Ladies and gentlemen, good morning and good afternoon wherever you are, and welcome to Teknosa's Second Quarter Earnings Call and Webcast. My name is Sibel Turhan, and I'm the Investor Relations Manager of Teknosa. Before we start, please take a moment to review our disclaimer notes. I'd like to inform you that this presentation on the 2025 first half financial results includes the company's audited financial information prepared in accordance with IS29 Inflation Accounting Provisions, as per the Capital Market Board's decision dated 28 December 2023. Our presenter today is Teknosa's CFO, Mr. Ümit Kocagil. Please note that all participants will be in listen-only mode during the presentation. Following the first part of this call, there will be a Q&A session. You will be able to submit your questions through the chat box.
If you have any questions, we kindly ask you to submit your questions in writing before the Q&A session begins, which will let us review and address them efficiently. As a reminder, this conference call is being recorded, and the link will be made available online following the call. Now, I would like to hand the floor over to our CFO, Ümit Bey.
Thank you, Sibel. Hello everyone, and welcome to our meeting on the second quarter financial results for 2025. Today, as usual, I'd like to begin with a brief overview of Teknosa's second quarter performance and highlight some important KPI realizations. Then, I will walk you through our year-to-date market assessment, financial performance, and the strategic initiatives that we are implementing to navigate under this challenging environment. Since we published our financial results yesterday, I will be able to address any questions you may have. Let's start with key highlights from 2025 year to date. First, the macroeconomic headwinds continue to weigh on performance, particularly high interest rates and reduced consumer spending, which have impacted both demand and our cost base. Despite high inflation and the market slowdown, our revenues remain broadly flat year over year. We accelerated our operational efficiency efforts across all cost items to mitigate macroeconomic pressures.
These efforts include network and workforce optimization, as well as broader OpEx improvements. I will provide more detail on these actions in the following slides. As a result, we further improved our EBITDA margin, supported by a stronger gross margin performance, and continued and deepened OpEx discipline. While financial expenses continue to weigh on the bottom line, our prudent execution helped us to improve key financial ratios. Net working capital enhanced year over year and even turned negative in Q2, driven by effective inventory and cash flow management. We expect the full benefits of our ongoing strategic actions to be more fruitful in the second half of 2025 and coming years. Before sharing the operational KPI on the right side of this slide, just a quick reminder for you.
All the figures that are provided in this presentation are in line with IS29 standards, which means that figures in prior periods are revised to present June 2025 purchasing power. In response to recent macroeconomic developments, we have accelerated certain strategic initiatives. Over the past six months, we closed a number of smaller-scale stores, not meeting our performance expectations while opening new locations in well-known shopping malls. Our market expansion strategy continues to focus on opening larger format, experience-driven digital stores in strategically selected high-traffic locations. As part of our intensified store network optimization efforts, the total number of stores decreased from 175 in December to 153 by the end of the second quarter. As a result, our average net sales area has now increased significantly and reached 633 square meters per store. We continue to expand our number of SKUs, namely stock keeping units, to meet consumer demand.
Since the launch of Marketplace, the number of SKUs has increased 43-fold, reaching 225,000 SKUs. Similarly, the number of merchants in our Marketplace has grown to around 1,300 merchants. The Net Promoter Score, NPS, measure indicator of customer satisfaction, remains robust, staying above 70, which is in line with top global benchmarks. It is important to note that this NPS score represents the average of stores, online, services that we provided, and call centers. Last but not least, our TeknoClub Loyalty Program, launched in 2021, has now reached nearly 5 million registered customers, further enhancing customer engagement and strengthening brand loyalty. Now, let's look at the market performance before getting into details of our financial results. A reputation, GfK, the independent research company, follows two consumer electronic markets.
The first one is the panel market, which represents the total sales of consumer electronic products in Turkey, and the second one is the tech online market, which constitutes a subset of the panel market and includes only the online sales across all channels in the panel market. As I mentioned in previous calls, due to ongoing economic headwinds and the high base effect from last year, market growth has slowed in 2025. Looking at the inflation-adjusted market data, the panel market increased by 12% in the first half of 2024 versus the same period of 2023. As you will remember, there was a big jump in demand affected by local elections until the end of March 2024, and after the election, the market faced a decline in demand.
In the first half of 2025, it declined by 5% in real terms compared to the previous year, but in Q1, the market declined by 14%. A better trend is observed in the tech online market, which grew by 1% year- over- year in the first half of 2025 versus 20% growth year over year in the same period of 2024. When we break down these figures by category, we see that in the panel market, all categories have decreased. Telecom and small domestic appliances (STA) recorded the smallest decline during the relevant period, while IT, white goods, and consumer electronics were most significantly impacted. In the tech online market, white goods and consumer electronics delivered strong growth and made a positive contribution in the first half. STA performed in line with the previous year, whereas telecom and IT faced a decline.
Since 2024 and early 2025, we have been actively implementing headwind mitigation measures. In the second quarter, we significantly intensified these efforts by adopting higher impact actions across three key areas. The first one is capturing revenue and margin upside opportunities in a tightened market. In order to address the challenges in contracted market demand, we have launched multiple initiatives to strengthen our revenue streams and improve margin optimization. The second one is rationalizing our cost base to fit 2025 realities. We are continuously optimizing operational costs across all items to align with the current market conditions. The third one is optimizing stock levels to ensure faster turnover days and strengthening financial discipline and liquidity management. By applying smarter demand planning and lean inventory strategies, we are enhancing stock efficiency, reducing stock levels, and accelerating turnover.
We are improving financial cost and liquidity by increasing consumer loan usage, supplier-supported loan costs, enforcing stricter cash management, and optimizing purchasing. In summary, along with continuing high cost and interest environment and contracted demand, we started to execute our planned, more radical, impact-driven actions in Q2 to position Teknosa for greater resilience throughout the rest of the year. In the coming pages, I will walk you through the main KPIs on profit and loss statement and highlight the strategic initiatives we have implemented. Despite continued market contraction, we saw a normalized demand in May, supported by Mother's Day. This positive momentum carried into June, even with an extended holiday period impacting the market. As a result, our revenues grow at a steady pace versus inflation, recording an increase of 0.3% in Q2 versus last year. Quarter over quarter increase is 1%, reaching TRY 17.7 billion.
First half revenues totaled TRY 35.2 billion, reflecting the impact of the softer performance in the first quarter. In summary, growth was achieved in categories where we prioritized for profitability and expansion. We are actively taking strategic actions to enhance our retail mix and drive growth in complementary products and services. While the market environment remained highly competitive, our gross margin improved further, driven by a favorable product mix, stronger focus on high margin categories, disciplined promotional strategies, and effective inventory management. Overall, we achieved a 2.1% improvement year- over- year in Q2 2025, reaching 14.4%. With this achievement, our first half margin is 13.5%, 1.8% higher than the previous year. We have taken a comprehensive approach to manage our costs, looking across all major areas of operational spending.
We started by optimizing our store network to remove inefficiencies and then identified savings opportunities across personnel, rent, marketing, logistics, and general administration costs. Some of the key actions we implemented included optimizing our workforce and personnel costs, both at headquarters and in our stores, to partly offset the impact of the salary increases implemented at the beginning of the year, affected by the high inflation. Along with fact-based negotiations with landlords, we worked closely with our suppliers to lower rent costs and kept improving our store setup. Consequently, investment area revenues from suppliers have been increasing, particularly driven by larger format stores, which are expected to contribute further in the future. Marketing and communication expenses remained stable despite the inflation effect, while we achieved delivery cost savings by optimizing the supplier mix and renegotiating terms with logistics partners. Our warehouse operations also benefited from ongoing process improvements.
One of the major milestones in this period was the successful implementation of our new ERP system, namely SAP, which will drive further operational efficiencies moving forward. In addition, we created further cost reductions in areas like insurance, travel, and maintenance. If you refer to the right side of the slide, which shows operating margin improvements by cost item compared to Q2 of last year, you'll see that the largest contribution came from reductions in rent, logistics, and G&A expenses. We expect to realize further benefits from these ongoing initiatives in the second half of the year. Coming to EBITDA, we recorded remarkable growth in EBITDA generation in the second quarter, nearly doubling compared to the same period last year, even after accounting for TRY 24 million in one-off costs related to HQ workforce optimization. This strong performance was supported by year-over-year improvement in gross margin.
We also benefited from a significant reduction in operational expenses, demonstrating our continuous focus on cost discipline and operational efficiency. Accordingly, despite the challenging cost environment, our efforts led to a significant increase in EBITDA margin from 2.7% to 5.3% in the second quarter. This led to a 4% EBITDA margin for the first half, representing a 1.3% point improvement year over year. As I shared in our previous earnings calls, strengthening financial discipline and liquidity management remain core priorities for us in the high-interest environment. In the second quarter, we continued to execute targeted actions to optimize inventory management, tighten procurement strategies, and actively negotiate payment terms, carefully balancing inventory turnover days and cash cycles at both category and supplier levels. We also maintained strict control over daily cash flow management, supported by disciplined procurement planning and execution. These efforts delivered tangible results.
We significantly improved net working capital, turning it into negative, reaching TRY -24 million, a notable TRY 2 billion improvement year over year. Looking ahead, we are raising the bar by integrating AI-powered tools for assortment and inventory management across key operational areas, which include smarter assortment planning to tailor product selection based on local store dynamics and customer insight, enabling more precise stock efficiency and better alignment with demand patterns. Stock accelerator solutions speed up the turnover of slow-moving inventory and recommend targeted turnover-accelerating actions to improve working capital performance. These initiatives will not only improve operational agility but will also reinforce our commitment to sustainable, data-driven efficiency gains across the business. Financial expenses remain under pressure due to high interest rates and macroeconomic headwinds. Our mitigation measures have proven effective. Credit card commissions remain the primary driver of the financial expenses with higher interest rates.
Our credit card commission-to-revenue ratio stood at 4.6%, while the share of non-credit card payments has now surpassed 20%, the highest level we have achieved so far. We are targeting to increase this figure in order to mitigate high costs. To reduce financing costs, we have implemented several strict initiatives to include continuous stock optimization and effective inventory management. We are also minimizing the cost of consumer loans by phasing out interest-free loans and renegotiating supplier support for free installment campaigns to further mitigate financial expenses. As you may recall, in April, the Central Bank unexpectedly raised the policy rate by 350 basis points to 46% in response to financial volatility. This resulted in even higher borrowing rates for us in Q2 than Q1. Despite these headwinds, our net financial expenses-to-revenue ratio improved in Q2 year- over- year, decreasing from 6.8% to 5.7%.
For the first half, the ratio declined from 6.1% to 5.5%. In July, the Central Bank resumed monetary easing by cutting the policy rate by 300 basis points, signaling a shift toward a looser policy stance. Consequently, we expect to benefit from the declining rates in the upcoming period. If you look at the second quarter net income breach compared to the previous year, a positive impact of TRY 450 million is attributed to EBITDA, primarily due to all our efforts in margin expansion and operating expenses as discussed earlier. While a TRY 237 million decrease in net financing expenses, including net discount expenses, net interest, and credit card expenses, supported the bottom line.
This was partially offset by almost TRY 300 million negative impact from lower monetary gain, as the inflation in the second quarter was lower compared to the same period of 2024, and with a reduction in deferred tax income, as pre-tax profit improved this quarter, resulting in less deferred tax income recognized. Please note that in our OpEx-related actions, we incurred one-off costs at the amount of TRY 116 million before tax and TRY 87 million after tax in P&L. Without this one-off impact, our net loss would be TRY 302 million lower than last year, resulting in an adjusted net loss of TRY 455 million. Looking ahead, these improvements encourage us, as the management, that once the interest rates get normalized, we expect the situation to reverse, leading to a recovery in net income level. Despite ongoing macroeconomic challenges, we have remained committed to our investment strategy to transform Teknosa into a digital-first company.
In the first half of the year, we recorded TRY 342 million in total CapEx, maintaining our CapEx-to-sales ratio at 1%. Our commitment to strategic high-impact investment remains unchanged. As part of our digital-first company objective, we are accelerating our AI-driven initiatives to further enhance operational performance. Main headlines can be summarized as store digitalization, expansion of experience-driven digital concept stores featuring digital kiosks, electronic labeling, and smart home areas. We will get our AI-based sector-first sales tool, introducing new features to drive sales of higher margin products. AI-based localized assortment management projects and AI-powered stock accelerator projects, which I mentioned earlier. All these projects have been prioritized for measurable impact, targeting both sales growth and operational efficiency, with a strong focus on enhancing net working capital performance.
Before concluding my presentation and opening the floor for questions, I'd like to summarize the key points we discussed and highlight our main focus area for the remainder of the year. Briefly, Teknosa is successfully navigating headwinds causing high inflation and interest rates by maintaining strong focus on well-defined strategies. In 2025, our priorities continue to be driving revenue growth by expanding complementary products, service sales, and high margin categories, growing the online channels, optimizing the retail mix, controlling OpEx in line with current macroeconomic realities, maintaining effective inventory management, and disciplined cash flow practices while mitigating financial costs and expanding attractive non-credit card payment options to support consumer demand. Investing in AI-driven digital tech transformation initiatives and IT infrastructure to improve operational efficiency and performance, alongside continuing our expansion of big store markets.
Lastly, despite the current macroeconomic challenges, we remain fully committed to our long-term growth ambition and strategic CapEx investment. Our vision is to become a digital-first company with sustainability initiatives to create long-term value for all our shareholders. This is the end of my presentation. Thank you for listening and participating in our call. Now, if it is okay for you, we may proceed with your questions.
Thank you, Ümit Bey. Before we begin taking your questions, I would like to kindly remind you that you can submit them via the chat box on your panel. When making your statement, please first introduce yourself. Your questions will be addressed one by one. The first question comes from Erkan Bey. In the second quarter, your gross margin improved by 2.2% points. Do you think this level could be sustained the remainder of the year? There is a second question about financial expenses. The financial expenses are significantly high and shadow the bottom line performance. Considering the declining trend of interest rates, what level of interest costs could be threshold for the positive figures seen at the bottom line? Thank you.
Erkan Bey, gross margin improvements 2.2% is what we are actually desiring in the market because we are in a very competitive market. As you know, with the declining demand, everybody is just pushing for the prices. In this sense, in order to just create a profitability or sustainable profitability that we are just seeking in the market, we are not just obeying all the, let's say, price campaigns, which are just maybe some of them are in a loss position. We are just trying to keep this gross profit margin increasing. This is one of our main objectives. The second question, financial expense. As I say, the high interest expenses are just continuing. Even the policy rate increased from Q1 to Q2. Under these heavy winds, we are just trying to mitigate all these costs. You are asking what level of interest costs could be the threshold.
As I say in my presentation, the credit card commissions, which are just affecting the bottom line heavily, are not just changing because the policy rate was 35%. At the end of November 2023, the Ministry of Finance stopped increasing the minimum commission wages that can be charged to companies by the banks. We are just waiting for it to return to this amount to start the negotiations with the banks. We are not just stopping here. All the time with the declining in the interest rates, we are just making the negotiations with the banks. Using our magnitude, we are just making the more favorable campaigns to the customers and also for the technician. I don't know if it answered your question. If you have further questions, I'd like to answer.
Sure. I will continue with the second question. Thank you for the presentation. What can you tell us about the demand conditions in the current quarter? I think that Jenk Bey is asking about this third quarter. If you can let me know, I can answer this. Currently, we just recently had the six-month results about the market. Unfortunately, also it's not a topic that we can discuss just right now. We don't have the results yet. I think we can talk about the second quarter now. There is another question again from Erkan Bey. I'm going to first read the question.
I can answer it early, Jenk Bey, by the way. As I say in my presentation, we are just seeing the early recovery signs, by the way, especially starting from May. Despite there was a big vacation in June, the trend just continued, as I said. In the coming quarter, the back-to-school campaigns are just going to affect us. Not only Teknosa, all sectors are just going to be affected because the demand is just going to be high after this summer period. In Q4, as you know, the highest quarter will be just observed. We are just waiting for the demands, closely just checking the quarter results.
Okay. Could you please inform us about the competition in the markets? Who are your main competitors and what are the market shares of the main players? Is there any interest from the global players to enter the Turkish market by purchasing existing players or greenfield investments?
We are just talking about the panel market. In this panel market, GfK, this independent research company, is just following five channels. One of them is technical superstores that Teknosa exists. In this TSS sector, our main competitors are Vatan and MediaMarkt and some sales of DNR with the accessories. We are not just expressing this information, what is the percentage of their shares or so on. Still, we are saying that we are just in the panel market. In the panel market, there are lots of sales points, almost more than 40,000 channels or sales points. All of them are just in our, let's say, competition. We are just trying, as we said in the beginning, to be the only channel company. Wherever the customers are, traffic is the important part. We have the online channels, we have offline channels, we have the applications.
Wherever the customers are, we are just trying to be there. Is there any interest from the global players to enter the Turkish market? As far as we know, no. All the global companies are here. Previously, as you will remember, before the consolidation of the companies, there were lots of international companies in Turkey, but they just faced a consolidation such as Best Buy or so on. Currently, we are not aware, actually.
I will continue with the next question. It's from Mustafa Bey from Marbaş Menkul Değerler’de. Thank you so much for your strong results and achieving your targets. Are we continuing with our quarterly recovery projections? There was a misunderstanding regarding the equity decline. We would appreciate if you could provide some more details. Under both the policy and base scenarios, when do you expect us to reach the 25% credit card benchmark interest rates? Thank you. Thank you and congratulations again.
Mustafa Bey, yes, as we said, we intensified all the OpEx initiatives and also the revenue-related initiatives in the second quarter of 2025. We are trying to increase the resilience of Teknosa for the future because we are seeing that, in the meantime, the interest rate is not going to easily fall, but the Ministry of Finance and also the Central Bank is giving the signs that they are going to weaken the policy. In this sense, we are trying to get ready as Teknosa. We are optimizing our OpEx by increasing the efficiencies and also making the saving opportunities. Meantime, we are trying to mitigate the financial costs, especially the credit card costs and interest costs with the loans by carefully managing the stocks. We will be ready when the interest rates start to decrease.
Under both the policy and the base scenarios, do you expect to reach 35% interest rate? Yes, we are going to reach 35% for sure, but it will just depend on the Ministry of Finance or the Central Bank when they are going to decrease it. We are not sitting for the 35% or waiting for the 35% all the time. We are making the mitigation actions. We have to, and we are taking all the necessary actions. As I say, rather than just using the credit cards, we increased the usage of consumer loans and also the cash collection more than 20%. We are going to increase it in order to mitigate this financial expense in credit card by credit card usage. Meanwhile, we are also waiting for 35% time, but it doesn't necessarily mean that we are not making any negotiations with the banks.
We are checking all the time the opportunities. Sometimes we are making some campaigns in order to boost the demand and also the financial results of Teknosa.
Okay. There's another question from Garanti Asset Management. Thank you for the presentation. I'm Alper. Are you planning for any more store closures this year, or are you mostly done with closures? The second question is, are you seeing demand to stabilize in the third quarter? When do you expect demand to stabilize and start picking up? Thank you.
I couldn't catch the question, but...
The first one is about the store closures.
Yes. Alper Bey, we are just closing our stores, as you say, but this is only due to our store optimization because we are just seeing that the model that is just working for us is with the larger formats. This format is just to be applied in all our stores, but it will be just taking some time. In this sense, we are just checking all our store network. We are just checking the profitability. We are just making all the negotiations with the landlord in order to decrease the cost. We are just taking all the OpEx-related actions just to see whether it's just going to affect the profitability of the store as we expected. In case there is no change in the financials, we are just closing the store, which is very normal for us because this is very normal size.
This is very normal for everyone, every retailer just to do it. As I said, we are just aiming higher, let's say, store formats. In this sense, we are just closing the small ones, and we are just keep opening the big store formats just to increase the efficiencies and also just to serve the customer experience. Are you seeing demand to stabilize in Q3? Actually, as I said, demand is just showing the signs of recovery. We are just observing some recovery, but we are just going to see what's going to happen because when the interest rates are so high at the point, it means that people are just trying to tend to save the money and just put it into deposit or so on. It's also affecting not Teknosa, not only the electronics market. All the markets are just affected by this sort of economic development.
We are just going to observe it. We know that in Q3 and Q4, the sales are just going to go up. Demand is just going to go up because there are lots of progresses in AI and also in computers. There will be some new products coming from the, let's say, big telephone companies. With this sort of effects, we are just going to see an increase in the demand. As you know, this is another thing. The Q3 and Q4 will be the highest selling periods for the year. We will, that's what we are just counting.
Is there any intention to start a buyback program from the markets?
Our board of directors is considering all alternatives, taking into account the company's current financial structure, investment plans, and the economic conditions. At present, no decision has been made to initiate a buyback program. The company aims to allocate resources efficiently and create value for shareholders, particularly during uncertain periods. However, we want you to know that we take all feedback from our investors seriously and such matters are continuously evaluated by our company's management. If there are any changes or new developments, we will disclose to the public in accordance with the public capital market legislation.
Another question from [Tuncay] Bey. Can we expect the effects of artificial intelligence on Teknosa's productivity to increase further in the future?
Yes, actually, that's what we are trying to do, [Tuncay] Bey, because we are just working on the all operational side for the efficiency. As I said, in the OpEx part, all the time, we are just trying to check whether there are some opportunities for AI usage. For example, our BGA, the sales tool, it was just based on AI because we know that it's not something that can be just achieved by one person. We have larger store personnel in the store. Whatever we do in the headquarter, we know that one person just cannot follow everything, just cannot, let's say, direct all the initiatives or the objectives that are taken in headquarters and put them into the salespeople's attention. In this sense, we are using AI, the BGA, just to increase our efficiency to affect our sales force.
Meanwhile, we are just working with the AI-powered localized assortment, as I say, and stock accelerators in order to just boost our profitability and also our sales, actually, just to run our stocks very efficiently because the cost of keeping a stock is very expensive, as you know. In this sense, we should just increase the efficiencies in order to just ease the effect on our financials.
I hope that's okay. No further questions. Maybe let's wait a moment.
Yes, maybe there will be some. There's no question, I guess.
Thank you all for the participation and the questions today. Ümit Bey, I'll now hand it over to you again for your closing remarks.
Thank you all for joining our webcast. Hope to see you in the next quarter's journey. Thank you very much. Bye.