BIM Birlesik Magazalar AS

IST:BIMAS.E

Earnings Call Transcript 2021-Q1

[Serkan Savas, executive]

Dear analyst investors, we are very pleased to welcome you to our first quarter results presentation. I thank everybody joining our presentation.

We are aware that there is very tax schedule for consumer analysts and investors today, so that we plan to keep the presentation slides short in order to allocate more time to Q&A session. This is a very busy day for you. We know that.

We hope you were able to download our investor presentation on our website. And now -- I now invite you to take a look at our first quarter results.

And let's start with the headlines, Page 4. Of course, we will look at more details on the next slide, but our key figures in the first quarter are quarterly net sales were TRY 15.5 billion, reflecting 23% year-on-year growth, which is within our expectations. We have said 20%, 25% top line growth at the beginning of the year. So it's perfectly in line with our expectations.

Same course for EBITDA. EBITDA margin was 8.5%, representing 35 -- 34% year-on-year growth.

Capital expenditure was TRY 480 million, corresponding to 3.1% of sales.

Net income was TRY 685 million, which represents 59% growth year-on-year, with corresponding 4.4% margin, this is 100 bps higher compared to same period last year.

And on the store front, we are continuing with the strong pace of store opening and have added 358 new stores across operations in Q1, consolidated one. And this brings us to 9,723 consolidated stores by the end of the quarter.

Moving on to operational platforms, Page 6, starting with the like-for-like sales slide. Like-for-like quarter sales increased by 13% from the previous year, the same period previous year. Our average internalization in this period, for the same period, is 26% for the same period in internalization. And please note that the comparison of BIM internalization and like-for-like is not fully meaningful due to the high base of March last year when people rushed to the stores and stocked up. BIM, as you know that last year, the COVID started in March. And as we point here 25.5% in the first 2 months. And then just to March brought us to 40% for the full quarter. So there's a strong base in March and in the first quarter as well.

Like-for-like basket size increased by 36%. As we have been mentioning, average basket size has grown significantly during the COVID period and this trend continues.

Customer traffic decreased by 17% on a quarterly basis. And again, this is due to fewer store traffic during COVID and government regulations such as weekend curfews, lockdowns, et cetera. We had, on average, 547 customers per store per day traffic in Q1. The ongoing negative customer traffic is compensated by the larger basket size while the people mostly or only consume at home nowadays.

And on the store side, we have maintained the opening pace. This is slightly higher than the last year's. But we are maintaining our opening pace. We have opened 331 new BIM stores, 17 stores in Morocco and 10 FILE stores. And there's no opening in Egypt as we announced at the beginning of the year. In total, we had 9,723 stores by the end of the quarter, including Morocco and Egypt.

Actually, you know that seasonally, first quarters are always stronger in the new openings in Turkey and this was the case this year as well. We -- actually, we did -- we are not giving any official guidance on store openings, but stock chance from the last year will continue this year as well. There's no reason to decrease the openings because there's no cannibalism, minimum cannibalism maybe, so there is room to grow in the market, so we are opening stores as much as we can. And it's almost in line with the last year, the pace.

As we mentioned in our previous call, we are also designing our stores with the new format design. The number of new format stores reached around 1,300 as of today. We are opening new stores with the new design. And also we are redesigning our stores, old stores, which we took for maintenance.

Openings in the Morocco operation are also progressing well. Again, after they have been slightly impacted by the COVID-19 last year, this year opening as well in Morocco's operation.

And capital expenditures, moving to CapEx slides. Our quarterly CapEx was TRY 470 million, corresponding to 3.1% of net sales, which is higher compared to same quarter last year, but it is in line with our expectations. You know that we have set TRY 1.750 billion capital expenditure expectation for the full year.

There are a few reasons for high CapEx this quarter. The first, higher number of store openings. The second, higher material cost caused by significant Turkish lira depreciation. And third, there are 6 ongoing warehouse constructions, 4 are of by BIM, we will open 4 new warehouses in Manisa, Aksaray, [indiscernible] for BIM. Another warehouse in Ankara is almost under construction. And this is for FILE. And the sixth one is a new warehouse for our right packaging subsidiary company named GDP Gida. So now we are actually -- there are 6 warehouse constructions. Some are almost finished, but this is also one of the reasons of the CapEx.

You might not have noticed that we haven't given guidance for store opening pace in the last presentation. But we expect to continue at least the same pace of the last year.

And now let's look at our financial slide, financial performance, Page 10. Starting with the sales progression. As mentioned in the highlights slide, our sales are in line with our expectations. In Q1, the sales grew by 23% and reaching TRY 15.5 billion. We indicated on the previous call that sales were starting to normalize after COVID period. This is the case for all the general sectors, retail sectors normalizing.

And what's going on in the post Q1? In the 4 months year-to-date sales growth is also in line with our full year guidance. And despite the high base of April -- actually, last year, April is one of the strongest months last year. So May the strongest -- after March and April was strongest. But in March, April, we are trading in EBITDA expectation in terms of top line.

Regarding the main trading, you know that there are full lockdowns in Turkey until 17th of May. So people consume at home nowadays.

Until 17th of May, organized food retailers are closed just on Sunday. And nonessential, nonfood sales are restricted during this period. As this already started to date. But we also Sunday sales are somewhat offset by the higher sales in other days.

And on the non-food side, although it is 10% or 11% of sales -- sports our sales, sports products plus some cosmetics plus some wearing -- listed wearing products, some products, for example, under wear, something like that, they are also restricted. Total around 10%, 11% of sales are being affected due to restrictions. Hopefully, we expect minor impacts of restrictions as we reschedule our spot listings to compensate the temporary sections. For example, our spot sale is Friday today. And we took today's spot sales to Wednesday, 2 days earlier. And the next week's spot sales, Friday sales, we will postpone after Bayram. So we believe that, yes, there will be some impact, but impact will be negligible to forecast and of restrictions. And this is very limited period, 2 weeks period, hopefully. So it will be negligible like 0.

And gross profit and gross margin progression. On quarterly basis, gross profit has increased to TRY 2.9 billion with 18.4% margin. As you can see, gross margin is slightly lower than last quarter, but still within our expected range despite some price investments we made in Q1. We didn't give any guidance about the gross margin, as we announced that we expect to keep it at 18% levels. And post Q1, there is not any material worsening. I can say that.

And inflation, of course, is rising. Inflation is rising. But as we announced last quarter, we don't refer to benefit from low cost inventory. As I mentioned, our interim inflation for Q1 averaged 26% year-on-year.

And now let's look at our quarterly EBITDA and EBIT. The quarterly EBITDA was TRY 1.3 billion with corresponding margin of 8.5%, which is exactly in the upper end of our target range. Year-on-year increase was 34%.

And quarterly EBIT was TRY 917 million which corresponds to margin of 5.9%, resulting 38% year-on-year increase.

And regarding the OpEx development in Q1, as usual, in first quarters, we have some staff cost pressures, this quarter as well, due to high increase in minimum wage. At the beginning of the year, the minimum wage increased by 22%. We also applied to this in our mostly store employees. So this is also putting somewhat pressure on our gross -- on our OpEx side.

And additionally, the support from the government for minimum wage is still the case, they will give it, but the execution has not started yet. Therefore, we haven't reflected in our total loss yet. Maybe this is -- maybe similar to last year's practice, the support might be transferred to companies by May or June. It's not clear yet retrospectively. Last year, maybe you remember, we also get minimum wage support in late of May, late May. So we expect the same this year. Maybe we will have somewhat positive contribution coming from BIM's base support. But this is not too much, maybe 10 bps you can imagine.

And net income, moving on to net income slide. Our quarterly net income was TRY 685 million, 59% growth year-on-year. Quarterly net income margin was 4.4% this quarter.

And also, I will highlight that for new tax costs, you know that applied corporate tax rate was 20%. And it is applied to first quarter is 20%. But it will be implemented at 25% for the full year of 2021, starting from the first half results. Therefore, the first quarter's tax rate hike impact will be reflected in the second quarter. This is coming from the tax cost. So as you know, this year, 25% for the full year. Next year, 23%. And hopefully then, we will come to normal 20% levels, hopefully. But this year, we were a little bit putting pressure in tax side. So this is maybe is just for your projections this quarter and this year and next year.

And as last slide, let's look at our current operations and FILE highlights. On our last call, we have mentioned we have identified a strategic partner for our Morocco operation and Helios, the investment partners from U.K. And we are pleased to announce that the share purchase agreement of 25% Morocco have now been finalized and cash is collected today, 2 days ago, actually the closing almost done.

Now we are looking forward to expand the Moroccan business with a new partner on board. And Morocco is continuing to contribute to our net income in the last 2 years and has been contributing better to our gross margin and profit margin this year. Store opening pace is also good. So we have opened 17 new stores in Q1 and continue with it on pace. It's good, that, because last year, we have been impacted by COVID. Store openings was impacted by COVID. But this year, we are happy with this opening pace.

In Egypt, we are maintaining our 300 stores and we are not planning any new store openings for this year.

As for FILE operation, we have opened another 10 new stores in Q1, which means we had 133 stores by the end of Q1. FILE whole business income was profitable in 2020 and is continuing, progressing well. A third warehouse of FILE we've opened in Ankara in a few months' time is almost finished. Then the coverage to meet Anatolia will be extended after opening the third warehouse of FILE in Ankara.

Last but not least, FILE online shopping platform is about to finalize and its claiming pace and likely to be launched in a few weeks' time. But of course, with the limited regional coverage. This is in [indiscernible] and Iran, we will start it. If anyone of you live in both regions, just recommend to download FILE apps from -- then to try our e-commerce. In a few weeks' time, we will start it.

Now I would like to thank you for your attendance in my presentation. We'd like to now open the floor for Q&A if you have any.

[Operator]

[Operator Instructions]

Alex, the floor is yours.

[Unknown Analyst]

I wanted to congratulate you on your impressive results. I have, I suppose, a couple of traditional questions. I'll ask them one by one.

The first one is, how are you progressing in the second Q '21? Here, I mean that you're going in the corridor of your current guidance between 20% to 25% year-on-year growth? Or you have something stronger than initially anticipated?

[Serkan Savas, executive]

Okay. Thank you, Alex. Actually, as I mentioned in -- in Q2 2021, April is going to run in line with our expectations despite the April is strongest base. So I -- in May, there are some restrictions today. It's early to speak about to May. But generally speaking, I can say that the top line growth is still in line with our full year guidance post Q1 in the second quarter as well. Okay?

[Unknown Analyst]

Hello. I was asking how is the competition progressing? I mean you and other discounters are continuing to consolidate the market. I mean, you, A101 and SOK.

[Serkan Savas, executive]

Competition is -- of course, in this segment, it's tough. It has been tough in the last 5 years. Store openings are aggressive in discount segment. Actually today, there are around maybe 26,000 discount stores in Turkey, 26,000. And each year, there are maybe more than 2,000 or 2,500 discount stores are being opened. But there is room to grow. We are not facing any material cannibalism, internal or external cannibalism. So there is -- because people are more tending to discount stores in the recent years. And this also pandemic period also increased the trust level to discounters because actually the discounters manage those period -- COVID period as well in this period.

Also, the third thing is that there's still room in organize retail. Modern retail market share is still 50% for Turkey, 50% in Turkey. So there's still room to grow. There's still room to grow in discount segment in Turkey. So the competition is tough, but we are leading the sectors. And prices are almost the same in price side -- a normal stay. And it's likely to continue for a while in this store opening pace going forward. But there's not any very major material impact, negative impact on BIM's side.

[Unknown Analyst]

And the very last question from my side. How is your ultra -- your new format performing? You were talking about a smaller format. And I wanted to share some perhaps preliminary results of this pilot, if they are available.

[Serkan Savas, executive]

I think you are talking about the smaller formats, BIM mini format? Or which one?

[Unknown Analyst]

I think -- yes, I think, yes, the one you mentioned on the 2020 results call.

[Serkan Savas, executive]

Okay. Okay. This is actually the trial BIM mini. We have now maybe 10 mini store testing. We are still testing. And we will actually here, have decided to extend it to some other regions, may increase the mini stores in other space as well to test further. But I cannot say that it's very, very exciting now for the time being. But we are still testing. We need time to decide. But it is just a trial today. And so it's not decided to expand all the regions yet. Berna.

[Unknown Executive]

Thank you. Berna has a question. Berna, the floor is yours.

[Berna Kurbay, analyst]

My question is about the temporary restrictions brought on these nonfood items to be sold until the end of the curfew in Turkey. Do you expect any of those restrictions to become permanent in due course? That's my first question.

And my second question is the inflation is edging higher. I think it's a lot higher than what you had budgeted when you provided the 20% to 25% revenue growth guidance. And you've already explained that the numbers so far are in line with this guidance. But do you see any upside risk to that? Or because of further restrictions, et cetera, or other factors, you are more comfortable keeping it at the current level?

[Serkan Savas, executive]

Thank you, Berna. Restrictions, yes, it is just after 17th of May. Of course, we don't -- we are not aware that it was extended or not. But today, actually is still quite fine. People is also consuming at home like last year. But the difference is from the last year lockdowns, is this year actually the retailers are open on Saturdays as well last year. The board, we can say we were closed. And this year, there's not any rush to stores, no stock-up effects this year. Last year, because it's different in March and April, there's a stock-up effect, people rushed to store for basic commodities. But this year, we are asking that. People just buying their needs, their daily needs, weekly needs, maybe so. This home consumption nowadays, there are some restrictions. Spot sales, as I said, 10%, 11% of sales are affected. But we took some actions. And we hope it will be minimum level affected from depressed sections from -- and it is just 2 weeks' time.

But for time being, it's a very minimal effect. It has almost no impact on us. And Sunday closures are somewhat, not fully, but somewhat offset by other days. So this is -- it will be all permanent after that? We don't -- actually, we are not aware of that.

But even after the restrictions will be dropped, I think the home consumption will continue. In our opening, people wouldn't rush to restaurants, cafe or shopping malls in 1 day. We don't expect it last year, for example, last year. So in June, the shopping malls and restaurants, cafe were open, but people were less initiative to that.

So -- and regarding your second question, 20% to 25%. For the time being, we are in line with our expectation in April as well. And April has the strongest base due to COVID. But it's also in line, almost in line with our expectation.

Upside risk, it's early to speak about that. For the time being, there is none. But of course -- to what will be the developments after restrictions and in the second half of the year, was creating a process. But for upside, we cannot say that. It's very early. But for the time being, we are not changing our guidance, top line guidance for now. And likely not to change in the second quarter. So it's -- we are happy. It's in line with our expectation for the time being.

[Unknown Executive]

Regiane, the floor is yours.

[Regiane Yamanari, analyst]

You mentioned now on the sales then the BIM has been taking actions about these restrictions on the spot sales. What exactly -- what kind of actions are we talking about?

And my second question is still also related to the inflation outlook for -- in Turkey. How do you see margins evolving from -- well, the target for EBITDA margin now is still 8%, right, for this year. You see this -- how you see this being affected by this higher inflation going forward?

[Serkan Savas, executive]

Thank you, Regiane. Sales, as I said, we took some actions. For example, the 2 weeks' time, our spot sales are restricted. And you know that our spot sales say are on Fridays. And today it's a Friday and we took today's spot sales to last Wednesday. 2 days ago. So in 2 days, we were able to sell our spot sales in 2 days. So this was the first action.

The second action is next week is spots sales were postponed to after Ramadan break. So those are our actions. So in that direction, we will remain waiting for the restrictions is over. So and -- but -- and also in the Sunday closures, our stores are closed Sundays. But it will have minimal impact, maybe mainly no impact on us, because we are experienced that other days. Other days, they are also -- we are increasing our sales to others -- days sales are offset the Sunday closures. So it's just 2 weeks' time.

And yes, spot products, but today, we are now -- we are today the commodity retailers, spot retailers. Most of our products are basic commodities. So we don't expect any -- very material impact from coming.

Yes, the spot sales are attracting people to the stores and this is also increasing our traffic numbers. But for a limited period of time, of course, we can manage it. It's not a problem for us.

And inflation -- if inflation is rising, translating in the current months. And we are trying to pass the inflationary pressures on our shelf price. But actually we prefer to delay as much as we can and together with our suppliers. And we don't prefer to benefit, as I said before, to benefit from the low-cost inventory in a rising inflationary environment. So we have actually, in principle, we have decided -- principally, we have decided this, during the COVID period, whenever our products, the old cost products are run out of in our stores, then we prefer to pass inflation pressures to product shelf prices.

Gross margin would not be affected because of inflation. So as I said before, 18%, we want to keep at that levels. So post Q1 is also in line with our expectation in gross margin, gross margin side. We don't expect any deviation for the time being in margin side. So -- and also EBITDA as well, because the EBITDA is almost -- actually, it depends on the gross margin. So we are confident that to reach our EBITDA margin target for the full year.

And yes, so in the first quarter, we are exactly -- and we are at the upper end of our target. And post Q1 is also good.

[Regiane Yamanari, analyst]

Okay. And if I may ask another question about the -- the app on FILE. You mentioned that it's about to be launched. Can you just give a bit more details. Which area will be? I think you mentioned, but I think I missed that. And how you're -- what's the plan for expansion of like the area of this app? And if at some point -- I remember before, BIM was not planning to do that for BIM, just for FILE. I still -- this is still the plan?

[Serkan Savas, executive]

Yes. The app, we will be starting in 2 weeks' time. In some part of -- in Anatolian -- some part of the Anatolian office. Sample, in Ümraniye fishers, it will be started with limited coverage. Of course, we will go step by step. So maybe at the end of the year, our target to cover the maybe 60%, 70% of the population, with Istanbul, of course. Then in the coming years, move to other space as well.

Initial expectations for FILE online. So we are actually -- actually, we take the steps modestly. We don't want to rush. We don't want to be much more aggressive in FILE apps. And we want to be as efficient as we can. And high level, the quality we want to be. So we are stepping up the infrastructure notice, but it's almost done. In 2 weeks' time, we will be doing that. We will start in Ümraniye fishers, Istanbul. And step-by-step, we will increase the coverage in Istanbul side. In the coming years, of the leading other cities.

Actually, we do not have any plan yet for BIM online. Of course, we are in a low profile. Sometimes we are thinking some models. But in short and midterm, there's no any plan for BIM because BIM's proximity stores. So people are shopping on foods. We are opening stores in -- near inhabitants. So for the time being, forward the pace, we don't need online at BIM.

[Unknown Executive]

Jaime, the floor is yours.

[Jaime Vazquez, analyst]

I don't know if you can share, but what was the like-for-like growth for January and February? I'm just trying to understand the March impact?

And also another question on a different online channel, rather than having -- I mean your own online channel, is there a plan to work with existing marketplace operators for grocery deliveries as some of the food retailers have already started to work with the big marketplace channels?

[Serkan Savas, executive]

Thank you. Let's start with the last, online channel. No, we don't think in marketplace operators. So we were creating our own apps on FILE. And so we don't prefer it. It doesn't make sense for us. So we actually improve and increase our coverage in ourselves for FILE. And we didn't -- we shared just first quarter like-for-like sales, it is 13% -- 13% like for like. Of course, January and February are much higher, maybe double of this, maybe 25%.

You can take January, February, 25%, 30% levels. So in January and February. Of course, in March, because of lower -- with strong pace, it's a little bit down in March. But actually, generally speaking, for the quarter, the first quarter is 13% like for like. It is lower than our internal expectation because there is a very strong base. This is the general reason.

[Unknown Executive]

Hanzade, the floor is yours.

[Hanzade Kilickiran, analyst]

I have a follow-up question about your spot sales. You mentioned that you try to control the impact of the ban on nonessential goods through changing your spot days. But am I -- I mean, maybe I know this monthly, but spot sales are actually nonessential, right? I mean, how are you doing to those spot sales on Wednesdays and next Friday?

[Serkan Savas, executive]

Those are nonessential because the restrictions started today. Okay. It started today. We took back it 2 days early, on Wednesday. So yesterday and Wednesday, there were no restrictions in BIM store for nonessential, for sports. So we were able to sell the 2 days -- just 2 days, of course. Actually, we stop it and we remove to our store and warehouses all spot items, some cosmetics, some wearings will now be actually put them to our warehouses, stores. And we are -- they are not on sale. Next week spot sales are postponed to after Bayram.

[Hanzade Kilickiran, analyst]

Okay, after the restriction period. Okay. And about space expansion. I mean, I clearly understand that there is no pressure this year as well and space growth will continue. Do you also expect a similar type of growth around 10% next year and also 2023? Or should we now start costing some sort of slowdown in store openings, given that total discount store number reached over 25,000 units?

[Serkan Savas, executive]

Actually, we are setting our targets yearly basis. But in the last few years, you know that our store growth rate is 10 or 12% -- 12%. So of course, we prefer to keep that at 12% levels going forward. And there is room to go in the market. But of course, I cannot say that for todays for the next year one, the Board will be able to decide it because at the end of the year, we will decide opening new store at scale for the next year. But for the time being, there is no reason to change it. The market is open. There is room to grow. Not any cannibalism. But in prospectus or we could speak about that.

[Hanzade Kilickiran, analyst]

Okay. And the final question about the tax rate. So the tax rate increase was -- is going to be applicable after March? Or it will also contain the Q1 tax?

[Serkan Savas, executive]

It will contain Q1 tax. But since the tax cut, new tax stock amendment as well as after Q1, the company applied 20%. But in the second quarter results, you -- it's likely to see higher effective tax rate because the first quarter tax rate hike, 5%, will be also reflected to second quarter. This is the rule. This is -- and indeed our auditors also had rates like this. So we apply 20%, but the full year, we'll be subject to 25%.

[Unknown Analyst]

Okay. So it's not a 9-month increase.

[Serkan Savas, executive]

Okay. And this is also your comment, there's also another 1 question from -- on the quarter in chat side. Can you discuss what is that Helios table in Morocco business execution and what it might mean for other certain sub-Saharan African continent initiatives that you may embark on with Helios.

Of course, Helios is the U.K. party, I'll comment that they have a very high experience in Morocco. They have good explain, they are very professional and they are active pro-equity company. So we actually expect better operational performance considering given they have big know-how in Morocco. And of course, we took this action in both countries, more than Egypt for this -- selection option is for localization in the both countries.

So it's make us localized company, local company somewhat more better operational performance, better professional standards of the company. So we believe that we will actually -- they will contribute much better to our operations in Morocco. They are already doing a good job, but in professionalism standards and better make store openings. Then of course, this is early stage. We want to come together and discuss what we can do. What -- how we can improve the operation. Step-by-step, greatly improve operation. And we will set our strategy together.

Actually, for sub-Saharan continent, there's not any intention yet to go other countries for BIM. Today, we have operating in Morocco and Egypt as foreign operations, there is not any actually plan -- short and midterm plan to go to other African countries yet. So it's not in our agenda.

[Unknown Executive]

Thank you, Serkan. There is no further questions at the moment. So I suggest we can close the call. The floor is yours.

[Serkan Savas, executive]

Thank you very much for all for joining our first quarter results call. And I wish you all a happy Ramadan break next week and hope to see you again in the next quarter call.

[Unknown Executive]

Thank you, everyone. With that, the call is completed. Thank you for your participation. Goodbye.