BIM Birlesik Magazalar AS

IST:BIMAS.E

Earnings Call Transcript 2021-Q3

[Serkan Savas, executive]

Dear analyst and investors, we are very pleased to welcome you our third quarter results presentation for 2021. I'm Serkan Savas reporting at Investor Relations Director. We hope you all managed to download our presentation in our website. It's not that we hold a Q&A at the end presentation and would kindly ask you to ask your questions and by raising your hand we assume. We are not able to take written questions during the call. I now invite you to have a look at our results.

Let's start with the highlights for this quarter, third quarter. Our key figures this quarter are quarterly sales were TRY 17.5 billion reflecting 29% year-on-year growth. EBITDA margin was 8.6% representing 24% year-on-year growth and EBITDA margin as you see is slightly above our full year guidance. But we maintain our guidance, we don't revise it.

CapEx was TRY 532 million corresponding to 3% of our sales and net income was TRY 884 million which represents 35% year-on-year growth. And deferred tax income boosted the net income year-on-year in this quarter. We will elaborating further in the coming slides. And on the store front, we are continuing with the strong case of store openings and have added 214 new stores across operation in Q3 which brings us to 10,330 consolidated stores by the end of the quarter.

Another topic for this quarter is as you already know that establishing and acquiring subsidiaries supply chain in some strategic products. As we discussed previously, we are setting up new company in biscuit and confectionery in [indiscernible] share with TRY 40 million initial equity. In 1 or 1.5 years, we plan to start the production in [indiscernible] share and second our company we have acquired a company which produces tomato with soilless farming method in geothermal greenhouses in Afyon.

And please remind that those acquisitions are just to improve our company's supply chain sustainability and improve our quality in some strategic products. Our priority is not profit or EBITDA for acquiring or setting up these companies. We don't aim a workable integration but for -- such kind of some kind of strategic product, we prefer to improve our quality and provide the best quality products to the people. It's just our aim, the priority.

Moving on to operational performance. And about like-for-like sales slide -- this is Slide 6 now, we are in Slide 6 -- like-for-like quarter sales increased by 18.7% in third quarter. Although the strong base, still the case in this quarter, there is an ease in the base effect to some extent for this quarter due to a temporary normalization during the summer of 2020. Higher base is most likely to be case in the fourth quarter as well. As you know that last year, we grew 45% in the last quarter.

And like-for-like quarter basket size increased by 18.6%, and it is -- our basket is today around TRY 36 per basket. Average basket size has grown significantly through the COVID-19 and high basket size trend continued in third quarter. Nevertheless, the basket size grown was below the BIM internal inflation. Our internal inflation for this quarter year-on-year is 22% due to a high base and deterioration of consumers' purchasing power.

In October, the internalization is running at 32% levels and customer traffic was on the positive territory for the first time after the pandemic. This was mainly due to an ease in the base effect and normalization in the customer behaviors with the increasing rate of vaccination.

Regarding inflation, it is still running at around 32% in post Q3, and there is no sign of easing because some of inflation cost was not reflected to the prices yet. We are seeing some kind of cost pressure going up. So this is -- a post Q3, it is around 32% of internal inflation.

And on the store side slide, we have maintained a good opening pace. We have opened 214 net new stores, including seasonal closures as well. In total -- this quarter. In total, we had 10,330 stores by the end of the quarter, including Morocco, Egypt, with 9 new stores in Morocco.

Strong store expansion continued in this quarter. As you know, we have not disclosed any guidance for store opening outlook for this year, but it seems we will be exiting 1,000 stores at the end of the year. Note that in the last 12-month period, we have opened close to 1,200 stores in the last 12-month period. And at the end of the year likely it will be more than 1,000 stores this year.

And acceleration in mini openings also had a positive impact on new store openings. We have around 71 mini stores today across regional and they are still on -- they are step-by-step increasing these mini stores. And for test purposes, we are -- we plan to increase hundreds in a few more months' time. Just still test -- this is trial, we are still testing these mini stores. As we mentioned on our previous call, we are redesigning our stores. The number of new formats stores reached 2,100 as of Q1.

Moving on to CapEx slides. Our quarterly CapEx was TRY 532 million, corresponding to 3% of net sales, which is higher compared to same quarter of the last year, but almost in line with our expectation. This is slighter high than our expectation because due to strong store openings, CapEx also remains high this quarter. And another biggest impact comes from the accelerated store openings and also, as we mentioned before, construction material prices increased globally, not just in Turkey.

And warehouse construction gain momentum in third quarter, we have opened one warehouse for BIM in Manisa, Aksaray. And also for FILE we opened another warehouse in Ankara. This is the third warehouse of FILE. And now additional 2 new warehouses are under construction. And we are also buying some lands. We didn't stop because of the higher land cost or warehouse consumption, we are still doing Capex.

So this is a little bit higher than -- slightly higher than our expectation. For the full year, it's likely to be around 2 billion, maybe slightly more than TRY 2 billion CapEx at the end of the year.

And now let's look at our financial performance. And with the sales progression in the Page 10, we are now Page 10. In third quarter, sales grew by 29% year-on-year and reached TRY 17.5 billion. Although the quarterly sales growth was above our guidance -- full year guidance, year-to-date growth figure of 25% is still in line with our guidance and expectations.

And we indicated on the previous calls that sales were starting to normalize after COVID periods. As you know, restaurant and cafes opened. And due to that, home consumption is done during the period. And with normalization in sales pace is also normalizing. And now actually, as you see that base effect is more favorable in this quarter.

But apart from the strong base in fourth quarter, sales trends is slightly getting momentum in post Q3. But in Q4, as you know, that we will have a high base, and this may slightly curb our-on-year growth figures relatively Q3. But our guidance already includes this impact. So the sales is going up. And as the weather conditions live at worsening, we hope the sales trend will be better for the retailers. And it is in line with our expectation for time being.

And gross profit and gross margin progression, on quarterly basis, gross profit has increased to TRY 3.3 billion with 18.8% gross margin. And gross margin is stable and at good level in Q3. But we may expect some normalization and EBIT ease in gross margin in near term. As you remember, we were mentioning our expectation of normalization in gross margin in our previous calls as well.

And cost of producers increasing rapidly, but we reflect these hikes to our prices with some delay due to the deterioration in the purchasing power of Turkish inhibitors business. Having said that, we don't see any reason at the moment for a major drop in our gross margin, for example, we don't expect the below 18% as we already mentioned that 18% were around targeting. In the last few quarters, we are much -- we are above this.

So -- and it's also going well. But after Q3, we expect somewhat very slight normalization in gross margin. We are still facing inflation and our product prices still going up, but sometimes we are in delay to reflect to product prices to share price. But it is almost all under control, and we are very confident to be around 18%.

Now let's look at our EBITDA slide in Page 11. The quarterly EBITDA was TRY 1.5 billion with corresponding margin of 8.6%, which is slightly above our full year targets and resulting -- this EBITDA is resulting 24% year-on-year increase. Quarterly EBIT was TRY 1.1 billion with corresponding margin of 6.1%, resulting 24% year-on-year increase. Even though EBITDA is a bit exceeding our top end guidance, we are not planning any revision of our annual guidance because the beat is very immaterial. As you know, our top end target is 8.5%, now we are 8.6%. So no need to revise our target -- officially revise our targets.

And regarding the OpEx, the government support for minimum wage is received in this quarter retrospectively. And on the other hand, we are facing some kind of pleasures in neutral to expenses neutral expenses increased OpEx to sales ratio in third quarter. For example, electricity prices increased more than 30% year-on-year in this quarter.

And majority of the price hike occurred lately after second quarter 2021. And additionally, maybe you already observed from our report, one-off donation expenses also has a minor impact on OpEx. This is for [ fuels ] and forest fires, as you remember. But this is a very minor expenses and some kind of very small packaging expenses little bit going up because of the oil price are going up. So we are slightly facing for some kind of pressure in our OpEx.

Moving on to net income slide, we are now at Page 12. Our quarter net income was TRY 884 million and 35% year-on-year growth. Quarter net income margin was 5.1% this quarter. And in this quarter, maybe you already know that we registered deferred tax income due to regulation of our fixed asset in statutory books, not -- we were already regulation are fixed in buildings in IFRS but in structure fix we also this quarter and the Turkish tax regime recently gave a right for the corporates to regulate the fixed asset in statutory books to benefit from the tax expenses.

This means that we will benefit from the less tax payments going forward in expense of advance tax payment. So this net impact -- profit and loss net impact of this policy is around TRY 140 million, including deferred tax income and current tax expense. So we are generating deferred income but another way, we are a little bit paying some advance tax payments. And of course, as most of the portion of this tax benefit is reflected to equity to equity, as you suggest the P&L affect, TRY 140 million. Hence I think this should be perceived one-off for you, this is the one-off expense for sales.

And as the last slide, let's look at our foreign operations and FILE highlights. Morocco is continuing to contribute our net income and has been contributing to better gross margin and gross profit margin this year. We have opened 9 new stores, sales tax almost normalized like in Turkey in the third quarter. In Egypt, our store number is same 300 this year. And for the remaining of the year, we don't plan to open any store.

As our FILE operation, we have opened another 10 new stores, which brought its 153 stores at the end of quarter. And as I mentioned before, Ankara warehouse this is the third warehouse opened for FILE and start the operations. And with this Ankara warehouse store expansion in the middle Anatolia region will accelerate hopefully. And FILE online shopping platform has been launched in May, as you remember, and now covering the major of the store population, let's say 90% of the store population are under coverage now in line with our plans shared previously. And in addition, it's now available in other states in Ankara and Sakarya now. And this week or next week in a short period of time we will be launching in Anatolia and Bursa.

And before Q&A session, I would just touch on about the find Competition Board. As you know well know, the competition of 35 chain markets, including our company and a supplier as well due to the violation of law with allegation it's for a cartel. It's obvious that there is no brunt of these allegations and the find is just an outcome of an effort to link retailers to high inflation. And since beginning of the BIM establishment, our aim is to lower through prices through the operational efficiency of improvement and you know that we have everyday low price strategy, and there is very high competition in the market. So we never accept those accusations.

By the way, I would like to thank you all of you for your great in this situation. We received very good feedbacks, very good reports. And it's very -- we are very good that it is very well understood by the investment community, by you. So we -- again, thanks for your support in this situation in competition find. And I can say that also we expect this find will have no impact on our dividend payout practices.

We will continue to distribute cash dividend as much as we can, as usual. So dividends payout since IPO we will keep it and we don't expect any major -- any change in our policy. As you know, we have a free cash position. And since the decision announced post the end of Q3, we haven't reflected any provision for the find in this quarter, but we will most probably expense this amount in the fourth quarter or set a provision.

We are now waiting for the reasoning from the Competition Board and we will have 30 days for the payments. And we almost most probably benefit from trade factors for the payment discount. And so in the fourth quarter, it's likely we will expense it in our financials. And then of course, we will start legal process in near term, and we will strictly follow the legal process. So -- because we never accept the accusations as we announced through our Bursa Istanbul and also press release.

So we will strictly follow-up the legal process. But legal process and the payment is a different -- fully separated. So the payment we like to benefit from 25% and we expect no permanent impact on our daily operations. Maybe most of you might wonder this so we don't expect any major on our operations in -- so we are still pursuing our strategy. We are still keeping our EBITDA targets or other targets. So it's -- maybe this will have a temporary impact, but we don't expect any permanent impact coming from this Competition Board find.

And I think this is the end of our presentation. We would like to take your questions, if any.

[Serkan Savas, executive]

[Operator Instructions] And now I think Hanzade now the floor is yours.

[Hanzade Kilickiran, analyst]

Serkan, thank you for the presentation I think, I mean, the financial results are very clear. But I have a question about the competition. And I wonder about the market share evolution in the market, particularly in the modern channel. So are you still gaining market share or is there sort of a small loss in the market share? And is there any price pressure at the moment that may affect 2022, I mean because of the competition?

[Serkan Savas, executive]

Thank you, Hanzade. In the price pressure, no price pressure because we are the leader -- we are price setter in the market. So there is no any price pressure. We are presenting our strategies. We have own strategies, own gross margin strategies. So the competitors are following the BIM. So yes, the competition is tough. There's still competition. The players are opening more stores. And in price-wise, they are more strictly following the prices. But actually, we are very much able to set our own strategies on price changes, I can say that. Actually there is nothing new in the competition side, nothing new than in the few quarters. Actually, the first question, of course, we are growing actually 25%, and other competitors are also growing. As online is also growing faster than the previous years.

But we don't have any clear data about the modern retail of traditional parts. But of course, the modern retail is also taking share of the traditional, and we are also taking share of traditional parts and also modern parts. So -- but today actually, we don't have any trustable data at our hands. But this is the fact that online is growing and we also launched our online in FILE, in FILE site, we are actually trying to cover the other states.

And at BIM site, we don't prefer for the right -- for time being as a full scope online. But of course, we are doing best to our main sale we can add up ourselves to online retail in BIM, not just all food products, maybe nonfood products, we may do it something. In nonfood site, we may adopt ourselves to online.

Maybe spot products, spot products we can adapt ourselves for BIM. So yes, online is growing, online is a little bit -- actually is changing the environment. But I can say that in general speaking, we are still taking share from the modern channel, maybe from local supermarkets, a lot of change, maybe.

[Hanzade Kilickiran, analyst]

Okay. I have also one other question about your internal inflation and the impact on the basket in the fourth quarter. You mentioned that your current internal inflation is around 32%. This is a very, I mean, high inflation figure. So how should you think about your like-for-like revenue trend in the fourth quarter, including the high base from the fall -- I mean, last year?

[Serkan Savas, executive]

Thank you. Yes today, its running 32% and we have some kind of actually product price transitions is long waited. So in the fourth quarter, we may have some kind of price transitions in the fourth quarter. So there's no -- as I said, there's no sign of easing in -- or BIM internal inflation it's like the end. For example, third quarter average 32% -- October is also 32%, it's almost stable, but there is no sign of easing.

But let me actually give some numbers about the strong base. For example last year, third quarter -- in third quarter our like-for-like increased by 17%, but the fourth quarter is 30%, our like-for-like increase. So this is a little bit a very clear picture for the high base in the fourth quarter. And we also -- we couldn't exit from the COVID yet fully. So there is still some kind of people rushing to nonfood items, shopping malls, restaurant and cafes after opening the markets after June.

So this is why -- and purchasing power is little bit iterated in Turkey. So it is not so meaningful actually to expect all big internal inflation reflected to baskets. And also in the fourth quarter, there we -- have high base so yes, but I can say that you already observed our traffic figures. It's the first time we achieved stable 0% traffic after COVID and -- it's very good sign up for us.

But -- and in October, the sales trend is also good actually almost stable, but slightly better than September. But it's very early to speak about the like-for-like sales for the fourth quarter, but I can just say that you have to consider high base.

[Hanzade Kilickiran, analyst]

But you are not expecting something like the second quarter performance, negative like-for-like?

[Serkan Savas, executive]

Negative like-for-like, yes of course, hope we'll not. And Jaime Vazquez the floor is yours.

[Jaime Vazquez;JPMorgan Chase & Co;MD, analyst]

My question is about your international operations. What was the growth in that front, excluding international what was your domestic growth, that's my first question. The second question is about the effective tax rate, could we expect further deferred tax income in fourth quarter, that's my second question. And the third one is the store openings, do you see any slowdown in procedures for opening new stores in fourth quarter so far and we expect lower pace of store openings in 2020? Any color initial?

[Serkan Savas, executive]

Thank you. For the last question store opening, no, we are not facing any difficulties in store procedures or openings and license, something like that. It's still going up in a good pace. Likely you will have more opening than 1,000 stores and may be 1,100 something like that for the full year. So we are not facing any difficulties in terms of store openings in the last quarter. Effective tax rate, actually, this is actually, I already explained this as deferred tax income is -- the income is generated as an income for the following year's tax benefits.

So you can take as a one-off in this quarter. Of course, in the following few quarters, we may have some kind of positive impacts. But today, we have right to reflect our profit loss and also equity because it's already -- we already revalued our fixed assets in stature books. And then this is already obvious that we will benefit from the tax in going forward in the next 5 years. So now we are recognizing is that deferred tax income.

So you can take it one-off don't expect anything for the fourth quarter and the next years. So it is one-off income for third quarter.

And in terms of the international operations, of course for example BIM the major growth is coming from the BIM, side BIM Turkey side. For example, I can say that Morocco and Egypt revenues, is growing less than in Turkey. If I -- for example, this is actually just FILE for example, FILE is also growing tested parts. Whenever I have the exact numbers, I will also explain you the details.

But BIM is grow faster. For example, Morocco, in Morocco the sales is a little bit down in the third quarter because the market also opened in Morocco. And the impact a negative impact is bigger than in Turkey in the third quarter, but it's almost a point to add. If you have -- if you need the details after the call, I can provide you.

[Operator Instructions] I think, no questions. Okay, if you have no questions, and I would like to just thank you for joining us at this quarter call. And hopefully, to actually -- to join the next conference call, maybe last quarter - yearly annual conference call likely in March. Thank you for joining us.