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

Good afternoon, everyone. I think we can start our webcast today. Thank you for joining us, where we discuss our second quarter financial results. Today, I'm joined on this webcast presentation with our CFO, Onder Arikan. And the presentation that you are seeing on your screen is now available on the Bizim Toptan Investor Relations website. As it always has been, 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 a 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 recorded, and it will be published in our Investor Relations website in accordance with our privacy note that you approved during the registration. Now the floor is yours, Onder bey.

Thank you, Isil hanim. Dear investors and analysts. Welcome to Bizim Toptan's conference call for the second quarter results. Firstly, I would like to summarize the general view of the quarter. First of all, we experienced a weak Ramadan period compared to our expectations. After the earthquake, donations activities regarding Ramadan were brought forward. On top of the earthquake, election period increased uncertainties among B2B customers, especially wholesalers and traditional channels. That weak Ramadan period not only limited the sales growth, but also the [ cost to ] price investment for eliminating the excess inventories. In addition to demand conditions, there was a price slump in some categories such as oil and dairy products. This situation also affected the gross profitability of the company. However, with the successful implementation of multichannel sales strategy, we managed to eliminate the weak sales channel's performance. Revenue growth, especially in out of home Consumption channel and such support the growth of the company. If we look at the channels' performances detail you will realize that expect Platinum channel, which means sales to wholesalers, will continue to show successful growth rates. [ Thanks to the ] PROSAF grew by 110%, state sales increased by 77% and e-trade channel grew by 152%. Now let us look at growth figures for customer growth. During the quarter, unfortunately, we had to close 2 of our existing stores, which were damaged in the earthquake. We opened a new store in Bolu. Also, we continue to add new franchisees to [ do ] SEC system. Despite the difficulties of the quarter, we added 104 new franchisees in net and reached 2,604 SEC market. This is crucial to show the strength of the SEC model. Also we continue to increase the active customer numbers, which is important to improve the customer base under the competitive market conditions. It surpassed 105 million as of the second quarter. If we look at the sales to customer growth detail, it is seen that out of long consumption customers and SEC dominated the sales. Sales to HORECA and corporate customers grew by 84% and 6%, respectively. SEC sales grew by 77%, as I mentioned previously. Traditional channel customers sales increased by 58%, while individual and wholesaler showed relative growth of 47% and 17%, respectively. As a result, sales was more towards more loyal and more profitable customer groups by reaching over 63% of total sales. These growth figures are very strong and promising for the following quarters. And as you can see on the screen, business originated successful and sustainable results on growth side. Now let's move on in more detailed analysis of our financials. Firstly, I would like to start with the sales performance. In second quarter, sales grew by 58% and reached to TRY 5 billion. Excluding the sugar and tobacco, sales revenue growth was 52%. Total like-for-like growth of the quarter was 56%. While tobacco and sugar are excluded, like for like growth was at 48%. It is important to point out that we have experienced sales growth over the internal inflation by around mid-10s in the second quarter. During the first half of the year, sales increased by 73% and reached TRY 9.5 billion. Excluding the sugar and tobacco, sales growth was also 73%, with a like-for-like growth of 70%. In that point, I would like to highlight that we revised our sales growth target of the yield between 60% and 70% range. We believe the sales growth potential of the company. Now let's move to SEC slides. As expected, SEC continued its strong performance with its unique business model. During the quarter, 104 new SEC stores were added in our system in net, and total store numbers increased to 2,604. With the 77% sales growth, SEC generated 1/3 of Bizim Toptan's total sales. 61 SEC stores were closed permanently because of the earthquake. In addition to this, we couldn't add new franchisees into our system from the earthquake zone that we have budgeted. However, we continue to be in line with our guidance on sales side. Now I would like to continue with the profitability figures. Next slide is about gross profit and gross profit margins. In the second quarter, total gross profit increased by 22% and reached TRY 596 million, with a margin of 12%, while my main category gross margin was 14.1%. As I mentioned in the beginning of my speech, there was extraordinary contributions which affected the profitability. Firstly, elimination of excess inventory levels coming from the weak Ramadan sales and earthquake region caused some margin investments. Secondly, vegetable oil, [ pet ] and dairy products price decline affected gross profitability, especially in April and May. However, I would like to emphasize that profitability levels returned to normal since June. Gross profitability was also in the total of the 6 months compared to the same period of last year. Gross margin was 12.9% with 14.9% making the group profitability. However, it seems to be a normalized [Technical Difficulty] last year. So we are [ optimistic ] about the coming periods performance. Now let's turn to the operating expense slide. In the first quarter of the year, because of the minimum wage and rate cost increases, we experienced a relatively high OpEx margin. On top of that, logistic costs continued to be high compared to budget because of the earthquake damage in the Adana warehouse. The digitalization costs regarding SEC's ERP expenses and other IT costs also continued. Nevertheless, in the second quarter, we managed to keep OpEx over sales ratio at 9.7%, like the same period of last year. Also, we kept it at 10.1% in the first half of the year, like the second quarter of the last year. Please note that as has been mentioned of the company, we always focus on increasing the efficiency and taking measures for eliminating the cost inflation. Now I will continue EBITDA on the next slide. Because of the temporary weak gross margin and higher OpEx levels, EBITDA margin decreased both in quarterly and yearly. In the second quarter, EBITDA margin was 3.5%. And in the first half of the year, it was 3.9%. As you know, yesterday we revised EBITDA target for the whole year between 4% and 5% range. However, we expect a better half year in terms of profitability compared to first half of the year. Let's move to net income slide. In the second quarter, we have a net loss of TRY 30.5 million resulted from the main lower growth profitability and higher OpEx levels. On top of the last quarter's one-off losses, we had TRY 61 million net loss in the first half of the year. However, we are sure to cover it in the coming 2 quarters. Next slide is about capital expenditures. Total CapEx was around TRY 6 million during the quarter, and it was TRY 105.5 million in the total. We are keeping 1.1% CapEx over sales ratio, both in the second quarter and first half of the year. As I mentioned, we closed 12 of our existing stores in Aden and Antakya, because of the earthquake. Iskenderun store is continuing its operations with tent built on its parking lot. We opened a new store in Bolu so we continued our operations with our 179 stores in 71 cities. Besides, we have already opened 2 new stores in the beginning of the third quarter. So we are in line with our store opening guidance. Also, the process of refurbishments and SEC's [ ERTC ] efforts are continuing. Now I would like to give you information about working capital structure and balance sheet of the company. As in previous quarters, we continue to work with negative working capital. It is important that our inventory days showed improvement compared to last quarter and the same quarter of the previous year. Total cash was near TRY 71 million in net, including IFRS 16 rental obligations and our limited liability, which is amount to around TRY 1.6 million. Cash and cash equivalents increased, thanks to our actions that we had taken from decreasing the inventory level. We once again continue to keep our debt free and FX rate free balance sheet structure. Therefore, we continue to be resilient with our product balance sheet against market uncertainties, especially on the FX side. Now let us move guidance slide. As I mentioned in the later slides, we revised our sales growth target to between 60% and 70%. We revised our EBITDA margin target. We are confident about our remaining year end guidance. With this, I would like to start with the Q&A session. If you have any questions, please use your Microsoft Teams to raise your hands. I think we have already one question.

We have already one question in the beginning of the meeting, Erkan bey, was asked. And then I will give floor to Gorkem bey. But in the beginning, I would like to read them, Erkan bey's question and our CFO, Onder bey, will answer it. Erkan bey said that during a period when food retail companies are announcing fantastic financial statements. It's truly disappointing that Bizim is presenting weak operational results. Considering that the company was once valued at millions of dollars when it went to public, it wouldn't be unfair to say that it has deeply disappointed its investors. Personally, I believe this is a matter of choice. How can Bizim transform itself to the point of announcing strong financial statements in a future period [ thanks ]? Onder bey, I will give floor to you.

Thank you for the question. First of all, actually, we haven't seen other publicly traded companies' financials except Migros, but I think in coming days, we will see them. Yes, first of all, I want to give some information about macro economic indicators, yes, most importantly, inflation. Yes, there is a food inflation and some retails get advantage of it, it's true. But if we look at the figures, this is published by [ Treek ]. Compared to December prices and June prices, the overall food inflation, food and non-alcoholic beverages inflation is 28%. But if we go into detail, there are fluctuations between categories. This is all Treek data. For instance, margarines [ these ] prices decreased by 2% compared to in the last 6 months, edible oils minus 1% and 6% flours and other carriers, pasta 7%. On the other hand, beef, lamb, poultry, they have inflation like more than 80%. I wanted to give this information because, yes, there's the food inflation. But if you look at Bizim Toptan's core categories. So our sales in fish, meat -- fish and vegetables is very limited, and mostly edible oils, pasta, such categories are our main categories. For the macro economic conditions, it seems like, yes, there is food inflation, it's beneficial for retail. But if you look at the details, those categories, there was a price decline. So there is no inflation in our main categories. So that's why temporarily we witnessed difficulties to generate margins. Also declining prices caused some price investments. So I believe that it is not fully clear yet that this environment -- macroeconomic environment is beneficial for our financials. But last quarter, the second quarter, especially April and May, it was for us, difficult to manage. But it is temporary so not always prices on those categories is lower than other categories. We say that it is temporary. Secondly, Ramadan, it is also -- if you look at our category sales, Ramadan period is very important for Bizim Toptan. So we have almost -- there wasn't any sign of the Ramadan for our Ramadan period this year. So yes, there was earthquake most [ were ] people or institutions [ sepanted chirita budget ], and earthquake period that is one of the reason for us decreasing eating out [ havings ] of the company maybe to the reason. So the Ramadan periods affected our financials negatively. But in order to keep our inventories, in order to stay in the safe side in the net working capital side, we choose to eliminate those stocks as soon as possible. That is another reason we have negative margins in the last quarter. Yes, Bizim Toptan, we believe that we have a good strategy. In traditional channel, we are continuing with sales every quarter despite the effects of the uncertainties of earthquakes. We still continued our expansion in the sales side. Also in close up every day out of home market, we are increasing our focus. That not only increased our sales, but also our profitability. Also Bizim Toptan realized EBIT transformation in terms of its system digitalization. So we believe that we are in the right track. Although, yes, in the first quarter, we thought it one-off, but in the second quarter, this effect. So we don't like reasons to explain our bad financials, but we think that we are in a good way. And also all the time, we are focusing on the synergies between our channels with our sales team. So yes, we are sure that we will -- in the right track, and it will reflect positively in our financials in the coming months. I think that was all the questions.