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

Good afternoon, everyone. Thank you for joining us today where we discuss Bizim Toptan's first quarter financial results. Before I'd like to start, I would like to say that you have seen our new solar plant that we established at our Gebze store in order to produce all the energy needs of the store. First off, many solar plants to come. This is one of our -- this is the first -- our solar plant, and it will be the first one also in our parent company. Today, I'm joined on this webcast presentation with our CFO, Önder Arikan, and the presentation that you are seeing on our screen is now available on the Bizim Toptan Investor Relations website. Our webcast will include general comments regarding the overall performance of the quarter. Then we shall have a more detailed account of our financials, which will be followed by Q&A as always. 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 are no objections, we propose to take it as read into the records for the purpose of the conference call. Please note that all figures are in Turkish lira unless otherwise stated and rounding differences may occur. Finally, I would like to highlight that the webcast has been recording and it will be published in our Investor Relations website in accordance with our private note that you approved during the registration. Now the floor is yours, Önder bey.

Thank you, Isil hanim. Dear investors and analyst. Welcome to the Bizim Toptan conference call for the first quarter results. First of all, I would like to start my speech with the reason of the net loss, although we had a considerable debt, successful growth figures. Following the earthquake on the sixth of February, we had approximately TRY 32 million one-off expenses, nearly half of which were donation expenditures. These expenditures have a considerable impact on our profitability figures in the first quarter. Effect from these direct expenditures, 43 of SEC stores were closed completely. 16 of the SEC stores and 2 of Bizim Toptan continue to be unoperational further impacting our first quarter figures. However, despite the extraordinary situation, our multi channel sales strategy still yield impressive growth results, particularly in the growth of our overall sales type performance and sales type performances of our mini channels. It is important to point out that we have experienced sales growth over the inflation and our overall sales [ channels ] have also increased. Successful implementation of multichannel strategy generated impressive growth figures in diversified sales methods, which supports store performances. In that point, I would like to provide the growth levels in terms of the sales channels. Sales of SEC channels increased by 121% by the previous quarters and generated 33% of total sales revenue. Prosaf channel, which focused on out of home consumption market and corporate customers increased sales revenue by 155%. E-trade channels, including the Click & Collect system [ showed ] to manage growth of 236%. Now let us look at growth figures for customer growth. Firstly, our total customer numbers have reached more than 1 million customers for the first quarter of 2023. That growth trend is really crucial for increasing our customer base under the competitive market conditions. Secondly, as out of all consumption channel experienced increased demand. We have seen impressive figures in Horeca and corporate customers groups, having grown 126% and 148%, respectively. Thirdly, SEC our franchising system have had another successful quarter. SEC sales have grown by 121%. During this quarter, SEC continued to increase store numbers and finalized the quarter with 2,500 total stores. It is important to note that number of stores would have like been higher if it wasn't for the earthquake. As I mentioned in the beginning of my speech because of the earthquake 43 stores went out of business. And lastly, individual channel, traditional customers and wholesalers have grown by 84%, 71% and 42%, respectively. In the result, a safe space more towards more [indiscernible] and more profitable customer groups by reaching over 65% of total sales. These growth figures are really strong and also promising for the following quarters. And as you can see on the screen, business that is generated successful and sustainable results on growth and gross profitability. Now let's move on to a more detailed analysis of our financials. Firstly, I would like to start with the sales performance. Bizim Toptan showed robust growth performance in the first quarter of 2023. Total sales growth by a 91.5% and reached TRY 4.5 billion. More importantly, excluding the sugar and tobacco, sales revenue growth was 101%. Strong growth continued on like-for-like figures too, total like-for-like growth of the quarter was 84.3%, while tobacco and sugar are excluded like-for-like growth was, 92.5%. Now let's move to the next slide. It is expected, [ SEC ] continue its strong performance with its unique business model. During the quarter, 91 new SEC stores were added into our system in net and total store numbers increased to 2,500 with 121% sales growth, SEC generated 23% of Bizim Toptan total sales. If the earthquake doesn't occur, SEC stores would be over those figures. However, we are still confident about to SEC's year-end guidance. Now I would like to continue with the profitability figures. Next slide is about gross profit and gross profit margins. In the first quarter, total gross profit increased by 72.4% and reached TRY 624.3 million, with a margin of 13.9%. While main growth category gross profit for the first quarter increased by [ 78.4% ] and main category gross margin increased to [ 16.7%. ]Customer mix and related with this product mix are the reasons of the sustainable [ gross profitability ] Now let's turn to operating expense slide. OpEx have increased by 93.5% in the first quarter with OpEx over sales of 10.6%. As you know, in the first quarter of each year because of the minimum wage and rate cost increases, we expected a relative weak OpEx margin compared to other quarters of year. This year, it was the same because of the minimum wage increase, its impact on all employees wage and other cost increase related to this OpEx margin seems higher. On top of this, this year, we have one-off expenses regarding the earthquake, one reason which is written under the operating expenses, in addition to this since Adana warehouse is down after the earthquake, logistic cost is relatively higher compared to previous quarters. Now I would like to continue with EBITDA on the next slide. EBITDA result 35% increase, reaching to TRY 197.4 million compared to same period of last year. And EBITDA margin was 4.4% compared to 6.2% of the same period also last year. Gross margin normalization and OpEx increase are the reasons behind the EBITDA margin decrease. Let's move to the net income slide. In the first quarter, we had a net loss of TRY 30.6 million. On top of the seasonal trend of the OpEx increase, TRY 32 million one-off earthquake expenses and are unable to operate many of our stores in the earthquake region have affected our net income performance. If just one of expenses are excluded, net income will be positive. However, I would ensure that this hazard is one-off things, but like to be repeated in the following quarters. Next slide is about capital expenditures. Total CapEx was around TRY 39.4 million. During the quarter, we continued our operations with our 180 in all the existing stores. Our nationwide coverage by 72 cities out of 81. However, as stated before 2 of our stores have experienced extensive damages during the earthquake and currently under the construction. While our [ Iskenderun ] stores continued its operations with tents built on its parking lots. It is still not perfect performing with big efficiency. We continue the process of refurbishments and contracts not planned openings. We have also finish construction of new [indiscernible] and activated solar energy panel investment in our Gebze store. New stores and warehouse construction and SEC's ERP system efforts are continuing. Now I would like to give you information about working capital structure and balance sheet of the company. Like previous quarters, we continue to work with negative working capital. However, inventory days were increased because of Ramadan period. Total cash was nearly TRY 61 million in net, excluding the IFRS rental obligations and also our limited liability, which has amounted around is TRY 0.8 million. We once again continue to keep our debt free and FX clear balance sheet structure. Therefore, we continue to be resilient with our [ projected ] balance sheet against market uncertainties, especially on the FX side. Now let us move to the guidance slide. We are confident about our given guidance. We are keeping all the figures without making distinction. With this, I would like to start for the Q&A session. If you have any questions, please use your Microsoft teams to raise your hands.

Thank you for the presentation. My question is about net cash. We see a decline in your net cash partially maybe related to working capital, but we also see increase in net other assets in your balance sheet. Could you just further elaborate the details of that mechanism you have net cash position, but still you have some financial expenses. How should we expect for the future? That's my first technical question. And the second one is about the details of that TRY 32 million for the earthquake, what was it about more maybe in detail? And how do you see the outlook in the second quarter, especially the nontobacco side, main categories. Do you expect -- or do you see the positive trend to continue in April and possibly in early May?

Thank you for the question. About net cash position excluding the IFRS 16 impact, it was weaker than the last quarter, yes, the main reason is about our net working capital structure in last quarter, we had an increase in our inventories that's why temporarily in the first quarter, our cash position was below the previous quarter. Secondly, why we have financial expenses. One of them is this IFRS reclassification. But except this, we again have a financial expense. It is due to, discount or credit card receivables, and we had a financial expense. We used this cash to compound sales our payments to our suppliers, sometimes we make via payments, sometimes we increase [indiscernible] inventories tax-wise. We have financial expenses in net. Second question, about TRY 32 million. As I mentioned, about half of it is coming from the donation. Besides, you know all of our stores have insurance. However, in the earthquake issues companies compensate, not fully compensate, but legally, they have exceptions like 20%. So I can't -- in recent with our inventory loss in the mixed store. And lastly, we had unbudget expenses to have our employees there, so in these first days of the quarter, like quoting expenses like we send some containers, some tends to keep them safe. besides also, we try to serve our customers like, let's say, shopping expense, shop expenses et cetera. And lastly, we have the warehouse in Adana. And it's partially damaged. So our warehouse was unoperational. And we take our inventories from that warehouse to distribute it to other stores or other warehouses. That's why we had one-off logistic costs as well. In total, those impacts to earthquake one-off expense is like TRY 32 million. Besides -- this we had also sales loss in those region, but we didn't count those sales loss is one-off expenses because partially, it is also repeated in the second quarter because 2 of them still not operating. Those are the main reasons. Besides in such site, we had, unfortunately, damaged partners. Also it's impacted our figures. But again, we did not account it as one-off expenses. Last in -- coming quarters. Yes, of course, earthquake FX is on the first quarter. And hopefully, none of us is meeting [Indiscernible] a bit less but again. Moreover, of course, in the first quarter, we have coming elections in the coming weekend. You see our figures, especially traditional channel, the demand was very low regardless of the result of the elections, uncertainty will disappear, and we expect higher demand, especially traditional channel in the coming months, especially in the first days of the quarter and the first days of May, give us to do that demand will be higher in the second quarter. As I mentioned, we keep our year-end guidance unchanged. Despite of this earthquake effect. And we see coming quarters promising for us.

Thank you. And one last follow-up related to your dividend distribution decision, and I think it's welcomed by the investor community. Do you expect that to continue going forward, just assuming that you keep your business going as it is. And should we expect a consistent dividend distribution in the future, assuming that no major -- the exception just will not take place. It's a part of a dividend policy, should we expect that to continue starting by this year?