Bizim Toptan Satis Magazalari AS

IST:BIZIM.E

Earnings Call Transcript

[Operator]

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

[Isil Bük, executive]

Thank you, Denise. Good afternoon, and good morning, everyone, and thanks for joining us today to discuss Bizim Toptan's 2021 first results. The presentation is now available on the Bizim Toptan's Investor Relations website and also on the webcast link 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 main parts: Firstly, our CEO, Hüseyin Balci, will explain comments about the quarter; secondly, our CFO, Önder Arikan will detail the financial results of quarter and share expectations for 2021; and thirdly, we will open the call for your questions.

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 is no objection, we propose to take it as read into the record for the post of the conference call. Lastly, please note that all figures are in Turkish lira, unless otherwise stated, and rounding differences may occur.

Hüseyin Bey, the floor is now yours.

[Hüseyin Balci, executive]

Thank you Isil hanim. Team, investors and analyst, welcome to Bizim Toptan conference call for the first quarter results. I hope all of you and your loved ones are healthy under quarantine situation. Firstly, I would like to say that by the end of the third quarter, we generated good results, which are mostly better than the quarterly plans regarding the year-end guidance.

As all you know that because of the COVID-19, there were lockdowns in January and February. During that period, auto phone consumption market was affected negatively. Most of our Horeca customers were suffered from lockdown, therefore, phase 2 Horeca channel was limited during the first 2 months of the quarter.

Meanwhile, in general terms, weekend lockdown effected customer traffic. As most of our customers drive to our stores, they could not visit us in weekend, especially individual customer traffic was affected because of the lockdowns. In addition to the individuals high base in March 2020 impacted individual customers' growth rates. For example, during the first 2 months all of individual customers grew by 19% in weekdays. However, weekend and March performance was included in turn to 11% decrease in total.

As a result, the lockdowns impact on auto phone consumption market and individual segment, made us to make actions against market conditions. We did price investments and supported our customers by additional bonuses. So growth figures continue to be strong both of total and like-for-like terms.

In addition to this, in March, partial normalization in lockdown supported Horeca customers positively [indiscernible] the prior lockdown period sales in negative. In other words, Bizim Toptan multichannel sales model shows its strength under such extraordinary conditions. On top of those commercial actions, we spent the quarter by taking strategic actions.

We prepared plans for increasing our nationwide coverage in some strategic cities currently. We have nearly finalized agreements for 5 stores, which are located out of our existing coverage. In March, we accelerated Whatsapp business line for all of our customers, both B2B and B2C side. By recording to Whatsapp phone number, all of the customers can reach at us, launching near stores that information about companies for now. We are continuing to improve the application in the near future, net [ phases ] still go live.

During the quarter, these Horeca customers were suffered from pandemic, we focus our attention on oil and gas stations. With the PROSAF channel, we increased our penetration in that customer group and generated additional sales revenues. We believe oil and gas stations will be a critical [ impulse ] consumption placed in the near future. Therefore, we are taking a disciplined part in that market and other strategic action of Bizim Toptan's on private label and exclusive product side.

With the Aytaç brands under the 6 main groups and 13 subgroups, we are launching 88 new products into market. I believe with the help of our first quality brands, Bizim Toptan's private label and exclusive product portfolio will reach a different place in the market.

Lastly, we renewed our digital channel platform. And at the same time, we promote clear correct system with the usage of artificial intelligence. Therefore, digital sales were doubled. On top of those actions, we continue to get robust growth from such operations as it is clearly seen lease impact of growth in the third quarter with 87% revenue growth rate. 200 new franchisees were opened, and we reached 1,409 sec stores in 80 cities of Turkey.

With all those strategic actions and support of our multichannel sales model, we reached almost 1 million active customer numbers. Also, with the help of our diversified customer mix, we eliminated the pandemic impact by continued strong and sustainable growth rate. Sum of Horeca, SEÇ, corporate and individual sales reached to 51% of total sales.

Before I leave floor to Önder Arikan, I would like to summarize sales and profitability figures. We named the growth figures of the quarter as strong and balanced. Both the top line and targeted sales group, I mean, excluding sugar and tobacco, growth rates for the sale, 22.8%. On top of this, profitability ratios were strong and sustainable, such as gross margin increased by 80 bps and reached to 12%. Main category gross margin keeps its robust level and reached to 14.4% with 120 bps increase. EBITDA margin increased to 5% compared to 44.4% of first quarter 2020.

Therefore, Bizim Toptan not only rtook strategic actions, but also generated strong results under the pandemic lockdown conditions. I would like to highlight once again my opinion about Bizim Toptan that I said before, Bizim Toptan is really a strong company for adapting itself to all the market conditions. Our business model is strong, adaptive and performer.

On top of this, we realized that its limited normalization state in pandemic, recursions will provide additional positive impact for Bizim Toptan compared to base scenario. Therefore, I have obvious confident in Bizim Toptan performance in following quarters. I am looking forward to sharing successful results this year. Now I will leave the floor to Onder. He will continue for detailing the financial figures. Thank you.

[Önder Arikan, executive]

Thank you, Hüseyin Bey. Good afternoon, and good morning, everyone. Thank you for taking the time to join us on our call today. Today, I am glad to announce the strong results, both operational and financially, also which are in line with our year-end guidance and plans. Firstly, I would like to start with the sales performance. Bizim Toptan showed robust growth performance under lockdown conditions. Total sales grew by 23% and reached to TRY 1.4 billion. Excluding sugar and tobacco, sales revenue growth was 23% as well.

As all of you know, that pandemic conditions affected Horeca customers negatively. If sales to Horeca customers was excluded total growth of the company reached to almost 26%. In that point, I would like to highlight almost all revenue growth as a result of total like-for-like performance. Total like-for-like growth of the quarter was 22%. Excluding the tobacco and sugar, like-for-like growth continued to remain strong at almost 19%.

Before moving to the next slide, I would like to say that during the March partial normalization of the lockdown showed us the strength of Bizim Toptan in the field of out-of-home consumption market. During that limited period, Horeca sales immediately returned to October figures. In other words, as we [indiscernible] to normalization will accelerate Horeca sales.

Now let's move to the next slide. As we always mentioned, SEÇ is a unique business model in Turkey. Its success is not surprising for us. During the quarter, 200 new SEÇ stores were added into our system in net and total store numbers increased to 1,409 . Sales revenue of the channel increased by 7% and reached to TRY 276 million in the first quarter. With this result, SEÇ created 19% of Bizim Toptan total sales.

As you know, we have a year-end guidance about SEÇ with 1,800 stores. Currently, we are keeping our guidance with a strong belief of it has potential more than this.

Now I would like to continue with the profitability figures. In the first quarter, total gross profit increased by 33% and reached TRY 174 million, with a margin of 12%. Same period of last year, it was 11.2%. You know that interest rates subject to the IFRS 15 was changed compared to the last year.

So I would like to provide information about normalized figures. While using the same interest rates of last year, gross profit increased by around 21%. Gross margin was slightly lower than the same period of the last year, but is in high levels. Tobacco deduction that was resulted from the customer mix change and price increases, as we mentioned in the beginning of the call.

Main category gross profit was also robust both announced and normalized figures. It increased by around 33%. And in normalized figures growth was around 22%. Main category gross profit was very strong at 14.4%. And in normalized figures, it was -- it's very strong and like the same period of last year.

Now let's turn to the operating expense side. In the first quarter, OpEx increased by 25%. OpEx over sales ratio was seasonally flat in 8.5%. The minimum wage increase and the additional headcount costs were the reasons of the OpEx increase. Additional headcount was related with the blue-collar workers that we hired for being on the safe-side in the case of COVID-19.

In that point, I would like to highlight that minimum wage effects will be normalized in following quarters like it happened in previous years. So you can expect a normalization of OpEx over sales ratio in the following quarters.

Now I would like to continue with EBITDA slide. EBITDA saw 40 bps -- 40% increase compared to the same period of the last year and EBITDA margins saw 60 bps increase by reaching 5%. In normalized figures, I mean, excluding the interest rate increase impact subject to the IFRS 15, EBITDA increased by 11%.

Let's move to the net income slide. In Q1, net income was TRY 0.4 million. Customer mix change, price investments and high stock level because of the Ramadan preparation which affect working capital and financial expense were the reasons of the net income reduction compared to previous years.

Net income level is it still better than our plans regarding to year-end guidance. So we are confident about our year-end guidance of TRY 43 million.

Next slide is about capital expenditures. During the quarter, we opened 1 new store and relocated 12 to existing stores. As we mentioned in our previous webcast, 2 of the stores construction wasn't finalized in the last quarter of last year. This slide those construction CapEx were written under last year's CapEx. As a result, CapEx is TRY 4.4 million and CapEx over sales ratio was 0.3%. In that point, I can tell you about store openings. We are planning to increase our nation-wide coverage from 70 cities to 75 cities by the end of the year.

Now I would like to give you information about working capital structures and balance sheet of the company. Like the previous quarters, we work with negative working capital. However, we increased our inventory level with the purpose of Ramadan preparation. So our working capital slightly decreased compared to the last quarter of last year.

Total cash was nearly TRY 214 million, increasing our limited liability, which has amounted around TRY 5 million. We continue to keep our debt free and effectively, balance sheet structure. I believe this is very crucial for companies under the [ current ] market conditions and Bizim Toptan has very protected balance 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 year, we plan to reach 178 Bizim Toptan stores and 1,800 SEÇ stores. Excluding the tobacco and the sugars, sales revenue growth will be between 23% and 25%. Around TRY 1.4 billion revenue is expected to gain from the SEÇ system. We target to keep EBITDA margin around 4.8% and net income with around TRY 43 million by the end of the year.

With this, I would like to start for the Q&A session. Operator, you may now poll for the questions.

[Operator]

[Operator Instructions]

The first question comes from Görkem Göker from Yapi Kredi Yatirim.

[Görkem Göker, analyst]

I have 2 questions. First one is regarding your net income guidance under which inflation assumption do you formulate that number and will the current high interest environment allow you -- for you to achieve your target because there would be an impact on your financial expenses? And how do you expect the breakdown of your revenues by year-end to develop going forward, considering also this -- any limitations on sales of some products.

[Önder Arikan, executive]

Thank you for the question. Actually we are doing our estimations in parallel with macroeconomic expectations coming from the authorities. In that respect, yes, currently, the inflation seems higher than our initial plan. However, in our financials, it doesn't reflected in the results. So in some periods, yes, there are price increases. But most of the time, we are supporting our customers with competitive prices. So each inflation, each price increase is reflected to our income structure immediately.

Regarding interest rates, yes, currently since we don't have any external depth, just we have -- factoring credit card receivables and using cash like the payments or some other [ instrument ] interest -- interest sales, that doesn't have effect on our financial net income expectations at the end of year.

Like currently, compared to our last call, just taxes are increased to 25%. We have a limited risk, but we believe that we cover this effect, and we can -- we are confident on that. We have at least TRY 43 million net income by the end of the year.

Regarding our revenue side, yes, in this quarter, there are strong lockdown. As we mentioned before, it's firstly effect since our stores are not in the city centers. So individual, has difficulty to reach our stores. Also you all know Horeca also is suffering from this lockdown. So yes, we had strong April figures. But in the first 2 weeks of May, we have some difficult to reach our customers, but we are hopeful in the coming 15 days and the rest of the quarters and rest of the years.

So as we mentioned, our first quarter figures showed us that if lockdowns are finished, we can do very good business in Horeca side because we are keeping our teams. We are not only keeping but also investing. We are increasing our number of our operations. We are making investments in digitalization side. So when the Horeca business come again, Bizim Toptan will be very strong after the lockdowns.

[Görkem Göker, analyst]

And another -- 2 more questions. Your CapEx guidance for year-end. Could you please reiterate it again.

[Önder Arikan, executive]

Our prediction are compatible which lasted around [ TRY 100 million ]. It is safe to assume it will be around a ratio of 1.7%, 1.9% of our total sales.

[Operator]

[Operator Instructions] There are no further questions. Dear speakers, back to you for the conclusion.

[Hüseyin Balci, executive]

Dear all. Thank you for joining the call. I'd like to wish all of you healthy days. And I'd like to say Happy Bayram to Turkish investor community. We look forward to updating everyone about our second quarter results in August. Have a good day.