Bizim Toptan Satis Magazalari A.S. (BIZIM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Bizim Toptan Second Quarter 2020 Financial Results Conference Call and Webcast. Today's speakers are Hüseyin Balci, CEO; Önder Arikan, CFO; Isil Bük, Investor Relations Manager, Head of Investor Relations. I'll now hand over to your host, Isil Bük. Madam, please go ahead.

Thank you, Marina. Good afternoon and good morning, everyone, and thanks for joining us today to discuss Bizim Toptan's 2020 second quarter results. The presentation is now available on the Bizim Toptan Investor Relations website and also on the webcasting of the conference. Today, I am pleased to join the webcast with our CEO, Hüseyin Balci; and our CFO, Önder Arikan. Our webcast has 3 main parts. Firstly, our CEO, Hüseyin Balci, will explain his comments about the quarter. Secondly, our CFO, Önder Arikan, will detail the financial results of the quarter and share expectations for 2020. And thirdly, we will open the call for your question. Please note that the presentation, which contains the usual formal disclaimer concerning forward-looking statements, can be accessed through our website. The presentation and the entirety of today's discussion are conducted subject to the disclaimer. In the interest of time, we will not read the disclaimer. If there is no objection, we propose to take this address into the records for the purpose of the conference call. Lastly, please note that all figures are in Turkish lira unless otherwise stated and rounding differences may occur. Hüseyin Bey, the floor is now yours.

Thank you, Isil Hanim. Esteemed investors and analysts, welcome to Bizim Toptan's conference call for the second quarter of the year. I hope all of you and your love ones are healthy and safe under the COVID-19 situation. Since our last meeting, the pandemic has continued to be a major agenda item, both in our country and in across the world. We have continued to apply all of the measures that I have talked in our last meeting. As I mentioned before, protecting our employees' and our customers' health is a must for all. Also using medical masks, maintaining personal hygiene, disinfecting stores and keeping social distance are the obligatory rules for all of us. So I will not give details about them. I will like to talk more about the market condition and Bizim Toptan's achievements. In my opinion, the right word for identifying the quarterly targets, I prefer to use that word because each month of the quarter was different than the others. During April, all of the customers increased demand for securing theirselves against the problem. In that period, we focused on [ the following ]. First one is not interrupting the businesses, and second one is providing the best prices. In May, lockdowns were common, especially in big cities. The situation changed consumer shopping behavior, mostly related, however, to consume the goods that they had already purchased before. In addition to this, because of the lockdowns, we had to close 101 stores more than 10 days of the month of -- remaining ones are closed 6 days on average. As a result of this, during May, the number of days worked and the active store numbers were completely different than the previous year. In June, this is the start of the normalization period, consumers demand started to change from pandemic panic to new normal situations. However, the heavy load change such as sales market size and lower traffic were continuing. Therefore, in the second quarter of the year, as Bizim management team of the company, we had to be very quick for adopting the business into the new conditions. Thanks to the successful implementation of multichannel sales model and strong CRM system, Bizim top line stayed resilient to any macroeconomic or market dynamic changes. Meanwhile, we continued to execute projects without slowing down. In addition to this, we accelerated our digitalization projects such as click and connect, and we extended its coverage. With the help of quick and conditioned efforts, as of the quarter, total active consumer number reached to 1,490,000, SEÇ Markets reached 938 stores in total and they broke a new record. Total sales proceeds increased by 83% by showing a robust performance. Not limited to this, sales to other target consumer groups were remarkable as well. During the second quarter, sales to individual customers increased by 32%. Sales to traditional customers increased by 22%. With the support of SEÇ Markets, individual and traditional customers demand increased, we were able to offset the Horeca customers' negative growth of 28%, although the out-of-home consumption customers was also serviced. Some of such individual Horeca corporate sales increased to 49% of total sales. Hereof, one of the critical results of second quarter is our efforts for executing the multichannel sales strategy in the most correct way generated successful results under any circumstances. During the quarter, total sales increased by 18%, however, if the Horeca sales were excluded, growth rate would be 25.4 percentage. SEÇ system continued its operation better than the initial expectations since it broke its own record and reached 938 stores in total. We had to revise our year-end targets, both in terms of store number and revenue. We believe we will generate better results in SEÇ in the coming quarters as well. In terms of profitability, we kept strong and sustainable new normal and we've produced results in line with our year-end targets. First, as then the CEO of Bizim Toptan, I'd like to highlight the contribution of Bizim Toptan's to market channel sales strategy for generating better results under eligible [ terms ]. And I'd like to thank once again not only Bizim Toptan employees, but also all of the retail and patient care sector employees for the dedication to providing service to the public. Now I will leave the floor to Önder Bey. He will continue for detailing the financial figures. Thank you.

Thank you, Hüseyin Bey. Good afternoon, everyone. Thank you for taking the time to join us on our call today. I would like to start with business revenue and performance of Bizim Toptan. As Hüseyin Bey mentioned, second quarter's name can be named as the [ COVID ] quarter because of the different restrictions of COVID-19. However, thanks to our multichannel sales model, we kept sustainable growth. We generated TRY 1.3 billion sales, with an 18 percentage growth rate compared to previous years. However, if we exclude the Horeca business, which was negatively affected pandemic, gross debt would be 25%. Sales, excluding the sugar and tobacco, increased by 15%, with the same like-for-like growth rate. This figure was significant on the second quarter's condition and higher than the inflation rates. In the first half of the year, top line growth was 18 percentage, with the same like-for-like performance, while the revenue growth, excluding sugar and tobacco, was [ 25 ] percentage, in line with year-end guidance. Thanks to multichannel sales model, these covered the negative effects of COVID-19. SEÇ system, individual customers, traditional channels are the groups of customers, which performs better than the company average. Our next slide is about SEÇ. Like the previous quarter, SEÇ Markets continues to be the one of the success of Bizim Toptan. During the second quarter, sales revenue of the channel increased by 82%. This robust growth was seen in the 6 months of the year as well. I am happy to say that in SEÇ side, we performed within our expectations. The number of SEÇ Markets reached to 938 stores, while generating TRY 342 million in total, which was very close to our year-end targets. Therefore, we have to revise up sale targets for the end of 2020. I believe Bizim Toptan's diversified customer base and diversified sales mix will continue to be supported for showing continued and strong growth during the whole year regardless of the scenarios which could put us under the COVID-19 situation. I would like to continue with profitability figures. In the second quarter, total gross profit was TRY 136 million, with a 10.2 percentage margin. Although it seems lower than the same period of last year, the only reason of the margin deterioration, interest rates decrease subject to the IFRS 15, compared to same period of the last year. If the IFRS 15 is totally excluded, 50 bps improvement could be seen on year-on-year basis, whereas if the interest rate would be the same of the last year's, gross margin would be 12.4%. It is the same for main category gross margin as well. Under the assumptions of the second quarter of 2019 interest rates, main category gross margin would be 16.5% and significantly higher than the same period of last year's. In the first half of the year, gross margin was 10.7% and it seems 1 percentage point lower than the same period of last year's. However, if IFRS 15 is totally excluded, it can be seen that there will be 90 bps improvement on gross margin side. In addition to this, if it's normalized with last year's interest rate, gross margin would be 12.6%. Last, I will continue with operating expense slide. In the second quarter, OpEx increase was 22%. OpEx over sales ratio was 7.4% compared to 7.2% of last year's. It shows 1 percentage point improvement compared to first quarter of 2020. This consists around TRY 2.5 million COVID-19-related costs, and digitalization costs temporarily affected the operating expenses. In the first half, OpEx increased by 26% and OpEx over sales [ ratio ] was 7.8%. During the first half year, around TRY 5 million temporary expenses were written because of the COVID, digitalization and the operating costs. Let's turn on to EBITDA on the next slide. EBITDA performance was totally shadowed by interest rate decline, subject to IFRS 15. If last year's interest rate was effective, EBITDA margin would be 210 bps higher than the current situation. Therefore, EBITDA margin of the quarters would be at 6.3 percentage, higher than the same period of last year's. It will be the same for year-to-date EBITDA margin, which could be 90 bps higher than the current situation. Let's move to the net income slide. In second quarter, net income increased by 10% and reached to TRY 7.4 million. In this first half year, net income was TRY 11.2 million, and it is 6 percentage higher than the same period of the last year's. Although COVID-19 had interest rates decline and shadowed the bottom line, we continue to generate net income in line with our year-end plans. Now I like to talk about capital expenditures. During the quarter, we opened 2 stores and closed 2 of our existing stores and relocated 2 stores. We increased nationwide coverage to 70 cities of Turkey. And at the same time, we continued the ERP and other digitalization projects. Therefore, during the quarter, CapEx was TRY 24.5 million. Now I would like to give you information about working capital structures and financial position of the company. Although we continue to work on capital strategy by collecting credit card receivables right after the transaction date, in the second quarter, we preferred to wait due date for some banks. Meanwhile, we continued to work on improving the inventory management. During the quarter, market conditions are still suitable for getting benefits from early payment opportunities. As a result, we did some early payments for getting better prices. To sum up, we continue to work with negative working capital structures during the quarter as well. Let's move to balance sheet structures. Bizim Toptan continues to have a strong balance sheet in the second quarter. We continue to stay in net cash position and keep our debt free at FX risk structures. Total cash was [indiscernible] at TRY 253 million, including a limited liability, which has amounted TRY 9 million. However, because of IFRS 16, there are short- and long-term rental contractual obligation in our [ vacancies ] now. Even if all those obligations and regular leasing steps are considered, Bizim Toptan continues to keep its net cash position. Now I would like to talk about our 2020 KPIs. We maintained our year-end KPIs for growth and profitability, with a strong belief to add -- with a strong belief to this increase. We are confident about showing at least 20% growth on sales, excluding sugar and tobacco. Also, we are confident about generating at least TRY 33 million net income. We slightly changed store number target from 179 to 176. The reason for that decrease, store closures would be more than earlier planned, resulting from profitability, logistics and infrastructure issues. We increased the store numbers and revenue target for SEÇ system. During the first half, it performed better than our plan. So we have to revise our store numbers from 1,000 to 1,100. In addition to this, we increased SEÇ expectation from TRY 604 million to TRY 700 million. Before we continue with Q&A session, once again, I would like to highlight that we plan -- [ we have a beautiful plan to support defensive and ] elastic business model. We believe the potential of the company, and we are looking forward to sharing sustainable results with you in the first half of 2020. With this, we would like to start for the Q&A session. Operator, you may now poll for questions.

[Operator Instructions] There are no questions at this time. [Operator Instructions] We have a question from Görkem Göker, Yapi Kredi Yatirim.

I might have missed it, but could you please provide further detail about your internal inflation and your basket size improvement, roughly speaking? And what is your year-end CapEx guidance in light of your revision in your new store numbers?

The internal inflation is basically north of [indiscernible] overall CPI level during the second quarter. For example, for the sales group, excluding the tobacco and sugar, which would mean the core main category of our [indiscernible]. Its internal inflation rate is around 11%, 12% level. So in that group, we have a real growth rate, more than 3 percentage point. As Hüseyin Bey and Önder mentioned, during the May, more than 100 stores of our company were closed because of lockdown, about the COVID-19. So under such a condition, showing a real -- more than 3 percentage point volume growth or real growth on the main category, is crucial for us. For the other question, I guess about the CapEx, there is no change in our CapEx guidance. As we mentioned, we continue to open new stores. We have some plans for opening a few new stores until the end of the year. But as Önder Bey mentioned, some closures were done as well. It's higher than the -- our plan. So due to that reason, we changed the year-end store number guidance. But on the CapEx side, there is no change for -- especially for this year. You can take CapEx over sales ratio around 1.8%.