Migros Ticaret A.S. (MGROS) Earnings Call Transcript & Summary

A very good day, and welcome to the Migros 2019 Financial Results Call. My name is Mark, and I'm your event manager for today. [Operator Instructions] I'd also like to advise all parties, this conference is being recorded. Now I would like to hand over to your host for today, Affan Nomak. Please go ahead.

Thank you, Mark. Good afternoon, and thanks to everyone for joining us today. Welcome to Migros' Full Year 2019 Earnings Call. I'm Affan Nomak, Head of Investor Relations and Risk Management. We are here with the management team. And today's speakers are our CEO, Özgür Tort; and our CFO, Cem Dogan. At first, Özgür Tort will briefly talk about our financial results and operation, then Cem Dogan will share with you the review of deleveraging effort and 2019 performance summary. And I would like to remind you that there will be a Q&A session at the end of the call. Now I'll turn the call over to Özgür Tort, Migros' CEO and a Board member.

Thank you. Welcome to our 2019 earnings call. And clearly, we want to thank you for participating in this call in these difficult times for both our country-specific issues and the world. Especially, we were all hoping for a less volatile environment, of course, but unfortunately still we have concerning events continuing globe, like the coronavirus level and the refugee [influx impact in Turkey. So we all hope that it will recover back for everybody's overall expectations. Regarding our current situation in the Turkish economic side, just to summarize the normalization process. We want to express that we were glad to experience that throughout 2019 in terms of mainly interest rates and, of course, inflation and more stable environment on the currency side. That is, of course, to all benefits. And it's clear, reduction interest rate is also helping the financial charges for '22 expectations as well. The last quarter of last year was performing a better GDP growth than our expectations. I'm sure you all received the results, around 6% GDP growth in the last quarters which concluded the year around 1% for the overall year's GDP growth. That was a positive sign, and we all experienced in the top line growth level in that reflection. I can also express that organized food retail sales was also strong in 2019 overall in the market. Around 22% growth has been realized by organized retailer efforts in the markets. Of course, there are some clear down-trading elements due to the economic conditions, but that has been limited with some product categories. But as I expressed, all in all, for food retailers, general growth rate was positive for the organized efforts in the country. And mainly for 2020, we will try to share our guidance. But overall, we expect that there will be a normalization hopefully happening and which has been already starting in 2019 last quarter and will continue for the positive stand. This is basically the overall expectation for the management side. And mainly the consumer sentiment should be positively impacting once these current conditions are becoming stabilized in the overall territory of Turkey. So for our presentation part, I hope you all received our presentation pack. I will try to ease the page numbers for follow-up. As usual, we will start with Page 2 on the sales evolution. What I can express that the most relative side of it, there's around 24% top line growth consolidated for 2019 for the company. The last quarter was around 22% level, 21.8% to be more specific. And obviously, we are pretty much happy with the performance on the top line, but we can express there was a clear effort that the company was taking in the last couple of years based on the overall competitiveness coming from our commodity line products and, of course, our efforts to enrich our fresh lines in terms of both supply chain qualifications and also the pricing perspective on perishables, especially for the [vegetable category, throughout the year. That was an important element on our top line growth, which was the same case for the last quarter as well. And mainly another element was also the online business concentration of the company was also helping to generate further traffic into our operations. And the last quarter itself, even a clear CPI reduction coming from yearly figures around 15% down to 10% levels in the last quarters. Migros has realized around 22% top line growth in this last quarter of last year. That was thanks to, as I expressed, our significant efforts towards the market penetration. And I'm also glad to express that our household penetration was also increasing throughout the year last year. That has been reflected on Page 2. As you can notice, the market shares of Migros, both in terms of total market share, which is considering unorganized trade as well not only FMCG traceable figures. As you can notice, we improved our market share to 7.8% on the total market and 17.4% within the organized trade, both improving around 70 basis points versus last year's market share, that is as I expressed to -- thanks to our strong efforts on the operational elements that I've expressed for our top line growth. Continuing with our expansion on Page 4. The expansion prioritization is continuing. As end of last year, we managed to open 137 new stores last year, and we reached 2,198 stores all in all for the last year's end-of-year results. It is worth to express that the number of stores expansion and the space growth figures are pretty much clarified, and 2.6% space growth was realized for last year's overall growth. That is relatively less than the number of store growth for obvious reasons that average store size openings are relatively less than the previous year's and, at the same time, the hypermarket space optimization was also continuing for last year's efforts. I'm also glad to express that in the first 2 months of 2020, Migros managed to open 32 new stores and the efforts of expansion next to our general operational efficiencies that are maintained and to be focused for 2020 as well. Regarding the capital expenditure on Page 5. As you can notice, we have been doing several different initiatives on our capital expenditures. It is worth to express that basically on our overall focus at the online penetration was one of the main driver of our capital expenditure for last year, and that is to the levels of efficiency-wise because it's benefiting from its existing supply chain coming from a store-based delivery model, which is helping the company's overall focus, both online servicing but also, at the same time, improving the efficiencies at the store level with further traffic generation coming from the online penetration for the majority of our stores. So that is going to be our change for the large store base. The majority of our large stores are now offering an online service within the catchment areas of the existing store presence. And next with -- of course, we have done significant different efforts coming from the CapEx unit cost savings and, next to it, of course, chaining some of the capital expenditures with the landlord's contributions. Considering the market conditions, this type of availabilities are still valid in the market to maintain the new store expansions and existing stores' maintenance costs to cutting down to the levels where Migros will still benefit on expanding, but to the less profit -- less capital expenditures required for the existing capital -- new store expansion models. What I can express, this was relevant for the whole year. And as you can see in our figures, without much sacrificing on the top line growth because managed to maintain the capital expenditure for 2019 at the levels of TRY 340 million, which is less than previous years, but with the similar top line growth pace has been realized in a year of economic downturns, which has to be managed carefully. Continuing with Page 6, the gross profit evolution. There is a clear investment that the company is doing on the pricing side, which I have been expressing this throughout last year's conference calls, that this is just not because of the current economic environment, but also at the same time, coming from the stiff competition environment. From both organized and unorganized trade, Migros has been investing heavily on fresh pricing and commodity pricing. That has been the case for last year as well. And thanks to our efforts of improvements coming from our regular supply chain efficiencies and purchasing efforts, we can express that the gross margins are maintained with pretty much -- with the same figures even optimized and improved versus the year before in an environment where both the economic downturn, especially the private label expectations of consumer shoppers are much more higher, and the fresh food penetration, which was increasing throughout last year's based on our efforts, which is relatively a low-margin product category. So given all these environments, Migros managed to maintain the gross margins and even improving relatively versus previous year. So all in all, of course, the importance is pretty much clear, but the margins are going to be just a very important driver for this 2020 year as well. Considering a lower inflation environment, we are expecting consumer sentiment to be more positive compared to previous years, whereas the inflation trends are pretty much relatively under control. However, still, there are important challenges, especially coming from the fresh product lines coming from the harvest qualification and, at the same time, the overall demand and supply discrepancies, which might happen from seasonality and the weather conditions. To continue with our EBITDA evolution with, of course, the most important part of our EBITDA generation is supported by the strong top line growth, which had been realized across the year last year. And next to the top line growth, I would like to also express the supply chain improvements, which has been the case. For several years, we are investing back and, again, that we are maintaining on the gross margin level to invest back on the supply chain, to secure a much more controlled distribution system to deal with -- to tackle with the shrinkage issues, which is an across-country issue. And at the same time, of course, having an operation acting in 81 cities is another distribution challenge to be managed with the qualifications of the distribution and the cost efficiencies that we can maintain. And I'm also glad to express that the new technology investments which are also helping the improvements coming from the efficiency metrics, especially on the operations, both at the store level and at the distribution center level. So thanks to these several different initiatives that we are taking, EBITDA generation of the company is pretty much maintained with the last year's figures. Where in an environment of a relatively lower economic performance based on the shoppers' average consumption power and, at the same time, with the challenge of cost base increases, especially coming from electricity and the staff costs, Migros managed with such initiatives to realize a similar EBITDA performance versus -- comparabilities versus last year. On this presentation, we would like to address for this year a terminology around normalized EBITDA. We know that it is a bit confusing, especially the IFRS 16 impact is one element and, at the same time, there is an interest rate hike coming from last year and a significant stabilization towards the last year's last quarter and still maintaining. So we thought that it will be useful to express -- align what we call the normalized EBITDA, just to give you the sense of what we are doing and why we are doing it. It is basically to have our investors and analysts to make comparabilities on the pure operational efficiency at the company. And this is, of course, from 2020, we will be comparing our figures, IFRS 16 to IFRS 15 as well throughout next year. But at the same time, we would like to address the issue about the imputed interest, which is a discount element at our cost of goods sold, which is pretty much reflecting the due -- the interest rates that we are charging on our term purchases. So in the bottom line of this page, you can see that our EBITDA generation for 2019 was TRY 1.5 billion, which is an equivalent of 25% to 26% increase versus last year. And on the bottom of the page, you can see a normalized EBITDA. And the definition of the normalization is to have the same interest charges on term purchases to be applied for 2018 as well with the same interest rates of 2019 for an apple-to-apple comparability. As you can see, the margin of 2018 is 6.5% margin versus this year, 6.6% margin. When you do the apple-to-apple comparability coming from the imputed interest charge difference because of high interest rate hikes coming for last year specific, as you can notice that the same interest charges, if it were applied to 2018, we would have been reached to 6.7% EBITDA margin for 2018. So it is relatively 10 basis points of relatively less margin generation if it's apple-to-apple comparability for 2019, which is at the levels of 6.6% margins. We know that it is confusing, but I think that the transparency here is worth to make sure that the comparabilities are much more clear, and we're going to experience the similar comparabilities for 2020 as well. And I hope it will help our investment community to address the figures to that more comparable dimension for EBITDA generation of the company. All in all, if you are to include the IFRS 16 impact, which is not comparable to 2018 at the moment, we can express that our IFRS 16-implied EBITDA generation has reached 9.6% margin to the levels of TRY 2.2 billion equivalent. Just to remind, IFRS 16 is excluding some of our rental expenditures to be reflected into our balance sheet as an asset with a liability coming from the average term of the rental contract. Now I would like to move to Page 9 to express you the enhancing online penetration efforts of Migros. I would like to, first of all, express that it is a very strategic move that Migros is taking in the last 3, 4 years especially. It has been really well known that Migros has been very active on the online business since 1997. It's an old story for Migros. However, it is obvious that we have been very much more active with different channels, with different implementations. And we are proud to express that it is definitely a clear traffic driver for Migros and a differentiation, especially coming from servicing at the levels of fresh foods and the levels of delivery time improvements. As you recall, Migros has been doing online operations in several different shape or form, and we reached, as of last year, a significant figure of 60 cities of coverage, which is almost doubling our online penetration from 30 cities level to 60 cities only in 2019 with the aim to make sure that the 60 cities we are servicing shoppers with the store-based model of delivery, which is a much more beneficial model in terms of efficiency, as you can notice, where the 69% of our deliveries are done within the same day. Next to it, of course, the Turkish market is experiencing a new servicing shift towards the, what we call, the express delivery or instant, [even, delivery, where the competition and Migros is offering a new service, which is a delivery within 30 minutes of catchment areas. And this has been growing very significantly. At the moment, this is relatively a less product SKU numbers offered service in the 3 major cities of the country and within 40 different districts where Migros is offering a 30-minute delivery with the same pricing that we are doing at the regular online shopping, which is also the reflection of the same price at the store levels. We trust that the significance that Migros has been taking in the model that has been implemented, especially the advantage of physical shops present across 81 cities of the country, is giving us the edge to service the same price where the physical stores are offering is also relevant for this both service at online and, at the same time, on the express service. Next to it, we also added last year a partnership with Alibaba affiliate, Trendyol, here in the Turkish market. And this partnership with a platform is important for us for the future collaboration models. And this is more like an FMCG-focused dedicated effort with platform operators, where the service is valid for 81 cities, since it is not a store-based delivery model, but a courier model shipping. And the deliveries are next day, the day after ,depending on the location, but of course, the coverage is much more significant. And at the moment, we are servicing around to 2,000 level of SKUs in that platform as well, which is obviously -- will increase significantly in the coming month from the partnership's overall performance monitoring systems. At the same time, it is also worth the mention that our fresh farm-to-fork type of initiatives are taking count. And this is not just limited with our store initiative, but also with a dedicated effort on what we call Tazedirekt, which is, in English, the fresh direct version. So that's an effort from farm to consumers directly without a shopping environment or without a physical store operation here. This is direct operation from farm to the consumers. And we are proud to express that the natural product, the organic product and the fresh product quality in this specific dedicated area is improving heavily. And we are trying to create a model within -- also the social responsibilities that we believe that Migros has to deliver in the Turkish market from the natural and healthier goods coming for the next product to offer levels for especially the perishable product categories. Not to mention, also, Macro is also servicing in 5 cities with its own separate online effort. And all in all, we are now servicing in 5 different channels for the future development of the potential penetration. Now I will hand over to Cem for our deleveraging efforts for last year. Please, Cem.

Thank you, Özgür Tort. Well, we've been talking about leveraging in Migros for quite a few years now. And I'm happy to say that 2019 has been a year, a critical threshold that we passed in the deleveraging efforts or derisking efforts, whatever you call it. And the total euro exposure, we were able to decrease 30%. By the end of 2019, our euro position was EUR 430 million, down from EUR 610 million or EUR 611 million. And the -- but the effort is continuing, beginning of -- and towards the end of January this year, we made another EUR 94 million deleveraging or the -- basically, targeting the euro debt. And now currently, we have EUR 335 million gross euro position. And we are hoping that with some asset sales as well underway, we should be able to bring it down to EUR 300 million levels. So this is, at the same time, a big derisking effort for us because of the currency match that we have been talking about. And this is lifting a pretty big vulnerability risk from our shoulders going forward. It's taking some time. I think in 2019, we've been careful, at the same time, lucky because it was more or less, less volatile year. But as I said, our commitment stays the same. But at the same time, I must also mention that deleveraging the -- our total gross net debt position has also improved from TRY 2.8 billion to -- actually TRY 2 billion levels. That is also reflected in our net debt-to-EBITDA numbers as well. And at the same time, doing this, we also pay a particular attention to the average maturity terms of our debt structure. Currently, our euro has a 2.6 average maturity versus our TL of 2 years. So this is also giving us some cushion for more volatile times. Going to our performance summary, our expansion plan is pretty much on target. We opened 137 stores. It's slightly more than our revised target for 2019. Our top line sales growth is bang in the middle of our growth percentage. It's 24%. And this was also revised midyear 2019. Our EBITDA margin, again, is 2.6% (sic) [ 6.6% ] as we guided from the beginning of the year. Our guidance was between 6% and 6.5%, considering the drop in the interest rate as Özgür has been mentioning, and we ended the year with, on average, 6.6% EBITDA margin. On the CapEx, we were slightly off, but still, I think, it's a good number. And traditionally, our CapEx percentage has been 2.5% of our sales, and TRY 341 million is 1.5% nearly, and it gives also -- giving indication our cautious stand, which will also stay in 2020. And with that, I would like to hand over to Özgür for our expectation and guidance for 2020.

Thank you, Jim. And pretty much, we are working still on -- for additional opportunities throughout the year because we see that the market is pretty much offering us further opportunities in different channels. And definitely, we will maintain our store opening pace, and the physical expansion will always be the key target for Migros' overall growth. And we're going to be targeting around 120 stores, which is pretty much secured at the beginning of the year in terms of location and contract quality. And at the same time, we are relatively expecting around 16% to 18% range of top line growth. That's relatively higher than the first guidance that we shared with the market, and that is because of the first couple of months. Overall trading is helping us towards a more positive new guidance figures, around 17%, 18% range. EBITDA margin, as I expressed, this year, we will be just reporting 2 EBITDAs with different IFRS 16 and IFRS -- excluding IFRS 16 as well. But at the same time, I think that since the markets are pretty much are following the IFRS 16-including figures, we're going to be now guiding based on IFRS 16-included guidance levels, which is going to be 8% to 8.5% margin. And that is relatively less than this year's overall realized figures based on the impact of what we call the normalization of interest rates, which is a part of our cost of goods sold element on term purchases. And regarding the CapEx level, as Cem mentioned, we're going to be still cautious on the CapEx figures, and we're going to be guiding around TRY 400 million equivalent of CapEx mainly, of course, to the new stores, our online operations and, at the same time, some maintenance CapEx all in all to be implemented. Online business will be one of the very important area of focus. And as 2019, we're going to be just continuing our efforts to enlarge the penetration. And we expect that by the end of this year, we're going to be reaching the online service on store-based deliveries on 81 cities of the country, which means the -- all cities will be covered by our online service as of this year. And we are targeting at company level, a sales top line growth around 75% growth expectation for our online sales operations, which is going to be an important figure for our overall performance of the company as well in terms of traffic generation and operational efficiencies to be guided in the coming years. Of course, in their first year's impacts, online expansions are margin-dilutive. However, we are -- we trust that for the future potential of generation's mind and, at the same time, overall shopper's expectation, it is going to be just one of the major driver of growth for the coming years. As we said, that our capital expenditures levels will be at the cautious stand continuing for 2020 as well. And with our clear commitment on deleveraging at the gross euro debt level, we're going to be targeting another 30% year-on-year decrease at the gross euro debt level, both with our internal strong cash generation efforts and, at the same time, a part of asset divestitures, which is taking part mainly coming from the Kipa shopping centers that has been acquired about 3 years ago, and we are acting opportunistic with some realization of asset divestitures to -- may continue for 2020 as well. And together with these both important drivers, we hope that this deleveraging effort will come up to a level where we will be all feeling relatively more comfortable for any type of further currency hikes, risks, which may occur in time. And as for the last stage of our presentation, page -- follow-up, which is Page 13, we would like to share with you our sustainability efforts. And from now on, we will be glad to share this continuously for every quarter with our efforts and to be more concrete with some specific KPIs that we are all targeting at the company level on our operating model. To start with, I think one of the important driver is our carbon footprint. And with relevant with the global trends, Migros is becoming more and more focused on carbon footprint reduction. And we have been scored as A-, one of the highest score in the Turkish market today. And basically, we have -- providing a commitment towards the target of 25% reduction until 2023. And the efforts that has been taking place, this reduction -- already been taking place around 19.5% already in the last 3 years of efforts, which has been taking place. Same thing for water consumption. We have another target of reducing 5% our water reduction -- water consumption. And so far, we have reached 1.1% reduction. And at the -- similarly, energy consumption, which is another driver of, of course, altogether, and that's another target that we already shared with the market that until 2023, we're going to be reducing our energy consumption by 17%, where we already reached 10.4% with the efforts of last 3 years that has been taking place. Gender equality is a clear dimension where Migros is acting very -- based on the service industry's overall advantage. Of course, Migros trusts that we should be also one of the very important driver of the efforts for female representation on our overall operations. At this moment, our employee percentage is at the level of 40% female penetration, which is one of the very high figures across industry and, at the same time, across industry's figures. And now we are coming up with a new target, especially on the executive management level, until 2023 to reach another 23% increase on female representation on such important area of responsibility. Lastly, there is another new initiative that we want to introduce to the market, which is an important issue for Turkey specific, but also at the global arena, which is the food waste that has been taking place across the supply chain. And as of last year, we are now committing ourselves by 2030 to half -- to spend -- to reduce 50% of our food waste across the supply chain, which is going to be a very challenging target, but we trust that we can deliver that together with our stakeholders coming from farmers up to the suppliers, the supply chain partners and the consumers' overall education towards how we can be just more proactive to reduce the food waste in -- across the system. And overall, we will be just glad to express that this is going to be the future -- much more focus for the company's overall expectations. And we will be just training as much as we improve the current conditions, and we trust that we can deliver this result as we promised. So for today, this is going to be our presentation. And as Affan mentioned, now we will be glad to have your questions, if there are any.

[Operator Instructions] Your first question comes from Regiane Yamanari, Morgan Stanley.

I have actually 2 questions on the market share gain, both in modern and in the total food retail market. Do you think that market share was basically driven by the online penetration that increased? Or what do you think it -- was the main driver of this, especially in the modern one? And the other question's regarding the decline in gross margin in the fourth quarter relative to prior year. Understand the prior year was stronger. But even compared to the average of the prior 9 months that -- you think that will be the new standard of gross margin around 25% or you see more stabilization around 26% or something closer to what was the average for 2019?

Thank you for the questions. The market share gain for the Migros overall operation is mainly driven with our physical stores' traffic gain. So it is not limited with online. But of course, online is also very supportive. It brings further traffic to the physical stores. And we are now modeling our operations under the definition of online and off-line fully integrated. And that is relevant for our large store format, especially hypermarkets and the store format that we call MMMs, which are large supermarkets, are now servicing online across the physical stores, which means that the large stores which used to suffer in terms of traffic globally, which is mainly the driver of shopping behavior shift of the shoppers towards a convenience model, which is available everywhere, and that is relevant for Migros Jet and M and MM. And whereas the large stores are now servicing with the important advantage of online deliveries. So all in all, the main drivers of the traffic gain and, of course, the same-store growth are coming from Migros Jet, M and MMM. And online is helping our MMMs and 5Ms overall, I would say, in terms of traffic generation. So in terms of gross margin generation, online is also an important driver for different product category sales. To be more specific, I would do the expression of electronics and some apparel categories, which are important for online traffic. And Migros was not very active in that front based on the regular supermarket presence and the overall food and fresh food focus that has been the case. And last year, we have done an operation and so called, and it is very popular globally, the Black Friday activities, combined with some additional penetration on nonfood categories that has been delivering us and in terms of important additional traffic and, at the same time, of course, top line growth but with a dilutive impact of apparel categories in the Turkey's overall margin position is relatively less gross margin-generating. And there is a dilutive impact in that front. What I would like to express, that is -- is that, that was a case that we were all focused to deliver, and we trust that it has brought us an important, important traffic to the shoppers' overall expectation but also, at the same time, the new product categories that has been penetrating into our operation, which is going to be a target to be delivered in the coming periods as well. In terms of apple-to-apple comparabilities, we don't think the margin dilutive impact of such behaviors will continue. Of course, any type of new initiatives, as long as we continue trying into new product categories, may have a temporary margin-dilutive impact. But overall, our margin guidance will be pretty much the similar levels in terms of generating our historical gross margin levels to be maintained rather than the last quarter, last year's margin as a reference point. But we should be all bearing in mind that our gross margin during the time of high interest rates, there is an element of imputed interest charge, which is discounted from the cost of goods sold, what we call the imputed interest charge on our P&L. And that has been the case for high interest times, which was one of the year of 2019. So whereas the 2020, we are all expecting a lower interest rate, which is what we call the normalization of interest charges which is going to be normalization of the gross margin.

Okay. And so just on the new stores for this year. In the presentation, you say there are 32 new stores. You have -- well, over the past -- to February. You -- what the area or for these 32 new stores? You have a total of the total area open or at least the -- a breakdown of the type of stores that we are considering here?

Thank you for the question. Expansion model of Migros has been historically focusing on large cities. And the main idea is, of course, the top cities like Istanbul, Ankara, Izmir and Antalya, all those priority districts for Migros. And our focus is still continuing. Since the organized trade activities, even in these large cities are limited at the levels of 40%, 45%, we still believe that there is a room for physical expansion in these territories. And at the same time, we like to expand to the households where we are not present, what we call this is to reach all the cities with a physical presence, which has taken place as of 2018 and '19. Now as of 2018, we are available in all the cities of the country, which means physical presence is realized. Now the further efforts will be through both physical store expansion coming with the priority of large cities, urban areas, but also the online penetration to be improved with our store-based delivery models and courier-based systems to cover all the country. So that is going to be the expansion priority for the company. And we have been testing and monitoring in the last decade almost that online presence increase is a more CapEx advantage program as long as we maintain the store-based delivery models, which is benefiting from our existing capital expenditures in some physical presence. So this is why, for us, in terms of returns, online operation should have a further benefit in terms of CapEx efficiency for the coming periods.

Okay. But the 32 new stores, they were -- sorry, the type of stores that will open this year, it was more 3M or more -- we're talking about like Migros Jet or...

The majority of them was Ms, which is the average, but we have MMs, MMM as well and Migros Jet as well. The regular percentage is that we always represent.

All right. Okay. So there was no focus on one specific type.

No.

[Operator Instructions] Your question comes from the line of [ Dorkim Gök ] at [ ATA ].

It is going to be minimal. My questions are mostly about your 2020 guidance. How much sales area growth should we expect for next year, I mean, considering your space optimization? And could you please provide more details about your core assumptions like inflation, interest rate? And lastly, you talked about some challenges regarding some certain categories in 2019. Are there any revenue or cost item or product categories that you find it useful to warn off in advance, to follow up throughout the year?

Thank you for the questions again. This physical growth of the company is pretty much the driver of the store expansion model. And basically, once we are opening around the similar distribution of what we represent in the market, that 120 stores should deliver us around 3% to 4% levels of physical growth space. However, time to time, we continue on space rationalization. And in our model, we still have some more hypermarkets to be space-optimized. So that will be a dilutive impact on the physical growth. But we don't consider this as a challenge because this type of space optimizations are very much helpful in terms of efficiency gains, both to the limits of rental expenditures and, at the same time, revenue generations from the external space that we generate. So on the other part, of course, the physical expansion will definitely continue in this -- in the market conditions. And -- but at the same time, the online penetration added to almost every possible store is another gain for us for the coming years as a supportive traffic generation for the existing store base. The interest rate, of course, it is hard to express. But overall for last year, the interest charges that has been the case around 17% to 18% range for 2019, whereas we are anticipating around 12% range for our budgeting targets in terms of interest rates to be monetized. But as I expressed, it is hard to be very clear here. And more or less, of course, this is based on the guidance that the central bank and the government is just putting into the market. And we are pretty much in the same guidance that we are expecting for interest charges to happen, except unexpected developments which may occur in an important territory of this world. Product categories, which we're to elaborate are somehow 2 dimensional. One of them is mostly the perishable product categories, where shoppers are pretty much very price-sensitive, and at the same time, supply and demand is not very well balanced in terms of country's overall capabilities versus the consumption power. I would say Turkey is one of the rare countries that his own supply is efficient for -- and is enough capacity for the overall consumption. However, there is a significant trend towards both urbanization, where we have less farmers literally working on the field and, at the same time, the overall efficiencies, where we all need to focus is not taking place because of lacking large industrial operators in the fresh perishable categories. So this is why I would express that fresh perishables, we should be just continuously monitoring in terms of supply efficiency and the product quality depending on the season and, of course, the harvest reflections. Next to it, of course, I would be also cautious in terms of nonfood categories, which might be impacted on both this unfortunate coronavirus situation across the globe today, whereas the main production is coming from the Asian markets and we have to be all very careful about the supply and the demand cycle, which may occur. And the majority of this, not just for the final product but the main materials, are pretty much also supported from the Asian markets today. We all hope that this is a temporary situation, but it may trigger some product deficiency and lacking of the supply. And we may also end up by some spare part unfortunate situations in the markets. So that is why we will be just keeping eye very open and to make sure that secure our supply chain regarding in that front. Good news or bad news, depending on the way we look it, electronics category is not a very large category in Migros' overall sales. However, it's a very opportunistic market. And these are large ticket items that we all want to benefit, not just with physical stores, but also the online operations. And this is why we are monitoring this part very closely.

We have no further questions. Next question on the telephone comes from the line of Berna Kurbay, BGC Partners.

I briefly got cut off during the call, so apologies in advance if you have already mentioned these, but I've got 3 questions. The first one is about the asset sales. So far, you reduced it by around EUR 275 million, if I calculate correctly, over the course of the last 13 months. How much of that came from order facilitated by the asset sales? If you could provide that amount, that would be useful. My second question is about the EBITDA margin guidance of 8% to 8.5%. You've already mentioned the impact of the imputed interest costs on purchases, which we already observed in the other operating expenses. So if we were to take that into account, the 8% to 8.5% EBITDA margin that you're guiding for, is it going to be more or less equivalent to what was observed in 2019? Or are you basically expecting other cost pressures that would reduce the margin? And my final question is about the trends that you observed so far in the year in January and February. If I remember correctly, the first quarter of last year, there was the impact from the [indiscernible] sales points. The government-supported fresh food prices had some negative impact, if I recall correctly last year. So is it fair to consider the first quarter of last year as a relatively favorable base for this year? Or does it have no influence at all?

Thank you for the questions. Asset sales, to my memory, which has taken place in 2019 was equivalent to around TRY 520 million levels. Of course, I won't say that there was a piece of it back in 2018, but much lower, around TRY 100 million level, TRY 100 million to TRY 200 million. So the rest of the benefits that we are gaining, of course, is coming from our own internal cash flow generation. Of course, asset sales are important to the levels that we are happy to continue. And it is worth to mention that some of the shopping centers that we are exiting are rental revenue-generating operations. So there is an unfortunate dilutive effect on the EBITDA as well. So we have to take this into account when we express our asset sales is not the #1 priority for the company. The most important one, as long as they are opportunistic and they are relatively beneficial for the company's overall cash generation, we will continue in that front for the targeted ones, which may still take place in 2020 as well, where I am relatively positive because of the interest rates, which are more favorable for the real estate market today for the buyer side compared to 2019. So a brief summary of it, asset sales will continue as long as the markets are pretty much in this shape or form. On the EBITDA generation, unfortunately, we know that it is confusing. The IFRS 16 impact is not easy to perceive. There is an element of rent which is a real complicated calculation coming from the life cycle of a rental store. The numbers that -- this is the reason that we're going to continue reporting IFRS 16 and including and excluding impact throughout next year to make sure that the apple-to-apple comparabilities will taking place until we are all comfortable as management and as our investors and analysts. So the regular margin movements in terms of apple-to-apple EBITDA generation, we are not expecting a margin deterioration other than interest rate charges, which is just the parts that I expressed: the asset sales dilutive impact on revenue generation coming from the rental income, one part of it, and partly from the online operation's aggressive growth, which will be also margin-dilutive. So other than these 2 specific areas, one of them, the asset sales impact and the other one is the online growth -- online sales growth, margin-dilutive impact, we are not anticipating a margin deterioration on apple-to-apple comparabilities. The rest of it, of course, throughout the year, we will be trying to be as clear as possible the impact classification, which part of it is coming from the interest charges on the term purchases and which part is pretty much reflected from online or asset divestiture impact. The last part of your question regarding the last year, the first quarter and second quarters was impacted from perishable categories, very heavy price decreases in order to fight with inflation. I would say that this is not just the fight with inflation, but also the harvest unfortunate situation was not helpful for 2019 first 2 quarters. That is why we ended up by 2 different aspects. One of them is the impact of high cost of previous years, the application coming from, especially the oil prices driven by the currency movements, which unfortunately hurt the farmers in terms of their cost base. And second part of it was coming straight from the harvest quality, which has disturbed some major products like potato and tomato which are very important basic food necessities for Turkish cuisine. So in that reflection, the price has increased significantly, and we experienced the figures of inflation around 40% to 50% on those categories, especially on vegetables, perishable vegetables, which has impacted from -- both from the harvest and also from the cost elements, as I expressed. I'm keeping it long because it's a sensitive area. This year, for instance, we are not expecting that 2 dimension to replicate, which means there is no further currency-driven or oil price-driven implication to the cost base of the farmers. And there is no, up until now, at least, a very bad weather condition, which we might be concerned for the harvest quality. So that is why I'm more positive that we are not going to experience such environment coming from the vegetable perishable categories for an inflationary environment. Hence, the result, we should not expect a similar price reduction or inflation fight for those categories. But all in all, as I said, these are all dependent on the harvest gain, which we are all monitoring very carefully. We are partnering with cooperatives. We are partnering with individual farmers to secure their product quality, to make sure that this same unfortunate condition not to happen for 2020 as well.

We have no further questions. We have one more question on the telephone. It comes from the line of [ Suf Ikoran ], Deniz Invest.

I just have one question about the online operations. Can you give me the specific share of the online sales on the wholesale numbers? And is there any specific percentage of it? Because you said that you were expecting like a nearly 75% sales growth in sanalmarket, which is pretty high. I just want to ask you this question.

Thank you for the question. For the commercial sensitivity, up until now, we did not share the online sales percentage within our top line. But I would say it's still single digit figures. But at the end of it, of course, it's a very aggressive growth coming back-to-back in the last 3 years that we are experiencing, and we will be [ putting ] more efforts. But as you may anticipate, this is a very commercial sensitive area, and we will be just keeping it for a while until the figures are much more to the target levels that we all reach to happen for the coming years. And we trust that it is going to be one of the most important growth source for the company in the coming years.

No further questions.

Everyone, we thank you one more time for participating in Migros' Full Year 2019 Earnings Call. If you have any follow-up questions, please don't hesitate to contact with our IR team. Thank you again.

Thank you very much.

Thank you. That concludes your conference call for today. You may all now disconnect. Thank you for joining, and enjoy the rest of the day.