D-Market Elektronik Hizmetler ve Ticaret A.S. (HEPS) Q4 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I'm [indiscernible] your Chorus call operator. Welcome and thank you for joining the Hepsiburada, the conference call and the live webcast to present and discuss the fourth quarter and full year 2024 financial results. All participants will be in a listen-only mode and the conference has been recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. Nilhan Onal Gokcetekin, CEO; Mr. Seçkin Köseoğlu, CFO; Ms. [indiscernible] Investor Relations Director. Ms. [indiscernible], you may now proceed.

Thanks, operator. Thank you very much for joining us today for Hepsiburada's fourth quarter and full year 2024 earnings call. I am pleased to be joined on the call today by our CEO, Nilhan Onal Gokcetekin, and our CFO, Seçkin Köseoğlu. The following discussion reflects 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. 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 supplemental slide deck. Today's press release, the 6K, our Form 20F filed with the SEC on April 30, 2025, and other SEC filings for information 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 for a presentation of the most directly comparable IFRS measure and relevant IFRS to non-IFRS reconciliation. As a reminder, a replay of this call will be available on our investor relations website. With that, I hand over to our CEO, Nilhan.

Thank you, [indiscernible]. 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. We concluded ‘24 with growth in margin expansion through diligent execution of our fundamentals. Notably, we delivered a real GMV growth of 12.1% in '24. And we also achieved growth contribution margin at 11.3% with a 2.1 percentage point improvement on a yearly basis in '24. Our EBITDA as percentage of GMV continued its expansion, reaching 1.1% with a 0.7 percentage point rise year-on-year. On an unadjusted inflation basis, our GMV grew 74% year-on-year, and EBITDA percentage of GMV reached 2.1%. Now, I'd like to go into the performance of our operational metrics during the year. Our customers and merchants are always at the core of our ecosystem, and we work hard to improve our value proposition for them. In line with our customer-centric approach, we improved our reliability, speed, and convenience of our logistics services, as well as payment convenience with our diverse landing solution. Our active customers grew by 235,000 to 12.2 million. Our orders have shown 16 percentage points year-on-year growth, resulting in 131.4 million orders. And our order frequency over last 12 months reached 10.8, up by 14%. On merchant side, we enhanced our logistics, tool manhandling, FinTech, and advertising solutions. With an active merchant base of over 100,000, we continue to onboard additional brands, particularly in the lifecycle categories. Let me now elaborate on our achievements in '24. In line with our profitable growth strategy, we remain focused on three priorities. Customer loyalty, cultivating the sustainable differentiator, HepsiJet and Hepsipay, and finally expanding our B2B services to all platform as a turnkey e-consolution partner for merchants. In early '24, we set clear targets for each of these strategic priorities, and now I am pleased to share the progress we make throughout the year. First, our loyalty program Hepsiburada Premium. The program continues to register, increase customer loyalty, reaching to 3.7 million member base. Enhancing the program offerings, we find a partnership with Warner Bros. Discovery in '24, and content provided as part of premium program benefits has widely expanded. Our next strategic priority has been our delivery services. Central to achieving this is HepsiJet widened penetration within our merchant base, thereby it delivered 72% of total parcels dispatched during the year. HepsiJet confirms its commitment to differentiation through service excellence, confirming its integral role in our delivery ecosystem. Next slide, please. Now, let's move on to our next strategic priority, which is capitalizing on our differentiation through landing solutions. Our landing solutions include in-house buy now pay later, in-house consumer finance loans, shopping loans from partner banks, and general purpose loans from our partner banks. Over the last 12 months, our total landing volume reached 16.2 billion lira, which is 2.6 times of the total volume in '23. Overall, our BNPL consumer finance loans and shopping loans were utilized in over 3.3 million orders since they are launched. Next slide, please. Our fourth key priority is offering strong capabilities to our merchants. Let me start with HepsiJet. With over 40 million parcels delivered in '24, HepsiJet increase its off-platform volume by [8% to 9%] year-on-year. Accordingly, ‘24 of its off platform share rose by 9.7% year-on-year, so nearly 34.6% of its total volume. Next, I would like to talk about Hepsipay's one-click checkout solution, Pay with Hepsipay. We continue to expand this convenient solution to other retailers and all our merchants. Hepsipay is now integrated with 140 key accounts by end of '24. For all of our strategic priorities, solid progress in our KPIs throughout the year reflects the dedicated performance of and strong execution by entire Hepsiburada group team. Let me say a few words on early '25. Start of 2025 was very challenging due to ongoing macroeconomic headwinds, pressuring purchasing power of our consumers, as well as boycotts against shopping starting March. Our marketing activities were also limited in all performance channels due to political sensitivity and the level of boycotts in the first quarter of the year. However, as you know, we also had a very positive milestone for Hepsiburada after 25 years. On January 29, the closing of the transaction between Cassie and our founder, the members of Long Family, to purchase a 65.4% controlling stake in Hepsiburada was enough. We are extremely excited about the potential value creation opportunities that arise from this deal, as Kaspi is the preeminent payments marketplace and fintech ecosystem in Kazakhstan. With this, I thank you for listening and leave the floor to Seçkin, our CFO, to provide further insight into our financial performance.

Thank you, Nilhan, and welcome, everyone. I'm delighted to be with you today to present our fourth quarter and full year results. On an unadjusted for inflation basis, our GMV grew by 49.4% close to our guidance of 50% to 55%, and our EBITDA as a percentage of GMV reached 1.8% in line with our guidance of 1.8% to 2% in the fourth quarter. Adjusted for inflation, our GMV rose by 12.1% in 2024 compared to full year 2023. On the profitability side, our gross contribution margin rose to 11.3% with a 2.1 percentage point improvement compared to last year. Our EBITDA as a percentage of GMV rose to 1.1% for the full year. This is a 0.7 percentage point rise year-on-year. Let's go over the details of this performance. In 2024, 12.1% of real GMV growth came through 131.4 million orders and a higher average order value. Excluding our digital products, our order growth was at around 8% in 2024 compared to the previous year. Average order value growth was around 4% due to a faster than inflation rise in the average selling prices. During 2024, we saw a 2.9 percentage point shift towards our marketplace operations compared to 2023, and our 3P operations corresponded to around 70% of our business. This shift came as a result of a 2.9 percentage point shift towards non-electronics, which is in line with our broader strategy. Let's have a look at our revenue and gross contribution dynamics. First, some color on revenues. Our revenue grew by 6.4% in Q4, bringing our revenue growth for the full year to 11.1% compared to the same periods of last year. Our revenue growth in Q4 was mainly due to a 15% rise in 3P revenue, 18% increase in delivery service revenue, and 127% increase in other revenue. These were partially offset by the 1.6 percentage decrease in our 1P revenue as a result of the shift in GMV towards 3P compared to Q4, 2023. Our revenue growth in 2024 was mainly due to the 50% increase in delivery revenue and 112% increase in other revenue, including our advertising services revenues and Hepsiburada premium subscription revenues. 12% revenue growth in marketplace operations also contributed to our overall revenue growth in 2024. The gross contribution margin improved by 2.1 percentage points to 11.3% in 2024 compared to last year. This margin improvement was mainly attributable to increased delivery service revenue, higher other revenue, including ads and premium subscription revenue, together with an increase in the 1P margin. Let's move on to our EBITDA performance on the next slide. We recorded 1.1% EBITDA as a percentage of GMV in 2024 with a 0.7 percentage point yearly improvement. Excluding the one-off items in 2023, year-on-year improvement in EBITDA was a 0.9 percentage point for the full year 2024. This 0.7% improvement was driven by a 2.1 percentage rise in gross contribution margin, partially offset by 0.5 percentage rise in payroll and outsource staff expenses, 0.4 percentage rise in shipping and packaging expenses, a 0.2 percentage rise in advertising expenses, and 0.3 percentage rise in other operating expenses. The rise in payroll and outsource staff expenses came from the annual and midyear salary rises, along with the rise in employee number for our subsidiaries. The increase in shipping and packaging expenses as a percentage of GMV was mainly driven by higher parcel volume and the rise in delivery fees per unit, combined with annual minimum wage increases. The increase in other operating expenses was mainly due to the recognition of provision for the license fee amounting to TRY 180 million and higher bed debt provisions in 2024. Next, let's have a look at our cash flow dynamics. For full year 2024, free cash flow decreased by TRY 1.9 billion compared to a year ago. This decrease was mainly due to a TRY 1.55 billion decrease in net cash provided by operating activities and TRY 0.34 billion increase in CapEx. With TRY 2 billion in CapEx our free cash flow was at TRY 3.7 billion for the full year 2024. With this, I will now hand over to Nilhan for the key takeaways.

We leave you with the following key takeaways from today's presentation. For the year of 2024, we recorded real double-digit GMV growth of 12.1%. Supported by 2.1 percentage points rise in gross contribution, our EBITDA reached €2.1 billion, corresponding to 1.1% of GMV in 2024. On Q1, we had two important developments. On one side, the year started with macroeconomic headwinds, pressuring the purchasing power of consumers, and boycotts started against shopping. On the other, which is positive side, an important milestone in the company's history took place on 29 January. Under custody ownership, we are excited about the opportunities we foresee going forward. With this, I would like to thank you all for listening us. `Today we don't have a Q&A, but we are much looking forward to connecting with you and your questions. Please direct them to our investor relations. Thank you.