Migros Ticaret AS

IST:MGROS.E

Earnings Call Transcript 2020-Q1

[Operator]

Good day, everyone, and welcome to the Migros First Quarter 2020 Financial Results Call hosted by Özgür Tort, Migros CEO. My name is Deborah, and I'm your Event Manager. [Operator Instructions] I would like to advise all parties that the conference is being recorded for replay purposes, and now I'll hand over to Affan. Thank you, Affan. Please go ahead.

[Affan Nomak, executive]

Thank you very much, and good afternoon, and thanks to everyone for joining us today. I'm Affan Nomak, Director of IR and Risk Management. I hope you are all well, your families and friends. I would like to welcome to Migros' First Quarter 2020 Earnings Call. We disclosed our financial results yesterday, and we released a public disclosure regarding financial notes, note number 22 today, which doesn't have an impact on our financial table. I'm here with the management team, and today's speakers are Ozgur Tort and Cem Dogan. At first, Ozgur Tort will briefly talk about our operations, then Cem Dogan, our CFO, will share with you the review of Migros cash position and the deleveraging efforts. And I would like to kindly remind you that there will be a Q&A session at the end of the call.

Now I'll turn the call over to Özgür Tort, Migros' CEO and a Board member. Özgür?

[Ömer Tort, executive]

Thank you, Affan. Thank you, Deborah. Thank you all for participating with us today. We definitely hope that everybody is keeping safe and healthy back in their homelands. That will be [ another ] experience. We are 4 of us in different rooms, different structures in the same building. So it's a strange experience for us as well. So let me just start briefly what is happening, obviously, the COVID-19 is moving all around the globe. So we are trying our best efforts to make sure that we are managing our business in a sustainable manner as expected. Obviously, we were all expecting a better, less volatile environment for Turkey for this year.

However, this impact is keeping us on our toes, and it looks like it will continue for a while, and we have to be just maintaining our speed of expansion and altogether for the best of the company. The difficult times nowadays, starting from the mid of March. We are pretty much hoping that the difficult times are becoming behind us, and the conditions are easing nowadays for the country. And obviously, tackling with the virus impact was an issue, but now we have to be ready for -- to tackle for the new economic challenges to come.

Obviously, before elaborating our operations, let me just give you a few words about the impact on the virus-driven activities. Since this issue became widespread, definitely our primary focus has been the health and the safety of our employees and obviously, our customers. We took numerous precautions, measures against the spread of this pandemic in our stores and definitely, in our warehousing operations, logistics centers, home delivery options, everything and clearly our head office as well. As you are aware, recently, we have been witnessing some clear shopping habits and preferences of the consumers, and that is towards more online shopping. And we did our best efforts to make sure that we are catching up with this extraordinary search in online shopping demand. And to do that, of course, we have done a lot of efforts, and we tripled almost our online business capabilities and servicing efforts, including our employment and store network regarding this operation.

Obviously, on the financial side, our efforts for faster deleveraging is continuing, as probably you have already noticed in our Q1 results as well. Our cash flow generation is significantly strong, and that is also partly coming from the impact of significant demand increase, especially in March, specific. However, obviously, we are also tackling and trying to catch up with additional cost challenges and also our shopping mall operations, which is also impacted from the consumer traffic and some of our shopping centers, which are already closed at the moment, and we are hoping to reopen them starting from the mid of May, based on the recent disclosures coming from our President. We all hope, of course, this pandemic will be over and the normalization process in all the industries will take place soon. But this is probably taking a bit more longer time than everybody is expecting. So we have to make sure our best efforts continuing.

I hope you all received the presentations, and I will go through the page numbers to ease the follow. And starting from our Page 3, I will be just trying to be more specific on the measures that we have taken regarding the COVID-19 impact, especially the store operations, which are very important for our safety, our employees and customers. We -- right after having this impact coming up from different countries, I would be clear to express that we were relatively luckier than the other first introduction countries of this virus impact. And we have done a lot of research before this -- the first event happening back in 11th of March, in Turkey. So we have taken several measures like social distancing and sanitizers, obviously at -- dispensers at the store entrance, store outside entrance and exits.

And all employees has been strictly enforced for hygienic rules, and we are still maintaining these rules to continue. And clearly, a limitation, which we have come to an agreement with our government to make sure that we are pretty much the same implementing every steps within the -- across industry to limit the number of customers within a store with the parameters of one customer per 10 square meter-type of ratio. Obviously, our sanitization efforts during the day, especially working areas, is still maintained. This is 5 times a day with a clear announcement within the stores to make sure that our shoppers are also aware of what we are trying to do our best efforts for our safety of our employees and our customers.

Another important driver was encouraging the shoppers towards contactless credit card payments, debit card payments. I'm glad to express that Migros' own POS operations, which has been one of the key advantage during this pandemic environment as well that we are managing all of our POS systems by our own without any interaction coming from a bank. So that helped us tremendously to introduce the contactless operation across the POS at the store levels now. And thanks to a very nice collaboration with banks, the minimum limit of -- the maximum limit -- sorry, of contactless payments has been increased to TRY 250 per transaction, which is obviously -- and large numbers covering a lot of number of transactions within our stores nowadays is repeated without a contact with the POS.

Continuing at Page 4 on our impacts on our physical stores, just to briefly express to you, obviously, especially, coming at the beginning of the pandemic environment, coming up in the last 2 weeks of March and clearly in April as well, our basket size has significantly increased in our stores. And we have introduced several temporary store closures, which are non-traffic destinations. Obviously, you can understand, these are mostly petrol office stations, gas station environment, bus station environments, where we are operating some small store operations and as well some business centers and as well, some of the shopping centers, which are completely locked down during this period. That's equivalent of 69 stores, which are still temporarily closed in our operation, 33 of them in shopping malls.

And together with some shift optimization, what we are calling, which means the store opening service hours limitation and to make sure that we are maintaining our best efforts to service our customers, but also at the same time, keeping our employees' health and safety measures as structured as possible. We restricted shopping mall stores into a more limited time horizon of servicing from 12:00 p.m. to 8:00 p.m. and the rest of our street stores, supermarkets and the large stores from 9:00 a.m. to 9:00 p.m., which is roughly 2 hours average of shortest servicing hours across the physical store operations. Obviously, this has introduced together with temporary store closures, some reduction on the customer traffic, which is obvious, and which is also an element of limitation on the lockdown of our shoppers' age above 65 and below 20 years old. So this is the main reflections, which has happened in our physical stores, and pretty much the reflections are still continuing as of May as well.

On Page 5, the reflections on our online business, we tried to summarize it. Our online orders, which is in the 2 main streams of Migros' overall significant experienced environment, what we call Migros sanalmarket. And the other one, which is our express delivery in 30 minutes' time horizon. Both of the operations have quadrupled the online demand of our shoppers. This is obviously a significant and an extraordinary push on the demand of the shoppers. And as I tried to express at the beginning, we tripled our capacities of servicing by employing a significant number of employees dedicated for such operation and, at the same time, enlarging our store base to service our customers.

And with -- by these significant efforts, which are realized in 3 to 4 weeks' time horizon, we increased our number of customers, which are shopping now online by 90%. And our online capability stores are doubled. And another experience that we have realized is that the shoppers who are elder than 60 years old are now accounting 3x higher numbers than the pre-COVID periods as a comparison, which is a new consumer segment that we will be glad to maintain in the coming shorter and longer time horizons.

Continuing with, again, online business impact. On the staff side, as I expressed, we increased by 4,000 new employees, our servicing elements. And our call center agents are quadrupled as well to service our shoppers, and we also introduced a picking automation tool, which was already an addressed operation in our -- as of last year's piloting efforts. We are now rolling it out rapidly into some additional piloting options as well, which helps us in terms of efficiencies on picking at the store.

Expansion side, we are now enriched our operation to service online shoppers in 76 cities of the country, which was only 30 cities back in 2018, and increased to 58 cities by the end of last year and now 76 cities out of 81 in the country. And in a short period of time, we would reach across the country servicing throughout our store network, the online shoppers across the country. Now our store network, which we are calling them hyper-location kind of approach, which some of our analysts are pretty much familiar with this approach on online business, our business model is clearly a service-driven and store-based operation, which is a distributed environment rather than distribution center-driven operations. That is why we call our strategy as a hyper-location type of expansion plan on our online business, now that we reached 408 stores out of our portfolio of almost 2,300 stores are now servicing as well as a hybrid format online and off-line to our shoppers.

That is, as you can see from the numbers, as twice capacity that has been introduced across this country operations. And at the same time, our piloting, which was an interesting phase, which we started last year, the darkstore operation, which is pretty much called full fulfillment centers, only dedicated for online operations. We used to have 2 of them as a piloting operation. Now we reached 10 stores operating in that sense. And also we introduced, which is another piloting from our side, which was 3 stores were piloted as of last year under the name of mini-darkstore, which is a micro fulfillment operation, is now represented in 17 of our stores as a full hybrid model, a store which is servicing online and offline with a separate store operation within the same location.

Next on it, we are also diversifying our channels with the relaunching of Click & Collect. Some of our analysts and investors would recall that we already relaunched -- we already launched Click & Collect about 5 years ago in Istanbul district. Interesting enough, that operation was not successful. We retrieved back after 1 year of trial. The reasons were obvious that in a Turkish regular shoppers, there is always someone at home, either a babysitter or some grandparent. So that is the reason that Click & Collect in the past trials was not successful based on our experience. However, with this new environment, we thought it's going to be another opportunity to relaunch the system, and we are now introducing another new channel as a basic Click & Collect store-based operation in about 15 of our stores in -- mainly started in Istanbul operations.

Next to it, we also introduced phone ordering. And next to it, we also introduced chat-bot ordering, which are the new channels of introduction, which are clearly worth to express for the piloting stages for shoppers, which are looking for a mobile-driven operation, but just paying a call or just dropping down a WhatsApp or similar type of SMS messaging type of driven operations to give some orders. As I said, these are new trials that we will be already -- we were already piloting to speed up during this new shift of demand.

All in all, Page 7 is a just brief summary of where we are today, as Migros' overall online operation is now 76 cities with 30,000 SKUs. And Migros express, which is Migros Hemen, which is express delivery in 4 cities right now with 2,000 SKUs. And Migros macro centers separate operation is also another successful introduction nowadays in 7 cities with 13,000 SKU servicing. Tazedirekt, which is a direct operation from farm to shoppers only for basic, fresh, perishables and nonbranded natural goods. And at the same time, a partnership with Trendyol, which is an Alibaba subsidiary in Turkey, to have a platform partnership to go with a third-party distribution in 81 cities around 2,300 SKUs available within that platform operation.

So that is about our online update. With this new environment, we all assume that the significant shift on demand will continue for a while. Especially in May, we are still experiencing similar numbers, and obviously, there will be some stabilization environment that we are all expecting to happen. And basically, across the globe, we are trying to benchmark what is happening in the other countries, the other continents. And pretty much, the experience is showing us that minimum doubling type of outcome will be a medium- to long-term impact, whereas, the figures by now quadrupled, as I expressed in our online operations.

The simple impact analysis on Page 8, which is impact on our business and financials. Very briefly, the improvements are obviously that the sales turnover increased a significant jump. Especially in March and April and which is triggering home consumption and the consumer stocking up some of the products. Nowadays, it's pretty much stabilized. We are experiencing that shoppers are becoming more normal trend, but of course, still a higher basket size trends are continuing as of May as well. And obviously, with the help of our own incentives starting from last year to this year, and together with a higher transaction figures that has been realized, our inventory turnovers are positively impacted with a faster inventory nowadays, which also helped, clearly, the cash flow generation for this significant impact, which is happening across the country.

The challenges after -- nowadays, especially with COVID-19 impact, obviously, Turkish lira is relatively underperforming, and continuing from last year. There is another challenge coming up from the foreign exchange losses. And next to it, we are also experiencing some additional costs, which are additional employment, obviously, for online operations and next with some additional employee-driven costs, which are linked with additional masks, [ disinfectation-driven ] additional costs, which is employee-driven costs again and some additional jump in costs coming from the online delivery charges, which we are trying to optimize our figures in the coming months. However, delivery is a costly thing and which is an impact on our financials nowadays as well.

And finally, I will be just trying to remind that small enterprises, which are pretty much an important impact on the employment in the country are suffering nowadays in terms of -- either from lockdown or much less turnover-driven operations. And we will be doing our best efforts to make sure that supporting our small enterprises, especially our suppliers, which are hurt from this unfortunate event. And we'll be continuing to support their cash flow necessities.

That is briefly what I can express around the COVID-19 relevant impacts on our business. So back to our regular presentation pages, starting from Page 9. You can see our sales evolution in the first quarter of the year. We resulted 30.7% of sales growth in our consolidated figures, which is more than 31% in our Turkish-only operations. And basically, when we compare from last year, which is around 24% levels of top line growth, as you can see that, especially coming from the March, the impact is very clear. And as I tried to address, the main drivers of this growth is the basic food necessities, cleaning products, fruits and vegetable, meat, delicatessen type of categories, which are highly demanded compared to the rest of the category platforms, and obviously, with the support of online business, strong growth.

On Page 10, you can see the first outcome of the quarter's market share evolution, obviously, in the market nowadays that are still continuing lockdown periods, especially during the weekends. And some of the large bazaars are limited in terms of customer traffic. So we are experiencing a positive impact coming, especially from perishable categories, especially fruits and vegetables traffic on our stores. And that has clearly helped us in terms of increasing our market share by 80 basis points from last year to this year, first quarter to first quarter comparisons. Now we are having a total FMCG market shares of 8.8%. And when we are to compare within modern trade, our FMCG market share has reached right now 17%, with a 40 basis point increase compared to last year.

Obviously, this market share gain is a driver of both our same-store growth with the online penetration increase and, of course, with our physical store expansion, which is continuing. You can see on Page 11 that we opened another 131 stores compared to last year. And within the 4 months of this year, the new stores numbers are 62 new stores introduced. And all in all, as of April, we have almost 2,300 stores reached by the end of April as a physical expansion, which is roughly equivalent of 2.5%, 2.6% of physical space increase on our physical operations. As I addressed at the beginning of the presentation, next to our physical store expansion, we now started expressing our online service stores as I expressed by embracing the model of hyper-locating the store expansion for our online operations. As you can see, as of end of March, we reached 350 stores, by almost 200 store increase versus the same period of last year. And by the end of April, our number of stores servicing online operations is more than 400 right now.

Capital expenditure, Page 12. For the first quarter of the year, we realized TRY 61 million of capital expenditures. And as you noticed from the last couple of years' figures, we have a clear commitment that we will be very careful about capital expenditures to maintain our promises to deleverage the company with our best efforts. But on the other hand, of course, we are still maintaining our expansion speed parallel to previous years. And -- but on top of it, of course, the expansion has now 2 dimensions, one of them is a physical expansion and the other one is the online expansion. And I'm glad to express that online expansion is delivering us our fruitful outcomes that we have spent significant effort in the last 4, 5 years. And we are very positive that this will be another help for the company's futures to make sure that as a leader of this operation to embrace our shoppers with the best interest of payers' expectations.

Towards the mid of the year, we will be more clarifying our capital expenditure targets for the year. But for the moment, we are still guiding the same figures that we shared at the beginning of the year, around TRY 400 million of capital expenditure is targeted. But it is obvious that we will be spending more on the online-driven capital expenditures and less for the physical expansion in terms of capital expenditures. However, on the other side, we are trying to maintain our targets of store -- number of store expansion. This is thanks to our beneficial environment due to the pandemic and also the Migros' strong negotiation power, which is helping us in terms of delivering the similar number of stores with the less capital expenditures by sharing part of the cost with our landlords.

Page 13, summarized outcome of our gross profit evolution. As of first quarter of this year, we delivered TRY 1.7 billion of gross profit, which is about 27% higher than last year. In the last presentation, you will recall that there is an interesting change on the charges driven due to due date charges on our accounts, which is accounted under our gross profitability. As we are to normalize it as you can see that the increase on the gross profit is around 38% on the right-hand side of the page. And all in all, our regular gross margins are pretty much under the same figures of 26.8%, which is roughly 7 basis points increase versus previous years, whereas, 70 basis points decrease due to higher -- less interest rates, which are charged to our due date payment terms.

To follow-up on EBITDA impact, on Page 14. As you can see, the first quarter's EBITDA figures, including IFRS 16 impact, is TRY 571 million of EBITDA generation, which is about 17% increase versus last year. And if we are to exclude IFRS 16, the figures are pretty much similar, but higher increase on 18.6% versus last year, which is a derivative of, as you will recall, the change due to IFRS 16 is mainly driven from our rental expenditures, which is deducted from our expenses but quoted under financial liabilities. And with the same normalization of interest rates, which is a significant drop on the interest charges, as you will recall, last year's -- in the first quarter of last year, the interest rates were at the levels of 21%, nowadays around 11% rate. So there is a 10% decrease on the interest rates, which are the parameter of our due date charges-driven operations.

As you can see our margin, at the end of first quarter, is about 8.9%, which is around 100 basis points deterioration versus last year, mainly coming up from the impact of this due date charges. If we adjust to normalize it for the sake of comparability, our EBITDA margin is about 40 basis points better than last year's -- compared to last year figure of 8.5% versus 8.9% margin this year. So this translates around 36% increase on EBITDA, if you have to normalize this interest rate versus last year to this year. Obviously, in our EBITDA figures, I will be trying to express that, together with our efforts of deleveraging the company's balance sheet, as you will recall, we are exiting some of our real estate that we own, mainly from the Kipa operation that we acquired, but also at the same time from some of our Migros relevant real estate as well.

These asset divestitures has continued across this year as well at the beginning of the first quarter, and that has also a simple dilutive impact on our EBITDA generation since we are renting back, leasing back the real estate that we sell. And that has an impact on shopping mall income and the rental expenditure of the company. So I will be trying to express that, that our EBITDA improvement is versus that impact as well. And for this year, I think you all follow that as of yesterday, we realized another transaction of asset divestiture, an important one. And all in all, this year only, we realized 6 different transactions, and 4 of them are closed already, which is an equivalent of around TRY 530 million equivalent of asset divestitures has been realized as of this year, by the end of -- nowadays, about the beginning of May, let's call it.

So at this point, I would like to hand over to Cem for our cash position and deleveraging strategy. Please, Cem, go ahead.

[Ferit Dogan, executive]

Thank you, Özgür abi. As Özgür abi was saying, it's March closing has been very strong in terms of cash. We closed March with TRY 1.8 billion more than in excess of that TL, and EUR 111 million in our cash and cash equivalent items. But of course, especially our TL part is driven mainly by the extraordinary sales that we have seen in the last 2 weeks of March. And that through the negative working capital, that translated into a substantial cash balances for us. And -- but of course, with the normalization of sales environment, we can expect this to be taken back. But just to give you a fair idea, if it was a normal period, we could have seen this net debt-to-EBITDA number to go up to nearly 1.5x of EBITDA. And which is still a significant improvement, we believe, versus 2.4 that we have seen last year in the net debt-to-EBITDA figures.

And March, we closed -- for the last couple of years, one of our priorities, as you know, was the reduction of our gross euro position. And we closed the year in 2019, approximately EUR 430 million, gross euro. And with some payments, amortization or voluntary amortization payments that we have made in the first quarter, we brought it down to EUR 336 million. And in April, we have also made a further payment out of this EUR 111 million cash balances that I talked about, it's approximately EUR 73 million for the cash payments we have made, amortization. And that is bringing us down to EUR 263 million gross position.

And with that, I would like to start the next page on our -- the evolution of our gross euro debt over the years. And by the end of 2020, our objective is just to bring it down a bit more. And the asset sales, as Ozgur abi was mentioning, is going to help us towards realizing a number below EUR 250 million. And with these voluntary amortization payments, we have cleared up all 2020 amortizations, all 2021 amortizations. Now we do have EUR 163 million in 2022 and EUR 99 million in 2023. But of course, our objective is just to make further payments in 2020 until the end of this year and as well as 2021. But of course, this is not only gross euro payments, but our net debt position is also improving. So we ended up the first quarter at TRY 1.9 billion. But as I said, a part of this total net debt improvement is due to this extraordinary sales environment that we've been going through.

With that, the next slide is about the guidance, and I would like to hand over to Özgür abi again to go through that.

[Ömer Tort, executive]

Thank you, Cem. This is just the last slide. So we are, of course, working very hard to make sure that we can foresee what is going to happen. But obviously, for everyone in across industries, it's very difficult to perceive what is going to happen after this, call it, impact. So this is the page, but we are working still on it, and I hope we will be much more clear on the outcomes by the half year results. But at this moment, by updating our first 4 month outcomes and trying to adjust it together with our 8 months regular budgeted figures at the beginning of the year, we would like to update our sales growth targets around 19% to 21% for the -- across the year.

Obviously, this is assuming a drop on the top line sales. And obviously, one of the reasons that clearly in the country, we are all expecting an economic impact coming right after these existing condition becoming a reach. So we are trying to maintain ourselves to make sure that the unemployment risk that may increase on the second half of the year, and we will be just trying to be prudent to make sure that we are maintaining our budget targets in the last 8 months of the year with a target that we have been sharing at the beginning of the year.

And on the EBITDA margin, we are maintaining our position as we expressed at the beginning of the year, so 8% to 8.5% EBITDA margin. This is not including IFRS 16 impact as well. And we would like to keep our expansion target at the levels of 120 stores, not changed. And as I expressed, CapEx figures will be around TL 400 million, and with a shift within towards more online capital expenditures for online operations.

So this is going to be the presentation for today. So now, obviously, as usual, we will be glad to have your questions. Thank you very much.

[Operator]

[Operator Instructions] We do have one, not sure if I can say the name, it's [ Grekhem Gouka ].

[Unknown Analyst]

My question is regarding your employment for online operations. I mean when we look at the average number of employees, we do not see as of March, so could you please update us about the evolution of the employment according to month and how it should proceed in the next quarters? I mean the productivity comes with a lag, I guess. So when should we see some normalization and productivity increase on that front?

[Ömer Tort, executive]

Thank you for the question, [ Gouka ]. It's a very important element of our focus nowadays. Obviously, we started employing our -- both of our own operations and also some temporary employment, which are coming from some additional service companies. Altogether, the main impact actually is coming from the second part of March. So the first 2.5 months of the first quarter is not -- there is not much impact, obviously. So for that reason, we will see the number of employment increases, especially in Q2 and mainly April, May as the outcome. However, since this operational -- additional employment force is backing up the online operations, we are trying to build a much more flexible environment of employment. Obviously, these are mainly delivery trucks and delivery employments. And at the same time, our pickers, which are pretty much flexible with the number of orders that we can deliver.

So I'm positive that this new model of employment is much more flexible. However, the impact of cost structure we've been seeing in the Q2, but also I'm positive that the top line growth is still very strong, especially in April and May. So we might not see a significant deterioration on the cost base margins. But on the other hand, of course, the main outcome will be reached in Q3, mostly because we are all expecting that the normalization actually will be delivered by almost July since the shopping malls will start operating in May and the rest of the operations will start in June. That the majority of stabilization we will see in Q3. And as I expressed, during Q3, there is another flexibility that we have in our hands, the seasonal stores, and which is another hot issue to discuss nowadays since the tourism is down and the local tourism might not be also reflected.

On one side, we are very positive that home staying tourism activities, which is mostly the seasonal store areas, will be relatively more crowded to our advantage. So that is why we will be just glad to express and expand our online operation in summer destinations as well. This is going to be the main practical approach to handle the additional employment, but with the flexibility of, as I said, temporary employment, combined with drivers and combined with seasonal store approach in a sense.

[Unknown Analyst]

Okay. Just for confirmation, I mean, bulk of these employees are minimum-wage employees, I guess, right, those employees for online?

[Ömer Tort, executive]

Yes, yes, definitely. But of course, with an important sales premium, which are a motivation to increase more sales.

[Operator]

And Özgür, we have 3 waiting. The next one now is Metin Esendal.

[Metin Esendal, analyst]

I have a quick question on the real estate portfolio. You mentioned you did 6 transactions as of late, but are you optimistic for the remaining part of the year? Do you expect more deals?

[Ömer Tort, executive]

Thank you for the question. It is hard to express, of course, due to this new environment. But I'm glad that we already realized 6 of them. Four of them are closed and 2 of them are still pending, but secured, I will call it, in terms of transaction. All in all, I think there is no targeting here with an absolute number, but clearly, we are -- we have reached what we wanted for this year. So this is why I take it as a positive for our balance sheet improvement. But of course, depending on the economic conditions, we will be looking forward to realizing some additional transactions as well. But it is hard to express at the moment.

[Metin Esendal, analyst]

Okay. Understood. And can you remind us the level of the real estate portfolio for the coming -- not for this year, but in time, what is the level that you want to sell in the years to come?

[Ömer Tort, executive]

There is no such a target to be expressed. As you can understand, depending on the valuations, and we are definitely looking for lucrative deals. And up until now one, we secured to make sure that the real estate transactions are realized at the levels which are lucrative for the company, which means the averaging type of, Istanbul mainly, Izmir mainly, transactions around 14x, 15x per annum type of returns for our transactions. So -- and when it is outside Istanbul and Ankara or Izmir, these transactions are at the levels of 11x, 12x type of rental income, transactions or rental expense transactions. So these are the levels that we will be glad to continue.

But if we cannot reach those levels, I don't think it is really -- it is really a big urgency since we already delivered a significant number of deleveraging. And at the same time, of course, the interest rates are becoming down. So on one side, it's the cost of interest, and on the other side, is the valuation challenge. And whenever it's to the benefit of the company, we will continue. If it's not, we will stop.

[Metin Esendal, analyst]

Okay. And the second question will be on the euro-denominated debt. As far as I see, there will be no further payment in 2020 and in 2021. But do you -- what's the intention of the management regarding this euro-denominate that you want to make further early down payments to finish them off before 2021? Or you will keep the schedule?

[Ferit Dogan, executive]

I can answer that Özgür abi, if you like.

[Ömer Tort, executive]

Go ahead, Cem.

[Ferit Dogan, executive]

As I mentioned in the presentation, our objective is -- deleveraging objective is still continuing. We won't wait until the rest of the year or until 2021 for further payments. So whenever we have funds, excess funds, we will continue decreasing our euro exposure further. These are going to be voluntary down payments. What we are trying to show in the presentation is that the average maturity of the euro liabilities is relatively high, and we don't really have any immediate exposure for down payments.

[Operator]

So another one now from Cemal Demirtas.

[Cemal Demirtas, analyst]

My first question is related to traffic. How did traffic go? As far as I understand, the basket size was very good. I would like to understand about the traffic. And where was your prices standing at compared to your peers? That's the second one related to the first one. And how do you see the trend in April compared to March? Do you see any normalization or any momentum? And in which categories you are seeing more growth, obviously, in the food, but do you see also increasing the nonfood categories? That's the question.

[Ömer Tort, executive]

Thank you. In terms of traffic, obviously, shopping malls, large stores in -- outside of the city are hurt from the traffic. Basically, the stores, which are mainly -- the majority of Migros stores is -- 2/3 of our stores are supermarkets, which are enjoying traffic. So overall, our traffics are relatively negative, but slightly negative, I would call it. But the basket size are significantly higher. So compared to the first 2 months, which were -- we were having even positive traffic increases in the first 2 months. I can say that March and April traffic is slightly negative in that front. But our basket size are significantly improving. In the long term, I think, it is not easy to express as of the secondary impact of the COVID, but on the overall expectation, we will be still expecting a less traffic but continuing higher basket size, even the environment is back to normal. And obviously, people are not willing to spend a lot of time outside. And once they are out, they want to finish their duties rapidly. And this will continue for a while.

In terms of pricing, I believe we have expressed our position several times in last year, this year. In all commodity lines, in all basic food, on basic necessities, we are providing the best price in the market through our private labels, and significant promotion-driven activities are still continuing. Several of our competitors, to be very explicit here, they stopped their promotions, whereas, Migros is strongly continuing, which is the backbone of our operation, which is a part of what we call 2 week -- biweekly inserts, which are still continuing with the same speed. And we believe that we are providing the best pricing on the brands as well during this promotion periods. And with the support of our fresh lines, which are very strong growing right now, we are providing the best service into the market today.

And for April compared to March, obviously, the impact -- the hike was in March. April was relatively less, but still very high in terms of basket size growth. However, in April, there has been an introduction on the lockdown during the weekend, which is a significant impact on the traffic. You are missing the 2 days of the week with 5 days of shopping and 2 days off, and that is a tremendous impact on the supply chain and the operations, which is causing some shrinkage on the supply chain, and we have to tackle that as well as another challenge. So April is different than March to that extent. And as of May, I think the figures are pretty much stabilized. And as far as I can see, this is going to be continuing across May as well with the same trend, which is higher basket traffic, higher basket less traffic type of trend will continue.

[Cemal Demirtas, analyst]

And I have one other question about the financial side. First, about IFRS 16 impact on your bottom line, how much was the effect? And the other one is about your interest expense on term purchases, we see some decline in the first quarter. Will that continue? And additionally, what's your short FX position as of now considering the April transactions after some repayments and assets divesture? Just a rough level of short FX right now from EUR 112 million.

[Ömer Tort, executive]

Cem, would you like to go ahead?

[Ferit Dogan, executive]

Sure, of course, Özgür abi. On our consolidated financial statements, the IFRS 16 impact is approximately TRY 25 million. That's slightly less than last year, I believe, but this is what we are reporting. This is also increasing. And you can also find this on the footnote 7, you can follow that out. And as far as the due date charges are concerned, due date charges significantly impacted with the interest rates. Last year, around this time, the interest rates was approximately 21%, substantially high. And this year, it went down to around 11%. So this has actually had a negative impact on our gross margin. That's why we felt the need to report normalized EBITDA as well as the gross margin. And our expectation is that this impact is going to continue throughout the year, and we will have, on average, a lower interest environment as opposed to 2019. And in 2019, on average, we have seen an interest rate of around 18%. And this year, our budget calculations was around 11%, 12%, and we are still sticking to that as well.

As far as our short ForEx position is concerned, as I said, EUR 111 million, we paid out approximately EUR 73 million out of this in April. And so whenever we find an opportunity, especially following the asset divestiture and whenever we have some excess cash, we prefer to keep it in euros. And -- but of course, it's not EUR 111 million now, but we have approximately half that amount as well, approximately so far.

[Cemal Demirtas, analyst]

Yes. Half of that -- around EUR 50 million, right?

[Ferit Dogan, executive]

It's changing, of course, every day, but...

[Cemal Demirtas, analyst]

Yes, yes, exactly as of now, at least, reflected in the latest...

[Ferit Dogan, executive]

Slightly more than that perhaps, yes.

[Cemal Demirtas, analyst]

Do we have any target on that to be around because in the past, you were suffering significantly from that? But now EUR 50 million, it looks more reasonable. Do you want to go a square or any target or like that just or just depend on transactions you are having?

[Ömer Tort, executive]

We don't have a specific target. Our target is just to reduce the gross euro position debt further. So in the future, we might do some voluntary down payments as well. That's why we are saying that our target for the year-end is less than EUR 250 million gross euro exposure. So we might do some more voluntary down payments.

[Operator]

We now have [ Yavuz Verdel ].

[Unknown Analyst]

I have 2 questions. First one is related with the asset sales. Correct me if I'm wrong, but since the start of the last year, in the last 2 years, you have sold roughly TRY 1 billion asset. And could you give us a color about how much this was cost in terms of -- I mean, how much rental income you lost? And how much rental expense now you are paying? So on net-net, what would be the impact on the EBIT level because of this TRY 1 billion asset sale? This is the first question. And the second one is regarding your guidance is 19% to 21%. Even if you take the upper end of the guidance, it seems that you are expecting around 19% growth for the rest of the year. I mean, is this realistic one or an optimistic one?

Because all is this related with the traffic that you are seeing is -- because March was an extraordinary month. And is it related with that you are seeing some traffic movements that would affect 19% because it will drop from 30% to 19%? But last year's second quarter basis 28%, 21%, 21%. So I could understand the second quarter base is high, but for the coming quarters, it's around 21%. So 19% for the rest of the year, I mean, what is the parameters behind this growth guidance?

[Ömer Tort, executive]

Thank you for the question. For the real estate portfolio, the transactions are happening starting from 2017, if I'm not mistaken. And we realized almost 30 transactions in total, small, big altogether. The bottom line of it, we can give you more insight later on, that's roughly TRY 1.25 billion type of total up until now on realized as a cash in. I tried to express in one of the questions as well. What we were trying, of course, when we sell a real estate, if it's a shopping center, it's a drop on the shopping mall income. If it's a regular store, it is rental expenditures coming next to it. And all in all, as I expressed, our multiples, which is pretty much the regular experience across the world, the multiples, which are more interesting rather than the cost of it in a sense. So our target levels are about 14, 15 years type of returns in that segment. So obviously, this is really dependent on the location. In Istanbul, you may reach even higher figures; in Anatolia, you may reach lower figures.

But our target levels are for the relevant environment, it's pretty much these realized figures. And as an average of what we have experienced, we already realized that. So all in all, you can easily adjust the figures and pretty much, if I'm not mistaken, it may help around TRY 80 million, right, pretty much impact on EBITDA based on this 4 years transactions. So which is TRY 1.20 billion, TRY 1.25 billion equivalent. So to continue or to stop, is pretty much linked to this valuation metric. As long as we can find bidders, we can continue some other transactions. If the valuations are not so attractive, we're not going to continue. And this is already secured, and we trust that we can continue some more transactions. But of course, the second half of this year will be much more challenging. And to be honest, we have to be targeting maybe 2021 unless there is a positive impact, which is coming from a -- global impact coming from a healthier reason for all economies.

Coming up, I hope this helps the question in an overall extent. And basically, for our guidance figures, 19% to 21%, first of all, as I tried to express during the presentation, we have a 4-month realized figures already in our hands, end of April. And on top of it, we added our original growth targets coming from the initial targeting, which is the last 8 months. The average of it is shared as a new guidance. What does this mean? Starting from May, we are targeting the similar growth that we already guided at the beginning of the year. So for food retailers, across the globe, we are trying to benchmark what is happening in other countries. There is, first, a very big hike coming and then a category shift and then a stabilization environment where we don't know any benchmark yet where it will be ending. To be on the safe side, we said, okay, we have a full year guidance, which we already shared with our analysts and investors, and we are keeping that target for the last 8 months.

So that is better than doing nothing. But on the other part of it, of course, we have a strong growth coming from online, which, minimum the half of it, I believe, we can maintain. But on the other hand, we have shopping mall business, which is hurt, both for our overall shopping mall presence as a real estate portfolio and at the same time, our stores, which are located at the shopping centers are suffering from the traffic. And we are not expecting a sudden change in that traffic flow at the hypermarkets, which are located within shopping centers. Majority -- large majority of them are rented. So our aim would be to restructure the cost part of these stores rather than trying to forecast what is going to be the sales target because we don't know, I mean, the shoppers reaction towards shopping centers.

We trust that we can maintain our traffic across our street stores, supermarkets, regulars -- regular supermarket operation, together with some large stores, which are located. This is almost 2/3 of our store portfolio. But 1/3 of our store portfolio, we are not sure for the end of the year, what will be the consumers' appetite towards shopping center type of traffic generation. So in that front, the team has given the target to structure the cost base, either renegotiating the rent terms, which is the obvious way of it and restructuring the business to help online rather than trying to focus the physical stores traffic only. And out of this 200 additional online store operation introduced, half of it is coming from such portfolio, which means that if you are losing a significant traffic in one hypermarket located or one large supermarket located in a shopping center, then this store will start operating as a hybrid model online offline together. So this is what we have done as a study behind.

And another parameter finally is the inflation, what we assume that with the unemployment challenge coming. And next to it, of course, there will be a challenge coming from the foreign exchange rate, which is a driver of inflation. These 2 might stabilize each other. Yes, there is a clear impact coming from the FX devaluation, Turkish lira. But on the other part, the unemployment is a much more important challenge, which may reduce back the inflation to the levels, which are less than last year. So with having, in our mind, a less inflation compared to previous years, this is the guidance levels that we shared.

[Operator]

There's 3 more waiting. Are we okay, Ozgür?.

[Ömer Tort, executive]

Yes, please.

[Operator]

Yes. Thank you. So I now have Berna Kurbay.

[Berna Kurbay, analyst]

I have a couple of questions as well. I was wondering if you could share what percentage of your revenue came from online in the first quarter of this year versus last year. Or do you all consider it as -- because of your hybrid model now, should we consider this not as pure online and part of the store sales? I was just wondering if you could provide some perspective on that. And my second question is about the leverage and debt reduction efforts. I think you mentioned earlier in the call that the asset sales so far totaled TRY 530 million. And I guess that includes the one that you just announced yesterday. And assuming that your debt level came down to EUR 263 million already in April, the proceeds from the sale yesterday should -- when converted into euros, should already reduce the gross debt to below EUR 250 million, which is your year-end target. Is it correct to assume that?

[Ömer Tort, executive]

Thank you for the question. The regular revenues of online in Migros operation, last year, significantly, growth around 70% level. We guided at the beginning of the year, a similar growth for this year. And as I expressed, this is more than that. It's the number of orders quadrupled during March and April. So nowadays, we are much ahead of what we were planning for the year. We are not sharing the percentage over sales because this is pretty much linked within the stores, and we don't have a target such to have online sales to grow total dependent from the store sales. Because, we believe and we trust, and we are, I believe, showing you as well, proving as well, that the hybrid models of hyper-locating the shoppers is the best model.

So that is why we are not going to have a dedicated shopping stores only working for pure online. So it's a mix of one store is servicing online and offline together. And even we are now adjusting within the company the terminology of online. There is no more online operation. We are saying this is the heart of our operation. What does that mean? A store manager is responsible of servicing their shoppers at the stores and at their homes, which means that he has the same duty, the same store manager is responsible to do both, which is an important change as a strategy, as a perspective, as a governance, as a financial management, everything. So that is why we don't really think -- this is Migros approach, obviously. There is no right or wrong. We don't really think there should be a target of online sales contribution to the overall top line growth.

However, the store should continue servicing in 3 dimensions, shoppers who are kind enough to visit our stores, shoppers who wants to pick up from the stores, and shoppers who expect them we serve them at their home or office. So these 3 dimensions will be under the responsibility of the store managers. So that is the reason that we are not sharing such a targeting at the moment.

On the asset-driven transactions, the numbers you expressed is pretty much covering what we expressed during the presentation. So the final figure that I shared around TRY 530 million in total realized cash in within 2020 until today is including yesterday's transaction. Cem already shared you with some guidance. But of course, since we were expecting, we were lucky enough to forward some of this transaction already. So this euro relevant transaction has already happened. We're going to just seek what is going to be the cash necessity, and there is no structured decision at the moment. It's a temporary transaction, very recent transaction, that has happened yesterday. I'm sure Cem will have more clarification in the coming months once we have further cash generation.

[Berna Kurbay, analyst]

And if I may have -- I may ask one last question. The online operations and their impact on your margins, since you haven't changed your guidance, does it mean that you don't expect any dilution from the increasing share of online?

[Ömer Tort, executive]

Yes, that's a very good question. I think this is the way we have to look as well. Yes, we have an impact on dilutive side. But we have also a significant advantage on the fixed cost base. Just imagine an operation, which has tripled, quadrupled the potential, has a significant advantage coming from the fixed cost base. But on the other side, of course, it's a costly operation. The delivery cost is an extra cost at the moment. This is both pluses and minuses. And we are trying to keep up our profitability levels, whereas, we are expanding online. I think this is the -- what I can call the Migros' approach and pretty much a bit specific compared to our competitions in the Turkish market, at least, that we don't bear extra physical space and we don't bear extra fixed cost base to grow our physical next to online operations.

[Operator]

We now have Hanzade Kilickiran.

[Hanzade Kilickiran, analyst]

I would like to ask a bit further on online business. How much do you charge on delivery at the moment? And do you see any cost saving due to your recent partnership with Paket Taxi? And maybe a final question on this subject, could be, I wonder about digitalization, automation in your darkstores. Are they fully automated at the moment? Or you are still using manual pickup methods here?

And maybe, it's a final on the COVID case. What is the current cost of COVID measures in your stores?

[Ömer Tort, executive]

Can I have the last question again? What is the impact of COVID...

[Hanzade Kilickiran, analyst]

You mentioned about the extra cost measures taken in store because of the pandemic. That is valid for every retailer globally, actually. I mean companies are providing some sort of guidance about this. Is there any monthly cost that you can share with us?

[Ömer Tort, executive]

These are all very good questions, especially on the online operation expansion. For the moment, we have a mixed model. Today, we are not allowing shoppers to orders less than TRY 120 online. That was one of the measures that we have taken because of the high demand. Small basket size was totally disturbing the number of shoppers that we can service. Hence the reason, we increased the minimum transaction size to TRY 120, and above a limit of, if I'm not mistaken, TRY 200, we don't charge delivery cost. So it's a model that we are trying to motivate our shoppers to have larger tickets for free of charge delivery. And by the way, this is the model that we trust.

Free delivery is an important driver of marketing proposition. It's a cost. It's a real clear cost delivery cost and it is to do retailers to optimize it. Hence the reason, the very good point that you raised, our subsidiary, Paket Taxi, is handling a significantly great operation nowadays to minimize our cost of delivery. And when I compare this type of operations for -- versus a regular last-mile delivery option, the cost of delivery is reduced by 1/3, so which means a reduction of minimum 40% is realized already on the cost of delivery because of this new model. And I trust that it may even go down because of the route optimizations and picking optimization coming up next.

The regular automation efforts that we are doing within the picking side of it, these [ micro ] fulfillment centers are largely preferred right now globally with majority of the food retailers, a U.S. model, Europe model, Asia model, pretty much we are benchmarking all of them. And we decided that we don't going to go ahead with central distribution, but we're going to work with what we call the hyper-locating shoppers expectations on location. This is a model, is a pure engineering. You have a nice map in front of you and for that map, you build your catchment areas and you build your 30-minute deliveries, 2 hours deliveries slots. And accordingly, you decide which store to go for a picking. And once you decide for a picking store, then you have 2 options, either you do manual picking, depending on the demand level.

If it's a high-traffic online shopping, you go with automation. That's as simple as it is. However, of course, behind, the algorithm is very complicated. So which means that automation is the right thing to do when the traffic of online for one store is higher than a specific level. Of course, automation is costly. But according to our recent estimates, it is an important model and it helps around 2 years of returns versus the manpower that you can optimize, but you need to reach a volume first. But once you have the volume, I think, the feasibility is very straightforward. You have to do automation. This is pretty much what I can share at the moment, and it's a real knowhow that we are building nowadays and dedicated for our own operation, hypermarkets, large supermarkets and small operational stores as well, delivering online simultaneously.

One-off kind of costs and continuing cost of COVID impact is relevant in our operation. I think what I can share at the moment that the levels are not that huge. But if I'm not mistaken, the figure for March was around TRY 13 million, TRY 14 million level. And for continuation of this will be less because at the end of it, obviously, we are optimizing that cost as well. The majority part of this cost is the mask that our employees are using. And on some specific period of time, we have to be also -- we were in a position to give out some masks to our shoppers even for free of charge. So that was increasing our very important cost element. As of April, the costs were pretty much around the same figures. But starting from May, with the help of government as well, the cost of mask is reduced significantly. And we are also coming up with new tools to reduce that cost impact. But just kind of a figure that you want to express is about, as I said, TRY 14 million per month that we have already realized in March.

[Operator]

We have now another one from [ Tam Dumain. ]

[Unknown Analyst]

I have 3 questions. The first one is assuming the January and February average monthly sales as index 100 what was your March index? And the second question is in your year-end guidance, when did you expect you turn back to the 100 index, in which month, I mean? And the third question is, I might have missed this answer, but what is your current net euro FX position?

[Ömer Tort, executive]

The figures that, I mean, you are expecting are pretty much sensitive, of course, on the commercial front. So the monthly figures we are not disclosing. But what I can express is that we were growing top line pretty much similar to last year in the first 2 months. And the rest of it is coming from the March increase. That's what I can share at the moment. When it comes to year-end figures, I believe that it is not an easy fortunetelling, but we are already experiencing May figures are pretty much under the same umbrellas because of lockdowns. And in May, there are a lot of vacation periods as well. And it is not clear yet what will happen during the vacations, whether we're going to have, again, stores shutdown or not. If it is the case, we may realize similar top line growth as of pretty much January, February.

But if it is not the case, the lockdowns are not in that critical position, I believe, it will continue during May and June, and starting from July, we are expecting similar growth periods. But as I said, I mean, it's a little bit fortune telling because we don't know the outcome of what will happen after especially this long period of vacation in May. The reactions of the shopper when they go out, and we don't know how the virus will impact. Some experts are even considering secondary part of waves, which are most critical, and we have to be still very careful about when we are sharing some figures.

[Unknown Analyst]

Definitely. But was there any assumption when you were calculating your year-end targets? I mean, like, is it like the, let's say, you assumed the June figure as the 100 index and then the year-end guidance was based on that calculation. So I just want to understand the year-end calculations assumption, if you can share, of course.

[Ömer Tort, executive]

Yes. I think it's too much of an engineering. But as I shared during the presentation, what we have done during the guidance ex pressures, we said, okay, this is what we have realized for the first 4 months, actual figures. And next, we added 8 months of what we have budgeted at the beginning of the year.

And for euro cash balance, I believe, Cem already expressed, but Cem, would you like to go ahead again for the euro part?

[Ferit Dogan, executive]

Yes, sure. Of course. I mean, our gross Europe position was EUR 336 million by the end of March, and we have cash balances EUR 111 million. That brings us down to EUR 225 million net balance. And this is, of course, going to go down further throughout the year.

[Operator]

There's no more question. There is one more coming through. Özgür, is this okay?

[Ömer Tort, executive]

Yes, please.

[Operator]

This is from Cemal Demirtas.

[Cemal Demirtas, analyst]

Ozgur abi, I have a question about regulator or the competition Board's recent action. They -- as far as I understand from the news, they are studying investigation and that also includes the national retail chains. Do you have any comment on that? Because from time to time, we hear those things in several sectors. How do you see that? What's your reaction to that?

[Ömer Tort, executive]

Thank you for the question. The investigation about competition authority is not the first time. And obviously, during this important hike, as a regulator, they are trying to make sure that there is no significant price increases without any reason. But clearly, as usual, we are very comfortable. A retailer is reflecting what has been the case in the cost of goods sold, nothing more than that. And this is going across. And we have seen it in fruits and vegetables. We have seen it in some other categories, some additional requests to make sure that they understand. And up until now on, we shared what they have requested. It may continue because of the price hikes, but with the inflation impact and with the shoppers' regular behaviors, I think, it would go less and less.

The obvious 2 items, which were too much speculated, one of them was the Turkish Colonia, or the cologne, whatever we call it, in English, I don't know exactly, but which is a very popular disinfectant, the price of it has significantly increased. And the second one was mainly the disinfection materials prices. That was the 2 main product category, which is obvious reasons to understand why the reason is the price hikes happening. Of course, that was demand-driven and cost-driven, partly due to the lack of supply. And I think they are trying to investigate with a proper outcome whether there is something speculative or not.

[Operator]

There no further questions waiting, Özgür.

[Ömer Tort, executive]

Then I'm glad that we are having a lot of questions this time. I think these exciting times, but also unfortunate times are building a lot of new questions and concerns, but also at the same time, a lot of new opportunities for retailers like us. I would like to thank you one more time for participants to share their time today with us in this difficult moments. And we hope to see you all in our healthy results coming up. Thank you very much.

[Affan Nomak, executive]

Thank you.

[Ferit Dogan, executive]

Thank you.

[Operator]

Özgür, Cem, and all the speakers. Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and you all take care.