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

Ladies and gentlemen, welcome to Bizim Toptan Second Quarter 2021 Financial Results Conference Call and webcast. Today's speakers are Hüseyin Balci, CEO; Önder Arikan, CFO; and Isil Bük, Investor Relations Manager, Head of Investor Relations. I will now hand over to your host, Ms. Isil Buk. Madam, please go ahead.

Thank you, Ilea. Good afternoon, and good morning, everyone, and thanks for joining us today to discuss Bizim Toptan's 2021 Second Quarter and First Half results. The presentation is now available on the Bizim Toptan's Investor Relations website and also on the webcast link of the conference. Today, I am pleased to join the webcast with our CEO, Mr. Hüseyin Balci; and our CFO, Önder Arikan. Our webcast has 3 main parts. Firstly, our CEO, Hüseyin Balci will explain comments about the quarter. Secondly, our CFO, Önder Arikan will detail the financial results and share expectations for 2021. And thirdly, 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 to the disclaimer. In the interest of time, we will not read the disclaimer. If there is no objection, we propose to take it as read into the record for the part 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 results. I would like to start my speech by identifying a key condition of the quarter. Second quarter of the year can be named as a hybrid period in terms of pandemic precautions. In the beginning of the quarter, out-of-home consumption places allowed the customers whereas 1 month later, we experienced a full lockdown period about 18 days nationwide. Please note that the lockdown period was different than the same period of the last year in terms of the nationwide coverage. In second quarter 2020, only 31 cities of Turkey had restrictions about traveling and going out. However, in the second quarter 2021, restrictions were broader than last year. In addition to this, retailers had to close the shops at 5:00 p.m. which was at least 2 hours earlier than previous times. Therefore, pandemic precautions, adverse effects were higher on individual and out-of-home consumption market customers compared to same period of last year, which reduced traffic in these channels, and there was an excess inventory specific for 2 customer groups. There was also a similar effect for our Ramadan inventory. Another impact of these lockdowns has been that our customer mix has moved away from historically more profitable channels to a less profitable ones. Seeing this impact, we have attempt at the customer group that was very high potential for [indiscernible] for impulse consumption, meaning we have increased our penetration in gas and oil stations by 57%. Furthermore, as the lockdowns were coming to an end at beginning of June, there was an acceleration of traffic for out-of-home consumption. Also, we had developed our own last mile delivery system to further support our out-of-home consumption channels. Another development in this quarter has been the new mobile application, which causes things to ease the customer experience by [ merging ] e-trade and loyalty card system. With all these actions that have been taken this quarter, we are looking at future quarters with more confidence, and we are in line with our year-end guidance. Now let us look at growth figures for customer growth. Firstly, our total customer numbers have reached 1.4 million for the first half of 2021. Secondly, SEÇ had a meteoric rise as SEÇ has grown an astounding 76%, adding 152 new stores to its roster, reaching 1,561 total stores. Furthermore, SEÇ have managed to reach 20% in all diversified customer mix. Thirdly, in an environment where wholesale is experiencing difficulties, we have managed to gain market share from them as our wholesaler channels managed to grow by 35%. Lastly, thanks to our gas and oil station strategy and our [ new 24-hour ] last mile delivery system, our Horeca and corporate channels have grown by 53% and 30%, respectively. Through it all our diverse supply, customer base has ensured that sustainable growth is achieved. And the targeted customer groups have reached 52% of the total sales. Before I leave floor to Önder Bey, I would like to summarize sales and profitability figures. Our sales growth for the second quarter 2021 has been recorded at 20.6% (sic) [ 22.6% ] However, the sales growth without sugar and tobacco figures have been our KPIs have been recorded at 32.4%. On top of this, our digital sales have increased by an impressive 140%. Our gross margin has increased to 11.2%. Our margin category gross margin -- our main category gross margin has increased to 13.7%. And finally, our EBITDA has reached 4.6%. When you look at the figures, on a year-on-year basis, we can easily see that our figures have improved. With these figures in mind, I have absolute confidence in Bizim Toptan's performance in the following quarters. I am looking forward to sharing successful results with you. 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, and good morning, everyone. Thank you for taking the time to join us on our call today. I am glad to announce sustainable and strong results regardless of the market conditions. First of all, I would like to start with the sales performance. Bizim Toptan reports great performance under the pandemic precautions, including lessened or closed out-of-home consumption areas. Total sales grew by almost 23% and reached TRY 1.6 billion. More importantly, excluding the sugar and tobacco, sales revenue growth was almost 32%. Not limited to that growth rate, Bizim Toptan showed very strong like-for-like performance. Total like-for-like growth of the quarter was 21%. Excluding the tobacco and sugar, like-for-like growth jumped to 30%. During the first half of the year, total sales revenue grew by 23% with a like-for-like that of 21%. If the sugar and tobacco sales were excluded, sales growth is up to 28% by surpassing our year-end guidance. Sales revenue, excluding the sugar and tobacco continues to show strong like-for-like performance during the first half as well and grew by almost 26%. It is obvious that Bizim Toptan reached about multichannel sales model maturity by maintaining sustainable growth under any conditions. Effects of 18 days full lockdown and weekend lockdowns, which affected individuals and out-of-home consumption customers traffic were eliminated with multichannel sales model. Before moving to SEÇ slide, I would like to highlight that starting with the partial normalization in June, out-of-home consumption sales were accelerated. With the positive impact of this, Horeca and corporate sales grew by 53% and 30%, respectively. In other words, every limited step to normalization will accelerate Horeca sales and generate additional benefits to Bizim Toptan's revenue growth. Now let's move to SEÇ slide. Like the previous quarter, SEÇ continued its strong performance with its unique business model. During the quarter, 152 new SEÇ stores were added into our system in net and total store numbers increased to 1,561. Sales revenue of the channel increased by 76% and reached TRY 342 million in the second quarter. First half, growth rate of SEÇ was 81% and revenue for [indiscernible] was TRY 618 million. With these results SEÇ created 20% of Bizim Toptan's total sales in the first half. Now I would like to continue with profitability figures. In the second quarter, total gross profit increased by almost 34% and reached TRY 183 million with a margin of 11.2%. The same period of last year's gross margin was 10.2%. Main category profit of the quarter increased by 38% and main category gross margin reached 13.7%. During the first half of the year, gross margin increased by 33%. Gross margin of the quarter was 11.6%, whereas main category gross margin of the quarter was 14%. In that point, I want to highlight that interest rate increase subject to IFRS 15 also affected gross margins positively. If interest rates were at the same level as the last year, gross margin would be slightly lower than previous years due to customer mix change. As we mentioned in the beginning of the speech due to pandemic precautions, customer mix changed towards SEÇ and wholesalers rather than individual or Horeca customers. Now let's turn to operating expense slide. In the second quarter, OpEx over sales ratio was 8%, with a 50 bps improvement compared to the first quarter. Due to the minimum wage increase and additional headcount costs regarding the COVID-19 management, OpEx increased by 32%. However, OpEx over main category sales ratio showed 40 bps improvement compared to the same period of last year. In that point, I would like to highlight that minimum wage effects will be normalized in the following quarters like it happened in previous years. So you can expect a normalization in OpEx over sales ratio in the following quarters compared to the previous quarter of the same year. Now I will continue with EBITDA on the next slide. In the second quarter, EBITDA show 35% increase compared to the same period of last year and EBITDA margins showed 40 bps increase by reaching 4.6%. In the first half of the year, EBITDA margin was 4.8% compared to 4.3% of the last year's. Let's move to the income -- net income slide. In the second quarter, net income was TRY 5.8 million while showing an increase compared to the first quarter. In the first half figures, total net income was TRY 6.2 million. Customer mix change, price investments and higher stock levels because of Ramadan preparation in the first half were reasons, which affected net income compared to the same period of last year. Net income level is still in line with our plans regarding to year-end guidance. So we are confident about the year-end guidance of TRY 43 million. Next slide is about capital expenditures. During the quarter, we relocated 1 of our existing stores and closed 2 stores because of the external factors, including the incoming store openings, construction costs, total CapEx was around TRY 26 million in the second quarter. As a result, in the first half, CapEx was around TRY 30 million and CapEx over sales ratio was 1.8%. In that point, I can continue about store openings. We are planning to increase our nationwide coverage from 70 cites to 75 cities by the end of the year. Now I would like to give information about working capital structures and balance sheet of the company. Like the previous quarter, we worked with negative working capital. Total cash was nearly TRY 220 million, including our limited liability, which has amounted around BRL 3 million. We continue to keep our debt free and effective balance sheet structure. I believe this is very crucial for companies under the volatile market conditions and Bizim Toptan has very protective balance sheet against those market uncertainties. I would like to close my speech by reminding our 2021 KPIs. We are keeping our year-end targets with a strong belief. By the end of the year, we plan to reach 178 Bizim Toptan stores and 1,800 SEÇ stores. Excluding the tobacco and sugars, sales revenue growth will be between 23% and 25%. Around TRY 1.4 billion revenue is expected to gain from the SEÇ system. We target to keep EBITDA margin around 4.8% and net income around TRY 43 million by the end of the year. With this, I would like to start for the Q&A session. Dear operator, you may now hold the questions.

[Operator Instructions] We have a question from Ahmed Dirik of [ Public Servant ]

My name is Ahmed. I'm an investor of Bizim Toptan, and I would like to ask Mr. Hüseyin Balci 3 questions. And let me start with my first question. As disclosed to public on 19th of August 2020 SEÇ Marketçilik joint stock company was established in order to carry out domestic retail trade activities. It was announced that the new business aims to increase efficiency, create synergy and throughout SEÇ Markets franchising channel more rapidly. After 2 days, it will have been 1 year since its establishment. Could you please give some information about SEÇ Marketçilik's ongoing activities? If it is not active, when will it be active? My second question is about the EBITDA figures through the -- via SEÇ market channel. Would you share the EBITDA figures apart from the total numbers in income statements, the EBITDA figures through the sales to SEÇ Markets, I mean? And my last question is about the profit. The EBITDA margin is about 5%, but net profit is below 1%. I'd like to hear your words about how to increase the net profit. Thank you.

Hello. Let me start with your first question regarding the SEÇ Market. Yes, we have announced that we established a SEÇ Marketçilik around 1 year ago. After that time, we are still working on the legal process, legal and financial process of the company establishment. And also, we are working on our ERP systems -- working our ERP model from a new version of SAP. After finalizing that ERP conversion, SEÇ Marketçilik will start its operations by using its own ERP model. That's why we are now still -- although we are consolidating SEÇ Marketçilik's right now, it's still working under the Bizim Toptan. That's why we haven't finalized working with SEÇ Marketçilik as a separate company. And the second question is about...

EBITDA of SEÇ Market.

The EBITDA of SEÇ Marketçilik. Unfortunately because of the competitive environment and also, it's not a listed company, we haven't announced EBITDA margin of SEÇ Marketçilik because it's still a channel of our company. That's why we haven't announced it. What we can say that its gross margin is close to our traditional channel's gross margins, [indiscernible] average of the company gross margin. And regarding your last question, I will give floor to our CFO, Önder.

Yes. Regarding your question. Every quarter, we are sharing our results. And we are investing huge on our out-of-home consumption. So we are working -- we are converting our sales mix towards more profitable channels that will definitely increase our gross margins and profitably in the coming years. Also, in this conversion, we are investing heavily on debt area. So we are trying to optimize costs but also generating more profit, more sales from our existing customers. So in the coming years, after decreasing this effect of COVID-19, individual and Horeca customers will visit our stores more often than the first half of the first year and starting from this quarter, you can witness high profitability levels than in the first half of the year.

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