Migros Ticaret AS

IST:MGROS.E

Earnings Call Transcript 2021-Q3

[Affan Nomak, executive]

Hello, everyone. Thanks for joining us today. I'm Affan Nomak, welcome to Migros Third Quarter 2021 Financial Results Webinar. I'm together with Cem Bey and Özgür Bey, Migros CFO and CEO, and we'll discuss briefly our operations and financials regarding Q3. There's going to be a Q&A session at the end of the meeting.

Now I'll turn the call to Özgür Bey, Migros [indiscernible] Özgür Bey.

[Ömer Tort, executive]

Thank you, Affan. Thank you, everyone, for joining us today on our third quarter results. I hope you all received our presentation pack published, and we're going to try to cover this presentation accordingly.

Before starting our regular quarter result's reflections, I think it will be worth to underline one more time, there is an unpleasant decision coming from the Antitrust Authority in the Turkish market regarding 5 retailers and 1 manufacturer. And we are within this 1 retailer as one of the [indiscernible].

Practically, the accusation was based on a cartel formation regarding [indiscernible] activities on a basic group called [indiscernible] and it's a cooking oil based on sunflower and the fine reflected to us is based on our turnover -- 1.8% of our turnover, which is a significant amount of [indiscernible]. We already organized a webinar regarding this last week. And I don't want to just go into the full detail one more time, but I think this is worth to elaborate one more time that we definitely do not accept this, we call it irrational accusation. So for that reason, we will find an annulment action for following the details -- official notice to -- regarding the decision.

Not to mention, I think it's, again, one more time, worth to express that Migros definitely always complies with all legislations. And while, of course, executing all of our efforts, and that will be the case for the future as well. And there are 2 major values attributed to Migros. One of them is honesty and the other one is the trust ordinance. These are attributed by our shoppers and as in primary principles of this company, and we definitely maintain our dedication to definitely continue offering best quality products at affordable prices for our shoppers as we did in the previous years.

Other than this, we have an exciting quarter result to be shared with you today. And we are clearly happy to deliver strong top line performance combined with our operational results. And definitely, our positioning in the markets with -- under the terminology of omnichannel providers is helping us for this strong top line performance. And at the same time, we are also glad at our balance sheet to report a net cash position after years under the [indiscernible] leveraged by our periods. At this moment, on our September results, we are definitely happy to report a cash position as the end of 9 months results, and I definitely want to thank my execution team for their strong -- and be able to reach out these results, of course.

And another excitement for us is our dedication regarding the omnichannel providers, retailers, and we have an important decision, which we have expressed regarding the establishment of a new entity as a new subsidiary which will run our e-commerce efforts in [indiscernible] following, of course, this means as to the reformation starting from this quarter, we are disclosing our top line performance with a split of online/off-line separation, of course, by still keeping the omnichannel operational proposition at the company level. So this will be the highlight for our presentation today.

And now I will try to go one by one with the pages and at the end we will try to get your questions if there are any.

So starting from our Page 3 of the presentation, which is our online and off-line expansion slide. Obviously, the company's dedication for physical growth and online growth combined is helping us on the top line performance. We managed to provide 29% top line growth on the third quarter results. And all in all, in the 9 months, we have around 24% top line growth. And for domestic markets, Turkey only rough numbers, this number is around 25% levels on 9-month's figures.

If we are to dig in the backbone of this strong top line growth, we need to underline, of course, the strong recovery of the large store formats, especially [indiscernible] after the ease coming from the restrictions, getting out of the restrictions of COVID-19 measures that helped our shopping mall operating stores definitely. And next to it, I think it's also worth to express the strong performance of seasonal stores at summer destinations, especially. And of course, our continuing focus on online operations is another driver of the top line growth for the third quarter results.

The expansion of the company, as we used to right down in the last couple of years, we are trying to split the expansion efforts in 2 platforms. On one side, we are growing our physical number of stores. We opened another 211 stores in 1-year period. And as of the end of October, actually, this number reached 245 stores opened already, and that takes us to more than 2,500 store levels at the end of October as of this year, and that represents around 6% levels of physical growth in space for the company.

And at the same time, we're also increasing the number of stores servicing online with the omnichannel [indiscernible] , and that number of stores has reached right now more than 850 stores by an increase of 323 new online operating stores in the first 10 months of the year. These are the definite efforts, which are taking us to a new era where Migros will focus both physical stores and online operations at the same time with a dedicated focus on each side.

Another dimension of the growth, obviously, is the capital expenditure amount. As of 9 months results we spent around TRY 500 million equivalent of capital expenditures, and that is roughly 2% of our turnover. And by the end of year, our expectation now is about TRY 800 million. Obviously, this is ahead of our expansion plan expressed at the beginning of the year. For obvious reasons, we're opening more stores and we're going to guide at the end with the similar numbers. And at the same time, our focus on online, which is also helping 2 sides on physical stores and at the same time, our online penetration within the country.

[Affan Nomak, executive]

Sorry to interject, but I can see just the first pages of the presentation, are we going to move to the expansion slide? Or is it just my computer?

[Ömer Tort, executive]

I'm actually on the CapEx slide, I hope everybody can see it clearly.

[Affan Nomak, executive]

Maybe an issue on my computer. Okay. Thank you.

[Ömer Tort, executive]

Please let me know if there is an issue on the other listeners, participants. So I will move now to the market share evolution page, which is Page 6 of the presentation, if there is any issue on the screen. Our market share penetration has reached right now the total market to levels of 8.9%, which is another 20 basis point increase on the total markets managed by Nielsen company. As usual, we are tracing FMCG figures that represents the basic market share representation in the country.

And regarding the within the organized market share figures, we are representing 17.1% of the markets as Migros, which is pretty much flat with last year comparison. And that is thanks to our both, as I expressed the physical and online penetration continuing.

Of course, having said that the market penetration is strong, we have to underline that the growth is coming from several different formats. And not to mention, discount stores are opening a significant number of stores. And at the same time, there is a clear recovery coming from the traditional markets, I think it's worth to express as well. And the dimensions of trading in the [ intracountry ] while alongside supermarket operations, online operations, discount operations as the organized effort, but also the traditional formats and local chains are also growing, and that there is an impact of pace, in fact, of course, coming from previous years. But after the ease coming from the less restriction due to COVID-19, I can easily express that the local chains and [indiscernible] to recovering their turnovers for this year. And the representation of market share gain is against this significant growth coming within the food consumption in the market.

So following this, I will now move to our financial overview pages. I'm on Page 8 at the moment with our consolidated gross profit figures. The gross profitability of the company is pretty much maintained. What I can express, as you can see here, that we reached around 24.5% gross margin levels and third quarter with an increase of 33%, and 9 months are reflected with a 27% increase on the gross margin. But of course, it's worth to express, again, the impact of new rate charges, which are incremental to the company's account this year due to the increase on interest rates applied to our payables. So that has an element of increase on our gross profitability figures. If we adjust to normalize that, our margins are pretty much flat compared to last year, regarding the gross profitability of the company. So we are moving top line growth and our gross profitability parallel with the company's efforts. And definitely, there is a significant focus on providing the best prices in the market, and that has been the case. And I think, on one side, the clear definition of competition, and on the other side, the transparency provided to the shoppers, thanks to technology and thanks to a lot of stores clearly located in similar distances, shoppers can easily justify the pricing efforts of retailers and we are clearly positioning ourselves to providing the best price in the market, especially on commodity lines and fresh foods. This proposition is still valid, and we are even increasing our penetration within the private label categories to match the best possible price in the market, and the private labels are one of the key competitive [ experiments ]. Of course, [ next ], which is the Migros's differentiating offer and large variety and brand products, which are also heavily supported by marketing promotions.

On Page 9, we will see our EBITDA figures in evolution. And in that front, we are pretty much parallel with last year's figures, excluding the impact of new rate charges again. But other than that IFRS accounts based on IFRS 16, I think it's worth to express that there is an increase around 44% of our third quarter results, and combined the 9 months results there is a 31% increase on our EBITDA generation.

And yet to again dedicate our efforts to make sure that the company's offer is coming to a level, a satisfactory one in terms of profitability. That is the main guidance, of course, but I think it is also worth to express that our efforts of growth on online operation is at the moment are dilutive for obvious reasons. But at the same time, company is maintaining its profitability levels if you have to exclude and do they charge impacts on our figures.

And pretty much, we are parallel with the guidance levels that we shared at the beginning of the year. At this moment, roughly the same understanding of growth coming from online may still have the dilutive impact on our consolidated figures.

Next, of course, coming with the asset divestitures coming from the previous years, but we are compensating this with the overall efficiency that we are gaining based on coming from the purchasing terms and at the same time, our operating results, especially focused on new technologies on the supply chain.

Now all in all, I guess for the general track record, it is worth to express at TRY 2.2 billion levels of EBITDA generation is an important figure for the forthcoming years for the company's overall performance.

Now at this moment, I will just follow these slides, which is a net cash position, which is a great moment to express for myself, and I will leave the floor to Cem for this moment and considering his specific view. Please, Cem.

[Ferit Dogan, executive]

Thank you, Özgür Bey. Good afternoon, everybody. I hope you can all hear me. I'm a bit far from the microphone, but you should hear me fine, I suppose. The financial position, actually, the gross financial position by the end of September was TRY 2.75 billion. And this was all in [ TL ] contrary to what we have experienced in the past. So there is a slight amount coming from Kazakhstan EUR 5 million on the foreign currency [ burden ]. But apart from that, this is all in TL.

The average maturity of this debt is approximately 2 years, and it is comprising a little bit upfront some long-term debt and short-term working capital that we acquired over the past 1 year or so. Of course, the TRY 2.75 billion represents more than TRY 1 billion debt reduction over the past 12 months. And this debt reduction has found and also improved net cash to EBITDA position of the company. So that improvement corresponds to 0.6% month of the EBITDA. Last year in September, we have reported minus 0.4x EBITDA, net debt cash -- net cash EBITDA position. And now this year is a positive TRY 450 million cash position we are reporting. The TL, of course, we drive the interest rates and inflation and rising interest rate expected for next year. The management of this debt is going to be an important element. Currently, the average cost of debt is around 17%. But next year, we are assuming that this is going to slightly increase and end up around 18%, 18.5% range. But overall, net finance charges should not significantly change from 2021.

After this slide, we wanted to give you a brief summary of our online operations and a bit of a strategy update. And with that, I will hand over to Özgür Tort to give that to go through those operations.

[Ömer Tort, executive]

Thank you, Cem, for the insights on our financials. So now I'm on Page 12. As I tried to express at the introduction, it's an exciting moment for us. We are just committing ourselves into a new subsidiary and for clear reasons, that Turkey's online potential in the retailing activities. Obviously, we are -- this country is representing around 84 million people and there is a clear penetration increase on the online efforts. And a lot of analysis are going on at this moment. Of course, they are depending on different figures of market shares, statistics and everything.

I guess we can express that the online food business is representing roughly 5% of the total food sales in the country. This is our figure estimation. And when it comes to the total trade, these figures are reaching to the level of 15%. And in some categories, even much higher. So all in all, I guess there is still big room to grow the online activities in this country.

Having said that, of course, the potential for the following years that we are just chasing with the industry itself for the next -- over the quarters across of 5 years' time horizon, we are expecting around more than 70% in real terms growth on this business line. And historically the growth has been very active online and obviously, our historical brand Migros sanalmarket has been increased with new channels in the recent years. You know very well, the instant delivery option coming from Migros Hemen, the fresh direct proposition coming from farmers to directly to the shoppers with Tazedirekt and obviously, Macro Online which is dedicated of our Macro operations.

And recently, in the last year, we started integrating all these applications. And as of now, I can easily express that all these 4 initiatives are getting combined under 1 umbrella, an all Migros integrated app. This has taken place already for scheduled delivery, instant delivery and the cargo-driven deliveries for [ nut, fruit ] categories, all these things are already integrated. And very soon, we will be trying our efforts to combine for Tazedirekt and Macro Online also to be embedded under 1 umbrella of brands and to be called Migros Integrated Application.

So all these efforts are giving us clear guidance to form a new structure. And we disclosed last month that we are -- we formed a new subsidiary, 100% on [indiscernible] Migros. And obviously, our focus will be as mentioned on Page 13, there is a clear reasoning coming from the strategic focus to grow this channel stronger. When it comes to management agility, we already have a dedicated team for online efforts, and we're going to definitely increase the number of participants here and there will be much more agility coming from the stand-alone business operation with a different subsidiary. And of course, our main focus will be still online grocery, but we are digging into new business with different incentives and changes and where we will be just providing our shoppers, next to the online grocery some meal options as well. And also our new focus will be, at the same time, new verticals, which are clearly near to the food business, which will have dedicated verticals, what we call on the apps to make sure that we are targeting specific shopper segments and specific product categories with much more flexible app environment and delivery flexibilities.

Obviously, our last-mile delivery entity, which we already own 25% of the stake in one of the specific initiative, will be combined within the next operational activities into this company's efforts. So that our dedicated efforts regarding the last-mile efficiency will definitely keep continuing. And we're going to be just also forming some new technological partnerships through this new entity of online operations to make sure that next to last-mile efficiency, we will also introduce the new initiatives around the introduction of picking technologies which we are already piloting in more than 40 stores right now to be embraced and to be deployed across the channels that we are servicing our physical stores. And these are the initiatives of why we are just building up a new subsidiary. And not to mention, of course, we definitely have a target to earn an additional value for our shareholders as well. So with these incentives, we already structured this entity, and that entity will be mainly responsible of the last mile delivery and the application development. And obviously, the digital marketing efforts for all these channels that I expressed specifically for grocery and coming with the new -- and new verticals as well. So that our dedicated team will service. And we're going to definitely keep our motivation of omnichannel providing retailer activity, which means that Migros, the main entity, will still serve the new entity as the picking platform, which means that the stores in the last 4 months will service as the physical store and also an online hub for [indiscernible] of picking purposes and the new entity will be responsible from the store to do to the delivery points in either it's a household or another different physical space. So with that dedication, the omnichannel perspective of the company will be definitely cashed. But there will be a clear dedication coming from, as I expressed, application development, much more agile structures and systems and clearly much more deeper digital marketing efforts and together combined last-mile efficiencies, both coming from the new subsidiary that we already established and at the same time, new technological partnerships to be add-on.

So with the structure in the following page, you can see that the expansion on our geographical stage right now on Page 14, we already scheduled delivery, which we are using our main efforts of online operations, is already active in 81 cities today and servicing more than 30,000 SKUs and that's a representation of more than 627 stores today, which is servicing in this platform. And on top of it, as you know, we added the instant delivery, which is now serviced by 196 stores in 42 cities and the expansion guidance is very clear, wherever Migros is available, whenever it's feasible, that dimensional expansion will continue for both our physical space stores, and at the same time, the scheduled delivery and so for the instant delivery options. Obviously, Macro Online operations will be dedicated where Macro is physically available. At this moment, this is 8 cities, and we are planning to keep our track records around 8 to 10 cities on the current future, but that's going to be a much more focused effort for a dedicated consumer segment. And Tazedirekt will continue operating with the same expectations around the the direct deliveries from farmers to the consumers. So that geographical expansion will be guided in the coming quarters with much more clear [ rollbacks ] where we're going to just help, as I expressed, Migros physical stores as the continuing hub structures. And as I expressed earlier that our new efforts regarding what we call mini-darkstores, which are the hubs within the stores, warehouses and we are also digging on further elaborating the new options around the total darkstores to be expanded with the same reflections as well.

And finally, on the slide on Page 15, we are at this first moments, we are excited to share with you the online dedicated figures as a new disclosure coming from Migros's management. And the number has reached in terms of our net sales funnel, I want to underline that these figures are net sales, excluding VAT and that has reached more than TRY 3 billion turnover in the 9 months results of the company, and that is almost doubling versus last year. And when we have to compare our pace of growth with this time horizon, you can easily grab that it's a great momentum that we are gaining from our online dedication of our efforts on retailing activities. And as a representation of our sales, we have putting here 14.5% of our turnover coming from our online operations to be underlined excluding tobacco and alcoholic beverages, for obvious reasons that these categories are restricted to be delivered online.

So the eligible categories are excluded on this turnover percentage. So in that reflection, we strongly believe that the momentum will continue and we are chasing new grounds, new infrastructures, mentioned that this growth is also supported with a guidance of profitability. And we know that across the globe, online food grocery is not a profitable category and not just for Turkey but across the globe today, every retailer are trying to dig in the new terms and new tools and infrastructure to make sure that they are becoming more efficient. And I guess, by establishing this new equity, we're going to just put more focus to realize that efforts. And on one side, this new subsidiary will be formed with an already existing turnover, as you can see here, more than TRY 3 billion sales turnover will be already embraced by the new entity. And at the same time, we're going to be just having the physical presence of Migros's own operations, which will provide us the ground and the base to form a more profitable structure compared to the rest of the other market players within the online grocery segment. And all in all, the main target is definitely the top line growth, but also with a differentiated offer coming from Migros and the competition within the online grocery, where we're going to just have a guidance coming for the coming years with a structured growth supported with a profitability proposition as well.

So for today, that will be the presentation. I want to close right now with the guidance and underlying performance. With my 2 slides on Page 17, we have our net sales figures for 9 months around TRY 26 billion sales turnover with a domestic top line growth of 25% and EBITDA margin based on IFRS 16 accounts at the levels of 8.7%. And net profits delivered for this year is reaching TRY 367 million for the 9 months results of the company.

And regarding the last -- regarding the end of year expectations, we are upgrading our top line expectations to more than 23% levels at this moment, close to 23 [indiscernible]. I guess this is one important step forward for the company for obvious reasons of third quarter's strong performance helped us for this additional guidance. And at the same time, there is a base impact coming from last year's highly -- high increase in a year.

I hope you can hear me, my screen is...

[Affan Nomak, executive]

Yes, we can hear you well. You were talking about high base of last year.

[Ömer Tort, executive]

Just to repeat my comments, they are trading from the previous figure to the 23% levels are based on our third quarter results on performance. And at the same time, last quarter of last year was highly based because of COVID-19 impact, which was a definite period of highly restricted environment. So that base impact may slightly negatively impact our top line growth performance in the last quarters. But we are positive that the last quarter result also will continue in helping the company's grow potential for additional efficiency metrics as well. For that reason, we are guiding the EBITDA margins within the similar level of 8% to 8.5% levels.

And as I expressed at the introduction, the commitment on physical growth right now is higher level of more than 300 store levels for this year and with a capital expenditure at the levels of TRY 800 million levels.

So that will be the presentation for today. I guess we are all now ready to answer your questions, if there are any.

[Affan Nomak, executive]

[Operator Instructions] Yes, there is 1 question from [indiscernible]

[Unknown Analyst]

My question is about the OpEx side. We see that you are -- you have excellent quarter in terms of operational efficiency. I wonder how sustainable that is? And your guidance is within a range of 8% to 8.5%. Do you expect any just higher than expected at the higher end of the range? That's my first question.

The second question is about this new entity. What are the technical advantages of setting up this company for you? You mentioned of that strategy is very well defined. But any specific positive sides about this structure because it's going to be new entity, new levels and et cetera. So I wonder more details about that.

And the third one is about about penalty. As you mentioned, you are going to pay it in third quarter. Will you have some tax return from that? In my calculation, if you pay in full, you are going to have TRY 388 million. It will be recorded as an expense, right, in the fourth quarter? And it means from your profitability, you will pay less tax or is there any -- the exemption I want to understand? I want to -- my question is net effect of that on your income statement. I see the cash flow of the effect -- net effect.

And you mentioned about the financial expenses similar to this year, does that include the penalty payments in your calculations? Because this year, in fourth quarter -- third quarter, you had less financial expenses compared to the first 2, at least, what was the justification for that?

And interest rates, are you assuming that the current interest rates will continue. That's why you mentioned that we are going to have similar financial expense. Thank you.

[Ömer Tort, executive]

I will try to answer them one by one. First of all, Q3 results in terms of operating outcomes are positive, definitely for us. And as I try to express, there are 2 major reason. One of them is the higher performance of our large stores, and the other one is the seasonal stores, relatively better performance than our expectation. So that's why the Q3 is positive reflected -- positively reflected to our accounts. And in the Q4, obviously, we don't have that seasonal impact. But of course, there is an upside, which may come from the November and December accounts. Of course, there is another seasonality coming from the end of year. We are not taking this into account for the moment. For obvious reasons that the Turkey -- not just Turkey, this is overall right now, there is a clear logistical issue coming from especially the large ticket nonfood items. And then the representation of the product assortment is not at the levels of very high, I would call promotional levels that all is expecting coming from Black Fridays or anything similar.

Of course, we will definitely force the market with a very competitive offer to support our top line growth with that new incentive as well. And for that reason, we are not expecting a similar profitability level, I will call it, to Q3 for Q4. But of course, when it comes to the EBITDA margin direction, for my personal expectation, I'm expecting to do the upper side of the guidance that we are sharing as a reflection of the EBITDA performance. And the positive upside to this guidance might be the seasonal sales which is depending on the shoppers' appetite. And obviously, the inflation, the high inflation environment today is definitely impacting shoppers' income level. And for large ticket items, there is a downside impact coming from the shoppers' overall purchasing power. And -- but as I said, there might be a positive surprise depending on the shopper's appetite to reflect on the new incentives on the seasonality.

The second question of yours, the reflections of technical advantage of new entity. If your question is in terms of, technology wise, I think we are already benefiting with several different tools. But with a separate entity, there might be an increased dedication to form out more open sources, more radical steps towards new software platforms to be guided. Let's not put in the position that we are not doing it as of today. We are definitely in that platform, so-called open platforms, open sources, AWC or similar AWS type of services, which are already embedded within the cloud services that we are already using but definitely, the new entity will have more flexibility around that technology.

And that flexibility of managerial skills, we are also having a structural change on the organization. And that new entity, for obvious reasons, as you might know, that all the technology companies, not just for Turkey, but across the globe today, are looking for human resources, which are rare assets to be more competitive on their reflections. And I'm expecting a technical advantage regarding that front as well that will provide us relatively more flexibility regarding the HR practices that we may be just implementing in the new entity. On that reflection coming from the organizational structures and depending on the new offerings of additional services.

So these are the advantages that we are looking. But rather than this focus, I want to emphasize one more time at the management focus regarding the new application development facilities coming with the technological advantages. And at the same time, the focus regarding the last-mile efficiency and the picking efficiency will be definitely our primary focus to deliver at this level.

So coming for the next part of your question, I think the reflections around the penalty, first of all, still we have not seen yet what we call the structured detailed decision of the Tax Authority. That should be the first step, and we need to know what are the main rationales of the penalty. And depending on that clear structures, we're going to decide either to pay in first with the advantage of discounting. And then accordingly to go to the court case because paying down this penalty doesn't mean that you accept the causality of the penalty, it can still go to the court and continue chasing your case. So that will be pretty much our approach.

When it comes to do expensing and -- or not expensing or the tax impact, I think we need some more time with our auditors to make sure that what will be the impact of it. There are already existing cases in the market today in different industries. And in that different industries, there are publicly listed entities with their own practices, and we are also cross-checking those practices, and we are now in exchange with our auditors how to really report. Obviously, there will be a cash outflow. And next to it, how to record it, expense it accordingly. And in case we might have an optionality regarding an asset structure or not to balance that impact on our balance sheet. But as I said, it's an early comment. We need to just check the advice of our auditors. And for clear obvious reasons, as you may anticipate, this is not going to be a specific decision of how to expense it or not expense it accordingly. It will be a structural decision coming for different publicly listed entities and not just for Migros. And obviously, what I'm expecting is a kind of a general practice for at least for the listed 4 entities to be addressed within the same way. I think as long as the time lines are clarified, we will give you much more clear outlook of the impact of this, both on the financials and on the balance sheets at the same time.

Fourth, for the interest charges for the financial expenditures, in general, we already expressed that we have less debt position at the moment. But of course, the current interest rates in the market, at least to our assumption for next year's budget, might not be kept within these levels. This is why there will be relatively less debt, but comparatively maybe about 100 basis point higher interest charges on our averages. All in all, which may result to the similar interest charges compared to 2021 to 2022. So which means that less [indiscernible] relatively slightly higher interest charges, which we are expecting at this as the company's will. Maybe Cem can add some more insight, please...

[Ferit Dogan, executive]

Sure. Sure. Of course, Jamar, our working assumption is that for next year, we are taking a [indiscernible] rate around 19%. And this could be, of course, about more than that. Currently, our average financing cost is around 17%. So we are going to be doing a refinancing around TRY 800 million for next year, and we were planning to pay down approximately TRY 200 million. And all in all, the average debt level for 2022 is going to be slightly lower than what it is today. So we are assuming a similar figure actually is going to be perhaps slightly less than what we have seen in 2021.

[Affan Nomak, executive]

[Operator Instructions] I guess there's 1 question from Brett. Brett, please unmute yourself to ask your question.

[Unknown Analyst]

I was just wondering, what's the rationale for keeping as much debt given that your -- you have a net cash balance? Why not pay some more of it off to avoid paying higher interest expense?

[Ömer Tort, executive]

Thank you, Brett, for the question. We can give you much more insight for a one-to-one session, but the cash position of the company is a -- large amount of it is based on our credit card receivables. So this is not cash in hand, I will call it. And the rest is the day-to-day management cash. So for any case that there is an excess cash, I think your question is very valid. And I think in case we realize this within the course of next year, we will definitely pay down the debt. And the time to time, of course, is seasonality, time to time is working capital, but large [indiscernible] are receivables. There is an argument why you have a credit card receivable. And that's the Turkish market practice today.

In the reflections of the charge coming from the credit card payable or receivables, sorry, if you want to receive it in cash, then you need to pay down interest charge, which is not a beneficial thing to do today. So in a high interest environment, these interest charges are relatively higher, which will, all in all, impact your P&L again. So that is why we are keeping this credit card receivables in our balance sheet.

[Affan Nomak, executive]

Thank you, Brett. Any more questions from the participants? Please raise your hand if you have any.

I guess there is no more questions from participants. Please raise your hand if you have any questions. Yes. I guess we covered -- yes, there's 1 more following up question from [indiscernible]

[Unknown Analyst]

Again, another issue about retail law that was also on the agenda for [indiscernible] but I don't know whether something clear do we see in that front? Or could we expect that after 2023? Any indication on that or any new thing on that issue?

[Ömer Tort, executive]

Thank you for this question for clarification as well. The new retail law, it's a pending issue. We know and we already exchanged our views with the Ministry of Trade. And as to my knowledge, of course, this is up to the parliament to discuss it at the time, but there are relatively more urgent trading activities regarding, especially fruits and vegetable territories of the supply chain of fruits and vegetable trading. And similarly, e-commerce trading, these are -- when you are to rank it for obvious reasons of the urgency and the structuring requirements, to our knowledge, these are more privatized items at the moment coming to the retail law expectation. It doesn't mean that there's not going to be a retail law regarding lobbying effect. There is -- there are continuing efforts. And -- but for the last 2 quarters, if I may express myself, I think that the traditional markets today is already growing pretty much the similar pace of the organized trade. So if there is a concern or issue regarding the unorganized trade activities or challenges or reasoning, to be honest, I don't see it. So if unorganized trading activities are growing strongly, why there is a dedication to discuss more on the retailing [ low ].

The other part of the dilemma is the manufacturer part, sometimes lobbying for the trading law or just retail law. Again, there, I think the demand/supply is for today is much more focused on supply chain rather than we are doing the right activities or not. We are facing significant issues on logistics, production lines, I would call it, raw material efficiency, even the pricing of raw material, packaging materials, the logistics of the end products. These are all very clear priorities today. And not to mention, these are not the priorities of Turkey only, but these are global issues today. And for that reason, our manufacturing partners are keeping themselves busy, and we are keeping ourselves busy to focus to solve those issues rather than the retailing law impact issue. So my answer was a relatively longer one, but in this circumstance, I think the priority is not there.

[Affan Nomak, executive]

Thank you. There's one more question from Paul. Yes, Paul, please unmute yourself to talk.

[Unknown Analyst]

Two questions. First question is what is your share -- is your share of online market similar to your market share in the off-line market?

And the second question is, what is private label penetration in your business today? And to what extent can you push private label further across the organization?

[Ömer Tort, executive]

Thank you, Paul, for 2 questions. There are no still, I would call official statistics provided by online market shares. We have off-line market shares, which I'm sharing at the moment as the omnichannel figures. Our organized trade market share is more than 17%. Our total market share is at the levels of 9%. But when it comes to online market shares, we are definitely much higher market share representation today, at least I can express that we are the largest online grocers today in the market. So for that reason, our market share is relatively and significantly higher than our physical market share. But as I expressed, there are still no real data that we can share. We are working with companies like Nielsen and companies like [ IRR ] and all the other similar initiatives to make sure that there are much more structured data to be published. And I hope we can do that in the coming quarters.

There are a few categories, which I will call mainly new food categories like cosmetics, detergents, cleaning items, soft drinks. These categories has already started publishing but they are not sizable enough to publish at the moment for the representation of the total market. This is why we are not publishing any figure yet. But I'm positive that starting from next year, we can come up with some figures supported by Nielsen at least.

Regarding the private label penetration, in our terminology, there are 2 dimensions of private label, one of them is packaged, which means the regular commodities, regulator FMCGs. In that reflection, our private label penetration is at the levels of 7% of our turnovers. But our fruits and vegetable operation, fresh fruits and vegetable, and our fresh meat operation is our own operations. So depending on your definition of private label, you can also cost these 2 categories as the term of private label penetration.

So in that sense, if we are to cost, our private label representation goes up to 23% levels, including all the fresh categories that we operate ourselves across the supply chain. For some of our investors and analysts who may not be aware, we are running our own fresh meat factory. We are running, across the country, 9 distribution centers to buy fruits and vegetables regionally to pack, to distribute ourselves. So this is what I'm expressing as the fresh categories, but that's based on our definition of private label.

Another dimension for analysts and investors is that 2 categories, tobacco and alcoholic beverages, are restricted categories where you cannot provide private label. So for that reason, that's another denominating difference when you are to compare our private label penetration at the level of 6%, 7%.

[Unknown Analyst]

Is there any reason why the business couldn't reach sort of developed market norms of 40% to over 50% private label long term?

[Ömer Tort, executive]

I'm not saying it cannot reach, but this is our strategic proposition. In the market today there are players who are operating, based on their expression not mine, around 70% of their turnover today is represented by private labels. There are players in the market today with this. But as Migros's overall proposition, we are providing the best variety of our services. And this is why strategically, we are not targeting a very high level of private label and brand awareness of the Turkish shoppers. When I mean brands, please do take into account international brands, national brands and local brands, which are very strong in Turkey, and their representation and our partnership with them is commercially, at this moment, is beneficial for the company.

So if we are benefiting from this commercial relationship as long as, let's say, we are benefiting from this commercial relationship. We can still maintain our strategy of brand focus than to have a very high level of private label penetration, except the categories which I raised, the basic commodities, as I expressed, and the fresh product categories where we are strongly performing with our plans of private label.

[Affan Nomak, executive]

Thank you, Paul, for the question. Any more questions from the participants? Please raise your hand. Okay. I guess there are no more questions, Özgür Bey?

[Ömer Tort, executive]

So thank you for joining us today, and we are glad to see you all. And I hope this format is helping our announced, better than the regular conference calls, and we want to maintain this structures. And hopefully, to have more physical meetings as well soon with our investors and analysts coming out of the COVID-19 impact, hopefully, better results coming from next year. And we want to see you all with our full year results at the beginning of the year. Thank you for joining us today.

[Ferit Dogan, executive]

Thank you very much.

[Affan Nomak, executive]

Thank you. Bye. You may leave, thank you.