Jumia Technologies AG Q1 FY2020 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2020. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Safae Damir, Head of Investor Relations for Jumia. Please go ahead.

Thank you. Good morning everyone. Thank you for joining us today for our first quarter 2020 earnings call. With us today are Sacha Poignonnec and Jeremy Hodara, Co-Founders and Co-CEOs of Jumia; as well as Antoine Maillet-Mezeray, CFO. This call is also being webcast on the IR section of our corporate website. We will start by covering the Safe Harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our document. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I'll hand over to Sacha.

Thank you and welcome everyone. Thanks for joining the call. Before diving into Q1, of course, I would like to give some context on how COVID-19 is affecting our business so far and the actions that we have taken in response to that. COVID-19 is bringing a complex combination of health, economic, and operational changes. First, I want to start by acknowledging the hard work of our teams working on the frontlines carrying out essential duties, and in particular those in our warehouses and delivery houses. Our mission of facilitating consumers’ access to goods and services and helping sellers reach those consumers in a seamless way, while making a positive impact on the African continent, has never been more relevant. And in these difficult times, we think that we had a crucial role to play, helping the consumers and communities we serve stay safe and as much as possible functional through the crisis. We are also hopeful that it will help accelerate the long-term shifts towards e-commerce. Let me walk you through how we have adapted to the situation, as well as the business impact that we have observed so far. Our number one priority has been and remains the health and safety of our team, consumers, and community. We took rapid action to adjust all our operations. We implemented work from home across all our offices. We took actions to operate our logistics infrastructure in accordance with high standards of safety and hygiene. Measures we put in place include setting up separate team shifts, checking employees' temperatures, sanitizing facilities several times a day, and requiring the use of masks, gloves, and sanitizers for the handling and delivery of orders. All members of our warehouse staff and our delivery partners were trained on all the best practices of personal hygiene and social distancing. We have also facilitated social distancing by implementing contactless safe delivery, which has been enabled by JumiaPay, allowing consumers to prepay for their orders online without the need for cash exchange or physical contact with the delivery agents. Making those changes has been a huge task, and we are incredibly grateful to our colleagues and delivery partners working on the frontlines. Moving on to Page 4, we launched a broad effort to our consumers and communities to celebrate and thank what we call the JumiaHeroes through a social media campaign; after the week after launching it, the #JumiaHeroes was already trending on social media. We also established a solidarity fund for our JumiaHeroes, which is funded completely voluntarily by Jumia employees and staff contributions. More broadly, in these difficult times, we think that we have a responsibility to support our communities leveraging our assets. Thanks to our team and cross-border platform in China, we were able to donate half a million masks through health ministries across Africa for use by health workers. You can see on the right side of the page a few pictures of the delivery meetings, and we've done that across multiple countries. We also supported local governments in nine countries with pre-educational campaigns on our platform to help consumers access reliable health and safety information. The campaign was set up within 48 hours and generated over 5 million impressions to date. This is also what we're about: making people's lives easier and contributing to the community not only during good times but also during challenging times. Now, in terms of business impacts, if you turn to Page 5, we have seen a combination of short-term supply and logistic challenges alongside positive impacts and unique opportunities for the long term. Most of these trends, of course, emerged in the final half of March 2020, and they are not yet fully reflected in the Q1 results that we are publishing right after that, but we expect these impacts to continue playing out in the coming quarters. On the one hand, we see certain challenges on supply and logistics in some parts of the business. On supply, cross-border operations were disrupted by manufacturing shutdowns in China. This supply chain disruption also impacted some of our local sellers, especially those who source their goods from China in consumer electronics, phones, and fashion categories. We faced cross-border logistics challenges due to country lockdowns, which impacted cargo operations. At the local level, confinement measures restrict seller operations. In some areas, some sellers do not even have physical access to their inventory, and in some areas, the confinement measures prevent them from dropping their packages through Jumia logistics. Many restaurants also closed until further notice. Furthermore, we are experiencing capacity limitations in logistics, which affects our ability to fulfill consumer demand. Curfews in many countries impact operating hours, thus constraining overall delivery capacity. In South Africa, for example, deliveries of fashion items were completely suspended for a few weeks. Lastly, the implementation of the safety measures in our warehouses, such as safety dispensing, are leading to reduced order processing capacity. Those are the challenges. On the other hand, we see unique opportunities for long-term e-commerce and payment adoption. More and more sellers are embracing e-commerce and are keen to join Jumia as offline distribution channels are disrupted. We are seeing unprecedented demand from brands and sellers. Since March, we have announced many new partnerships, including household care and FMCG brands like Reckitt Benckiser, Unilever, P&G, Nestle, and Coca-Cola. On Jumia Food, grocery and convenience retailers are eager to join our on-demand platform, which has the logistic infrastructure to complete deliveries in less than 45 minutes. We also established some partnerships to deliver fresh foods. On the demand front, we have seen a surge in demand for all essentials beginning in the second week of March, and the grocery category has experienced a significant increase in the number of items sold compared with last year. We hope that these dynamics will help accelerate the consumption shift towards online. This demand is also helping us generate sales and advertising efficiency. In terms of advertising revenue, we have seen resilient demand as advertisers favor direct response online channels that can deliver measurable results. Last but not least, the launch of contactless safe delivery is helping us further promote JumiaPay, providing an opportunity to drive long-term payment adoption. If you turn to Page 6, you can see on this page a few illustrations of those demand and supply trends. Here, you have a weekly evolution of items sold in selected parts of the business over March and April, and the data has been rebased to 100 starting in the first week of March. At the group level, we ended the month of April about 3% above the first week of March, and you can see some negative and positive trends. Food delivery was and continues to be affected by many restaurants closing across our geography. We managed to launch several convenience grocery stores but it remains very effective. In South Africa, we closed all deliveries, and we are starting to see some recovery as deliveries resume in certain apparel categories. In Nigeria, confinement measures had a significant impact on our sellers' ability to bring their packages to us. Many of our top sellers simply stopped operating for a few weeks. Since then, part of the sellers have resumed their activities, some partially and some entirely, and volumes have gradually picked up. By the end of April, volumes were almost back to their early March level. On the opposite end, countries like Morocco and Tunisia are experiencing a surge in volumes, picking mid-April, with more than twice the volumes of the first week of March. Throughout April, we continued to see volumes at least 40% above early March levels, although those volumes are constrained by logistic capacity challenges. We believe we are well-positioned to respond to these dynamics as the situation develops, remaining confident in our relevance to consumers, sellers, and broader communities in the coming months. Finally, if you turn to Page 7, we can see here the highlights of Q1. Our strategy, as you all know, is based on four pillars: grow the usage of Jumia, drive the penetration of JumiaPay, increase monetization, and do all this while improving cost efficiency. In 2019, we began focusing on what is proving crucial to navigate the current situation. The focus on everyday product categories is supporting usage and consumer adoption. Meanwhile, the actions we undertook on cost are starting to pay off as we make progress on our path to profitability. Annual Active Consumers reached 6.4 million, and orders grew 28%. This is why our sales and advertising expenses decreased by 25% over the same period. JumiaPay grew very strongly in terms of volumes, with TPV increasing by 71% and transactions by 77%. Marketplace revenue grew by 22%, and gross profit increased by 21%. Gross profit after fulfillment reached a record €2.5 million, and our adjusted EBITDA loss decreased by 10% compared to last year, which is the best level in absolute terms in the past six quarters. With this, I'll pass it on to Jeremy, who will walk you through our Q1 performance in more detail.

Thank you, Sacha, and hello everyone. If you'd like to join me on Page 9, please. Let's take a closer look at our top-line growth dynamics. We decided to rebalance our business mix last year, and we further accelerated the shift in the first quarter in light of the changes in demand as a result of COVID-19. As part of the business mix rebalancing and to support our path to profitability, we decreased the promotional intensity and consumer incentives under lower consumer lifetime value business while increasing our focus on everyday product categories to drive long-term consumer adoption and usage. Looking at the GMV growth trends on the chart on the left-hand side, the majority of product categories for GMV growth are above 20%. Phone and accessories, and to a lesser extent, electronics were affected by enhanced promotional discipline as part of the business mix rebalancing. The mobile phone category was also affected by the scaling down of the mobile week's promotional campaign in certain markets due to COVID-19 supply disruption. The suspension of processing and delivery at Zando, our fashion platform in South Africa, due to strict confinement measures negatively impacted the fashion category. In terms of items sold, we have seen consistent growth across all product categories, with the exception of mobile phones. Volume growth was particularly strong in the FMCG categories, which surpassed 80% year-over-year. As mentioned earlier by Sacha, growth in the grocery category further accelerated in the last 15 days of March as confinement measures were implemented in a number of countries. Moving on to our top-line growth drivers at the group level on Slide 10. GMV was €190 million, down 11% year-over-year, reflecting the effect of the business mix rebalancing combined with COVID-19 related supply disruption. Annual active consumers reached 6.4 million, up 61% year-over-year. Let's now look at how we have been driving the usage during COVID-19 on Page 11. To drive usage, featuring supply of essentials and priority categories has been a major focus for us in the latter part of Q1. We launched the stay safe campaign in partnership with Reckitt Benckiser to give consumers access to hygiene and sanitary products at attractive prices, offering free shipping while waiving commission on relevant products. We have seen a surge in demand from sellers and brands eager to join the Jumia platform and prioritized on-boarding of centers offering critical product categories. We launched several partnerships with high-profile FMCG brands such as Unilever, P&G, Nestle, Beiersdorf, and Coca-Cola. We further solidified our partnership with Carrefour in Nigeria and announced a partnership with Twiga Foods in Kenya, connecting producers and farmers with vendors, allowing consumers online access to fresh produce directly from farmers. In terms of merchandising, we launched curated product collections targeting specific needs arising from confinement measures, such as a 'stay fit at home' collection featuring sports and fitness products, an entertainment collection with children's games and toys, and a TikTok lovers collection featuring phone accessories. Lastly, we engaged our consumers with Facebook Live content through the “Stay entertained with Jumia” series, featuring live music streaming events and DJ sets in a digital party format, notably in Ghana, in partnership with various brands including MTN, Pernod Ricard, and KFC. Now, if we move to Page 13, we continued expanding the reach of JumiaPay in Q1 2020 while launching relevant features and payment use cases for consumers. We launched JumiaPay in Tunisia, now live in seven countries: Nigeria, Egypt, Morocco, Ivory Coast, Ghana, Kenya, and Tunisia. Our contactless safe delivery campaign was partially leveraged by JumiaPay, removing the need for physical contact or cash exchange at delivery. We encouraged consumers to prepay for orders online using JumiaPay and rolled out a Pay on delivery feature leveraging JumiaPay. Lastly, we launched new consumer use cases within the JumiaPay app. To support the fight against COVID-19, we introduced a direct donation system enabled by the JumiaPay app, covering five relevant charities in each country. We also launched several games on the JumiaPay app, including Free Fire, PUBG, Fortnite, and League of Legends. Consumers can purchase game subscriptions or credit for in-app purchases through our app. If we move to Page 14, JumiaPay's performance in Q1 2020 showed a TPV increase of 71% year-over-year, reaching €35.5 million. This resulted in on-platform penetration as a percentage of GMV increasing from 9.7% in Q1 2019 to 18.7% in Q1 this year. Concerning the growth of JumiaPay on a transaction basis, the number of transactions increased by 77% year-over-year, leading to an increase in on-platform penetration of 35.5% of orders in Q1 2020, up from 25.5% in Q1 2019. This strong growth was partly due to the ramp up of JumiaPay operations in Ghana and Morocco, launched in the first quarter of 2019, and Kenya where we launched JumiaPay in the second quarter of 2019. It was also a result of increasing penetration of JumiaPay in the countries where it was already live in Q1 2019, driven by continued consumer education around payment and enhancements of the JumiaPay value proposition. I now hand over to Antoine to walk us through our financial performance updates.

Thank you, Jeremy. Hello everyone. We are now on Page 17. In parallel with growing usage and consumer adoption of our platform, we seek to monetize this usage and transactional activity in a granular manner. Marketplace revenue reached €19.1 million in Q1 2020, a 22% year-over-year increase, while gross profit increased by 21% over the same period. Let's now take a look at our various Marketplace revenue streams on Slide 18. Commissions, which are fees charged to sellers, increased by 35% year-over-year. This growth happened despite GMV reduction, thanks to category balancing, enhanced promotional discipline, and reduced consumer incentives, which are partly accounted for as deductions from commission revenue. Fulfillment, which comprises delivery fees charged to consumers, increased by 29% in the first quarter of 2020 on a year-over-year basis, parallel with order growth. Value-added services, which includes revenue from services charged to our sellers, such as logistics services, packaging, or content creation, decreased by 3% in Q1 2020 on a year-over-year basis. This was largely due to a sharp reduction in international logistics revenue starting in February, as our cross-border business was affected by the manufacturing facility shutdowns in China and cargo disruptions. I would like to highlight that we made changes to the pricing of Jumia global products, which will shift a large part of international logistics revenue from the value-added services account to the fulfillment revenue account. Marketing and advertising revenue, which corresponds to the revenue generated from the sale of a diversified range of ad solutions to sellers and advertisers, increased by 34% in Q1 2020 on a year-over-year basis. While marketing and advertising revenue grew at triple-digit rates in the first two months of the quarter compared to the previous year, March 19 was marked by large marketing contributions as part of last year's mobile week, which was scaled down this year due to the COVID-19 outbreak. This path of our business has been quite sensitive to COVID-19, partly due to the impact on our cross-border business. We have also been careful not to increase monetization pressure on our sellers, as we are aware of the challenges they face in the current environment, and we want to avoid any detrimental impact that increased monetization may have on prices for our customers. Let's move on to progress on cost efficiency. This has been an area of strong focus for us since 2019, and we see our efforts starting to bear fruit. We have three main costs in our P&L: fulfillment expense, which is largely variable; sales and advertising expense, which is discretionary to a certain extent; and general and administrative expense. Starting with fulfillment expense, we report another quarter of positive gross profit after fulfillment expense, reaching €2.5 million in Q1 2020, compared to breakeven in Q1 2019. In absolute terms, we see a 5% increase in fulfillment expense in Q1 2020 compared to Q1 2019, while orders increased by 28% over the same period. This was partly due to a lower proportion of cross-border packages, which reduced our overall freight and shipping expense per package. The second main cost component is sales and advertising. Sales and advertising expense decreased by 25% in Q1 2020, reaching €8.9 million, the lowest level in almost 12 quarters, while orders increased by 28% year-over-year. The reduction in sales and advertising expense was partly driven by efforts to adjust demand to supply and logistics constraints, as well as a focus on our path to profitability. Sales and advertising expense per Annual Active Consumer decreased by 26% from €11.1 in Q1 2019 to €8.2 in Q1 2020. We have enhanced our performance marketing strategy across search and social media channels, allowing us to acquire new users and drive conversion more effectively. We also improved our CRM channels via cross-selling initiatives aimed at driving repeat purchases based on consumers’ purchase history. Finally, our third major cost area is technology and G&A. Our technology and content expense increased by 22%, compared to Q1 2019, as we continued investing in our tech infrastructure. G&A, excluding SBC, reached €24.4 million, up 4% compared to Q1 2019. It's worth noting that the first quarter of 2019 did not fully reflect several organizational enhancements made during 2019 to operate as a listed company. Therefore, the amount of G&A expense excluding SBC from Q4 2019 is more relevant for comparison to Q1 2020. G&A expense, excluding SBC and restructuring expense, was €31.7 million in Q4 2019. In Q1 2020, G&A, excluding the SBC expense decreased by 23% or more than €7 million compared to Q4 2019, in part due to savings in staff costs and professional fees. As a result of increased usage, monetization, and cost efficiencies, our unit economics are improving, and we are making progress on our path to profitability. Our adjusted EBITDA loss decreased by 10% year-over-year, reaching €35.6 million in Q1 2020, the lowest level in the past six quarters. The business mix rebalancing we undertook alongside cost discipline is driving clear improvements in our unit economics. While we have smaller average order values, they are now more profitable. The average order value decreased by 21% from €42.5 to €29.5. The order contribution, or gross profit minus fulfillment expense on a per-order basis, moved from breakeven to €0.40 per order in Q1 2020. Our sales and advertising expense per order decreased by 42% to €1.4, while technology and G&A per order decreased by 16% to €4.9. Consequently, the adjusted EBITDA loss per order decreased by 29% from €7.9 to €5.6 in Q1 2020. We are pleased by our progress in unit economics, which illustrates our path to profitability. Moving on to Page 24, our path to profitability is further supported by our asset-light business model. CapEx in Q1 2020 was less than €0.5 million as we operate Jumia Logistics as a platform with limited CapEx requirements. Net change in working capital resulted in an outflow of €5.9 million during the quarter, mostly due to a shorter payable cycle. At March 31, 2020, we had €191 million of cash available. With that, I'll hand the call back over to Sacha.

Thank you very much. Just a few remarks before we open for Q&A. The current situation is challenging in many respects, but it also gives us confidence in the relevance of Jumia, e-commerce, and online payments in Africa. Looking ahead, we expect to see some level of supply and logistic disruption, but we have many levers to navigate them, and we expect them to be short-term and eventually resolved. We are preparing for potentially very tough economic times ahead. We started many actions last year: portfolio optimization, exit from travel, reducing costs, and maintaining promotional discipline. We believe these actions put us ahead of the curve, and we have not stopped our efforts in cost discipline and expense reduction, continuing with certain actions already in Q1. During these challenging times, combined or not with the need for social distancing or sometimes confinement periods, we've seen consumers turn to Jumia as we strive to provide them the best prices and a safe, convenient experience. We believe this trend will continue, and we will see strong consumer adoption and usage. Similarly, on the seller side, we have already started seeing unprecedented demand from big brands to join the Jumia platform. This brings more choice and selection, helping with consumer adoption and driving trust in Jumia. We believe these dynamics will help accelerate the shift towards online, on both the demand and supply sides, which gives us a lot of confidence in the company's relevance in Africa. We remain committed to reducing our adjusted EBITDA loss in absolute terms in 2020, while driving consumer adoption and usage. Thank you all for your attention, and we are ready to open up the call for Q&A.

Thank you. We will now begin the question-and-answer session. The first question comes from Mark Mahaney with RBC. Please go ahead.

Okay, let me try two things. One, the trends that you're seeing at the end of the last quarter and into this quarter in Morocco and Tunisia look very different than what you're seeing in your overall company in the other markets. Could you explain again why there's a surge in order volume in those two markets versus the others? Secondly, could you address the liquidity issues for the company? It seems like you're able to bring down your EBITDA losses for the full year. Do you think you've got enough cash? How far do you think the existing cash can take you? How do you consider the appropriate minimum level of cash needed to run the business with confidence? Thank you.

Thanks, Mark. Regarding your first question, we provided four of our geographies as well as the Jumia Food business as an illustration to show that we have some positives and some negatives. Where we see the positives is because there's a combination of confinement measures that are not disrupting the supply in a way that's detrimental to addressing the demand. The demand is there; the question is more about the ability of the supply and the logistics to fulfill that demand. In Morocco and Tunisia, we have a typical example where the demand, supply, and logistics are working together. However, in Nigeria, we're facing a major disruption in supply, which naturally affects our ability to generate the right level of demand. For your second question, we have approximately €190 million in cash, and we clearly want to demonstrate a trend towards reducing our cash burn on a quarterly basis, along with our adjusted EBITDA loss. We've already begun to see positive results from decisions made in Q1. We continue to be committed to our strategy, which will lead to lower cash burn on a quarterly basis and ultimately toward profitability.

Sacha, one follow-up: do you have visibility into when some of the confinement measures will change and if the supply challenges will be lifted in larger markets like Nigeria? Are conditions improving enough to possibly change restrictions affecting your supply base this month or next month? Any visibility there?

Yes. You can see from the chart that at the end of April, Nigeria was almost back at the level of the beginning of March. Many actions are already being taken to drive the business back to normal. We are strengthening partnerships with major sellers who generally hold more stock and have stronger operations. We leverage Jumia Express, our warehouses, to store goods from sellers. When the sellers can access their inventory, they can put it on Jumia Express. We are equipped for retail and sometimes engage in it, especially to secure supply, which can be helpful at times. We have multi-warehousing capabilities for transportation between regions when disrupted. We have many new big sellers and brands joining, which is also helpful. As a marketplace, we have thousands of sellers, so when a part of the business is temporarily down, another part is generally performing well. Thus, we have many levers to mitigate disruptions.

Thank you, Sacha.

Our next question today comes from Aaron Kessler with Raymond James. Please go ahead.

Great. Thanks, guys. I have a couple of questions. First, can you discuss consumer engagement? What traffic have you seen? Any data on app downloads would help get a sense of consumer response to demand? Secondly, should we consider Q1 expense levels as a base level, or are those not fully reflective? Should we expect further reductions in Q2 and throughout the year? Lastly, any updates on Egypt, your second largest market?

Yes. Thanks, Aaron. On engagement, we have seen engagement metrics such as traffic and app downloads similar to the surge in items sold. The demand has surged alongside engagement, which is reflected in strong app downloads and good engagement dynamics across the board. In terms of expenses, we have three types: fulfillment, sales and marketing, and G&A. Fulfillment will depend on cross-border business recovery and other factors. We expect to capture efficiency at the fulfillment level and pass a healthy proportion of those expenses to consumers and sellers. For sales and marketing, we see a sharp reduction in absolute terms. Thus, if consumer engagement continues strongly, we will tactically invest more based on what we observe. G&A costs should show downward trends but at moderate speeds. Regarding Egypt, it's doing well with positive trends and sits closer to the higher-performing markets.

Our next question comes from Sarah Simon with Berenberg. Please go ahead.

Yes, hi. I have a couple of questions. One for Antoine: can you remind us about the shift of revenue out of Jumia Global logistics that were coming from value-added services? I didn't fully understand that bit. The second question is on competition. Sacha, do you believe that some of your competitors who are single-country players are losing market share to you? How do you see the competitive landscape at the moment compared to pre-COVID?

So, maybe Sacha, can you take the first one …

No problem! The first question regarding the reclassification: we will shift a portion of the international logistics revenue from the value-added services account to the fulfillment revenue account. This is more a matter of reclassification than anything else.

Okay. So, we should expect further contraction in value-added services as a result, but fulfillment would look better?

Yes.

Can you give us an idea of the proportion of value-added services revenue that this represents?

It's a bit too early to comment on that right now. We'll have more clarity at the end of Q2.

This reclassification will not change the gross profit after fulfillment. Regarding competition, being Pan-African is a huge benefit for us. It positions us as a natural partner for global brands, providing more economies of scale and allowing us to de-risk the business. While measuring market share is difficult due to lack of published data, we are seeing growth in consumer usage and seller acquisition. Actively driving consumer usage remains our primary focus.

Thank you. This concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thank you everyone, and as always, we are available if you need any follow up. Most importantly, I hope everyone is safe and stays safe. Thank you, everyone. Take care. Bye-bye.

Thank you. This concludes today's conference call. We thank you for attending today's presentation. You may now disconnect your lines and have a wonderful day.