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

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

Thank you, Olivia. Good afternoon and good morning, everyone, and thanks for joining us today to discuss Bizim Toptan's 2021 third quarter and 9 months results. The presentation is now available on the Bizim Toptan Investor Relations website and 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 means. Firstly, our CEO, Hüseyin Balci, will comment regarding the quarter. Secondly, our CFO, Önder Arikan, will detail the financial results and share the expectations for the year-end. And thirdly, we will open the call for your questions. Please note that the presentation which contains the usual formal disclaimers 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 are no objections. We propose to take it as read into the record for the purpose of the conference call. Finally, please note that all figures are in Turkish Lira, unless otherwise stated, and rounding differences may occur. Before I give floor to Hüseyin Bey, as you know that today is the 10th of November. We lost Kemal Atatürk, the founder of our Republic, 80 years ago today. We commemorate his memory with respect. Now Hüseyin Bey, the floor is now yours.

Thank you, Isil madam. As team, investors and analysts, welcome to Bizim Toptan's conference call for the third quarter results. I would like to start my speech by identifying key conditions of the quarter. Third quarter started with the easing of COVID-19 restrictions as the connection efforts have increased. We saw reopening out-of-home consumption locations, and restart of face-to-face education, which was a positive development that helped with the growth figures. While the pandemic restrictions were being listed throughout the quarter, tourism figures have improved. Therefore, thanks to easing of the pandemic restrictions, the negative effects of the pandemic, which have been reducing our traffic in previous quarter, has begun slowly fading. And right now we can say that our operations are normalizing. Furthermore, many areas in which we have invested through our pandemic, which allowed us to compensate our channels, now act as new channels for us to expand our operations. One of these areas that we have focused on during the pandemic have been our efforts to increase our penetration in gas and oil stations. Previously, we aimed to compensate for the customer groups that have negatively affected by the pandemic by using gas and oil stations. But now that our operations are normalizing, they have become an additional channel in which we operate. We experienced 57.5% growth in this customer group during third quarter, and other development during this quarter was the back-to-school period, which have positively impacted our continuous figures, growing an impressive 157.9%. Another channel, we have rapidly expanded is our digital sales channel, which experienced as 182% sales growth during third quarter 2021. All in all, our multichannel sales model allows us to compensate our losses through the worst of the pandemic restrictions. And thanks to all the investments we have made during the pandemic, we are confidently looking towards our year-end guidance. Now let us look at growth figures for customer growth. Firstly, our total customer numbers have reached 1,800,000 for the 9-month period of 2021. Secondly, SEC have had an impressive quarter, as SEC sales have grown an astounding 77%, adding 83 new stores to its roaster, reaching 1,644 total stores, and covering 20% of all diversified customer mix. Thirdly, our individual channel managed to grow by 18% total for the lockdowns. Lastly, thanks to increase in tourism and general normalization efforts, our HORECA and corporate channels have grown by 45% and 42% respectively. Through it all, our diversified customer base has ensured that sustainable growth is achieved. And 2 targeted customer groups have reached a 52.5% 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 third quarter 2021 has been recorded at 34.8%. Moreover, the sales growth without sugar and tobacco figures, that have been our KPIs, have been recorded at 32.2%. On top of this, I mentioned our digital sales have increased by an impressive 182%. Our gross margin has increased to 11.5%. Our main category gross margin has increased to 14.4%. And finally, our EBITDA have reached 5.5%. When we look at the figures on a year-over-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 quarter. I am looking forward to sharing successful results with you. Now I will leave floor to Önder Bey who 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 once again sustainable and strong results. Firstly, I would like to start with the sales performance. Bizim Toptan showed robust growth performance under the new normalization period that began in July, which lifting as -- with lifting of restrictions and reopening of out-of-home consumption spots. Total sales grew by 34.8% and reached TRY 1.9 billion. More importantly, excluding the sugar and tobacco, sales revenue growth was 32.2%. Bizim Toptan also showed quite -- both like-for-like performance. Total like-for-like growth of the quarter was 32.7%. Excluding the tobacco and sugar, like-for-like growth was also good at 29.6%. During the first 9 months of the year, total sales revenue grew by 27%, with a like-for-like growth of 25.4%. If the sugar and tobacco sales were excluded, sales growth jumped to 29.2% by surpassing our year-end guidance. Sales revenue, excluding the sugar and tobacco, continued to show strong like-for-like performance during the 9 months of 2021 as well and thereby almost 27%. With this impressive growth figures, we can see the positive effects that the easing of COVID-19 restrictions and the effectiveness of our multichannel sales model had in our growth figures. Before moving to 6th slide, I would like to highlight that starting with normalization periods starting in July, out-of-home consumption sales were accelerated. With the positive impact of this, HORECA and corporate sales grew by 45% and 42%, respectively. In other words, as I mentioned in our previous webcast, every limited step to normalization accelerates HORECA sales and generates additional benefit to business of plus revenue growth. Now let's move to 6th slide. Typically, SEC continued its top performance with its unique business model. During the quarter, 83 new SEC stores were added into our system in net, and total SEC store number increased to 1,644. Sales revenue of the channel increased by 77% and reached TRY 375 million in the third quarter. In the 9 months of 2021, growth rate of the SEC was 70.9% -- 79%, and revenue for that period was TRY 994 million. With these results, SEC created 20% of business of total sales in the year-to-date. Now I would like to continue with profitability figures. Next slide is about gross profit and gross profit margin of the quarters. Bizim Toptan's business activity returned to its normal conditions after the easing of pandemic precautions. But customer mix changed towards more sustainable and more profitable customer groups. In the third quarter, total gross profit increased by 48.9% and reached to TRY 213 million, with a margin of 11.5%. Please note that the same period of last year's gross margin was 10.4%. Main category profit of the third quarter increased by 49.4%, and main category gross margin increased to 14.4%, whereas it was 11.9% in the same quarter of last year. During the 2021, gross profit increased by 38.8% and gross margin of the quarter was 11.5%, with the main category gross margin of 14.1%. In that point, I want to highlight that interest rate increased subject to IFRS 15, also affected gross margin positively. If that interest rates were same level as last year's, gross margin would be the same level of the last year. Now let's turn to operating expense slide. In the third quarter, OpEx over sales margin was 7.3% with a 10 bps improvement compared to the quarter 2. Due to the minimum wage increases and additional headcount costs regarding the COVID-19, and additional energy and logistics increases, OpEx increased by 30 point -- 37%. Now I will continue with EBITDA on the next slide. In the third quarter, EBITDA showed a 6% increase compared to same period of the last year, and EBITDA margins shows 70 bps increase by reaching 5.5%. In year-to-date, EBITDA margin was 5.1% compared to 4.4% of the last year. Please note that year-to-date EBITDA margin has been better than our unit target as well. Let's move to the net income slide. Net income was another success of this quarter, which we have foreseen in our yearly plan. In third quarter, net income was TRY 15.1 million, by showing 83% increase compared to the last year. Net margin was at 0.88% with a 20 bps improvement. Thanks to customer mix change which improved the main category sales mix, net income kept its planned plans. Total net income of the first 9 months was TRY 21 million, and it was also around 10% higher than last year's figure. In that point, I would like to highlight that we are confident about year-end guidance of TRY 43 million. Next slide is about capital expenditure. During the quarter, we opened an additional store and relocated one of our existing stores. Total CapEx was around TRY 21.7 million in the third quarter. As a result, 9 months of the 2021 CapEx was around TRY 52 million, and the CapEx overseas ratio was 1.1 percentage in 9-month period, and was the same of the last year. Now I would like to give you some information about working capital structures and balance sheet of the company. Like the previous quarters, we worked with the negative working capital. Total cash was nearly TRY 347 million, including our limited liability, which has amounted at TRY 2.5 million and rental contractual obligations. We continue to keep our debt free and effective balance sheet structure. Therefore, Bizim Toptan has very protected balance sheet against those market uncertainties. Now 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 SEC stores. Excluding to tobacco and sugar, sales revenue growth will be between 23% and 25%. Around TRY 1.4 billion revenues expected to gain from SEC system. We target to keep EBITDA margin around 4.8%, and net income will be 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 poll for the questions.

[Operator Instructions] There are no questions at this time. Dear speakers, back to you. Thank you.

Thank you for joining our call. I would like to wish all of you healthy days. We look forward to updating everyone about our full year results in March. Have a good day. Thank you.

Ladies and gentlemen, this concludes today's conference call and webcast. Thank you all for your participation. You may now disconnect your lines.