Ladies and gentlemen, thank you for standing by. I'm Popee, 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 2022 Financial Results. All participants will be in a listen-only mode and the conference is being recorded.

The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Nilhan Onal Gökçetekin, CEO; Mr. Korhan Öz, CFO; and Ms. Helin Celikbilek, Investor Relations Director. Ms. Celikbilek, you may now proceed..

Thanks, operator. Thank you for joining us today for Hepsiburada's fourth quarter and full year 2022 earnings call. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gökçetekin; and our CFO, Korhan Öz. The following discussion, including responses to your questions, 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, 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 supplemental slide deck, today's press release, the 6-K, our Form 20-F filed with the SEC on May 2, 2022, and other SEC filings for information on factors that could cause 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 the relevant IFRS to non-IFRS reconciliations.

As a reminder, a replay of this call will be available on our Investor Relations website. With that, I will hand it over to our CEO, Nilhan..

one, optimization of marketing with a focus on customer loyalty; second one, focusing on affordability solutions and service on our platform; third one is improving our cost centers and growth contribution; and final, very importantly, HepsiJet and HepsiPay platform revenue.

By executing on these priorities, we expect to deliver further sustainable growth, drive margin improvement and remain committed to becoming a profitable company. Before I continue discussing the outlook, we must acknowledge the disaster that struck Turkey in February.

Two devastating earthquakes impacted 11 cities and the life of around 14 million people directly. Once again, I want to express my heartfelt condolences to all the victims. Our sincere hopes are for the earliest possible relief and restoration for all affected areas and individuals.

As Hepsiburada family, we are fully committed to offering full support to the region to heal together. We are grateful that none of our colleagues have lost their lives in this disaster. Of our assets, eight Hepsiburada cross-dock points out of the total network of 192 were damaged.

We plan to renovate and return to them operations swiftly as fast as possible. Also, as mentioned, we observed a temporary decline in overall customer demand on our platform in the wake of the disaster as one would expect. The number of orders, particularly during the week of February 6 compared to previous week and the same week of last year.

This decline likely resulted from the considerable loss of traffic and demand from the effected region and our decision to suspend major campaigns, events and media advertising for two weeks to honor the nation's mourning. By mid-March, platform traffic has gradually recovered to almost pre-earthquake levels.

The order trend during this period was relatively volatile, which has also recovered and almost reached to pre-earthquake levels.

As quickly as possible following the earthquake, Hepsiburada has taken strict recovery measures, including the sale of goods, prepaid cards, participating public donations as well as managing warehouses and logistics capabilities with our own resources to support government aid efforts, and we also make in-kind donations from our inventory.

With the wellbeing of our 6,500 merchants in mind, we twice advanced outstanding payments by a week in February. As of today, 1,270 merchant stores on our platform are temporarily closed at their own request. To support our merchants, we made commissions for those who meet certain sales criteria until the end of March.

From a profound sense of responsibility to our wider society, we just initiated a two-year program to provide long-term assistance and economic support for the region. The program supports small and medium-sized enterprises, merchants, women entrepreneurs, women cooperatives, while boosting the region’s commerce and logistics capacity.

We'll be shifting employment enhancing services and activities to the region and providing educational and social support to children and families. Our program aims to boost regional GMV generation of a total of TRY 10 billion during this period. Finally, I would like to give Q1 '23 outlook.

Going forward, we will remain focused on sustainable GMV growth and profitability with a prudent approach to capital allocation. To that end, despite the earthquake disaster, we expect to deliver an adjusted EBITDA breakeven in the first quarter of 2023. Underpinning this performance, we also expect GMV growth around 70% in Q1 compared to Q1 2022.

This is expected to be above inflation, considering the 12-month inflation rate of 55% as of February 2023. With this, I thank you sincerely for listening and leave the floor to our CFO, Korhan Öz, to give more color on our financial performance in '22..

Thank you, Nilhan, and welcome once again. First, here are some highlights about the strong quarter. On the sense of forward planning as well as attractive value proposition, we excelled across key metrics in the fourth quarter despite the high inflation climate. On adjusted for inflation, our GMV grew 104% in the fourth quarter compared to Q4 2021.

Adjusted for inflation, our GMV rose by 14%, bringing the full year GMV growth to around 4%. With 10% revenue growth in Q4 2022, our gross contribution margin was 7.8%, marking a 2.5 percentage point year-on-year improvement adjusted for inflation.

By a solid 8.4 percentage point year-on-year improvement in EBITDA as a percentage of GMV, we delivered negative 1.3% adjusted for inflation. I must highlight here that we came very close to quarterly breakeven level with only negative TRY 7 million EBITDA in the fourth quarter unadjusted for inflation.

Let's move on the next slide to tie this quarter's performance to pursuit of profitability. Following the improvement trend of previous quarters, we maintained our consistent progress on our path to profitability in Q4 2022 as well.

While our gross contribution margin was 0.6 percentage points lower compared to the third quarter, given this is not a factor, our EBITDA margin improved by 4.6 percentage points on a quarter-over-quarter basis. This performance underpins our commitment to becoming a profitable company.

On the next slide, let's look into details of our GMV performance. Adjusted for inflation, our GMV grew by 4% compared to 2021. This was attributable to 50% order growth fueled by our solid active customer base and continued rise in our order frequency. The share of marketplace in 2022 was 67% compared to 68% last year.

Marketplace operations facilitate a wider selection, availability and competitive pricing, while 1P is among our competitive advantages in the market fueled by trust in our brand. The share of non-electronics in the GMV rose 2 percentage points to 42% in 2022 compared to 2021 as a result of expanding our selection with long-tail products.

Let's look into yearly performance on the next slide. With reference to inflation adjusted numbers, 2022 is marked by around 7% revenue growth with a 6.5% gross contribution margin and negative 4.8% EBITDA as a percentage of GMV. Our IAS 29 unadjusted revenue grew by 86% in 2022 compared to 2021.

Taking into consideration the average inflation rate of 72% in 2022, we delivered 7% GMV revenue growth compared to nearly flat revenue growth in 2021. Our 6.7% gross contribution margin marked a 0.2 percentage point year-on-year improvement adjusted for inflation.

With a 2.7 percentage point year-on-year improvement in EBITDA as a percentage of GMV, we achieved a negative 4.8%. Unadjusted for inflation, the improvement was 4.4 percentage points to negative 2.1% in 2022. As a result, we beat the high end of our guidance of negative 2.5% by 0.4 percentage points. Next slide, please.

Let's take a deep dive into our revenue performance. Around 7% revenue growth was achieved mainly by around 41% growth in our Marketplace revenue, 3% increase in 1P revenue and 86% increase in our other revenues that include advertising and fulfillment service revenue stream as well as our third-party delivery service revenue.

Given 4% GMV growth during this period, a significant revenue growth was achieved on the back of strategic decision to focus on improving profitability by limiting customer discounts during the year. The 1.1 percentage point shift in GMV mix in 2022 in favor of 1P also impacted revenue growth positively.

Our gross contribution margin in 2022 increased by 0.2 percentage points to 6.5% compared to the previous year, whereas the improvement was nearly 2 percentage points in IAS 29 unadjusted figures. The main reason behind the divergence is the high level of inflation during the year, pressuring on margins through our retail operations.

Next slide, please. In 2022, a 2.1 percentage point decline in net operating expenses as a percentage of GMV was mainly due to a 2.4 percentage point decrease in advertising expenses as we continued our marketing efficiency efforts.

Our segment-based acquisition strategy, marketing channel optimization through further investment in cost-effective channels as well as category-specific optimization supported overall marketing spend efficiency.

0.7 percentage point decrease in shipping and packing expenses driven by the reduction in shipping expenses of our Hepsiburada Market business following changes to its operating model. This improvement was partially offset by an increase in unit shipping charges in line with inflation.

In addition, the growth rate of shipping and packing expenses was slower compared to 2021 as the share of HepsiJet in total delivery volume increased. 0.9 percentage point increase in our G&A expenses, mainly due to higher legal provision expense in 2022 compared to that period.

This increase can also be attributed to rise in the number of employees in 2022, along with the impact of annual and midyear salary increases and share-based payment expenses. Let's move to the EBITDA margin on the next slide.

Our EBITDA in 2022 was negative TRY 2.6 billion, corresponding to a negative 4.8% EBITDA as a percentage of GMV in 2022, indicating a 2.4 percentage point year-on-year improvement.

This was driven by the improvement in our gross contribution margin, lower advertising spend and lower shipping and packing expenses, partially offset by higher employee expenses and other operating expenses. In Q4 2022, our EBITDA as a percentage of GMV was negative 1.3% with an 8.4 percentage points year-on-year improvement.

Next, I would like to say a few words on our cash flow dynamics. In the fourth quarter, net cash provided by operating activities was TRY 1.3 billion, mainly due to decrease in the change in net working capital and increase in change in inventories.

For the full year, the [TRY 415 million] increase in net cash provided by operating activities is a result of increase in change in inventories. We continue to operate with negative net working capital during 2022. The change in net working capital in Q4 was TRY 1.2 billion and TRY 328 million for the full year 2022.

Overall, we generated positive free cash flow of TRY 1.1 billion in the fourth quarter compared to negative TRY 191 million a year ago. This was due to a positive cash generation from our operating activities, a combined result of better working capital management and significantly improved EBITDA.

For the full year 2022, our free cash flow was nearly flat at a negative TRY 416 million, a larger tech talent pool and annual salary paid at nearly twofold capacity year-over-year. This was met by higher cash provided by operating activities. This concludes our presentation. Thanks for listening. We can now open the line for questions..

[Operator Instructions] The first question comes from the line of Kilickiran Hanzade with JPMorgan..

Thank you very much for your presentation and congratulations on your new post. I just want to make a follow-up about your guidance for 2023 actually for the first quarter of this year.

Is it possible to provide some sort of a soft review or guidance on how this new e-commerce regulation in Turkey may impact your revenue and the marketing cost throughout the year? And could this be also one reason of projecting a breakeven EBITDA this year earlier than expected.

And you are now opening your platforms for third parties in HepsiJet and HepsiPay. I am trying to understand if this may lead to an increase in your CapEx to come for 2023, is there any sort of soft guidance for your CapEx for this year? And maybe I can ask other questions later after my....

Absolutely. Thank you so much, Hanzade for your warm welcome. So your first question was about the new e-commerce regulation and how this will impact our marketing cost in 2023. First of all, we welcome the new regulation that was large quite prepared end of last year, and we have seen the full details of the regulation.

And we know that it's going to be positive for the country to create a more rational competition environment. We expect our marketing investment to reduce in line with improvement we already achieved in 2022 for performance marketing and in line with our customer retention strategy.

Even without regulation that we are not subject to today with marketing and promotional spend level because we are smaller than regulated limits, our priority is going to be improved optimization for marketing expense, focusing on retention, enhanced with a strong ROI from our investment will be achieving sustainable profitable growth.

So ROI for every dollar spent is going to continue improving throughout 2023. So we feel strong about new regulation impact to the category, but also for our staff as well. In terms of opening of our platform to third parties, whether it has any CapEx impact. In 2022, we already invested into externalizing our cargo services at HepsiJet.

Our investment has started to come to fruition of the day. Almost 20% of HepsiJet customers are all platform customers as of today, which is quite strong. And for both ship and pay, we will be frugally investing into the technology. It will be similar to last year level.

We are not expecting an increase with this investment and we are going to create new revenue streams for our company, and this is going to greatly benefit from increasing e-commerce adaptation by merchants in Turkey. As we all know, the e-commerce penetration in Turkey is still quite untapped, it's 15%.

We know that it will be -- we think that it will be in a high increase in the coming years as well. And by externalizing our cargo and lending services to other merchants, we will be generating sustainable revenue streams for our company.

Did I answer your question?.

The CapEx, Hanzade, let me answer the CapEx question. We will be spending a similar dollar amount of CapEx for the year 2023 as well. And please note that majority of our CapEx investments are comprised of R&D personnel expenses. And for the remaining, we spent for Hepsiburada, HepsiPay and HepsiJet.

For Hepsiburada, it is for infrastructure and software investments as well as hardware and some security tools. For HepsiJet and HepsiPay, as you said, for externalizing short-term services, we have been developing certain products on HepsiPay and for automation of our operating services in HepsiJet.

So the total amount for 2023 is going to be similar with 2022 in double terms..

Nilhan and also Korhan, congratulations on the strong results, by the way..

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Ms. Nilhan Onal Gökçetekin for any closing comments. Thank you. Apologies, we have a follow-up question from Kilickiran Hanzade with JPMorgan..

I just want to ask a few more actually. I also wonder what are the main changes in the competitive environment since we last met. I think Amazon also increased the prime days in 2022.

Have you seen some sort of impact on your general customer acquisition? I mean, numbers suggest no, but I want to understand if peers are offering something different in the market this year? And also, you have highlighted that you want to focus improving the non-electronics category.

So which category will be your priority, particularly is it fashion or some other categories?.

Thank you so much. So in terms of other competitors -- competitive environment, of course, Turkey is vibrant, fast-growing e-commerce category. We are seeing a lot of merchants trying to improve their online offering post-COVID environment. Actually, this is a great advantage for externalizing our services. So our intention is to grow with that.

In terms of specifically Amazon in Turkey, naturally I had some experience with last eight years spent in the company, I believe that Hepsiburada has strong advantages being a local player with high agility and local resources. As you know, we have a strong retail business and developed marketplace business.

Amazon operating with retail business and they also announced, which is a public information that they will focus on developing countries over emerging economies. And taking prioritization in this global road map is challenging based on their -- what we understand from the public announcement.

So we don't think that they are offering new and different than the market. We believe that we have a very strong position, and we have local engineering forces with high agility that can add up, can understand the local needs. And we believe we will stay quite strong for our customers.

In terms of improving non-electronics, non-electronics is quite strategic for us. It's -- as you know, it's higher-margin business and our premium -- Hepsi Premium customers, functional shoppers have strong propensity to come back to us for non-electronic shopping.

Home FMCG, especially in basic section per our survey is gaining more and more traction. We are also seeing an acceleration in do it yourself robust platform to be specific. These are all quite strong profitable businesses where we will be intentional..

[Operator Instructions] At this time, there are no further questions. I will now turn the conference over to Ms. Nilhan Onal Gökçetekin any closing comments. Thank you..

Thank you so much for listening us. My closing remarks are Turkey has huge potential with young mobile population. And the country has still relatively low e-commerce penetration. That's a great opportunity for us. The second important remark I want to do is we are going to deliver sustainable profitability in the company.

This is showed in Q4, and we provided you an indication for Q1 2023. Thirdly, we will digitize Turkish e-commerce. We will deliver best-in-class fintech and logistics capabilities to grow online retailers. So not only we will grow over core but we will also act as an enabler for B2B partners. And finally, we will be ruthless in our prioritization.

With this, I want to conclude for today. Thanks a lot for your patience and support to us..

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon..