BIM Birlesik Magazalar AS
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Earnings Call Transcript

Earnings Call Transcript
2019-Q4

from 0
Operator

Hi, everyone. Welcome to the BIM's Fourth Quarter and Year-end Results Presentation. It is our first time during the call of this meeting [indiscernible] successfully registered. I will now pass the call to Mr. Haluk Dortluoglu. Mr. Haluk, the word is yours.

H
Haluk Dortluoglu
executive

Thank you very much. So welcome, everyone, for our year-end results conference of BIM. So we hope you have already managed to download our recent investors' presentation on our website. And I invite you now to have a look at our annual results.

So let me start with the headlines of the key figures 2019. Our annual net sales results are TRY 40.2 billion, reflecting 24.4% year-on-year growth, which is in line with our 2019 targets. And same goes true for the annual EBITDA. The pre-IFRS 16 EBITDA is margin 55.3%, representing a 13% year-on-year growth, again, in line with our targets. With IFRS 16, the margin is 7.8% and 6.8% -- and 68% year-on-year growth is there. CapEx is aligned with our targets of TRY 1.078 billion corresponding to 2.7% of our sales.

The net income was TRY 1.225 billion, which with IFRS 16 is 2% lower than last year. However, excluding IFRS 16, the net income is TRY 1.425 billion, which corresponds to a 3.5% net income margin. As promised last year, we have successfully picked up the pace of store openings and added 870 new stores across all our operations. And that brings us to 8,348 total number of stores, consolidated. And additional good news, in Morocco reached -- the net income is positive first ever in Morocco for the year. And the last, but not least, FILE is also in line with our expectations, and it has been an EBITDA positive for the second year running.

If we move to the next slide, which is annual quarterly net sales and gross profit, we have reached our expected sales target, which is 24% for the full year resulting for TRY 40.212 billion for the whole year. And when we look at the quarterly basis, then the sales increased 16% from the same quarter last year, equal to TRY 10.529 billion. One of the main reasons of declining from previous quarter is that there is food inflation dropped by 8% in one quarter, meaning 13% in the fourth quarter from 21% in the third quarter. So there's slowing down of the inflation in Turkey, a decline in the percentage. In addition, there has been a weak consumption in the fourth quarter, we can say. And -- however, we have to underline this, as you might -- most of you expect, January and February, we are starting to see a positive trend and customer traffic and basket size, both of them. So we will be expecting a better -- much better first quarter compared to the fourth quarter last year.

Our annual gross profit has increased by 22% year-on-year, and our quarterly gross margin has declined somewhat. And this is one of the reasons that the inflation declined there, which we used to pass some benefits when the inflation was rising, but the inflation was falling. Also, the negative effect is there. And also, we reduced some further the prices to attract more customer traffic.

And looking at January and February, we can say, the gross margin is almost in line with the fourth quarter. And there is a new cost also we need to mention because it's -- you may call it environment tax in Turkey. This new cost item affecting our gross margin is a newly introduced tax on plastic packaging called GEKAP. And plastic packaging tax is, for now, the responsibility of the brand owner. So as private label brand owners, we will be bearing a substantial amount of environment tax payment there. And this has a negative impact on our cost. We are expecting approximately 20 bps of negative impact there. But we are trying to compensate this with other cost reductions so to have the minimum effect coming from this. At the end of the day, all the retailers will be affected by this. But we are fully exposed to this because of this -- our high percentage in the private labels. But total amount effect is this, not more.

So when we look at the EBITDA and EBIT side, annual, as you are by now fully aware as a result of this IFRS 16 rule, we started with some reclassifications about this operational profit, EBITDA and EBIT calculations. For comparison reasons, we are first showing annual development without IFRS and reclassification with IFRS in the last column to show you the difference. Basically, the difference is the rent cost, which is roughly 2.5% of our sales. And to start with our annual EBITDA, which was TRY 2.124 billion and the margin 5.3%, which is in line with our expectations pre-IFRS EBITDA result. And with the IFRS 16 results, this number goes to a much higher number, 7.8% EBITDA margin. If you look at the annual EBIT, which was TRY 1.685 billion and a margin of 4.2% as operational profit. After IFRS 16 impact, this number increases to TRY 2 billion, and the margin -- EBIT margin goes to 5.1% of sales.

When we look at the quarterly EBITDA and EBIT slide, again to start with EBITDA, which was TRY 529 million and was 5% of our sales in the fourth quarter, which is in line with our expectation. And for -- in terms of IFRS 16 results, it make -- it becomes 7.6%. And for the ease of calculation, there is also around 2.5% pre and post calculation, as I felt it is coming from the rent cost. If you look at the quarterly EBIT, which is TRY 411 million. The margin is TRY 3.9 million. And without the IFRS 16, this is 4.9%.

When we look to the -- move to the annual/quarterly net income slide. In the annual performance, net income was TRY 1.225 billion, and this is 3% of income margin. For comparison, let's look at -- for the pre-IFRS 16 figures, which is easy to compare to previous years. The net income is TRY 1.425 billion, and this is 3.5% net income margin and the year-on-year increase is 14%.

In the quarterly numbers, that represents -- the net income was TRY 319 million in the fourth quarter, which corresponds to 3% of net income margin. For comparison, without IFRS 16, the net income was TRY 368 million and 3.5% of the sales, which means 2% increasing year-on-year.

Regarding the nonoperational profit generation below EBIT level, last year, we reported that we have done diversification of cash investments away from the bank deposits to other financial instruments with higher yield. So this also increased our other income coming from these other, let's say, instruments or financial instruments. Plus we have more cash in our hand because we increased the payable days to the supplier at the year-end. It's coming, for comparison with the last year, making -- from 52 to roughly 55 to 56. So this is roughly 4 days more in the payable terms, and this generates roughly TRY 500 million more cash. And this, of course, has cash effect plus income effect.

In addition, one of our diversified financial investment, which was a tissue producer in Turkey, we had 14% of shares that we bought at the beginning of last year at TRY 120 million. And we sold these shares to one of our Board members in the first quarter this year 2020 in February, actually. So -- at a price of TRY 155 million, so having a TRY 25 million profit in the first quarter of 2020. But of course, this sale will not have a profit and loss effect, it will have, in the first quarter -- will be reflected in our retained earnings.

So when we look at the annual free cash flow slide, we want to show a more detailed picture of cash flow movements in 2019. The CapEx, rent and dividend payments are the largest representatives of our costs as expected. And there are funds from operations, in addition also sale of treasury shares, which were -- which was part of our buyback program. We sold out all our shares. And the net working capital improvement were the biggest inflow generators.

As mentioned earlier, we have slightly increased our payable days in the late 2019 and generating a better cash now. We will be -- still continue focusing on improving our negative working capital in our business model for going-forward periods.

When we look at like-for-like sales increase slide, like-for-like annual sales increased by 14.5% from previous years on a quarterly basis. This increase is 5.5% in the same period last year. And the like-for-like annual basket size increased 13.9% year-on-year, and quarterly basis, this is 5.9%, which is much below BIM's average internal inflation, which was 12.8%. And the gap is mainly from the weak consumption or weak sales in the fourth quarter, mainly October and November. And those months -- we can say, in general, that starting from mid-December, the Turkish consumption started to pick up, and we are seeing January and February better figures, as I expressed before.

The customer traffic growth increased by 0.5% on an annual basis, and negative on the quarterly basis due to this negative consumption trend by the time. Average processed food inflation in Turkey was 13.6%, so higher than internal BIM inflation, we can say. But having said that, we have -- in the last quarter have negative real like-for-like growth. In the first quarter, at least in the first 2 months, we can say 2020, we are going for positive like-for-likes in the real terms exceeding from inflation.

And when we move to the product category and product mix slide, we can see that our private label share has slightly decreased to 65%. And this due to the -- we have now more brands in the store, but this is not only coming from this because also we increased spot, more spot. Last quarter, we had -- 5.4% of our sales was spot items. In the 2019, this is 6.5%. And if you look at the last quarter 2019, this number was probably 7.5%. So we have increase spot percentage there in and out. And we are also having some slight increase in the percentage of branded products, which was 21.2% last year, 22% this year. To give you an idea about our private label percentages in our different operations, in Morocco which -- in Turkey, it was 65% of sales, Morocco is 27% of sales and Egypt is 11% of sales, private labels; and FILE is 34% of sales.

When we move to the CapEx slides. Our annual CapEx in 2019 was TRY 1.078 billion. And this corresponds to 2.7% of our sales. We have always been around this, between 2.5% and 3% of sales, as you can see in the graph, in the last 5 years and also before. So we ended the year with 2.5% of our sales CapEx. We achieved our store target and added 5 more warehouses in 2019. Planning is also on the way for 2020, additional warehouses, 4 warehouses in Turkey and one warehouse for Morocco. On the quarter below, the CapEx was TRY 290 million, and it's 2.5% of our net sales.

Let me move to store growth. We -- in 2019, we have opened 870 new stores in total, which is way above our set target in -- which was 80 -- 20 -- 820 at the beginning of the year. This corresponds to 11.6% store growth on year-on-year. In the last quarter, we have opened 164 stores. And as you can see in this pie chart, in this 90, 10 out of 8,348 stores are from our overseas operations and FILE. We will continue to expand even stronger in the new year. And we plan to open in Morocco maybe 90 or 100 more stores. In FILE format, we plan to open 30 to 40 more stores this year. And in Egypt, we will -- we don't have a store opening planned. We will be keeping the existing size or maybe even shutting down some stores which are not productive in Egypt because of its economic conditions. And last, for Turkey, we didn't set a clear target for store opening for Turkish operations for BIM, in general. But I can say, our target will be definitely to open more stores in 2020 compared to 2019.

And turning to the dividend slide. Our earnings per share stood at TRY 2.04 in 2019, which is slightly lower than previous year. And the Board of Directors have recommended a 99% dividend payout ratio for 2019. This is probably the highest ever we have done so far, and it corresponds to 4.2% dividend yield for this year. And this dividend will be recommended, but the final decision will be taken at the General Assembly, which is in April. This is the maximum payout ratio we have reached so far. And of course, we have always been a pro-shareholder company and pay as much dividend as possible. And this -- by the increased, let's say, payment days and by the increase in our, let's say -- better off in our negative working capital, we have some cash at hand, and we want to pay as much dividend as possible, as we've always been.

And on Slide 14, the operating leverage and cost control side, nothing changes too much, so having come to 5% EBITDA and total SG&A is flat, I can say. As chart shows, you can see what we have maintained, most of our cost at the same level of -- as in previous years. Personnel and brand costs continue to make up most of our OpEx. And some utility expenses such as electricity are making some pressure due to the unit -- the unit hiked prices. But other than that, the OpEx is stable and comparable to the first half of 2019. There have been 50 bps saving due to the last year plastic bag fees introduction, but employee cost increased due to 6% increase in the minimum wage hike. And in 2020, we don't expect any material cost pressures other than just mentioned, that utilities, but as mentioned earlier, regarding gross margin side, we will have some additional tax cost derived from the plastic packages of the products this year -- of our private labels. And as I said, we expect it to be roughly 0.20%. So in addition, we might also benefit from operating leverage in 2020 due to improved consumption for the year.

When we look at foreign operations and FILE slide, in Morocco, as I said, we have opened 497 stores by the end of 2019, and we are planning to open more stores in Morocco, maybe 80, maybe 90 or 100, we may take it as 90 to 100 stores for the year, and we expect to reach 600 stores by the end of the year 2020. We are slightly increasing our pace of store openings and planning to open one additional warehouse in Morocco. And we can say that Morocco still continued to be net income positive for the year. And on the other hand, the operations in Egypt have slowed down. We have opened 29 new stores for the year and reaching to 320 stores by the end of the year -- 20 store openings. In 2020, we have decided not to open any stores, as I mentioned, in Egypt, and we will be monitoring the macro conditions there, which is not really investment-friendly yet.

And there are lots of import limitations and economic conditions are not doing well. And the business -- doing business is not very easy. So we will not be opening -- we're not planning to open stores or at least open at the minimum rate, which is very crucial stores and maybe shutting down some ineffective stores there. And in the FILE operations, we ended the year with 93 stores. As I said, we will be going for 30 to 40 new store openings in the year 2020. As of today, we have -- we've reached 97 stores in FILE.

And when we move to the foreign contributions slide, in addition to our foreign operations development, we would also like to show the contribution of the consolidated sales. There has been TRY 2.275 billion contribution to consolidated sales in 2019, Egypt and Morocco together, compared to TRY 1.6 billion same period last year. That means 6% growth in the total sales coming from overseas now, total 6%. Overseas operations grew at 39% in Turkish lira terms compared to the last year, almost 40% growth there.

And with regard to EBITDA contribution, it is also doing okay. We don't have a positive contribution from Egypt, of course, but the positive trend in Morocco overcomes this. With Morocco driving the growth, we are EBITDA positive with and without IFRS 16 there. The foreign operations total EBITDA before IFRS 16 is TRY 40 million, and this trend is expected to improve going forward and also in profitability terms of drive from Morocco operations.

And I will go for the targets and actual slide for 2019. The sales and EBITDA growth are clearly reached. And if you look at the pre-IFRS 16 figures, and we are planning to continue on that pace to go for 2020 as well as we have always done in the last 15 years, we are targeting a 5% EBITDA there. And we have opened -- we ended the year with 5.3% EBITDA and our target will be 5% for the year. And we have opened 870 stores on a consolidated basis. 766 of this is in Turkey, Turkish store openings. So at the end of the year, we have overachieved this target, which was 870 store openings instead of 820 target. And this -- and we have exceeded Turkish target by 66 more stores -- store openings, Turkish BIM store target. So -- and our now -- the aim is to reach or exceed this 23% top line growth for the year 2020 and to have a 5% EBITDA margin, as always, before IFRS 16 and the total CapEx to be TRY 1 billion on a consolidated basis.

So about the store openings in Turkey, I will reiterate this, we didn't set a target for the year for -- in Turkey, but we will try to be opening more stores than 2019 definitely. We will see at what number to reach by the end of the year.

In the last slide, I would say, our -- of course, our main goal is, and always been, to maximize the shareholder benefit plus the customer benefit and increase the basket size of the customers by better serving them. And we will be also fine-tuning value proposition adapting to our customers' needs and -- which we expect to increase also the traffic growth in the stores and operational traffic. And we have -- maybe most of you are familiar with this, what kind of initiatives we have taken so far to go on this way in 2020. We have expected our fresh produce offering in loose format in 2019. And the first results show that the share in the sales of fresh products almost doubled.

So I can say, from 2.5% turnover share, we are now talking about more than 4% turnover share of fresh produce product. And we expect to see better results in the fresh delivery in the remaining of 2020. And fresh bakery offering is still being tested now. It seems we will have some limited exposure to this, not as fresh produce. We will not enlarge this to all of our stores. Still the test is going on in 240 stores, the baker test. It's well -- it's doing okay, but because it's high CapEx value, it needs -- the feasibility needs -- requires high traffic. We will be considering whether we would go for a fresh bakery on the high-traffic stores or not. We have slightly enlarged the fresh there also. And now after 25 years, we consider that it's time to renew and redesign our stores with a more modern layout. So -- and eventually, after a few tests, we made a decision to go for a completely new design of the stores.

Starting from April 2020, all the new stores will be opened in this new design format. The new design, basically -- what is the new design? It's basically, in a more modern format, trying to display the products more rather than the store itself or the shelves itself. We are trying to more -- increase the visibility of the products and put more [ pantry ] set or great colors for the overall store layout, but the product be more colorful and more attractive and more visible so that our customers are more focusing on the product themselves rather than the store layout.

And we have -- we have other things, but I will not mention all of them. So we are doing a lot of our works, which includes the more SKU test, increase SKU test or more social media exposure, more advertising on TV. So we will be doing a lot of things to have better results and better positioning of our BIM brand in Turkey. And obviously, so far, it's doing well and being productive. So I will end my words in this presentation now and go for your questions. Please go for the questions.

Operator

[Operator Instruction] We don't have your names, so please introduce yourself.

U
Unknown Analyst

I'm [ Harry Welton ] calling from [ Virgin Asset Management ]. I have a couple of questions. First one is on the fourth quarter transaction numbers and just what you think -- I know you mentioned there was some drop in consumer spending, but just if you can flesh that out a bit more and if there's an underlying reason for that. And then on the Morocco business, we were informed that there was -- that the Moroccan government had asked them to increase the proportion of local goods being sold, [ to lease out ] or they shut down. And if you could just give some more information what that was -- where that directive came from and what's been the impact and how you plan to proceed?

H
Haluk Dortluoglu
executive

Okay. Two questions here?

U
Unknown Analyst

Yes, yes, just the 2, yes.

H
Haluk Dortluoglu
executive

In the fourth quarter, as we mentioned, now we -- starting from December and continuing in January and February, we are seeing a positive trend in the consumption in Turkey. So -- and before this positive trend starts, yes, there was -- the top line was -- consumption was low by then. And of course, there are reasons for it. Now the inflation is going down. Maybe it used to be more than 20% before, let's say, 6 months ago, but now it's more in the 10 -- low double digits now. And because the inflation is down, so people are more confident on spending on one side.

Second, of course, when the inflation is down, bank loans are more available for the consumption and the more consumption credit are being given in an extensive manner. And people have more money in the pockets given by the banks. So that gives them more opportunity to spend, and this generated a positive outlook for the first year -- first quarter 2020. And I think it will continue on the coming quarters. This is the difference between the fourth quarter and first quarter. So we expect real like-for-like growth and traffic growth and plus basket size -- positive basket size growth in the first quarter 2020.

And about -- I will move to Morocco question. Yes, there was a discussion in the Moroccan Parliament, and one of the discussing people was the Minister of Commerce. And there was -- and we have also read the minutes of the discussion in this Parliament. There are -- some of the members of the Parliament are arguing pro-BIM, and some of them are -- including the minister is against. And basically, the discussion is about the Turkish and Moroccan trade agreement, so whether Turkish companies are exporting too much products from Turkey to Morocco and not vice versa. So there's a negative trade balance between the Morocco and Turkey issue. So the minister also discussed this saying that BIM is exporting or importing a lot from Turkey, so BIM is one of the companies to blame because of Moroccan negative trade deficit.

Of course, this is more -- it's a political discussion, and we don't want to get involved in their political discussion, but I can definitely say it's not fair just to speak about it. But first, they are only speaking about BIM and Turkey and not about Carrefour and France. Obviously, the France -- French exports to Morocco is much higher than the Turkish and other competitors, including Marjane and Carrefour is not mentioned, which is operating in Moroccan environment and retail sector.

Second, their argument is not -- it's completely false. They are saying -- the minister is saying that BIM must increase the local buying more than 50%, but he already knows that what he's saying is not true. We are now -- our local buyings are 85%. 85% of BIM Morocco's sale is acquired and purchased from the local companies of Morocco, and this was discussed with him 2 or 3 years ago. He already knows this. But obviously, he wanted to make a political argument against BIM for some reasons, which we don't know exactly. And of course, there were some people arguing that -- the members of the Parliament were saying that BIM is contributing a lot to Moroccan economy, bringing high-quality products from -- and at low prices to the people of Morocco and all the Moroccans are happy to shop from BIM and employing more than 3,000 Moroccan people, 100% employed local Moroccan.

So at the end of the day, I will not discuss with all this, let's say, smart investor community, whether we are doing some good or bad for the Moroccan economy. Of course, we are contributing a lot to Moroccan economy, increasing the productivity and supply chain, increasing the -- employees being registered and taxes paying fully and obeying 100% of the Moroccan laws. At the end of the day, we are doing -- we are a good investor there, adding a lot of value to the Moroccan economy. And of course, most people know this, but for some particular reasons, some politicians might argue otherwise.

On our case, we don't see a threat or any negative thing there. Also, I have spoken with Reuters that we already have 85% local buying. And they passed a law, which is of course not likely also, to reach -- or shut down all of the stores which have done less than 50% of local buying. We will not be affected still by having 85% of local buying. I don't think this percentage is matched as high -- that high percentage is matched by many of our competitors. So -- but of course, those discussions are not sometimes made on a very fair level. So we are confident with our position. We are confident with our law-obeying and legislations of Morocco. So I don't think it will be a problem for us.

Thank you. So we can move to the next question if this is okay.

U
Unknown Analyst

Yes. So basically, it's not anything to do with protecting traditional, local businesses, more to do with the trade balance and some decisions from Ministers to maybe take it out on them.

H
Haluk Dortluoglu
executive

It started with the trade balance discussion, of course, because it has a populous -- it's a populous effect and political beneficial effect. Some argue that local small businesses might be affected by the modern retail. But of course, I can't speak with you half an hour about why is modern retail better for the people, in general, rather than unorganized and unproductive, inefficient, traditional retailing, which the supply chain is poorer. In terms of health, conditions or hygienic conditions of the products are much, much poorer. And it's not good for the people. It's not good for the economy. It's not good for the health of the people. But of course, it -- one might argue that there's negative social effect, if and only if something happens in a radical terms.

Let's say, if modern retail percentage goes from 20% to 80% in 2 years' time, that's a radical change, and it might suddenly hit a lot of people. But of course, this is not the case. Usually, the increase and the pace of penetration of the modern retail happens to be slowly that opening the stores -- with 500 stores, we are almost nothing in Morocco. We are still maybe -- I don't know the percentage, maybe 5% of total retail or less. So the modern retail penetration as we did -- as we have seen in Turkey is growing slowly rather than in a rapid pace. Instead of, let's say, it goes from 40% to 50% in maybe 10 to 15 years, so that's a long time for a transition of a sector and people have lots of time to have -- adapt themselves to be on this changing modernization or changing period of the sector.

Many people I know have stopped in Turkey, maybe a small mom-and-pop shop owners. They themselves or their sons or daughters have gone for being an employee in a BIM store or Migros, A101 store. So it definitely generates more employment opportunity than it erodes. So I think modern retail is a good thing for the community, for the economy and for the country itself. So I will not -- I'm ready and we are all already, of course, to speak and discuss with everyone why this modern retail is better for the long term for everyone and not worse.

Operator

Thank you, Haluk. Now Berna Kurbay from BGC.

B
Berna Kurbay
analyst

I have 3. The first one is about the working capital. You mentioned that you have increased the payment terms to 55, 56 days. Do you plan to increase this further? My second question is about the CapEx guidance for 2020, which is TRY 1 billion. This is lower in absolute terms from what you spent -- compared to what you spent last year. And I was wondering whether you're planning on spending less on maintenance and if that's the reason given that you're planning to open at least as many stores as you did in Turkey this year, also higher number of stores in Morocco? And my final question is on the 20 bps impact, the approximate impact you gave with regard to the new environmental tax. So do you -- are we going to be seeing this impact on the gross margin starting in the first quarter? Or do you think that the better consumer sentiment so far will offset that in the short term? And also for the longer term, if this tax is going to be there. Do you have any plans to change the packaging of your private label goods?

H
Haluk Dortluoglu
executive

Thank you very much. In terms of CapEx, it sometimes happens -- acquisition of land for the future which -- or warehouses -- for the acquisition of the warehouse land for the future. So we doubt that we will be making some acquisitions this year for this. So we made a general calculation coming to TRY 1 billion. It has nothing to do with reduction in the maintenance or store opening or anything. So definitely, I underline that we want to open more stores this year rather than less. And maintenance will be as is. The maintenance -- we will more maybe cautious on the spending, but we will not slow down the maintenance at all. So it's -- instead of TRY 1.1 billion, it will be -- might be TRY 1 billion, and the differences might come from the warehouse or CapEx rather than other things.

In terms of this environmental tax issue, GEKAP, I would say later that the increased -- the positive trend in the first quarter will offset the negative effect of this GEKAP environmental tax of 0.20%. Of course, you might do things to affect this -- the packaging side. But of course, there will not be a dramatic change. Maybe if you are very, very clever on doing all your best in the -- some -- also sacrificing some of the packaging quality things, this 0.20% might go as low as maybe 0.16%, not lower than this. So there is -- and that will be this GEKAP tax, and it's a substantial tax for all the producers in Turkey. We hope whether it'd be good for the community and good for -- and the social side of it is okay, then we have really Zero Waste -- going for the Zero Waste committee. We are happy to bear this and handle this. But at the end of the day, this 0.20% basis will be offset by -- within the gross margin, but increase the sales and, of course, better the purchasing conditions we are working on.

B
Berna Kurbay
analyst

And also on the payment terms?

H
Haluk Dortluoglu
executive

In the payment terms, we are now reached 60 -- it might go still a little bit further, but I don't think we will be exceeding 60 there. There is a little bit more room to go there.

Operator

And the number, you have the floor, 905, please introduce yourself kindly.

U
Unknown Analyst

I don't know if there's -- can you hear me?

Operator

Yes, we can hear you.

U
Unknown Analyst

It's [indiscernible] from [ UBS ]. I have a few questions here. On your top line growth guidance, it's very similar to 2020 where -- sorry, 2019, when the inflation was pretty high, and you said that you can see food inflation coming down. So can you elaborate a little bit more on your assumptions behind the 23% top line growth? Should we expect to see a slower like-for-like growth, but a bigger contribution from the new stores because you're planning to open more stores in 2020? This is my first question.

H
Haluk Dortluoglu
executive

We can say it's 10% from the store growth and 10% to 12% coming from inflation and also basket size growth or total like-for-like growth. Half-half, you can say, 10% to 12%. Am I clear on this?

U
Unknown Analyst

It's very clear and short. And the other question is, BIM has been actually pretty conservative at times, and there was perhaps more demand on store opening. Well, you've decided to accelerate your store opening in 2020. Can you explain why? I mean there is some change in this decision.

H
Haluk Dortluoglu
executive

Of course, you also know that we used to have discussions pro and con for the store opening. And in terms of our growth and absorbing of the growth, we are still -- in terms of percentage-wise, we are not changing anything. Our base is growing, and we are growing 10% a year in terms of physical growth side. So it's -- in terms of growth pace, we are flat, almost. But on the other side, we believe, sooner or later, the Turkish economy can maintain more discounted assets. And the last to say, of course, the convenience matters. When people have, let's say, 1 kilometer away a BIM store and 200 meters away a competitor store, even though they prefer BIM, people might consider going to the -- our competitor because of the difference. So -- also, we consider being near is also important, so we can increase the frequency of our stores still further in the main cities as well. So -- and we thought we should not stop or reduce the number of store openings in Turkey, rather -- and keep the pace or even in normal terms increase this.

U
Unknown Analyst

Okay. And one question on FILE. As far as I understand, you are happy with this operation, and it's EBITDA positive now. And it's been 6 years you started this initiative. So I was wondering, I mean, why are you not accelerating the store opening at that front? Is that you still don't feel comfortable about this format? Or why is that?

H
Haluk Dortluoglu
executive

[indiscernible], we are actually accelerating, but it's coming from 0. Now we -- this year, we expect to open maybe 40 stores, which -- when we ended the year with 93 stores. So that's, let's say, almost 50% growth a year. Of course, we need management, we need store managers to be trained, developed, all these things. And we don't want to, let's say, grow faster than we should. But I can assure you, our -- we generally believe that every year, we must increase the store openings rather than opening 100 stores a year because it's substantial CapEx in the -- for FILE store, increase the number in a healthy manner. So maybe this year, we open 40 stores, next year we open 60 stores and continue to reach our growth target there. So -- and maybe also, I should add that, happily, we can say we have -- by the February results, we are not only EBITDA positive, we might see net profit positive around the FILE operation in the first quarter in 2020, it seems. So it's becoming also net profit positive. So nothing wrong with FILE operations, it's going on track and will be improving on the coming years.

U
Unknown Analyst

One last question is on the competitive environment. As far as I can remember, earlier in the quarter, you were seeing a lot of promotional activity from the competitors where you were not participating much. This is fourth quarter. Has that changed? And was that the reason your traffic growth was negative and your competitors perhaps became more price rational in the first quarter and things started to normalize? Or I mean, is it the picture? Or is there -- I mean are there other factors that have changed the environment and you are seeing better January/February numbers?

H
Haluk Dortluoglu
executive

In the declining economic times or economic crisis, promotional activities are more popular. That's all we know. And the last year was a difficult year for Turkey -- last 2 years were difficult years for Turkey. So promo activities were more popular. But of course, there are a lot of shortcomings on the promotional line and -- which we didn't want to get involved. And we rather than going for a classical promo line, we more preferred to emphasize and focus on our other promo line activities, which has been announced. Those are spots and [ group ] spots. So to more focus for the long-term strategy and to -- instead of daily promo activities, catching the cherry pickers, we rather try to focus on the people's real needs and to address their real needs in the -- including the nonfood categories of spots. So that's why we are now heavily increasing our spot turnover share plus spot margins within our total margin.

Percentage-wise, we are also increasing the margins there. And now we are also getting into other categories, as I mentioned. And with the, let's say, economic change in positive terms in the first quarter this year, we are already receiving the response and also the -- there is more cash in the economy that -- and people feel they are out of crisis. And so we are happy to go with this nonconventional strategy to deal with -- and compete with the promo line and maybe stay out of promo word, but give the answer to promo line with other names like in and outs.

Operator

And the last question, please, comes from the number 2457. So please introduce yourself again and ask your question.

U
Unknown Analyst

It's [ Bill Tudras ] from JPMorgan. Just one more follow-up question on the competitive landscape. And I think there were some comments about the pace of growth of yourselves and competitors and that maybe this has also had an impact on traffic and going forward in terms of the traffic dynamics. My question would be, what would you expect to be a normal level of traffic growth for BIM, given the store openings plans that you have and in the context of the store upgrades, which you've also mentioned?

H
Haluk Dortluoglu
executive

Of course, we want to see a real like-for-like growth. We want to see basket size growth, which is higher than inflation. And we want to see a real average growth in the traffic, customers per store number. Of course, this was not always available, and this was not the result maybe last year through some quarters. But I think the first quarter will be one of those, which we have positive traffic, positive basket size growth, both in the real terms. And if we have 1% or 2% increase in the traffic and if we have higher-than-the-inflation basket size growth, we will be happy.

I think there is one more question.

Operator

Exactly. There is one more question from [ Gorkem ].

U
Unknown Analyst

I'm sorry for -- if you have to repeat it, but could you please clarify your CapEx guidance again because it is flat in nominal terms and you are planning to invest more on your existing stores. It's modern layer format. Isn't that a contradiction on that front? And secondly, the -- your strategy overview and your new value proposition, what I see, they are very contradicting with your core pillars we used to talk in the last 15 years. Do you see any risk on that front? If yes, on which part, on your margin front or your revenue loss?

H
Haluk Dortluoglu
executive

Thank you very much. On the CapEx side, there is no contradiction at all because there is no effect -- or the new store layer will have no effect on the CapEx because we will not change our stores, we will just open the new stores in the new format. And when -- after, let's say, 10 years, if a store requires full refurbishment or complete update, at that time we will renew the format to the new one rather than changing all the stores in 1 year or 2 years. So it will have no CapEx effect. The new design will have no CapEx effect. Also, it will not increase the per-store CapEx for BIM. So it's only a design change, and there is no CapEx effect coming from this.

In terms of strategy, of course, we believe the company needs to renew itself when the time comes for the renewal. So this might increase for a retailer added categories or changing the display or the layout, and it might require some changes in the product display which -- like fresh produce from packed to loose or maybe adding of the bakery section, maybe changing the square meter of an average store. But at the end of the day, the real value is whether you are consistent in your -- consistent or not in your ultimate value promise to the consumer -- the customers.

So are we getting out of any, let's say, core pillars of our discount philosophy? I think -- I don't think so. We are still discounters and focusing of the basic principles of a hard discounter. We want to, let's say, focus on less -- or low number of SKUs compared to our competitors and good price and focus on good quality of products. And the service and the serving of product is in a moderate environment. And the productivity is important in terms of employee productivity. And the service quality-wise, we need to stand at some threshold rather than increase the number of employees. And in terms of all these things, I think without increasing the cost -- the question is, without increasing costs, how we can increase our service levels and retail service performances. Those are the things we are trying to answer rather than changing our format, changing our principles or the core values.

Okay. Thank you very much. I think this was the last question.

Operator

Exactly. Mr. Haluk, the floor is yours.

H
Haluk Dortluoglu
executive

Okay. Thank you very much for all of you joining our year-end conference call. I -- we hope to meet you in 2020 quarterly conference calls and better results. Thank you very much for joining us.