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

Ladies and gentlemen, welcome to Bizim Toptan Fourth 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 will now hand over to your host, Isil Bük. Madam, please go ahead.

Thank you, Denise. Good afternoon, everyone, and thanks for joining us today to discuss the Bizim Toptan's 2020 fourth quarter and full year results. The presentation is now available on the Bizim Toptan's Investor Relations website and also on 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 comment about the quarter and the year; secondly, our CFO, Önder Arikan will detail the financial results of the quarter and share expectations for Q1 '21; and lastly, we will open the call for your questions. 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 the disclaimer. In the interest of time, we will not read the disclaimer. If there is no objection, please propose to take it as well into the request for the post 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. Good day, investor and analyst. Welcome to Bizim Toptan conference call for the fourth quarter and full year results. I hope all of you and your loved ones are healthy and safe under the COVID-19 situation. Despite the pandemic conditions, we completed the year in line with our financial plans that we scheduled in the beginning of the year. Last part of the year was better than the previous quarters in terms of both growth and profitability. During the quarter, we focused more on ERP and other digitalization efforts. Also, we accelerated new store constructions. I believe, in the first half of this year, we will finalize the ERP transformentation, and we will open new stores. We have already opened one new store and in 10 days, we will finalize the relocation of another. While we are focusing on the ERP and digitalization efforts, we continue to improve our customer shopping experiences with our click and collect service. As we continue to use CRM tools for matching the right companies with right customer growth. As a result, during the quarter, customer numbers increased by 7%, and we broke all record about customer number by reaching 2.2 million active single customers. Also, we added 145 new SEÇ stores into our search platform and surpassed year-end guidance by reaching 1,209 stores. Moving to quarter and full year. SEÇ continues to be our highest-growing customer group by showing 86% and 77% growth pace, respectively. On top of the cash performance, our best prices and growing product portfolio increased Bizim [ stores' ] preferability in the eyes of individual customers. Therefore, sales to individuals increased by 38% in the fourth quarter of the year, and its growth, 36% during the full year of 2020. Those 2 leading customer groups were followed by corporate and traditional customer groups. As a result, some of such individual, corporate and Horeca customers increased to 50% of total sales. Although COVID-19 affected Horeca channel, we managed to eliminate that loss by our multichannel sales model and keep sustainable growth rates. Sales revenue, excluding to sugar and tobacco, grew by 30.8% in Q4 and 24.4% in the full year of 2020. As a result, these surpassed our year-end growth guidance. Meanwhile 2020, we doubled the digital sales and expanded products into the 70 cities of Turkey, with 102 store operations. In terms of profitability, during the fourth quarter, we showed strong improvement. Gross margin of the quarter increased to 11.6%, with the help of robust main category gross margin of 14.3%. Meanwhile, EBITDA margin increased to 5.5% by showing 20 bps improvement compared to the same period of last year. The most important thing to us is our net income. It increased by 66.2% and reached TRY 18.7 million during the quarter. With that strong net income growth, this surpassed our net income target as well. Therefore, as being the CEO of Bizim Toptan, I can say that Bizim Toptan is a very strong company for adapting itself to any market condition. We passed 2020's extraordinary conditions very successfully. Now it is time to take Bizim Toptan much further. I have absolute confidence in the Bizim Toptan's employees, management team, multichannel sales strategy, digitalization and transformentation efforts. I believe '21 will be a better year for us for sharing successful results this year. Now I will give floor to Önder Bey. He will continue towards detailing the financial figures. Thank you.

Thank you, Hüseyin Bey. Good afternoon, and good morning, everyone. Thank you for taking the time to join us on our call today. Before I detail the results, I would like to highlight that we detail both the fourth quarter and the full year successful full year, even under the challenging conditions. Therefore, I am so happy to share that successful result with you. Let's start with the fourth quarter sales revenue performance. Bizim Toptan showed successful growth performance compared to previous years, both in topline and sales categories. Sales growth, excluding the tobacco and sugar, was 30.8%, with a 31% like-for-like growth. Considering the internal inflation in debt categories, real growth was more than 10% in debt product routes. Topline growth of tobacco was 27.5%, and if the record figures was excluded, growth reached to 33%. You all know that because of COVID-19, out-of-home consumption sector was under pressure during the last quarters. Considering the internal operation of the company, real growth was nearly 15% in topline by eliminating the negative impact of COVID-19. During the full year, Bizim Toptan continued to show performance in line with its plan as well. Sales revenue, excluding sugar and tobacco, grew by 24.4% with 27% like-for-like growth. With that successful targeted categories growth, we kept that solid and shot up our growth targets. Also, total sales revenue of the company grew by 19% by reaching TRY 5.4 billion. If we exclude Horeca customers, total revenue growth reached 22.4%. In this point, I would like to highlight that revenue growth was also resulted from like-for-like performance. Considering that our store number was 2 stores lower than the last year, it is visible to analyze the success of Bizim Toptan's [ margin ] has affected the year under the extraordinary market structures as well. Additionally, I would like to share individual channels growth once again so that you can make an apples-to-apples comparison between B2C for the periods. Sales to individual grew by 28% in the last quarter and 26% in full year. Let's move to the next slide. Expectedly, SEÇ shortcut its year-end targets once again. During the quarters, 145 new SEÇ stores were added into our system in March, and total store numbers increased to 1,209. Sales revenue of the channel increased by 86% and reached to TRY 240 million in the fourth quarter. As a result, during the full year, Bizim Toptan generated TRY 795 million sales revenue from SEÇ. Both store numbers and revenue target for SEÇ surpassed year end targets. Now it is time for SEÇ to start the new era. 2021 will be the start of this. Now I would like to continue to profitability figures. In fourth quarter, total gross profit was TRY 171 million with 11.6% margin. By using the same interest rate of the last years, gross margin would be 11.4% and showed 40 bps improvement compared to the same period of the last year. Main category gross margin was very strong at 14.3%. In normalized figures, it showed 30 bps improvement compared to the same period of last year and reached to 14.1%. In full year results, main category gross margin was 13.5%, and total gross margin was 10.8%. However, classification regarding the IFRS 15 showing off the real performance. If the increased decline subject to the IFRS 15 was eliminated, main category gross margin would be 15% by showing 80 bps improvement. Also normalized gross margin would be 12% by showing a 60 bps improvement, although there was no tobacco price hike during 2020. Diversified customer base and diversified sales mix improvement were the reasons of realized stock -- the strong gross margin improvement. I believe we will continue to keep those levels in the coming quarters. Now I will continue with operating expense slide. In last quarter, OpEx over sales ratio was 7.4%. In full year results, OpEx over sales ratio was 7.6%, add to that, COVID-19-related expenses during years. Around TRY 8 million are commit digitalization-related expense in relative term. Let's turn to EBITDA on the next slide. EBITDA showed 32% increase compared to the same period of the last year, and EBITDA margin showed 20 bps increase by reaching 5.5%. In normalized figures, I mean, including -- excluding the interest rate impact subject to IFRS 15, EBITDA margin was 5.3%. During the full year, although EBITDA margin was at 4.7%, in normalized figures, it was 5.8% by showing 10 bps improvement compared to 2019. Although there is the competitive -- COVID-19-related expenses and there was no tobacco price hike during the year, that performance was very important for showing the positive impact of customer improvements. Let's move to net income slide. In last quarter, net income showed 100 bps increase of around 66% and reached TRY 18.7 million with a margin of 1.3%. In the full year's, although we were in an investment [ paradigm ] and we've spent on extraordinary years because of the COVID-19, we not only kept our initial guidance, but also surpassed it. Total net income was TRY 38.2 million, and it was 15.4% higher than both last year's and our year-end guidance. Next slide please, about capital expenditures. During the quarter, we didn't open or close any stores. We compute our operations in our 173 stores. We that -- we had some capital expenditures for the construction of 2 new stores, which is expected to open until the end of the quarter. Also digitalization and automations costs continued. Overall CapEx in the last quarter was at TRY 59 million. In the sum of the 12 months, total CapEx was TRY 102 million in line with our initial plan. Now I would like to give information about working capital structure and balance sheet of the company. We improved working capital by around TRY 72 million compared to last quarter. We did some trade payments for getting patent rights and gained around TRY 1 million from those transactions as well. Total cash was nearly TRY 293 million, including our limited liability, which is around -- amounted TRY 6 million. To sum up, we continue to work with negative working capital, and we continue to keep our debt free and effectively, balance sheet structure. Now I would like to summarize 2020 KPIs. We own to main store numbers guidance. Because of the COVID-19 during the first half of the years, we had to postpone constructions, and we could not finalize construction by the end of year. This is why we missed store number guidance. However, under the extraordinary conditions of COVID-19, which affected some of our main customers negatively, we surpassed our other guidance. Excluding the total sales, excluding the tobacco and sugar, sales revenue growth was 4.4% points higher than the guidance. Also, net income was TRY 5 million more than our guidance. During the years, we had revised such KPIs twice. And by the end of year, such figures were better than those provided figures as well. Now I would like to share our 2021 KPIs. By the end of the year, we plan to reach 178 Bizim Toptan stores. Meanwhile, we aim to increase SEÇ store numbers to 1,800. Excluding the tobacco and sugar, sales revenue growth will be between 23% and 25%. Around TRY 1.4 billion revenue is expected to gain from the SEÇ system. We tried to keep EBITDA margin around 4.8%, and net income will be around TRY 43 million by the end of the year. Before we continue with the Q&A session, I would like to say that we believe the potential of Bizim Toptan under any circumstances, and we are looking forward to sharing better results with you during 2021. With this, I would like to start for the Q&A session. Now, operator, you may now poll for the questions.

[Operator Instructions] The first question comes from Cemal Demirtas from Ata Invest.

Congratulations for good results. My question is about your topline growth. You gave the growth in main categories. What could be your topline growth, including the tobacco and sugar side? That's my first question. And the second one is, I think your topline growth is impressive, and your EBITDA is also fine. But when we take the interest expense on some purchases, again, it dilutes your bottom line. And when the interest rates goes up, the results, we see some pressure on the bottom line, although the operations are stronger. Going forward, if you just -- could you give us some estimates when we take this interest expense and translate into account in terms of margins? We expect further expansion in that cost in 2021 or more normalizing -- normalization in 2021, which will give us more clear picture about the bottom line trend. And I think your net income estimates are conservative.

Thank you for the questions. We also -- with your comments -- thank you for your comments. Our tobacco side, it is -- it's been hard to estimate its price increase during the year, but you can estimate like inflation price increase plus 6% growth in tobacco business. So I can't mention the price increase expectations, but you can estimate 6% new growth in tobacco side as well. And EBITDA and top line, you can assume that inflation plus 10% growth rate in our top line growth. Yes. In terms of interest expenses, you asked about interest expenses. Those interest expenses consist of our commission rates take to banks to discuss our credit card receivables. So except those transactions, we don't have interest expenses. So it is a part of our business and it doesn't affect our bottom line performance. So gosh, I think you have one more question. Could you please ask again, the last question?

About your net income estimates, do you think you are conservative on that side? And you may also consolidated last year just...

Yes. Current -- every year, we are really careful to share our expectations, and we don't make big surprises for this -- our guidance. And we are trying to reach for guidance, and we expect to increase results on top of those guidance. So yes, you can see that it can be a little bit conservative.