Bizim Toptan Satis Magazalari AS

IST:BIZIM.E

Earnings Call Transcript 2023-Q3

[Isil Bük, executive]

Good afternoon, everyone. Thank you for joining us today where we discuss Bizim Toptan's Third Quarter Financial Results. Today, I'm joined on this webcast with our CFO, Önder Arikan. And the presentation that you are seeing on your screen is now available on the Bizim Toptan's 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 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 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, Önder bey.

[Önder Arikan, executive]

Thank you, Isil hanim. Dear investors and analysts, welcome to Bizim Toptan's conference call for the Third Quarter Results. It is a pleasure for me to join once again one of our conference calls. I am happy to share successful results, not only operational but also financially. I would like to start with the general view of the quarter. Firstly, we showed improvement on the operational and customer figures. We opened 2 new stores in Denizli and [indiscernible]. And also, we have added 95 SEC stores in net, into the SEC stores network and reached to 2,699 SEC stores. In addition to this, we surpassed 2 million active customer numbers, which is crucial to improve the customer base under the competitive market conditions. Together with customer number growth, we experienced strong sales growth in target customer groups. In the quarter, sales to HORECA customers grew by 101%, SEC sales grew by 77% and sales to corporate customers grew by 62%. Secondly, extraordinary conditions of the first half of the year were over. You know that during the April and May oil and diary product price decline affected gross profitability. Also, we have excess inventory because of the weak Ramadan period, and we had to eliminate excess inventory by doing price investments in the second quarter.

Therefore, during the first half of the year, normal performance of the company was hampered. In the third quarter, such conditions were over and profitability improvements started as from gross profitability. And thirdly, the collections for OpEx increase started to generate positive impacts on OpEx management.

If you look at the growth figures in terms of sales channels, it is seen that except the Platinum side, all the channels growth rates are satisfactory. PROSAF channel grew by 128%, SEC channel grew by 77%, as mentioned, and e-trade channel performance was tripled. Next slide shows that in each quarter, Bizim Toptan improves its customer base towards more profitable and sustainable customers. With the help of the multi-channel sales models, strong results that I mentioned in the beginning that 63% of the sales revenue generated by SEC, HORECA, corporate and individual customer groups. After the brief summary of the operational point, I would like to continue with the financial results. Now let us look at the top line growth. In the third quarter, sales grew by 62% and reached to TRY 6.2 billion. Excluding the sugar and tobacco, sales revenue growth was 51%. Company continued to generate sales from like-for-like growth as usual. Total like-for-like growth of the quarter was 58%. While tobacco and sugar excluded, like-for-like growth was 46% (sic) [ 44.3% ].

It is an important to point out that we have experienced sales growth over our internal inflation by around low teens and our overall sales tonnage have also increased by low teens. During the first 9 months of the year, sales increased by 68% and reached TRY 15.7 billion. Excluding the sugar and tobacco, sales growth was also 63% with a like-for-like growth of 61%. Now let's move to SEC slides. As I summarized in the beginning of my speech, SEC continued its strong performance with its unique business model. During the quarter, 95 new SEC stores were added into our system in net and total store number increased to 2,699.

With the 77% sales growth, SEC did TRY 1.5 billion revenue in the third quarter, whereas sales of the channel was TRY 3.7 billion in the first 9 months of the year by generating nearly 34% of Bizim Toptan's total sales. Although major earthquake affected the SEC figures, we continue to be in line with our growth guidance in SEC sites.

Now I would like to continue to profitability figures. In the third quarter of the year, total gross profit increased by 75% and reached to TRY 881 million with a margin of 14.1% while main category gross margin improved from 15.1% to 15.9%. Also there is a margin improvement in tobacco side around 1.4 percentage points.

As I mentioned in the beginning of my speech, first half, especially second quarter's extraordinary conditions, which shadowed the real performance were over. Therefore, in year-to-date figures, gross profitability performance started to close gap compared to the same period of last year. Gross margin was 13.4% with a 15.3% main category profitability. Now let's turn to operating expense slides. As I mentioned in the previous webcast, we had already taken measures to eliminating the cost inflation. Although the minimum wage increase that happened in the middle of the year continued to add pressure on OpEx management, we have managed to keep OpEx over sales ratio at 9.6%.

Digitalization costs regarding SEC's ERP expenses and other IT costs also continued in the third quarter. In year-to-date figures, OpEx over sales ratio was at 9.9%, including all extraordinary costs that happened in the first half of the year regarding the earthquake. Now I will continue with EBITDA on the next slide. EBITDA margin improved in the third quarter and reached 5.6% compared to 4.6% of last year's. In the first 9 months of the year, EBITDA margin continued to be behind of last year with 4.6% margin. However, we believe improvements will continue with normalization of gross profitability and positive impact of OpEx management.

In the quarter, net income jumped to TRY 127.7 million with a margin of 2%. However, this result includes one-off gains from deferred tax income. It affected net income around TRY 48 million positively. In the first 9 months results, we managed to cover all the loss of first half and generated TRY 66 million net income with a margin of 0.4%.

Next slide is about capital expenditures. Total CapEx was around TRY 79.5 million during the quarter, and it was TRY 185 million in the total. CapEx over sales ratio in the third quarter and year-to-date were 1.3% and 1.2%, respectively.

We opened 2 new stores, as I mentioned, and reached to 181 stores network with [ 196 ] square meters net sales area. We are in line with our store opening guidance. Also process of the refurbishments and SEC ERP system 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. We continued our operations with a relatively reasonable inventory days.

Total cash was nearly TRY 54 million in net, including IFRS 16 rental obligations and our very limited liabilities amount, only TRY 1.2 million. Cash and cash equivalents increased slightly. We once again continued to keep our debt free and FX free 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 guidance slides. As we announced yesterday, we revised down sales growth target to between 50% and 60%. And we revised our EBITDA margin target to between 4.5% and 5.5%.

Before moving to the Q&A session, I would like to provide information about one of the underlying reasons of the growth revision. It can be easily seen from the Turkish Statistical Institute's 9-month inflation data, some products inflation is lower than the average CPI or food price increase index. I mean price index of oil, grain, flour is at 20% levels, whereas delicacies, some dairy products, jam, et cetera, prices increased over the average inflation.

You know that Central Bank of Turkey estimates year-end inflation as 65% at the end of the year, which is higher than current levels. However, due to our customer -- category mix and the price trend I mentioned, we estimate Bizim Toptan's internal inflation for the last quarter, much more lower than 65%. Looking at this figures and October results, we decided to revise down growth guidance for being transparent to our investors. With this, I would like to start the Q&A session. [Operator Instructions].

[Isil Bük, executive]

[Operator Instructions] I think there is no questions. So thank you for joining today's call. If we have questions regarding the results or any other thing about the company strategy, you can write directly to my e-mail or our Investor Relations e-mail.

We wish all you healthy days and look forward to updating everyone about our fourth quarter results in the beginning of March. Meanwhile, if you stay in Turkey, we can -- by the way, there are some participants right now.

So Cemal, do you have any questions? If you have any questions, Cemal? Yes, Cemal has question. Okay. [Operator Instructions] Cemal, I think something is wrong in our system. I have allowed your device settings but I couldn't understand why we can't hear you. I've tried to arrange.

Cemal, could you please try to open your microphone because it seems that it's not from our side, your microphone is enabled in our side. Or if you want, you can ask your question through chat. Right now, I allow all of the attendees microphones. Let's try again like this. Cemal, it seems we can hear you if you speak. Cemal, could you please write your question meanwhile? Or yes, now you open your microphone. I can't hear you. Is there anyone who can hear the Cemal's voice? I think there is no one. Would you like to write down your question on the chat platform? Okay. We are waiting for it.

[Önder Arikan, executive]

Thank you for the question. In my speech, I tried to explain. It is mainly coming from the fact that if you look at the Turkish Statistical Institute's 9-month inflation and Central Bank's year-end estimation, it is increasing trend, yes.

But if you look at the category level, the categories we are focusing on, there are some big product groups like oil, grain, flour at 20%. So looking at October trend also, it seems like that, although we are improving our sales above our internal inflation rate because of this macroeconomic price increases, our sales estimation is lower than the previous one. Yes, in an inflationary environment, it is very hard to analyze these nominal growth figures because if the inflation is below 10%, so the price increase, price hikes doesn't have such a big effect on growth side. But if you look at the TÜIK data, there are lots of fluctuations between different groups, different categories, but it doesn't mean that forever, the products we sell is more price increase than other food items.

So looking at those figures and the October results as well, we decided to revise down our sales estimation for the -- sales target for the year end and last quarter. So yes, yes, as I said, it is not stemming from the fact that we are decreasing our customer -- miss customer numbers -- but it is coming from the normal side I mentioned. Yes, that estimation is correct, Cemal, in the year end, in the last quarter, currently, are looking at inflation figures -- internal inflation figures and our view, growth, yes, it is like 4% to 5%. But I mean, it is -- in terms of our internal inflation, it implies real growth.

Of course, year end, overall country inflation is above this, but our customers and category mix is much more lower to inflation. So although in real terms, in tonnage, we have good figures, but in nominal terms, our nominal growth rates will be lower compared to our first quarter.

[Isil Bük, executive]

For doing some addition information about Önder bey's comments. When we look at our third quarter internal inflation, it's lower than Turkish Statistical Institute's figures because of the product mix that we sell.

And since the products that Önder bey mentioned in his speech has a share around 30%, 40% of the total sales, their price trend affects our internal inflation. So although our internal inflation is lower than the Turkish Statistical Institute's figures, you can assume all of your models, at least low teens real growth on top of the inflation expectations.

We experienced that real growth in the third quarter results and also both October and beginning of November, we continue to see a real growth at least low teens on top of our internal inflation. But since the price trend of such products seems lower than the TÜIK's, the Turkish Statistical Institute's inflation trend, we think that it should be better to change our guidance for being transparent for our investors.

[Operator Instructions] If you don't have any questions, we can finalize the meeting. In Istanbul, most of you received an Analyst Day invitation for the coming days. We hope to see you on that meeting. The ones who doesn't get the information, I can send the info, so please write me from our IR e-mail or my personal e-mail, and we are looking forward to meet all of you in that Analyst Day and also the webcast that we will be sharing our last quarter results. Have a nice day. Bye-bye.