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

Ladies and gentlemen, welcome to Bizim Toptan Third 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, Denis. Good morning, everyone, and thanks for joining us today to discuss Bizim Toptan's 2020 third quarter results. The presentation is now available on the Bizim Toptan Investor Relations website and also on the webcast link 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 and 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 third quarter of the year. I hope all of you and your loved ones are healthy and safe under the COVID-19 situation. After our last meeting, despite the pandemic conditions, we continue to completely further our business plans. As we scheduled in the beginning of the year, that's why in my speech, I would like to talk more about the Bizim Toptan's actions. Before detailing them, I would like to give some information about the market condition in a few words. Turning to third quarter, because of the pandemic conditions, customers prefer to decrease store as a result of this, they increased their market size compared to the same period of last year. Digital channels and alternative sales methods became more important than previous times for adjusting our sales methods into the new shopping trends. Firstly, we accelerated our Click & Collect service, and digitalization efforts. CRM tools were used for improving customer shopping experience in digital channels. And as a result, digital channel sales were doubled. Secondly, professional sales force team focused customer traction, although most of the auto form consumption sales points work in full capacity and all the continuous workload. Thirdly, by using CRM tool effectively and providing best prices to our customers, we managed to hold the individual customers' attention, which we gained in the beginning of the pandemic, and we increased sales to individual sales channel by around 27% during the quarters. As a result, total customer number reached around 1.9 million by running towards it on record. Also, sales revenue, excluding tobacco and sugar showed more than 12% year growth. Whereas SEÇ Market showed around 9% inflation, adjusted growth in that category. Meanwhile, we continued our admirable performance in SEÇ channels. We have added 126 new stores in net and reached to 1,064 stores. Revenue growth of SEÇ channel was 68% compared to same period of last year. So we revised up year-end guidance of SEÇ once again. Also, during 2 quarters, we established SEÇ Market unit with the 10% partnership of Yildiz Holding. I believe that partnership is Yildiz Holdings indication to Bizim Toptan's multichannel sales methods and SEÇ future. With the synergy of Yildiz Holding, Bizim Toptan will show better results in SEÇ channels. As a result, thanks to the successful implementation of multichannel sales model and strong CRM system. Bizim Toptan stayed resilient to market dynamic change and despite the pandemic conditions, we increased some of SEÇ in the region, Horeca and corporate sales to 49% of total sales. Sales revenue, excluding to sugar and tobacco grew by 24.1% and surpassed our year-end guidance. In terms of the profitability, we kept strong and sustainable new normal levels, both reported and normalized figures. In terms of the normalized calculation, gross margin of the quarter showed 10 bps improvement while as main category gross margin showed 30 bps improvement compared to same period of last year. EBITDA margin keeps at 5.5% by eliminated interest rate decline impact. Also, net income was in line with our projections, and we are keeping our year-end net income guidance. This, as base the CEO of Bizim Toptan, I'd like to highlight my confidence to Bizim Toptan once again. I believe our strong market share sales strategy, digitalization efforts and all the employees continued indication for the company will generate better results in each quarter, regardless of the market conditions. Now I will leave 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 the third quarter with revenue performance. Bizim Toptan showed better performance compared to previous quarter and showed past year-end and target of 20% growth by showing 24% growth in sales revenue, excluding sugar and tobacco. Sum of sugar and tobacco decreased by 7.4%. Total sales revenue is TRY 1.4 billion with a growth rate of 14%. Although Horeca is improving day by day, it hasn't switched it to a COVID phase. Under traditional channels, there are subgroups like screw counties that are affected by COVID heavily. Besides, tobacco is another factor that affected traditional channels negatively. On the other hand, as Hüseyin Bey mentioned, SEÇ and individual customers' sales increased by 68% and 27%, respectively. Bizim Toptan's multichannel strategy had to recover negative effects of COVID-19 in the third quarter. During the first 9 months of the year, Bizim Toptan continued to show performance in line with its plan as well. Sales revenue, excluding sugar and tobacco grew by 22% with a 23% like-for-like growth. Also, total sales revenue of the company grew by 16% by reaching TRY 3.9 billion total revenue. If we exclude wholesalers and Horeca customers who were affected from COVID-19 pandemic, total revenue growth jumped to 25.1%. As a result, Bizim Toptan's multichannel sales digital platforms [indiscernible] initial plans, so that extraordinary and unexpected factors couldn't affect company's year-end targets. In that point, I would like to highlight revenue growth in individual channels so that you can make an effective comparison between B2C retailers. Sales to individuals grew by 27% and 35% in third quarter and first 9 months of the year, respectively. Let's move to 6 slide. On supplies [indiscernible] , continued to surpass its customer targets. During the quarter, 126 new SEÇ stores were added into our system in net and total store numbers increased 1,064. Sales revenue of the channels increased by 68% and reached to TRY 213 million in the third quarter. In the first 9 months of the year, Bizim Toptan generated TRY 555 million revenue from SEÇ. Therefore, we revised up these targets once again. Now I would like to continue with profitability figures. In third quarter, total gross profit was TRY 143 million, with a 10.4% margin. Classification, subject to IFRS 15, shadows margin improvement due to low interest rates compared to previous years. By using the same interest rate of the third quarter of 2019, gross margin would be 11.3% and showed 10 bps improvement compared to the same period of last year. Main category gross margin was 12.9% and stayed at strong levels. In normalized figures, it shows 30 bps improvement compared to the same period of last year and reached to 14.1%. In 9 months results, normalized gross margin showed 60 bps improvement compared to same period of the last year and reached 12.1%. Main category gross margin improvement was a caging with 100 bps improvement by reaching 15.3%. Diversified customer base and diversified sales mix improvements have Bizim Toptan to increase gross margin. I believe we will continue to see [indiscernible] of disease here in [indiscernible] as well. Now I will continue with operating expense slide. In third quarter, OpEx increase was 18%, which is lower than main category growth. OpEx over sales ratio showed 20 bps improvement compared to previous quarters and reached to 7.2%. EU to date, OpEx increased by 23% and OpEx overseas ratio was 7.6%. During the 9 months, around TRY 8 million COVID and digitalization related expenses were written. Let's turn to EBITDA on the next slide. Normalized EBITDA margin was 5.5%, slightly impact of unleveraged OpEx and lack of tobacco price hikes compared to third quarter of 2019 were the reason of 20 bps stick line in normalized margins. However, during the first 9 months, normalized EBITDA grew by 17%, and margin reached 6% by showing 10 bps improvement compared to same period of last year. Let's move to net income slide. In Q3, net income was TRY 8.3 million with a margin of 0.6%. In the 9 months period, net income was TRY 18.5 million. Although COVID-19 had interest rate decline, shut off the bottom line, we continue to generate net income in line with our year-end plans. Next slide is about capital expenditures. During the quarter, we didn't open or close any store. We continued our operation in our 173 stores with some cost expenditures for 1 store, construction has been continued right now. Also, digitalization and other maintenance costs continued. So overall CapEx in quarter 3 was TRY 10.3 million. In the sum of the 9 months, total CapEx was TRY 43.2 million. We have plans for opening new stores and relocations during the last month of the year. Also, digitalization costs will continue. So CapEx over sales ratio will be around 1.7% and 1.8% as it was planned before. Now I would like to give information about working capital states and balance sheet of the company. We managed improved working capital by around TRY 43 million in the last quarter. Even though we got some prepayments for getting better prices and gained around TRY 1 million from those transactions. Total cash was nearly TRY 268 million, including volume liability, which is around TRY 7 million. To sum up, we continue to work with negative working capital, and we continue to keep our debt free and effective balance sheet structure. Now I would like to talk about our 2020 KPIs. We maintain our year-end KPIs for growth and profitability with a strong belief to reaching these. We are confident about showing at least 20% growth on sales, excluding sugar and tobacco. In that point, I would like to highlight that we will provide much better growth figures by consolidating the October's strong performance. Also, we are keeping for generating TRY 33 million net income. As we mentioned in the beginning of the call, we revised uptake systems targets. We revised our store numbers from 1,100 to 1,150 stores. In addition to this, we increased safe expectations from TRY 700 million to TRY 760 million. Before we continue with the Q&A session, once again, I would like to highlight that we trust Bizim Toptan's strong defensive and elastic business model. We believe the potential of the company, and we are looking forward to sharing sustainable better results with you in last quarter of the year. With this, we would like to start for the Q&A session. Operator, you may now poll for questions.

[Operator Instructions] The first question comes from Görkem Göker from Yapi Kredi Yatirim.

I have a couple of questions. The first one, I'm starting with your latest comment about your CapEx. You're projecting still 1.7% or 1.8% of your revenue projection for 2020, which I am not miscalculating roughly corresponds more than TRY 45 million CapEx for the last quarter. I mean, that's a huge amount of money. I mean, 1.5x of your full year net profit almost. So where do you plan to spend this? Could you please provide further breakdown about your CapEx. And what is the reason behind your 5% quarter-on-quarter increase in your total workforce? I mean there is no store opening, but still do you employ more than 100% new employees. I mean, that sounds a little high for a company -- for your size, where do you plan to employ these employees? And lastly, could you please provide a little more detail about your SEÇ Market formation, I mean, new structure, why do you leave 10% ownership by spinning off SEÇ from your budget. Thanks very much in advance for your comments.

Thank you for the great questions, Görkem. First of all, in CapEx side, one of the reason is we planned some store opening but due to the pandemic, we postponed some of last quarter. Besides, in our digitalization project in our SAP transition project, some of our CapEx will be finalized in the last quarter. This is why we are giving those amount of CapEx in the last quarters. So there is a big change in Bizim Toptan, both in software side as well as hardware side of stores. Other question was about employees. First of all, we are investing in new channels, such as PROSAF SEÇ. Moreover, during the pandemic, continued our businesses, one of the key important things we focus on. So we are substituting some of our employees. So we are hiring temporary staff to eliminate this pandemic in our stores. This is why -- this is another reason why we have extra employees compared to previous quarters. About SEÇ question, Isil will answer the question. Thank you.

About the SEÇ...

Before -- sorry.. Okay let me proceed with you, then a follow-up question.