D-MARKET Electronic Services & Trading(HEPS) - 2022 Q4 - Annual Report

Hepsiburada Q3 2022 Financial Results Note on IAS 29 (Hyperinflation Accounting) Financial statements are restated for hyperinflation (IAS 29), with both adjusted and unadjusted figures presented for comparability - Due to Turkey's hyperinflationary status, the company applied IAS 29 to its financial statements for periods ending on or after June 30, 2022[3] - Financials are presented in the measuring unit current as of September 30, 2022, using price indexes from the Turkish Statistical Institute (TurkStat)[4] - The report includes both IAS 29 restated and unadjusted figures to facilitate comparison[4] Third Quarter 2022 Financial and Operational Highlights The company progressed towards profitability with improved margins and order growth, despite an inflation-adjusted GMV decline - The CEO highlighted progress on the path to profitability through disciplined cash management and operational optimization[6] Q3 2022 Key Metrics (Inflation-Adjusted YoY) | Metric | Q3 2022 | Change (YoY) | | :--- | :--- | :--- | | GMV | TRY 11.0 billion | -8.5% | | Revenue | TRY 3,281.2 million | +6.9% | | Number of Orders | 17.4 million | +26.0% | | Active Customers | 11.8 million | +11.0% | | Frequency | 5.4 | +21.4% | | EBITDA | -TRY 638.1 million | 48.8% improvement | | EBITDA as % of GMV | -5.8% | +4.6pp improvement | | Net Loss | -TRY 571.5 million | 62.2% improvement | | Free Cash Flow | +TRY 331.1 million | Positive vs. Negative | | Active Merchant Base | 94.3 thousand | +41.5% | - On an unadjusted basis, GMV grew 66.0% to TRY 10.7 billion compared to Q3 2021[8] - The fintech arm, Hepsipay, reached 9.2 million wallet users by Q3-end and surpassed 10 million in November 2022[8] Financial Outlook Full-year 2022 GMV growth guidance was raised to approximately 70% while maintaining the EBITDA margin target - Raised full-year 2022 GMV growth guidance to around 70% (from ~60%) on an unadjusted for inflation basis[17] - Maintained full-year 2022 guidance for EBITDA as a percentage of GMV within a range of negative 3.0% to negative 2.5% (unadjusted for inflation)[17] - The outlook remains subject to uncertainties including geopolitical issues, inflation, currency volatility, and regulatory changes[16] Key Development on Legal Proceedings The company reached a settlement for two class action lawsuits, booking a TRY 257.9 million provision for the agreement - A binding term sheet was signed to settle two class action lawsuits related to the company's IPO[19] - Hepsiburada agreed to a $13.9 million settlement, with a selling shareholder, TurkCommerce B.V., contributing $3.975 million towards the amount[20] - A provision expense of TRY 257.9 million (equivalent to $13.9 million) was booked in Q3 2022 for the settlement[21] Key Business Developments Strong operational momentum was driven by growth in orders, active customers, and expansion of the merchant base and logistics network GMV and Order Growth Strong growth in orders, active customers, and frequency offset an inflation-adjusted decline in GMV - Total orders grew 26% in Q3 2022, driven by an 11% increase in Active Customers (to 11.8 million) and a 21% increase in order frequency (to 5.4)[23] - On an unadjusted for inflation basis, GMV grew by 66.0%; adjusted for inflation, GMV declined by 8.5%[22] Marketplace The marketplace expanded with significant growth in active merchants and SKUs, contributing 68% of total GMV - Active merchant base increased by 42% YoY to 94.3 thousand[26] - Number of SKUs grew by 89% YoY to 145.0 million[27] - The Marketplace (3P) to Direct Sales (1P) GMV split was 68% to 32% in Q3 2022[28] Customer Experience Customer loyalty was reinforced through a high Net Promoter Score and rapid adoption of the Hepsiburada Premium service - Maintained leadership in the Turkish e-commerce market with a Net Promoter Score (NPS) of 75 in Q3 2022[29] - The paid subscription service, Hepsiburada Premium, launched in July and exceeded 500,000 members by the end of November[30] Logistics Network The in-house logistics arm, HepsiJet, expanded its service scope and efficiency for both marketplace and direct sales parcels - HepsiJet delivered ~62% of total Marketplace parcels in Q3 2022, up from 53% in Q3 2021[32] - HepsiJet delivered 84% of direct sales (1P) orders by the next day[32] - HepsiLojistik, the fulfillment-as-a-service business, served 651 clients by the end of Q3 2022[33] Financial Services The Hepsipay wallet continued its rapid user growth and increased its penetration of total GMV - Hepsipay wallet customers reached 9.2 million by the end of Q3 2022[35] - Approximately 44% of total GMV passed through the Hepsipay wallet in Q3 2022[35] - The Buy-Now-Pay-Later (BNPL) solution was used by over 115,000 customers as of the end of Q3 2022[37] Other Strategic Assets Other business lines including adtech, on-demand grocery, and travel services continued to scale and expand their reach - Adtech solution HepsiAd was used by over 10,000 merchants in Q3 2022[40] - Hepsiburada Market (on-demand grocery) expanded to 126 retailers and achieved an 82% perfect order ratio[42] - Hepsiburada Seyahat (flight tickets) sold approximately 29,000 tickets in Q3 2022, up from 9,000 in Q3 2021[43] ESG Actions The company advanced its social responsibility initiatives, significantly expanding support for women entrepreneurs and children in need - The Technology Empowerment for Women Entrepreneurs (TEWE) program has now supported a total of approximately 38,000 women entrepreneurs[46] - The "A Smile is Enough" initiative has reached a total of 32,000 children in need[45] Hepsiburada Financial Review Inflation-adjusted financials show revenue growth, significant gross contribution margin improvement, and a reduced net loss Q3 & 9M 2022 Financial Summary (Inflation-Adjusted) | (in TRY million unless otherwise indicated) | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | Nine months ended Sep 30, 2022 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | GMV (TRY in billions) | 11.0 | 12.0 | 32.1 | 32.4 | | Revenue | 3,281.2 | 3,070.8 | 9,772.8 | 9,278.7 | | Gross contribution | 915.4 | 466.2 | 1,828.3 | 2,162.7 | | Gross contribution margin (%) | 8.4% | 3.9% | 5.7% | 6.7% | | Net loss for the period | (571.5) | (1,511.2) | (2,183.6) | (2,421.1) | | EBITDA | (638.1) | (1,245.3) | (2,169.2) | (1,926.0) | | EBITDA as a percentage of GMV (%) | (5.8)% | (10.4)% | (6.8)% | (5.9)% | Revenue Inflation-adjusted revenue grew 6.9%, driven by strong marketplace performance and despite a decline in direct sales Revenue Breakdown Q3 2022 vs Q3 2021 (Inflation-Adjusted) | (in TRY million) | 2022 | 2021 | y/y % | | :--- | :--- | :--- | :--- | | Sale of goods (1P) | 2,443.5 | 2,637.7 | (7.4)% | | Marketplace revenue(3P) | 406.1 | 69.0 | 488.6% | | Delivery service revenue | 352.9 | 321.7 | 9.7% | | Other | 78.7 | 42.4 | 85.6% | | Total Revenue | 3,281.2 | 3,070.8 | 6.9% | - The 6.9% revenue growth, despite an 8.5% decline in inflation-adjusted GMV, was mainly due to strategic cutbacks on customer discounts[56] Gross Contribution Gross contribution margin improved significantly by 4.5 percentage points due to reduced discounts and higher delivery revenue Gross Contribution Q3 2022 vs Q3 2021 (Inflation-Adjusted) | (in TRY million unless indicated otherwise) | 2022 | 2021 | y/y % | | :--- | :--- | :--- | :--- | | Revenue | 3,281.2 | 3,070.8 | 6.9% | | Cost of inventory sold | (2,365.8) | (2,604.6) | (9.2)% | | Gross Contribution | 915.4 | 466.2 | 96.4% | | Gross contribution margin (% of GMV) | 8.4% | 3.9% | 4.5pp | - The 4.5pp margin improvement was mainly due to a 3.1pp increase in 3P margin, a 0.4pp increase in 1P margin (from cutting discounts), and a 0.5pp increase from delivery service revenue[59] Operating Expenses Operating expenses as a percentage of GMV remained stable, as advertising efficiencies offset a one-off legal provision - Advertising expenses as a percentage of GMV decreased by 3.8pp due to enhanced marketing efficiency and a focus on retention[62][64] - Shipping and packaging expenses as a percentage of GMV declined by 0.7pp, partly due to pivoting the Hepsiburada Market operating model[62][65] - Other operating expenses rose by 3.1pp as a percentage of GMV, mainly due to the TRY 257.9 million provision for the legal settlement[62][67] Financial Income and Expenses Net financial income improved due to higher foreign exchange gains on cash deposits and lower early collection commission expenses - Financial income increased by 171.8% to TRY 450.7 million, largely due to foreign currency exchange gains on USD-denominated deposits[68] - Financial expenses decreased by 6.2% to TRY 305.1 million, driven by lower commission expenses for early collection of receivables[70] Net Loss and EBITDA The company significantly narrowed its net loss and improved its EBITDA margin, reflecting better operational performance - Net loss for Q3 2022 was TRY 571.5 million, a significant improvement from a loss of TRY 1,511.2 million in Q3 2021[71] - EBITDA as a percentage of GMV improved by 4.6pp YoY to -5.8%, driven by higher gross contribution margin and lower advertising and shipping costs[73] - Excluding the one-off litigation provision of TRY 257.9 million, EBITDA as a percentage of GMV would have been negative 3.5% in Q3 2022[76] Capital Expenditures, Working Capital, and Cash Flow The company generated positive free cash flow, driven by improved EBITDA and effective working capital management - Capex was TRY 210.5 million in Q3 2022, up from TRY 104.5 million in Q3 2021[77] - Net cash provided by operating activities was TRY 541.6 million, a major improvement from a use of TRY 1,185.8 million in Q3 2021[79] - Free cash flow was positive at TRY 331.1 million in Q3 2022, compared to negative TRY 1,290.3 million in Q3 2021, due to better working capital management and EBITDA[82] Consolidated Financial Statements The hyperinflation-adjusted statements detail the company's financial position, performance, and cash flows for the period Consolidated Balance Sheet Highlights (As of Sep 30, 2022) | (in thousands of TRY) | 30 September 2022 | | :--- | :--- | | Total Assets | 8,892,322 | | Cash and cash equivalents | 3,473,910 | | Inventories | 2,172,054 | | Total Liabilities | 6,518,547 | | Trade payables and payables to merchants | 4,736,354 | | Total Equity | 2,373,775 | Consolidated Statement of Comprehensive Loss (Q3 2022) | (in thousands of TRY) | Three Months Ended 30 Sep 2022 | | :--- | :--- | | Revenues | 3,281,176 | | Operating loss | (737,161) | | Loss for the period | (571,454) | | Basic and diluted loss per share | (1.75) | Non-IFRS Financial Measures The company utilizes non-IFRS measures like EBITDA and Free Cash Flow, providing reconciliations to comparable IFRS figures Reconciliation of Net Loss to EBITDA (Q3 2022 vs Q3 2021) | (in millions of TRY) | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net loss for the period | (571.5) | (1,511.2) | | Financial income | 450.8 | 165.8 | | Financial expenses | (305.2) | (325.3) | | Depreciation and amortization | (99.1) | (93.5) | | Monetary gains / (losses) | 20.1 | (12.9) | | EBITDA | (638.1) | (1,245.3) | Reconciliation to Free Cash Flow (Q3 2022 vs Q3 2021) | (in millions of TRY) | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by / (used in) operating activities | 541.6 | (1,185.8) | | Capital expenditures | (210.6) | (104.5) | | Proceeds from the sale of property and equipment | 0.1 | - | | Free Cash Flow | 331.1 | (1,290.3) |