Q4 2023 D Market Elektronik Hizmetler ve Ticaret AS Earnings Call
Participants
Helin Sinem Celikbilek; IR Director; D Market Elektronik Hizmetler ve Ticaret AS
Nilhan Onal Gokcetekin; CEO; D Market Elektronik Hizmetler ve Ticaret AS
M Seckin Koseoglu; CFO; D Market Elektronik Hizmetler ve Ticaret AS
Muharama Gusever; Analyst; Corner Capital
Presentation
Operator
Ladies and gentlemen, thank you for standing by . I am Sabrina, your Chorus Call operator. Welcome, and thank you for joining the Hepsiburada conference call and live webcast to present and discuss the fourth quarter and full-year 2023 financial results.
All participants will be in a listen-only mode and the conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Nilhan Onal, CEO; Mr. Seckin, CFO; Ms. Helin Celikbilek , Investor Relations Director, Ms. Celikbilek, you may now proceed.
Helin Sinem Celikbilek
Thanks, operator, and thank you for joining us today for Hepsiburada at fourth quarter and full-year 2023 earnings call. I am pleased to be joined on the call today by our CEO, Nilhan Onal, in our group CEO, and our CFO, Seckin Koseoglu.
The following discussion, including responses to your questions reflect management's views as of today's date only. We undertake no obligation to update or revise this information, except as required by law. Certain statements made on today's call are forward looking statements and actual results may differ materially from these forward-looking statements. Please refer to today's earnings release as well as the risk factors described in the Safe Harbor slide of today's supplementals.
Today's press release, the 6-K, our Form 20-F filed with the SEC on May 1, 2023 and other SEC filings for information on factors that could cause our actual results to differ materially from these forward-looking statements. Also, we will reference certain non-IFRS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's press release representation of the most directly comparable IFRS measure and relevant IFRS to non-IFRS reconciliations.
As a reminder, a replay of this call will be available on our Investor Relations website. And with that, I will hand it over to our CEO, Nilhan.
Nilhan Onal Gokcetekin
Thank you, Hilin. Welcome, everyone, and thank you for joining us. I'm delighted to be with you today to present our fourth quarter and full-year results.
It has been over a year since I first started this year with the CEO of Hepsiburada. At this time, I made it clear that my mandate was building capsule about profitability turnaround. Last year, we have entered a period of election- related uncertainty as well as the pull out of a tragic earthquake in February. Simultaneously, we remain innovation in a moment, pressuring costs and very proud to note our excellent teamwork.
Our focus to strategic and meticulous execution have resulted in strong financials.Our G&E more than doubled year on year, incidentally, valuable the average inflation rate. The variable debt substantially EBITDA turnaround with the highest full-year gross contribution margin of 10.6% and diligent OpEx management.
Our EBITDA percentage rose by 400 basis points year-to-date to 1.8%, with robust cash generation from operations and optimize investments, the records of the free cash flow of around TRY3.9 billion on an adjusted for inflation basis. These results confirm the validity of our strategic plan and encourage us to aim higher going forward.
Now let me contain of our performance in Q4 and full year against our guidance. We will cover all time high sales record building legendary November in high shopping also continued in December. This resulted in exceeding our quarterly guidance for both GMV growth and EBITDA.
Consequently, our full year results also exceeded our forecast. Our G&A growth was around 104%, exceeding our guidance by 3 undertaken. Our EBITDA as a percentage of GMV turned to positive 1.8%, exceeding our guidance by 3 to be tough, highlighting our robust growth and disciplined approach to expanding. This performance marks the beginning of our profitability turnaround objective.
Here are some marketing number to put consumer preference for our platform into perspective, our peanut format, the 3.9 billion visits and transitory, consumers continue to drive tests were otherwise setting up their new home, in particular, buying their home appliances. To highlight a few related numbers, one out of every two dishwashers, one out of every two watching from several other last year.
Meanwhile, Hepsiburada is also a go-to platform for consumer electronics , which was our strength from inception. Instrumented today, two out of every five laptops and one out of every three iPhones sold online were also sold on Hepsiburada. A majority of these purchases reach their destination via our own logistics company digit.
Let me now elaborate on our SCH in one state to answer today. Early cemented today, we have set very clear targets for our four strategic priorities, which I'll explain throughout this presentation. Solid progress across all these KPIs reflects the dedicated performance of and strong execution by our entirety. Before we move on, I should mention the expansion of our share-based incentive plan in the second half of the year. Current for that is triggered upon meeting certain vesting conditions and cover our key executives.
Let's now consider some highlights of our achievements regarding our customers, merchants, business partners, and key components of our ecosystem. Let me begin with our customer whose satisfaction is evident in our minds, and it's reflected in our KPI. Instrumented today, total order TRY313 million on a 41% year-on-year growth. On top, 44% growth in order frequency proof that our customer engagement and loyalty strategy are working.
As a trusted e-commerce brand in Turkiye, we are proud to announce our market leadership in net promoter score for the second consecutive year. In line with our pledge to customer centricity, very hard to improve our value proposition in terms of reliability, speed, and convenience.
We also raised the bar on our core maintenance levels across payments, deliberated return. Our profitable, our affordability solutions are appreciated by our customers, especially in the challenging macroeconomic. We were to create lasting relationship, and our strong loyalty program is best indicator of our success. In the same day. Hepsiburada premium program number have more than tripled within a year to exceed TRY2.2 million. They are monthly order frequency rose by around 40% after joining the program, north of 400 preventative yearly improvement in the share of tampered loss frequency customers in overall customer base into the answer to the cash position Hepsiburada as Turkiye's e-commerce platform and underlines the strategy to grow with retention.
We will continue leveraging our core strength in prioritizing customer satisfaction going forward. Now let me elaborate on our commitment to a deeper merchant relationship. Instrumented today, the enhanced and planned solution for our merchants, such as fulfillment, logistics, to man handling, fintech and advertising solutions. To facilitate higher conversion to sales for our merchants, new tools and features such as that SaaS service campaign management, coupon creation and tailored advertising solution mark feature on our merchants.
Have projects faster, reliable connectivity logistic service led to a greater merchants preference between 102,000 active merchant base of our total SKU count combined to nearly TRY230 million. This year, we onboarded 38,000 new brands on the platform, almost half of them are in fashion and beauty category.
New global brands, our growing brand portfolio confirms our ability to unlock selection holdouts. Meanwhile, we deepened our long-lasting relationships with also benefit from the suppliers. And thanks to this strong relation, our platform has come to respond even more comprehensively to customer needs, which is why their selection and appealing campaign.
Let me now elaborate on our strategic priority for them to for. Delivery of sustainable and profitable growth remains at the heart of our strategy as confirmed by our results pillars of our strategy, our sub, with more to beyond booked on each period, we aim to raise but in each KPI. According Interland before, we remain focused on loyalty, cultivating sustainable differentiator of had to pay a jet and expanding our B2B services as a key ecomm solution partner for merchants in Turkiye.
Next slide. I'll talk more about each pillar by providing a snapshot of our achievements as well as our ambitions.
With regard to our loyalty program, we remain dedicated to growing its member base and keeping satisfied customers onboard with enhanced offerings and partnerships. One key initiative I'm super excited about is our co-branded credit card with the upgraded. The card offer to you there market-leading benefit from increasing premium credit card user base, which will also contribute to our strong dropped.
Let's now look into one of our key strategic differentiator for us in the Turkish logistics sector, we delivered around 60% of total, 67% of total parts of the number of pillars for. Head project continued the volume expansion of its competitive oversized billable services that interventions. Today, 59% sample oversized packages on the pillar for the variable by hedge digit, up by some of that person touch points year on year in today's world, tests and reliable delivery is a must for typical Turkish customer hedged at 82%.
Net debt leverage ratio among retail orders confirms our commitment. Clearly sensitivity was a year in which we expanded jets, flexible delivery and digital capabilities further. We believe these additions boost our value proposition. And accordingly, Jet main thing is acknowledged service excellence. We will build further on hips, project integral role in our logistics ecosystem and exiting and the speed of delivery and customer experience.
Let me now move on to our next steps associated tap-to-pay. And let's start with had to face strong contribution to the Hepsiburada. Leveraging our monday and payment service license deal for that comprehensive suite of payment and affordability solutions. In today's economic landscape and in the face of market expectations of potentially tightened credit available in the second half, affordability gain purchasing . Because under these conditions, consumers that come the optionality of our affordability solutions, which include our buy now pay later solution is rented shopping loans from banks in general purpose loan.
Our platform provides an excellent user service within seconds. Our customers can check the LB and CI. limit and alternative loan options from partner back and complete their purchases instantly BNP. I have a unique solution in the Turkish e-commerce market being utilized by nearly 330,000 customers by end of Q4 on abroad, scale, total financial transaction volume, including general purpose loans, reached TRY6.1 billion in slanted today in cement before the will further fortify our position as an e-commerce player, providing the by the affordability solutions.
We also recently launched headsets in US over all consumer financing company, which we expect to contribute to our success on the payment fraud had to pay continues to improve our customer experience at our checkout during Savant three with multiple additional feature. The extended this solution to enable our merchants on that continent. Also at the checkouts heads today is not available at the checkout of 10 major retailers had to pay also aim to the addition of key accounts while also launching its proposition targeted for SMEs. The launch of hit a prepaid card in collaboration with Visa was another highlight of the year.
Additional cash benefit available is a motivator to become a premium program number. The car test for all your customers with 1.2 million cards issued so far on the threat of stable asset base, will that space rose to RTY50 million by mid-March. Following a yearly net addition of 3.3 million users into Atlanta today, intervention for hep CB is working to become Turkey as most use digital models wallet solution in physical and online retail. This would ultimately position has to pay its Turkey's leading fintech company.
Now let me give you an update on our strategic priority of offering our logistics services to third parties doing that has unlock new revenue streams contribute to our operational efficiency and reinforced our position in respective sectors. Jet nearly doubled its external customer base intervention three, while the first part volume rose 1.6 times year on year.
This contract coverage ability to generate B2B revenues of build-out for showcasing kept suggests strong momentum is an appealing logistics partners. Overall, transitory was a year of initiatives that leverage our strengths in fintech and logistics, Falcon, creating a solid B2B business.
Meanwhile, resulting amount first confirm that we are on the right fit in financing for. We will continue to accelerate our focus on this business line, achieving profitability form the basis of our strategic, and I'm glad to see this confirmed in our year-end results. A robust turnaround in EBITDA was made possible through the key building block, so optimized marketing and advertising expenses.
Higher gross contribution margin, process automation and OpEx for regulatory intervention for our ambition is to sustain our profitability Suraj. Today, we believe growing our advertising business, raising third-party revenues, a higher share of margin updates of categories, and the continued frugality will be instrumental in achieving this year's higher profitability target.
On the next slide, I would like to deep dive on that. We stand our advertising business and our ambitious, our well-established advertising business headset suggests a huge opportunity to increase our share of Turkey is definitely growing digital media market. The conference up to the end of global peers have elements in the advertising business has the possibility of scaling our performance levels go going forward.
I'd say is equipped with that said format that was the visibility of participating merchants. Through these merchants to reach their target audience, increase their sales while benefiting from actionable consumer analytics. Around 18,000 merchants used over sizing solutions last year, increasing headset penetration and revenue for merchants will be among key focus areas here.
And now, I'll close my presentation with our guidance. I have meticulously outline our strategic priorities and our focus that our sports events for. This dedicated execution on this overall objective is to continue our GMV growth, focused on incremental revenues and higher margin businesses and achieve higher profitable margins since the one-to-four accordingly.
For the first part of that before, we expect to deliver GMV growth at around 100% to 90% compared to the same period of demand today. The low base of the first quarter, so that this rate was mainly due to earthquake, has a positive impact. In this expected level, we expect to deliver around 2% as percentage of GMV in this guidance figures are adjusted for inflation.
With this, I thank you for listening and leave the floor to fit in our CFO to provide further insights into our financial backbone.
M Seckin Koseoglu
Thank you, Nilhan, and welcome, everyone. I'm glad to share that we have delivered an outstanding financial performance across all metrics, both in Q4 2023 and full year despite all the challenges.
On an unadjusted basis, GMV grew by 104% in 2023. This came to 41% order growth and 45% average order value growth when we exclude our small-ticket, were at 79%, outpacing the average inflation of 54% in 2023 . The average order value growth is attributable mainly to faster than inflation to rise in average selling prices and the higher share of large ticket items in electronics in our orders.
On an inflation-adjusted basis, we recorded a double-digit Real Germany growth of 31% in 2023 . This resulted in 34% revenue growth, which was possible through strong revenue growth of both retail and marketplace operations, as well as solid growth in advertising and marketing revenues and loyalty program subscription.
With 9.2% gross contribution margin and disciplined OpEx management, we recorded a 0.4% EBITDA as a percentage of GMV in 2023 marketing a notable 5.2 percentage points year on year improvement. For more color on each of these, let's move onto the next slide.
First, our GMV performance. Our marketplace operations corresponded to two-thirds of our business in 2023 . While the share of electronics in GMV was at around the same level of last year. There is a 0.3 towards before 34%. Revenue growth in 2023 was achieved mainly through 27% retail and 60% marketplace operations revenue growth.
Delivery service revenues contributed to the revenue growth with 48% year on year. This was mainly due to rising units, delivery service charges, higher parcel volume and almost doubling of of platform revenues. Other revenues that include advertising services, co-marketing and loyalty subscription altogether grew by 125% year on year.
Now let me elaborate on our gross contribution for fall. So the adjusted for inflation, our gross contribution margin was 10.6% in 2023 on a 1.6 percentage points year on year improvement. Adjusted for inflation, we recorded a solid 2.7 percentage points rise in the margin, reaching 9.2%. This was mainly attributable to 1.3 percentage points in the one key margin due to a relatively lower inflation impact on cost of inventory sold during the year and shorter inventory turnover days in 2023. 0.7 percentage point increase in the 3P margin as a result of margin improvement across all categories and 0.7 percentage point rise in the contribution of delivery, service and other reasons.
Let's move on to our EBITDA performance for the next slide. As highlighted, 2023 was a year of profitable to turnaround for us to borrow the two together with strong top line growth. Our focus on costs and marketing spend optimization enabled us to deliver positive EBITDA for the full year. As adjusted for inflation, we recorded 1.8 percentage EBITDA as a percentage of GMV in 2023 with a 4.0 percentage points improvement on a yearly basis.
Adjusted for inflation, our full year EBITDA is again positive at 0.4% of GMV grew 5.2 percentage point year-over-year improvement. This was mainly through a 2.7 percentage point rise in gross contribution margin, 1.2 percentage point decline in advertising expenses, 0.3 percentage point decline in payroll and outsource startup expenses, 0.2 percentage point decline in shipping and packaging expenses, and 0.9 percentage point decline in other OpEx items. Excluding the one-off items, year on year improvement in EBITDA was still strong at 4.5% to 2023.
Next, let's look at our cash flow dynamics. Our cash generated from operations was TRY5.0 billion in 2023, up from seven or TRY7 million a year ago. The year-over-year increase in EBITDA accounts for more than 100% of the improvement in operating cash flow. More precisely, TRY4.7 billion rise in EBITDA was partially offset by TRY0.4 billion decline in change in monetary gain, working capital, and realized FX gain and loss. The yield of TRY4.3 billion improvement year over year .
With around TRY1.1 billion CapEx, our free cash flow was around TRY3.9 billion in the full year.
Next slide, please. As I end my presentation, I would like to summarize the key takeaways from today's presentation.
Our robust top line growth and outstanding EBITDA performance both in the fourth quarter and full year exceeded our guidance ranges. Adjusted for inflation recorded double digit real GMV growth on a year-on-year basis . Our gross contribution margin on an unadjusted basis reached 10.6%, marking the highest full-year level since 2018. With this performance, we generated strong free cash flow tool as well.
As we reflect on the good start to 2024, we are committed to building on our performance from the previous year and strive towards achieving even greater success. Thank you for listening. We can now open the line for questions.
Question and Answer Session
Operator
(Operator Instructions)
M Seckin Koseoglu
We had a question via e-mail related with a different interest expenses charged on purchases and credit card receivables. Basically, we do not have any lending related with our purchases . The interest on purchases refers to interest expense that is embedded in our inventory procurement that we buy on the term basis. That amount reclassified from gross contribution margin to financial expenses. And this is due to IFRS 9 reclassification.
Early collection commission is the commission that we paid to the banks for early collection of our credit card receivables. And this is also showing up in the financial expenses section in our P&L.
Operator
(Operator Instructions) Muharama Gusever, Corner Capital.
Muharama Gusever
Thanks very much for the presentation. I have couple of questions from me. The first one is the credit card spending in 2Q running into real first price in the first quarte r. So far, we have observed around 150% increase year-over-year resume full month because crude purchases. Your guidance was 122% around GMV growth for the first quarter. Is there an upside to the proposals structured? And what is the advertising budgets for 2020 for the group?
M Seckin Koseoglu
Basically we are estimating this 120% versus the relatively lower base in quarter one 2023 due to the earthquake. And as you pointed out, the credit card spending in the market is a little bit higher than this amount . So we may potentially see some upside, but not necessarily a very significant amount versus our guidance.
So related with our marketing expenses, we are continuing to increase our return on advertising spending for each of our channels, both for influencers and performance marketing. So we will continue to see the efficiencies going forward. We have experienced in 2023. So we will continue to optimize our marketing spending while growing profitably.
Muharama Gusever
Thank you very much.
Nilhan Onal Gokcetekin
I have one build for the credit card spending and further penetration of e-commerce in Turkey. As you know, Turkey is a bit of at a high potential market for e-commerce penetration for MDS. There is another 15% to 19% growth in the penetration of e-commerce biddingt otal retail. One area that we will significantly get share is our turnkey e-commerce solution.
So we picked projects. We are at significantly increasing our volumes for all of platform customers, as I mentioned in our fintech solutions. Now, we are also providing to these merchants that are just coming through e-commerce, mid-vol clinic solution and our landing solutions in our checkout. So we are celebrating actually deployed the growth of e-commerce in Turkey.
Muharama Gusever
The one before all of the international e-commerce companies to as per plan, you're not competitors or peers through trying to increase 3%. In fact, a couple of them amongst the increasing pickers 4 to 100 basis points at the beginning of the year. And your largest corporates to return to its parents early, but worldwide reaffirming their conference calls Cerberus, various operations, which you will see close to two. So my question is, do you observe an increase on the take rates on your peers and as well as on your side since the beginning of the year?
Nilhan Onal Gokcetekin
So in terms of I can give some context from Atlanta today are less, although gross contribution margin improvement, which was 270 basis points, was also as a result of not only mix and increased delivery service revenues, but also improvement in overall overall case, correct and is being investigations in increased profitability this year.
We are also seeing opportunity here and we will be continue to find optimal range that we will still make us relevant growth of our business while optimizing for profitability. I think it was great.
Operator
(Operator Instructions)
Helin Sinem Celikbilek
Sorry, Sabrina. Could you please hold on. We have a question via email. I'd like to read that. Please provide an update on the competitive dynamics in Turkiye, has anything changed, which players are gaining market share versus losing. And whether we're expecting to start to see a consumer slowdown in the second half of the year.
Nilhan Onal Gokcetekin
So let me start with the second question, our high-level expectations for '24. Our progress and results clearly prove that our strategy works. Our sustainable profitable growth will remain unchanged, and we maintain our commitment to the strategic priorities, which I think is going to be very relevant for Turkey in this changing macroeconomic context. We are also a bit higher e-commerce penetration. We will be waiting expecting a higher B2B revenues and pay and further solidify our group's position.
We anticipate environment in the second half of the year, given the tight macro pridential policies. However, our ability to build on our strong value proposition, our tailored payment options and affordability will differentiate us and continue to make us relevant for consumer demand. I think this also macro context we have could provide other opportunities like lower credit card costs further differentiates us from our competitors as well.
So as much as there is an expectation for reduced demand in overall Turkiye with higher digital population coming to e-commerce with our right to win in this macroeconomic context, we believe that we will be relevant and strong throughout the year. This brings me to answering the first question about competitors.
If we start with the macroeconomic context on the need for affordability, we have the widest solution in the market by far. With shopping loans, with our own consumer financing company, it's mix checkout and payouts. I think these are going to be more and more relevant and will make us more competitive.
And also from logistics, we have a very strong network that we are adding new features for delivery services every month for our consumer. So I think competition will remain is it in Turkey, but we are the local player with high agility, widest affordability solution and with highest NPS and that's why I believe we will continue to have rights to win in '24 in Turkey.
Helin Sinem Celikbilek
Okay, we have another question via e-mail that asked 2024 revenues and margins.
M Seckin Koseoglu
Our progress and results clearly prove that our strategy works. Our focus on sustainable and profitable growth remains unchanged for 2024 as well. We maintain our commitment to proven strategic priorities, emphasizing precision and delivery services, affordable shopping options and the exclusive benefits of our premium program. Additionally, the upward trajectory of our B2B revenues, as Nilhan mentioned, from hepsad, Jet, and Hepay will further rise and solidify our group's position. So in 2024, we believe that we will continue to trend in our profitable growth trajectory like we have done in 2023.
Operator
(Operator Instructions) Ladies and gentlemen, there are no further questions at this time. Ms. Nilhan, back to you.
Nilhan Onal Gokcetekin
Thank you so much for your patience and listening to our call. We wish you an amazing day and amazing evening.
Operator
The conference is now concluded, and you may disconnect your telephone. Thank you for calling. Have a good afternoon.
