we want to create value, of course, for the consumers, but also for the sellers. And we strive to give to our sellers the best possible experience and to give them a platform to grow and to reach consumers effectively in Africa. and to also provide to those brands an expanding range of services to drive their performance. Our second objective is JumiaPay. On page 15, you can see that the TPV, the total payment volume of JumiaPay increased by 50% and that the on-platform penetration reached 26%. We have doubled our penetration of JumiaPay versus a year ago. On the next slide, page 16, you can see that the transactions of JumiaPay have increased by 6%. And when you look at the growth of the transactions which are above €10 and the growth of the transaction below €10, you can see what I was mentioning before, that we have 90% growth of the transactions above €10 and that the decline is is very concentrated across certain transactions which are concentrated in airtime. You can see also that the penetration on the per-order basis is now at 34% and compared to about 31% a year ago. Jumiate, as a reminder, is live in eight markets, Nigeria, Egypt, Morocco, Ivory Coast, Ghana, Kenya, Tunisia, and Uganda. And Our goal for Jumia Pay is to drive a very gradual expansion across geographies at this stage, but rather to enrich the value proposition of Jumia Pay and deepen its offering. On page 17, you have some more details on that. As you know, Jumia Pay goes beyond digital payment and the checkout function it serves on our platform. It has a dedicated digital services app which is called JumiaPay, and it functions as a marketplace for financial services. On the digital service app, on the JumiaPay app, we offer a broad range of everyday services like bill payments, airtime recharge, ticketing, entertainment, and many more. In Q3, we launched the pilot of JumiaGames on the app across five countries. This is a partnership. And with Mondial, which is a marketing and digital content distribution company, And Jumia Games is a subscription-based service offering unlimited access to over 500 games, including in-app purchase. And this initiative aims at providing consumers with a varied range of digital services, engaging experiences while creating more payment use case for Jumia Pay. On the fintech side, we offer consumers and sellers an expanding range of financial services, Provided by third-party financial institutions, in Q3, we launched the pilot of a prepaid physical and virtual card in Egypt in partnership with MasterCard and Adib, which is a leading bank in the Middle East and North Africa region. Our financial services marketplace helps us drive more financial inclusion, allowing consumers and SMEs to access basic financial service in a convenient and safe manner. I'll now hand over to Antoine, who will walk you through our financial performance, starting on page 19, please. Thank you, Sacha.