Earnings Call: Q1 2021

May 7, 2021

are very pleased to welcome you to our Q1 results presentation. I think everybody joined our presentation. We are aware that there is very tight schedule for consumer and investors today, so that we plan to keep the presentation site short in order to allocate more time to Q and A session. This is a very busy day for you. We know that. We hope you have managed to download our investor presentation on our website. And now I now invite you to take a look at our first quarter results. And let's start with the headlines, with headlines Page 4. And of course, we will look at more details on the next slide, but our key figures in the first quarter are partial net sales were SEK 16,500,000,000 reflecting 23% year on year growth, which is within our expectations. We have set 20% to 25% top line growth at the beginning of the year, so it's it's perfectly in line with our expectation. Sales force for EBITDA. EBITDA margin was 8.5%, representing 35% 34% year on year growth. Capital expenditure was EUR 48,000,000 corresponding to 3.1 percent of sales. Net income was CHF685 million, which represents 59% growth year on year with corresponding 4.4 percent margin. This is 100 bps higher compared to same period last year. And on the store front, we are continuing with the strong pace of store opening and have added 358 new stores across operations in Q1 consolidated 1 and this brings us to 9,723 consolidated stores by the end of the quarter. Moving on to operational platforms, Page 3, starting with the like for like sales to like. The like for like parcel sales increased by 13% from the previous year, the same period of previous year. Our average internal utilization in this period in the first same period is 26% for the same period in internal utilization. And please note that the comparison of the internal inflation and like for like is not fully meaningful due to the high pay of March last year, thankfully for the rush to the stores and stock up to be released. You know that last year, the COVID started in March and as we go into the 25.5 percent in the 1st 2 months and then just March brought us to 40% for the full quarter. So there's strong base in March and in the Q1 as well. Like for like part of the basket size increased by 36%. As we have been mentioning, every basket size has grown significantly during the COVID period and this trend continues. Customer traffic decreased by 17% on quarterly basis and again, this is due to fewer store visits during COVID and government regulations such as weekends, curfews, lockdown, etcetera. We had on average 5 47 customers per store per day traffic in Q1. The ongoing negative customer traffic is compensated by the larger basket size, while the people mostly only consume at 1 hour days. And on the store side, we have maintained the opening pace. This is slightly higher than last year, but we are maintaining our opening days. We have opened 3 31 new PIB stores, 17 stores in Morocco and 10 Kille stores. And there's no openings in Egypt as we announced at the beginning of the year. In total, we had 9,723 stores by the end of the quarter, including Morocco and Egypt. If you know that seasonally, 1st quarters are always stronger in the new openings in Turkey, and this was the case this year as well. Actually, we didn't do that. We are not giving any official guidance on strong openings, but stock trends from the last year will continue this year as well. There's no reason to decrease the openings because there's no cannibalism, minimum cannibalism maybe a drop, minimum cannibalism. So there's room to go in the market. So we are opening stores as much as we can. And it's almost in line with last year's pace. As we mentioned on our previous call, we are also designing our stores with the new format design. The number of new format stores reached around 1300 as of today. We are accurately opening new stores with the new design and also we are designing our stores, old stores, which we took for maintenance. Openings in Morocco operation are also progressing well, again after they have been slightly impacted by the COVID-nineteen last year. This year opening is well in Morocco operation. And capital expenditures, moving to CapEx slide. Our quarterly CapEx was RUB 4.72 million corresponding to 3.1 percent of net sales, which is higher compared to same part of last year, but it is in line with our expectations. You know that we have said CHF 1.75 capital expenditures for the expectation for the full year. There are few reasons for high CapEx this quarter. The first, higher number of strong mix the second, higher material cost caused by significant tertiary depreciation and third, there are 6 ongoing warehouse constructions. 4 are owned by being we will open 4 new warehouses in Manisa Aksaray, Akstar, Manisa Aksar, Ankara, Marcellus, Sparta for Beam. And another warehouse in Ankara is almost under construction and for this is for Fidec. And the 6th one is a new warehouse for our rice packaging subsidiary company, named GB Pizza. Now we are actually there are 6 warehouse construction. Some of them are almost finished, but this is also one of the reasons of the CapEx. You might not have noticed that we haven't given guidance for historic unique pace in the last presentation, but we expect to continue with at least the same pace of the last year. And now let's look at our financial performance, Page 10. Starting with the sales progression, as mentioned at the highlight slide, our sales are in line with our expectations. In Q1, the sales grew by 23% and reaching TRY 15,500,000,000. We indicated on the previous call that sales were starting to normalize after the coming period. This is the case for all general sectors, sales sectors for normalizing. And what's going on in the post Q1, in 4 months year to date sales growth is also in line with our full year guidance. And despite the high base of April year, actually last year, April is one of the strongest months last year. So maybe strongest after March and April are strongest. But in March in April also, we are trading in our expectation in terms of top line. Regarding the main trading, you know that there are full lockdown in Turkey until 17th May, so people consume at home nowadays. Until 17th May, organized food retailers are closed just on Sunday, and non essential non food sales are restricted during this period, and it has always come today. But we also get some days sales are somewhat offset by higher sales in other days. And on the line side, the non food side, although it is 10% or 11% of sales, spots, you know, our sales for products plus some cosmetics, plus some wearings, listed wearings products, some socks, for example, under wear, something like that, they are also restricted. Those are around 10%, 11% of sales are being affected due to restrictions. Hopefully, we expect minor impacts of restrictions as we reschedule our spot listings to compensate the temporary restrictions. For example, our spot sales is Friday today, and we took today's spot sales to Wednesday today earlier. And the next week's spot sales, Friday sales will postpone after buyback. So we believe that, yes, there will be some impact, but impact will be negligible for us under restrictions. And this is very limited period, 2 weeks period, hopefully. So it will be negligible, I believe, on. And gross profit and gross margin progression, on quarterly basis, gross profit has increased to rokshiraglutetra with 18.4% margin. As you can see, gross margin is slightly lower than last quarter, but still within our expected range despite some price investments we made in Q1. We didn't give any guidance about the gross margin, but as we announced that we expect to keep it at 18% levels. And post Q1, there is not any material worsening, I can say that. And inflation, of course, is rising. Inflation is rising. But as we announced the last quarter, we don't prefer to benefit from the low cost inventory. As I mentioned, we are giving tonnage play for Q1 average 26% year on year. And now let's look at our quarterly EBITDA and EBIT. The quarterly EBITDA was SEK1.3 billion corresponding to margin of 8.5%, which is exactly in the upper end of our target range. Year on year increase was 34% And quarterly EBIT was €917,000,000 with corresponding margin of 5.9%, resulting 38% year on year increase. And regarding the OpEx development in Q1, as usual, in 1st quarters, we have some stop loss measures this quarter as well due to high increase in minimum wage. At the beginning of the year, the minimum wage increased by 22%. We also had light to these are mostly store employees. So this is also putting somewhat pressure on our gross margin on our OpEx side. And additionally, the support from the government for minimum wage is super case. They will give it, but the execution has not started yet. Therefore, we haven't reflected in our trust loss yet. Maybe this is maybe similar to last year's practice, the support might be transferred to companies by May or June. It's not clear yet, retrospectively. Last year, maybe you remember, we also get minimum wage support in late May, late May. So we expect the same this year. Maybe we will have somewhat positive contribution coming from the minimum wage support, but this is not too much, maybe 10 bps you can imagine. And net income, moving on to net income slides. Our quarter net income was SEK 685,000,000 €59 percent growth year on year. Quarter net income margin was 4.4% this quarter. And also, I would like to highlight that for new tax cost, you know that applied focus tax rate was 20%. And it is applied to 1st quarters as a 20%. But it will be implemented as 25% for the full year of 2021 starting from the first half results. Therefore, the first quarter's tax rate hike impact will be reflected with the net in the second quarter. This is coming from the tax cost. So as you know, this year 25% for the full year, next year, 23%. And hopefully, then we will come to normal 20% level, hopefully. But this year, we will limit putting payers in tax side. So this is maybe it's just for your projections this quarter and next year and next year. And as last slide, so let's look at our current operations and Chile highlights. On our last call, we have mentioned we have identified a strategic partner for our Morocco operation and Helios Investment Partners from UK. And we are pleased that pleased to announce that the shale project agreement of 35% of Morocco have now been finalized and cash is collected today, 2 days ago, actually, this is closing almost done. Now we are looking forward to expand with the Maracom business with a new partner on board. And Morocco is continuing to contribute also our net income in the last 2 years and has been contributing better to our gross margin and profit margin this year. Store opening pace is also good. We have opened 17 new stores in Q1 and continue with this strong pace. This is a good time because last year, we have been impacted by COVID. Store opening is impacted by COVID, but this year, we are happy with this opening pace. In Egypt, we are maintaining our 300 stores, and we are not planning any new store openings for this year. As for Chile operation, we have opened another 10 new stores in Kuma, which means we had 133 stores by the end of Q1. Philia already business income profitability in 2020 and is continuing progressing well. And the 3rd warehouse of Philae will be opened in Ankara in a few months and it's almost finished. Then the coverage to meet Anatolia will be extended after opening the 3rd warehouse of Philae in Ankara. Last but not least, Chile online shopping platform is about to finalize and it's plenty paid and likely to be launched in a few weeks' time. But of course, with the limited regional coverage, this is in Ateshir and in Romania, we will start it. If anyone is living in those regions, just recommend to download Fide apps from then if you try our e commerce, in a few weeks time, we will start it. Now I would like to thank you for your attendance to my presentation. We'd like to now open the floor for Q and A and if you have any. Dear participants, if you want to ask a question, please raise your hand and we will unmute you and give you the floor. Hi, Alex. The floor is yours. Greetings, everybody. I wanted to congratulate you on your impressive results. I have, I suppose, a couple of traditional questions. I'll ask them 1 by 1. The first one is, how are you progressing in the 2nd Q 'twenty one? Here, I mean that you're going in the corridor of your guidance between 20% to 25% year on year growth? Or you have something stronger than initially anticipated? Okay. Thank you, Alex. Actually, as I mentioned in Q2, Q2 2021, in April, it's going to end. It's going to end. It's in nominal expectations despite the April has the strongest base. So April is good. In May, there are some restrictions today. It's early to speak about the May. But generally speaking, I can say that the top line growth is still in line with our full year guidance post Q1 in the second quarter as well. Okay. Hello. Hello. Hello. Yes, hello. I was asking how is the competition progressing? I mean, you and other discounters are continuing to consolidate the market? I mean, you, A101 and the shock? Competition is, of course, in the car segment is tough. It's tough. It's tough. It's tough. It's tough. It's tough. It's tough. It's tough. It's tough. It's tough. It's been tough in the last 5 years. The store openings are aggressive in the discount segment. So actually today, there are around maybe 26,000 discount stores in Turkey, 26,000. And each year, there are maybe more than 2,000 or 2,500 discount stores are being opened. But there is room to go. We are not facing any material cannibalism, internal or external cannibalism. So there is a lot of people are more tending to discount stores in the recent years. And this also pandemic COVID period also increased the trust level to discounters because actually the discounters managed this COVID period well in this. So also the third thing is that there's still room in organized sales. The modern retail market share is still 50% in Turkey. So there's still room to go in the Skans segment in Turkey. So the competition is tough, but we are leading the sectors and prices are almost the same in price side. Prices are almost same. And it's likely to continue for a while in this dropping phase going forward. But there's not any very major material impact, negative impact on wind side. And the very last question from my side, how is your Ultra's your new format performing? You were talking about smaller format, and I wanted to share some perhaps preliminary results of this pilot if they are available. I think you are talking about the smaller format, BIM Mini format or which one? I think yes, I think yes, the one you mentioned on the 2020 results call. Okay, okay. This is actually the trial, the mini, we have now maybe 10 mini stores testing. We are still testing and we will actually we have decided to extend it to some other regions, may increase the mini stores in other cities as well to test it further. But I cannot say that it's very, very exciting now for the time being. But we are still testing. We need time to decide. But it is just a trial today. And so it's not decided to expand all the regions yet. That's clear to your account. Thank you very much. Have a nice day. Thank you. Thank you. Werner has a question. Verna, the floor is yours. Thank you. Thank you very much. My question is about the temporary restrictions brought on these non food items to be sold in until the end of the curfew in Turkey. Do you expect any of those restrictions to become permanent in due course? That's my first question. And my second question is the inflation is edging higher. I think it's a lot higher than what you had budgeted when you provided the 20% to 25% revenue growth guidance. And you've already explained that the numbers so far are in line with this guidance. But do you see any upside just to that? Or because of further restrictions, etcetera, or other factors, you are more comfortable keeping it at the current level? Thank you. Thank you, Werner Alon. Restrictions, yes, it is just after the final 17th May. Of course, we don't we are not aware that it will extend or not. But today, actually, it's going quite big. People are also consuming heads home like last year. But the difference is from the last year lockdown is this year, the actually, the retailers are open on Saturday as well last year. The both weekend days are there, we were closed. And this year, there is not any rush to stores, no any stock up effects this year, last year because it's different in March April. There's a stock up effect. People rush to the store for daily convenience, but this year, we are asking that people just buy their needs, their daily needs, weekly needs maybe. So this home consumption nowadays, There are some restrictions. Spot sales, as I said, 10% of sales are affected, but we took some actions. And we hope we will be minimum level affected from these restrictions from and it is just 2 weeks time. But for time being, it's very minimum effect. It has almost no impact on us. And some day closures are somewhat, not fully, but somewhat offset by other days. So this is it will be a permanent after that. We don't actually, we're not aware of that. But even after the restrictions will be dropped, I think the home consumption would continue, in our opinion. People wouldn't rush to restaurants, cafe or shopping malls in Monday. We don't expect it last year, for example, last year also in June, shopping malls and restaurants, cafes were opened, but people were less initiated to that. So regarding your second question, 25%, for time being, we are in line with our expectation in April as well. And April is has the strongest base due to COVID, but it's also in line almost in line with our expectation. Upside risk, it's early to speak about that. For time being, there is no. But of course, what will be developments after the restrictions and in the second half of the year was creating the process. But for upside, we cannot say that it's very early. But for time being, we are not changing our guidance, top line guidance for now and likely not to change in the 2nd quarter. So it's we are not divested in line with our expectation for time being. Thank you very much. Regiane, the floor is yours. Hi. Hi, Regiane. Thanks for taking the question. And I have you mentioned now on the sales then that Bim has been taking actions about these restrictions on the spot sales. What exactly what kind of actions are we talking about? And my second question is still also related to the inflation outlook in Turkey. How you see margins evolving from well, the target for EBITDA margin now is still 8%, right, for this year. You see this how you see this being affected by this higher inflation going forward? Thank you. Thank you, Regina. Sales plan, as I said, we took some actions. For example, in 2 weeks' time, our spot sales are restricted. And you know that our spot sales are on Friday, and today is the Friday. And we took today's spot sales to last Wednesday, 2 days ago. So in 2 days, we were able to sell our spot sales in 2 days. So it's the first action. The second action is next week is spot sales will postponed after Ramadan break, Ramadan break. So those are our actions. And so that's the other action. We will be waiting for the rest action is over. So and but also some day closures are our stores are closed some days, but it will have minimum impact maybe no impact on us because we are experienced that other days. Other days, they are also we are increasing our sales. So other days sales are offset to Sunday's closures. So it's just 2 weeks' time. And yes, spot products, but we are now we are the basic quality retailer, the sponge retailer. Most of our products are basic quality. So we don't expect any very material impact from coming from guests. The spot sales are attracting people to the stores, and this is also increasing our traffic numbers. But for a limited period of time, of course, we can manage it. It is not a problem for us. And inflation is rising, the pressure is appreciating in the current months, and we are trying to pass the inflationary pressures on our shaft price, but we actually prefer to delay as much as we can and together with our suppliers. And we don't prefer to benefit, as I said before, to benefit from the low cost inventory in a rising inflation environment. So we have actually in principle, we have decided principally, we have decided this during the COVID period, whenever our products, the old cost products are runoff in our stores, then we prefer to test inflation pressures to product shaft prices. Gross margin would have been affected because of inflation. So as I said before, 18% we want to keep at debt levels. So post Q1 is also in line with our expectation in gross margin, gross margin side. We don't expect any deviation for the time being in margin side. So and also EBITDA as well because EBITDA is almost actually it depends on the gross margin. So we are confident that to reach our EBITDA margin target for the full year. And we saw in the Q1, we have expected and we have hit the upper end of our target and post Q1 is also good. Okay. And if I may ask another question about the online the app on Fillet, you mentioned that it's about to be launched. Can you just give a bit more details which area will be I think you mentioned, but I think I missed that. And how your what's the plan for expansion of like the area of this app? And if at some point you I remember before BIM was not planning to do that for BIM, just for FILIP. Is still this is still the plans? Yes. Filipe, we will be starting in 2 weeks' time in some part of in Antolin some part of the Antolin of Istanbul in Umrani and Atisha. It will be started with limited coverage. Of course, we will go step by step. So maybe at the end of the year, our target to cover maybe 60% to 70% of the population, which is tumbled, of course. Then in the coming years, move to other speeds as well. It's our initial expectations for Chile online. So we are actually we take the steps modestly. We don't want to rush. We don't want to be much more aggressive in Finesse, and we want to be as efficient as we can and in high level the quality we want to be. So we are setting the infrastructure. Now it's almost done. In 2 weeks' time, we will be doing that in we will start in Qumrani and Atisha Istanbul and then stepwise to be able to increase the coverage in Istanbul site. In the coming years of the leading other cities, actually we don't we do not have any plan yet for BIM online. Of course, we are in very low profile. Sometimes we are thinking some models, but in short and mid term, there is no any plan for TIMSS because TIMSS proximity stores. So people are shopping on pools. We are opening stores in near inhabitants. So for time being, for the basic commodities, we don't need online. Thank you. Jim, the floor is yours. Hello. Thank you for the presentation. I don't know if you can share, but what was the like for like growth for January February? I'm just trying to understand the margin impact. And also another question on a different online channel rather than having I mean your own online channel. Is there a plan to work with existing marketplace operators for grocery deliveries as some of the food retailers have already started to work with the big marketplace channels? Thank you very much. Thank you. Let's start with last online channel. No, we don't think marketplace operators. So we will enter creating our own apps on select and so we don't prefer it. It doesn't make sense for us. So we actually improve and increase our coverage in ourselves for Chile. And we didn't hopefully, we shared just the 1st quarter like for like sales, it is 13% like for like sales. Of course, January February are much higher, maybe double of this maybe 25%. You can take January and February, 25%, 30% levels to so in January, February, of course, in March because of lower strong base, it's down in March. But actually, generally speaking, Q4 Q1 is 13%. And in that product, it is lower than our internal inflation because it is very strong base. This is the general reason. Okay. Thank you very much. Welcome. Thank you. Hamzadeh, the floor is yours. Thank you, Sakamil. I have a follow-up question about your spot sales. You mentioned that you tried to control the impact of the ban on non essential goods through changing your spot days. But am I I mean, maybe I know this wrongly, but spot sales are actually nonessential, right? I mean, how are you doing those spot sales on Wednesdays and next Friday? Those are not sanctions because the restrictions started today. Okay, to start today. And we took back it to the early on Wednesday. So yesterday Wednesday, there were no restrictions in the store for non essentials for stores. So we were able to sell it for 2 days, just 2 days, of course. And today, we stopped it as we removed to our store warehouses of spot items, some cosmetics, some wearings. So we now we actually put them to our warehouse stores and we are they are not on sale. Next week, spot sales are postponed to after Bayer. Okay. After the restriction period. Okay. Thank you very much. And about space expansion, I mean, I clearly understand that there is no pressure this year as well and space growth will continue. Do you also expect a similar type of growth around 10% next year and also 2023? Or should we now start causing some sort of slowdown in store openings given that total discount store number reached over 25,000 units? Actually, we are setting up drivers yearly basis. But in the last few years, you know that our store growth rate is 10% or 12% maybe 12%. So of course, we prefer to keep that 12% levels going forward. And there is room to go out in the market, but of course, I cannot say that from today, for the next year, one, the Board will be able to decide it because at the end of the year, we will decide and operate new store scale for next year. But for the time being, there is no reason to change it. The market is open. There is room to go up, no any cannibalism. But of course, it is Oleg to speak about that. Okay. And the final question about the tax rate. So the tax rate increase was is going to be applicable after March or it will also contain the Q1 tax? It will contain Q1 tax, but since the tax cost, new tax cost amendments is valid after Q1, the company's applied 20%. But in the second quarter results, you it's likely to see higher effective tax rate because the Q1 tax rate hike as percent will be also reflected to 2nd quarter. This is the rule, this is and independent auditors also agreed like this, slowly at like 20%, but the full year will be subject to 25%. Okay. So it's not a 9 month increase. Okay. Thank you very much for that, Hambe. And there is also your account and there is also another one question from in chat side. Can you discuss what is that Helios brings to table in Morocco Business, Swedish execution and what might mean for other Southern African Card initiatives that you may embark on with Telios. Of course, Telios is a U. K. Private equity firm, but they have very high experience in Morocco. They have a good experience and they are very professional and they are active credit equity companies. So actually, we expect better operational performance, considering even they have big know how in Morocco. And of course, we took this action in both countries, more than Egypt for this solid option is for localization in the both countries. So it's a localized company, local company, somewhat better operational performance, better professional standards of the company. So we believe that we will actually they will contribute much better to our operations in Morocco. We are already doing a good job, but in professional strength and better made strong innings. Then of course, this is a very early stage we will come together and discuss what we can do, what how we can improve the operation, step by step, greatly improve the operation as we will set out steadily together. Today, the 4th sub Saharan African country, there's no any intention yet to go other countries for BIM. Today, we have operating in Morocco and Egypt as foreign operations. There's no any actually plan, short term return plan to go to other African countries yet. So it's not in our agenda. Thank you, Saka. There is no further questions at the moment. So I suggest we can close the call. The floor is yours. Thank you very much for all for joining our Q1 results call. And I wish you all happy Ramadan, great next week and hope to see you again in the next quarter call. Thank you, everyone. With that, the call is completed. Thank you for your participation. Goodbye.