Delivery Hero SE (DHER) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Delivery Hero's conference call. [Operator Instructions] I would now like to turn the conference over to Christoph Bast, Head of Investor Relations. Please go ahead.

Hi, everyone. We hope you are well, and thank you very much for joining today's conference call. We trust you have all received the news which we published this morning. As always, this presentation is also available on our IR website. We would like to remind you that this call is being webcast, and a replay of the audio webcast will be available later today on our website. With me today, we have Niklas Oestberg, CEO; and Emmanuel Thomassin, CFO of Delivery Hero. We will first give an overview of the transaction structure and then continue with a broader business update. This will include an update on the current trading as well as further details on our outlook and path to profitability. After that, we are looking forward to answering your questions. I will now hand over to Niklas and Emmanuel to run you through today's presentation.

Thank you, Christoph, and hey, everyone, and thanks for dialing into today's call. 2 months ago, you raised some concerns. We took these concerns at heart and promised to address this sooner rather than later. Now 2 months later, we are happy to move forward with a Term Loan B financing to further strengthening our balance sheet. As part of this process, we are providing debt investors with incremental business details. To give everyone equal information, we also like to share the same material with you. Emmanuel will start off by sharing some details around the transaction. So Emmanuel, please.

Thank you, Niklas. Hi, everyone, and thanks for joining the call. This financing transaction marks another important milestone for Delivery Hero as we are progressing on our target of delivering superior growth while approaching our group-level profitability. We proposed to raise about EUR 1.4 billion. There are 3 debt instruments: first, a Term Loan B totaling $825 million; second, a Term Loan B preplaced for a total of EUR 300 million; and lastly, a revolver credit facility of EUR 375 million. The RCF have been agreed with our banking syndicate and will be concurrent to the Term Loan B closing. In terms of pricing regarding the U.S. dollar Term Loan B lenders to -- [ so 4 plus ] -- 6.25% to 6.50%, resulting in a cash interest expense in the high 6% to low 7% region. Most importantly, the term loan as well as the RCF underlying Delivery Hero's abilities to access various funding source thanks to the fundamental strength of our business. And we have established a strong and diversified capital structure that provide us with our financial flexibility and ample liquidity buffer to deliver on our strategic priorities. Now let me hand over to Niklas to run through the next section. Niklas?

Thanks. Thanks, Emmanuel. Starting off showing you an overview of our business. I believe you know this in depth already, but still worth pointing out again that Asia is our largest segment. In Asia, 75% is Korea, where we have a very strong market position. From the remaining 25% of Asia, the majority is in medium competitive markets like Hong Kong, Taiwan, Bangladesh, Pakistan, Myanmar and so on. From the remaining circa 10% of Asia, we have very tough competition where we are the leader in about half, that means essentially that circa 5% of Asia is in a #2 position in highly comparative markets. MENA, you obviously know it's a highly profitable part of our business. We sit on leadership in all but one market. It is a recent market that we started. In Europe, we are the leader in most markets and operate around breakeven pre-Glovo. Last but not least, LatAm is early stage, and we grow really fast as we speak. We are clear leaders in most of our markets there, especially the big ones. Then moving on to the next slide. We have very clear diversification of our business. We are not dependent on one single market. Our second largest market, as an example, is only 5% of our GMV. This becomes even more diversified when we include Glovo. More importantly, we are a leader in -- a clear leader in most markets. In other global or no other global player has even close to the same level of leadership. This means that a comparative fight in one market will not impact as much on a global scale, but we can sustain such for a very long time. Then we come to the next slide, and here is around scale. Scale is, of course, a very critical part of our business as it's highly correlate between scale and profitability. There are undeniably built global leader, where Delivery is significantly larger in size than its nearest comparator in terms of orders and leadership, I would say, nearer the global competitor, excluding China here. We serve more than 1.5x the number of orders in our nearest global comparator and more than 2.3x in the number of countries, making Delivery Hero the undisputed leader in global reach and leadership. Moreover, what these charts don't actually show is that they have a much lower reliance on key accounts than any other players. This gives us significantly less supply concentration risk and stronger commercial take rates. And this is something that no other global player has. On cohorts, and this slide is, in my view, the most important slide for investors in our industry. People truly understanding this will be long-term shareholders of this company. Starting with the left-hand side, every year, and I know this is basic for most of you, but I still like to go in detail because there is nothing as important as it is. So therefore, if you go on the left-hand side, you see that every year, we add another cohort. And as you can see, also every cohort is getting better. If you, for example, look at 2017 cohort, the pink one, you can see how frequency increased to 1.5x next year and 1.8x the year after and so on. In particular, you see how frequency increased a lot in 2021, and this was then partially being driven by COVID. What you can also see is that we acquire more customers every year. 2018 cohort is larger than the 2017 cohort. 2019 cohort is larger than 2018 cohort and so on. What you can see is that in 2020, we acquired an exceptional amount of users, and this is also then partially driven by COVID lockdown. We are now back to a more normal environment, but you would, in general, expect improvement in cohort frequency in size every year. In the upper right side, you can see how every cohort is also better than the previous cohort. This is amazing and pretty unique for our industry. We have seen this for more than 70 markets over 20 years and has never failed us. What I love in most though, is the incredibly straight lines of the cohorts because this means that we have an enormous amount of long-term predictability. When you asked how we come to EUR 200 billion to EUR 350 billion GMV in 2030, this is the underlying data we use. We know the development of the cohorts we owe and we can reasonably well predict acquisition levels. On the bottom right chart, you can also see how cohorts improve or frequency improve. Here, again, you see the uptick during COVID, but fundamentally, it's an upward line. Also like to add that 4.4x is higher than any global peers that have seen reporting at least as some aware of. This means that we have to spend less marketing than others in acquiring customers. Still, I would argue that 4.4 orders per month is obviously very low compared to the potential with only one order per week or this is only one order per week, and therefore, we see significant upside here as well. Last but not least, I'd like to highlight the stability of our cohorts again. What this means is that we are pretty immune to competition. If people really would switch the way sometimes people speak about, then between platforms, then our cohort would certainly not look like this. I personally believe that competition concerns are hugely overstated. The reason why we invest aggressively in acquiring users is because once someone orders with us, they stay loyal with us. And again, you see it in these cohorts, the predictability, the stability. There is very little switching between platforms. There might be a few percent of users switching, but as you see the majority are not. And that's why we see this graphs. Then moving on what has been underestimated is our business model flexibility to a break for a target growth and profitability profile. We had active investment into attractive profit pool opportunities in the last years and are now very happy with the superb scale, global footprint and market leadership successfully established. On that basis, we are successfully approaching group profitability. As we have seen in our press release this morning, based on our strategic investments and progress made, we expect to reach adjusted EBITDA breakeven on group level in 2023, including Glovo. Already into 2022, our Platform business, which is 92% of our GMV will be EBITDA positive and the majority of this being highly profitable already. And in Q4, we expect our Platform business also including Glovo to generate up to EUR 100 million EBITDA in Q4 alone. That means more than -- or approximately 97% of our business will then be profitable. In the next slide, we will go into profitability of the Platform business. I will then go in to cover the investment into Glovo. And lastly, I will cover Integrated Verticals where we expect to invest up to EUR 525 million this year. But then starting off with our Platform business on the next few slides. So as mentioned before, we expect 2022 Platform business, excluding Glovo, to generate positive EBITDA. Additionally, we see numerous actionable levers to drive further margin improvements. Most of these levers are not needed for driving 2022 EBITDA. I'd also like to highlight that this is a list of levers are illustrative to give an idea of the flexibility we have at hand for driving incremental EBITDA. Some of these we may never pull. One of the largest lever is the minimum order value. If you take an example that if you would only increase the average basket size with EUR 0.5 then we would generate -- or would have generated about EUR 180 million EBITDA based on 2021 size. If you use 2022 size, then of course, there will be a much larger EBITDA impact. If you use 2023 impact or size, then obviously, even significantly larger than that. But again, on 2021 size, a 5% increase in basket size will generate about EUR 180 million EBITDA. We then take service fee, long-distance delivery fees, which are 2 other big levers. If you take the example of the service fee, if you would only apply EUR 0.1 service fee, that would yield EUR 290 million based on 2021 size. And again, if you use 2022 size of business, then this would be a larger EBITDA impact. So you use very small fee and I think in many markets, we have seen service fees of EUR 1 or EUR 2, but use EUR 0.1 would yield EUR 290 million in this example. Next on the list, we have advertisement revenue, which is a huge opportunity. I'll cover in the next slides. There is also a lot of room to reduce cost per order by increasing stacking or negotiating lower payment fees with our providers and same goes for improved automation. When it comes to marketing, we obviously have a lot of discretionary ability to flex up or down. Today, 98.5%, again 98.5% of our orders are from existing customers, which means that the reduction wouldn't impact growth substantially. However, as long as we have a good customer acquisition cost versus lifetime value, we see long-term value in spending or investing. Today, we reach more saturated levels. We expect marketing investments to come down as proportional business, which is already the case in many markets that we operate today. Then if we go to the next slide on advertisement. So here, we have 2 slides around this topic. We have started to monetize the huge value of our platform's audience through advertising, which represents a huge opportunity ahead. Our advertising product enables our restaurant partners to improve visibility through some of the following products: One is paid to appear among top restaurant or vendors for certain customer groups to the new customers, existing customers, it can be certain demographics, it can be subscribers. It could be any demographic of customers in any area. They can do it about cuisines, they can do it by keywords, they can do it by filters or other types of customer segmentation. Restaurants are hungry for visibility, giving greater fragmentation versus other online e-commerce categories, for example, fashion or hotels. And this, of course, helps driving strong momentum we have seen to date. It's also a great tool for new restaurants to gain customers to try out or try out their service or for existing restaurants to retarget lost users. I would also say that there are possibility for restaurants to buy disability during certain slow times. Maybe when the kitchen is not fully occupied or kitchen staff is unutilized. Those could be moments when the restaurants won't advertise versus other times when they might be fully utilized and will reduce the spending on these things. So all those possibilities are partially available today and definitely will be available completely for the future. I would say, 99% already there today of that. Then advertising is, of course, a super high-margin business. And revenues, as you can imagine, drops straight through to the profit contribution and generate effectively close to 100% gross profit margin, which then also go almost straight down to EBITDA. As demonstrated by the chart, we have seen a huge success of growing this over the last year, generating almost EUR 90 million revenue in Q4 2021 alone. These numbers also completely excludes South Korea, our largest market by far, where we're about to launch our advertisement products for our partners. Even more penetrated markets have big upside. On average, only about 9% of our restaurant base utilize these products. So that means there's an enormous amount of room to grow even in markets which are about 3% or so of advertising dollar per GMV. So again, if you look on a global basis, we are around 2% or slightly above 2%, but that is coming from only 9% of the restaurant base. If we go to the next slide, Slide 12. You can see that we are still at the early inning of this huge and significant earning opportunity. In 2021, advertisement revenue was just under 2% of GMV and still did not include Korea. Beginning in 2022, this percentage was -- went just above 2%. By 2024, 2025, somewhere around there, we aim to reach 2.5% of GMV, including South Korea. This would result in above EUR 2 billion of high-margin revenue. Long term, we believe advertisement revenues to present between 3% to 5% of GMV. On the next slide, we provide a case study on adjusted EBITDA. This case study represents approximately 75% of GMV in MENA. Despite continuing to deliver massive top line growth, our adjusted EBITDA has grown 4x faster, generating EUR 172 million last year. We have enhanced our advertise -- adjusted EBITDA margin profile over 2.5 percentage points to reach a GMV margin of close to 4% in full year 2021 and moving directionally towards over 5% to GMV. Moving on to Glovo, we remain excited about what we see. We still consider this as an investment case with significantly faster growth in global peers. Example of this is shown on the development they had in Spain. Now Spain has moved to EBITDA breakeven. Based on the experience in Spain, we decided to double down in other markets. The plan was to invest up to EUR 330 million. Based on the comparative dynamic, they may be able to achieve their objectives with slightly less, but let's see, we're still sticking to the guidance of EUR 330 million that we put in as planned. In my view, Glovo has by far the most competitive products in the markets they operate. We have -- or we are also following, of course, the same playbook as in Delivery Hero and expect Glovo to follow the same path of Delivery Hero we have achieved a strong #1 position. Then moving to the third point, which was the Dmarts, which was roughly 3% or a little bit around 3% or a little bit slightly more maybe, but at 3% to 4% of GMV in 2021. Quick commerce is an opportunity. We see a lot of potential and growth in and where we have decided to focus our investments in 2022. We are proud of what we have achieved to date and to be able to say that we are one of the largest operators of Dmarts or dark stores globally. We operate over 1,000 Dmarts across 42 countries and already have 7 countries running in best-in-class metrics. As demonstrated by our best-in-class countries, we have the know-how and understanding of how to run Dmart's businesses. In those countries, we have been able to successfully deliver close to 550 orders per store per day. You also hear then achieve attractive economics. What you can see is that the best-in-class countries have seen an average above 500 orders per store, which pushed them at scale. Looking at the left-hand side, you can see that we do less predelivery as we have exceed the target size. We can also see slightly slower delivery times in highly competitive markets, you obviously deliver much faster than this. You can also see that we can offer a larger SKU set as the store turnover is faster. If we now look at the right-hand side, that's the really interesting part. What you see is that the product margin is about the same, both being 5% to 10% below target or long-term targets. You can see that we charge a little bit higher delivery fees, and we optimize a bit less for growth. In both markets, delivery fees are low, I would add. You can see 4.6% lower delivery cost as we can stack more, hence slightly slower delivery times. You then have 4% lower picker cost as we have more utilization of store personnel or people picking items. We then also have less cost per order from other fixed cost types like store managers. There is also less waste as turnaround times and SKU predictability is higher. When you add all these small pieces up, we achieved 8.9% positive gross profit before vouchers versus negative 6.3% in other markets. This is, again, why we need to invest to drive orders per store. This is also visible when looking at voucher share, which is 2.3% versus 5.7% resulting in even larger bottom line difference between the best-in-class and average case. During this year, we hope to drive more countries towards the 500 orders per store per day. In our best stores, I would add that we are over or around 1,000 orders per store today. And then, of course, economics are even better. But the key is to get it to more than 500 orders per store we can be profitable on a lower level, but the utilization starts to kick in when we get to 500 orders, and that's when it gets very attractive. If you look at the bottom line now, so the gross profit of 6.6% in these markets and compare this to other business lines on the next slide. You can see that it's around similar levels as per marketplace and on delivery. All 3 business models provide similar attractive gross profit contribution we are able to deliver attractive margins across each of our main lines of business. In this table, we have rebased to EUR 10 average order value for the like-for-like comparison despite very different cost structures, we generate 6% to 7% gross profit margin across each line. And this is even before then advertisement. If we then move into the next slide, you will see that there are still a lot of levers to pull. In particular, product margin, as I said before, I believe we can move that 5% to 10%, at least, at least 5%, but hopefully 10% improvements in margin there. We can, of course, move basket size, start enabling customers to reorder previous items, and we have over the last year been managed from able to improve the basket size. So if we can continue on that path. It is a huge lever for gross profit. And then, of course, the advertisement side, which is still very marginal. We believe best-in-class is at least about 5% on advertisement to GMV. These 3 combined levers then as you can imagine, is significantly more than a double-digit change to the 6.6% that I presented on the previous slide for the best-in-class markets. Obviously, for the other markets, there are more levers as we grow more in size and scale. Before moving on to the outlook, I would also like to briefly update you on our current trading for the first 2 months of the year. As you will see on the chart on this next slide, the Slide 19. We have delivered a very promising start to this year. GMV was up by 30% in January and February versus prior year, generating over EUR 6.6 billion. This was mainly driven by a continued strong top line momentum in South Korea, Americas and Dmarts. Revenue growth was even stronger with over 50% year-on-year growth. I'd also like to note that the 2021 numbers have not been adjusted for the divestitures or closure of Japan, Germany, Romania, Bulgaria and Balkans. This means on a like-for-like basis, the growth would have been even slightly higher. We are very pleased with our performance in the beginning of this year and are on track to reach our growth targets for the full year 2021 and this -- '22, sorry. And this, of course, despite 2021 being a tough comp, but we are clearly on track to reach our targets there. Now turning back to Emmanuel. Thank you so much for listening. I know this was long, but I think, hopefully, helpful for you.

Thanks, Niklas. For 2022, GMV is expected to reach between EUR 44 billion to EUR 45 billion and revenue between EUR 9.5 billion to EUR 10.5 billion. This is unchanged versus our previous guidance. Furthermore, we are reconfirming the guidance that our Platform business is expected to generate positive adjusted EBITDA on a full year basis in 2022. Including Glovo, we expect to reach adjusted EBITDA of between EUR 0 million to EUR 100 million in Q4 2022 despite the continued investment in Glovo, we touched it on before. As an update to the expected adjusted EBITDA in our Integrated Verticals segment, which we can already provide given the progress to date. We expect up to negative EUR 525 million compared to the negative range of between EUR 525 million and EUR 550 million previously. So now on the last slide, let me recap what Niklas explained in the front section. We expect to reach good level breakeven on adjusted EBITDA in 2023. And as already communicated, we remain well on track to reach breakeven on our Platform business already this year. And this is an important milestone on our path to deliver a long-term margin target of 5% to 8% adjusted EBITDA to GMV. We have actually invested into attractive profitable development opportunities over the years and successfully established superscale global footprint and market leadership that allow us to be confident in achieving our proposed long-term target. What may have been underestimate is how flexible our business model can be. How it comes to the ability to calibrate for target growth or profitability profile. We have actually invested into attractive profit pool development in the recent years. And I'm now very happy with a super global footprint. As another testimony for our strong competitive market positioning across our portfolio of countries in 2022 we will generate roughly 90% of our GMV in markets where we are holding the leading position and where customers love our brand more than any other. And this competitive strengths allow us to implement such profitability levers strength that most of our competitors do not have given the weakened competitive position. On that basis and reflecting the great progress made on our strategic initiatives we are expecting to reach a group level profitability in 2025. So we hope you found this deep dive, helpful, and we are now looking forward to answering your questions. But before that, I hand over to Christoph.

Thanks, Emmanuel. Before we start with the Q&A, I have a quick remark from my side. As we would like to give every analyst the opportunity to ask a question but kindly ask you to limit your questions to 2 only and I mean without chipping in 3 additional questions. So now let's kick it off with the Q&A. Operator, please go ahead.

[Operator Instructions] First question is from the line of Marcus Diebel from JPM.

Congratulation on the refinancing and but I would say also an attractive interest rate. Two questions, I have more, but I'll leave it to you for 2 questions. The first one is on the Dmarts business and the profitability there. So if you just take the run rate for the food business and take the higher end of about, let's say, EUR 100 million that will imply EUR 400 million of EBITDA for the food business roughly in 2023. Now with the guidance for group profitability, shall we assume that this covers just the losses in the Dmarts business? Or can we also see that the Dmarts business on its own is moving towards profitability or close to profitability in 2023? I think at previous conferences, you highlighted at least that might be an option. And then the second question would be on the actionable levers that you were highlighting. Have you implemented some of those already? Or is that something we should basically add on top from now on? That would be my 2 questions.

Thank you, Marcus. Yes, on the Dmart, so as you correctly calculated, if we hit EUR 100 million in Q4, so the very top of our guidance, that's a EUR 400 million run rate. We said that this year, we are up to EUR 525 million. But we also said that Q1 or Q4 and Q1 will be the peak of investments. I would also say that Dmart is not everything in that Integrated Vertical, but of course, the significant part. So if I assume this conservatively then, you will have towards the end of the year EUR 100 million loss on the Dmart side. So I basically said we have EUR 100 million profit on the Platform side, including Glovo and would have EUR 100 million negative on the Dmart side. That means that in that scenario, we would already be at the breakeven point in Q4 2022, this year. Now as I said, EUR 100 million is at the top of that, and it would be somewhere between EUR 0 million and EUR 100 million. So therefore, we are not guiding to profitability in 2022, Q4, but in 2023, but we feel very comfortable that we have that they are in a very good path to be there without having to pushing our business faster than what would make sense logically. It will still mean that we are going to invest more money next year into marketing. We are still going to invest more money into technology. We're still going to invest more money into many areas. It's just the fact that we are growing the size and we have a good profit contribution, and that is going to drive our profitability in 2023 despite more aggressive. And then in terms of levers, some of the levers we already start looking into. Some of them I would say that we probably have to pull in order to be at between EUR 0 million and EUR 100 million end of the year. But we are well on track. We will not have to pull all levers to get there. Maybe we'll have to pull 1 or 2 in some of the markets, but definitely not all of them in all markets. There will still be plenty of levers left for 2023 and beyond. Some of the levers will also take many years to implement. And I speak about advertisement revenue, even if we spoke about 2024, 2025, we are still only at 2.5% advertising revenue to GMV, while we still believe that long term, we can be 3% to 5%. So that's an example of where we own -- would take many, many years to get there. Same with other areas, maybe service fee we'll implement in some countries, maybe another country great a bit, depending a little bit on comparable dynamic, same with delivery fees and with many other things. So we will not have to play all levers to get to our targets. These are more illustrative to show the flexibility we have to increase -- or increase -- or EBITDA or how fast we want to increase our EBITDA.

Next question is from the line of Andrew Ross from Barclays.

Great. That was very helpful. I've got 2. First one is on the advertising in South Korea, which I think you said you're about to turn on. Just wondering if you can give us a bit more color in terms of when that's being switched on and how fast we should think about the ramp in Korea, specifically when it comes to advertising. And then the second one is to come back to those levers of profitability that you outlined. I guess one of the things that investors worry about is whether as you pull those levers, you might start to see a negative impact on GMV. And you gave the Middle East as an example in the slide. But wondering if there's any other examples you can refer to where maybe in the last month or 2, you started to pull on a couple of levers, but you haven't seen any negative impact on GMV to try and build confidence that this kind of ramp really happens in the second half.

Yes, sure. Thanks, Andrew. So on the advertisement side in Korea, one product will already be tested in April, let's say end of April to be on the safer side, and then Joker will be implemented in May, let's say end of May to be on the safe side there. Then, of course, it will, in the beginning, be under A/B test to receive what's the impact. Then, of course, you have a phasing of where we start showing it to restaurants, they try to understand the products and once you start selling it, but if you only have 1% of participating restaurants and of course, the pricing for the advertising space will be very low versus if you have 10% participate in there. And of course, prices will move to more reasonable level. And of course, if 100% of restaurants will participate, then you would have a very good market dynamic where the price will be set at the optimal level. But they are far from being there, also outside of Korea. So therefore, we shouldn't expect this to be from one moment to another. It will take months or years until we are at same level. I would even say, when we say 2.5% in 2024, '25, that still assumes that Korea will not yet be at the best practice case yet. But rather being more in line with the levels that the rest of the world is today, that there still are a couple of years behind here. In terms of growth in levers, we hope that most of the levers will have very minimal impact to growth to GMV. We have tested some of them. We have test a service fee in a couple of markets with no measurable impact. Has been very small services, but generally, no impact. In those tests, 2 countries specifically, potentially 3 or 4 as we speak. Then same with the delivery fee or charge when it's a little bit longer delivery distances, that is something that we partially do already. So that might only be a lever that we have done. But I think we can do it more. We can do it better, optimizing there and effectively might even be able to optimize even worsening for consumers. So just knowing your customer best at what point in time. And there are some levers, for example, increasing basket size, which is a massive lever of profitability. But here, as you saw in Q4, we did that a little bit in APAC. You will then do some of the orders, the orders which are -- I want to have a Coke or maybe I ordered my meal, but I forgot to order a Coke, so now I also order a Coke for EUR 2 and get it delivered. And of course, that GMV reduced if we have minimum basket values and similar. But there is also never going to be a profitable order. So it's very low-calorie order. So therefore, we saw a slight drop in order but almost no impact on GMV. And we see then after 1 quarter, we had to rebalance and we see that we can -- that there's a little bit of one-off effect that take some orders away. So those are the things that we're doing. But of course, there's always more room for upselling. You order an item, why not order times 2 or why not order another Coke or why not order another dish or maybe -- yes, so there's still lots of opportunity to not -- to increase the levers without impacting growth. So generally, our ambition is to not impact growth visibly at least.

If I may add, I mean, like I think it's important that this is additional levers with the budget. I think we highlighted this in the presentation. And every time we implement, we do A/B testing. So I also like to make sure that this have no impact or little impact on the growth.

Yes. And these levers, most of them are not in the budget. This will be incremental if we push this, at least a majority of them.

Next question is from the line of Adrien de Saint Hilaire from Bank of America.

Yes. Hopefully, you can hear me okay, guys. So I've got 2 questions, please. About the '23 targets. So what are you assuming regarding competitive intensity? Because we're seeing some areas in the Middle East where competition seems to be on the rise. So are you assuming a stable competitive environment or one that potentially deteriorates? And the second question that I would have is we've heard a number of consumer-facing companies in the last couple of weeks warning about the impact of the increased inflation, lower consumer confidence on business trends for the rest of the year. So you've kindly disclosed the January and February trends. Is there anything that you can say around how consumers are behaving perhaps since the conflict began -- Russia and Ukraine started and the subsequent inflation impact?

Sure. So in -- we will be able to achieve our targets for 2023, even if the competition will be much more tough than today. We believe that we are in a very strong comparative position and places where we are not yet the leader. We invest pretty aggressively, probably more aggressively than most investors would like us to do. But we can do that because majority of our business are in less comparative areas. And what we also see is that when you reach a certain size, let's take what you have in the Middle East or the size that we have in Korea. When you do the example of Korea, it doesn't really matter if someone comes in. It really doesn't impact us at all. And we have not impacted that at all on cohorts that haven't impacted growth. You saw we grew fantastically over the last couple of years despite under [ Coupang and Yogiyo ] in Korea, and they invested hundreds of millions in this industry, and they didn't move the market share at all. And in the last 12 or 14 months, the market share have been stable or even potentially even us gaining 0.5%, and that is despite being almost 8x larger than the #2; #2, #3 being more or less the same size and same growth. So we -- it comes to a point where it doesn't really matter. And we don't think that even in MENA. Of course, we are a little bit impacted, I would say, in Turkey because it's an enormous irrationality in spending vouchers and so on, but that is probably the exception to the rule that we want to double down and not given too much space to operate there either. Obviously, Turkey is still a small market of ours. But if you look at other places, competition is there. Competition will be there. We are okay with competition. Same if you look at Jahez in Saudi, we have flat market share for the last 10 to 11 months. We're having a slight gain over the last 9 months. But we both operate profitably, and I would expect us both to stay rational. But of course, they can always be 1, 2, 3, 5, 10 markets with high competition, we will still meet our EBITDA for 2023, even if it will be all markets would have tough competition. Then on the consumer facing -- or consumer concern on inflation, we have had this [ before ]. Yes, sorry?

No. I just wanted to ask you if you want me to color, but all good.

Yes. So we have had inflation before, as you can imagine. We have had it in Turkey. We have it in Argentina and not only a little bit of inflation, but a lot of inflation. We have never really seen an impact short-term, yes, short term, the -- yes, we haven't really seen any impact. We might even have seen a slight positive impact in the long term because restaurants tend to then increase prices and therefore, that will drive GMV. The cost for delivery is still very low. We believe that people tend to go out less but not order in less. So we have seen it in recession. We saw in the crisis in Greece. Generally, our business performed very, very well when there is economic crisis and the same goes with inflation. I think it's also an opportunity that if you stay strong on your cost control, your revenue will increase because you price it on GMV. And if food prices go up, then of course, you make more GMV, more revenue and if it keep cost control, then we can even drive EBITDA. So we consider it a good place to be if inflation comes.

Next question is from the line of Silvia Cuneo from Deutsche Bank.

My first question is on the updated outlook for Integrated Verticals. Can you please share more color on what you've seen in the past couple of months that made you decide to lower the investment rates at this early stage, maybe as more stores reached the 500 orders mark? And second question, we see that you have published the incremental detail on the adjusted EBITDA by segment for 2021. Can you please talk a little more about the countries driving the lower MENA margin? You mentioned Turkey has been quite competitive. Just wondering if anything else to point out? And what's the trend so far this year?

Yes. I'll start brief and then Emmanuel, you can cover in. So the Integrated Vertical, I think, in general, we had a good January, February. We assume that there's still going to be an awful lot of competition. We are still optimizing for growth and driving scale. So the strategy remains the same as before, but with a slightly better Jan-Feb. And that's why we felt a little bit more comfortable to move it to the bottom end. We also have a feeling that the competition has probably stalled a little bit. That has been harder for players to raise capital. And that's why we are also assuming up to EUR 525 million as there may be opportunities to do a little bit better here if competition is not coming the way we planned beginning of the year before having this a little bit market backdrop. Did you want to cover the EBITDA point in Turkey, Emmanuel?

Yes. I also wanted to mention like on the Dmart, I mean like in the last 6 months of 2021, we opened 70% of our total Dmarts in 2021. So these Dmarts have been impacting the economical results of the second half of the year until 2022. But we see better results in EBITDA for the Dmart initially expected. And therefore, we decided, [ we can try ] to amend our guidance, and we cannot exclude further improvement in the year but are prudent on the velocity. On the EBITDA for MENA, I mean, like we have been investing as you know, in 2 countries. The first one is Iraq, the second is Egypt. This is a country where we see very good return. Egypt is a country where we see a lot of potential for the future and has a very large population, very young population high density in Cairo and Alexandria. So we think that markets where we invest, and that is impacting our EBITDA. And in Turkey, as we said, we want to fight. We want to fight it, and that's why we've been investing in the second half of the year, as I said, with also Egypt and Iraq.

Next question is from the line of Andrew Gwynn from BNP Paribas Exane.

Just one actually. Could you just update us where you are on cash burn for 2022 and 2023. Obviously appreciate the EBITDA guidance is one thing. But just wanted to give us any more sort of positives to come through on the cash burn side?

I don't think so much in change, but maybe, Emmanuel, you will.

No, I mean nothing has changed to what we said on the free cash flow last time and likely now, we mentioned our EBITDA level. So this is in our guidance. On CapEx, we are a little bit lower than what we just announced at the beginning of the year. So we were saying that this was around 1% of GMV to be lower than this, also due to a certain reduction of investments in Integrated Vertical. So it would be lower than this. And besides what I mentioned last time in terms of tax payments that we do or invest, our interest and nothing has changed dramatically for 2022. 2023 is too early to say. We just announced that we expect to be breakeven in 2023. We'll give more color in the near future.

And I believe working capital is hopefully also turning the right way, turning from positive to negative.

In this financial year or next, sorry?

Sometime over the next, I don't know. Emmanuel, you want to say timing here?

No, I don't want to predict timing, but we're moving in progress also like in 2022.

Okay. Very clear. And then just can you give the figure for 2022? I think last time you spoke, it was loosely EUR 1.4-ish billion, EUR 1.5 billion of cash burn. But maybe just a quick update on that, sorry.

Yes. That's correct. This is in the same range as we did last time, as we said last time.

Next question is from the line of Monique Pollard from Citi.

Just a couple from me. Firstly, on the current trading, obviously, really strong Jan-Feb. I just wanted to know within that, you mentioned Korea had been good. I just wanted to know, Asia overall, I know you've seen some weakness in Thailand, for instance, in the 4Q. And just wondering if in that market, you were seeing an improvement and whether Korea was actually improving versus the fourth quarter as well. And then secondly, obviously, the slide that you've given on the MENA profitability from the best markets, that's very encouraging. By contrast, obviously, it implies that the worst markets have gone from being breakeven in 2020 to generating EBITDA losses of about EUR 66 million in 2021. Just wanted some confirmation on what that was. So is it, to your question before, just the investment in Iraq and Egypt and also fighting in positioning in Turkey? Or is there anything else that we should be aware of in terms of the worst markets in MENA?

Sure. I'll cover the first one and then you, Emmanuel, on the second one then. Yes, so -- yes, you asked about Korea. Yes, there's a sequential improvement. Overall, our business is sequentially improving. There will be 1 or 2 exceptions maybe, but overall -- if you already mentioned the APAC part, you mentioned Thailand. Thailand, we had some struggles mainly because we did not participate in the government program of one free order for every order, where our main competitors did participate. That was a massive mistake. We now implemented that feature. We thought it would be a very short feature that would only be alive for very short time, and that's why we didn't do it. Obviously, a big mistake, it's running or keep on running, and therefore, we implemented now in April. So now we should be in a path that we can actually grow our Thailand business better. We still have a very strong position outside of Bangkok. And as I said, with implementing the feature set now, I think we should be in a path where we can actually grow Thailand significantly faster than we did in the last 6 months where we actually declined. It -- so we are not happy with our performance there, but there has been changes also in the team setup. I think other than that, I think we're happy. Of course, there are, in some cases, a little bit of COVID plus/minus. There were also some events in Q4 that were a little bit impacting us, but that impacts everyone. So I don't think it's much to speak about. Vietnam had, of course, locked down a lot during last year. That is coming back, returning nicely. So hopefully, good progress there. Yes, overall, we feel very well -- very good about the markets where we're leader in. We have underperformed a little bit in the markets where we're not leader. I hope we can return that or improve that. Emmanuel, on MENA?

Yes, sure. I can cover the second question from Monique. So basically on MENA, yes, I can confirm this is really the 3 or the main countries that I mentioned before. Our investments in Egypt, this is the largest investment that we're doing in the region in terms of negative EBITDA. Then Iraq and [ Yemek ] as we are fighting Getir and we want to show our position. There is one country still in the GCC that is negative, but this is a very small country compared to the rest of the of Talabat Group. So if I recap Egypt, it's one country, as I said before, we really believe in the future because of the population side and the population structure and the density of population. Iraq, which are surprisingly is a very attractive business and we invest and then [ Yemek ].

And Turkey.

Next question is from the line of Andrew Porteous from HSBC.

A couple from me. You showed the chart around the cohort maturity and talked a lot of detail around that. But you also talked about normalization in conditions coming out of the pandemic. I'm just wondering even if people mature along the cohort, do you expect some normalization or some step back in the frequency across some of those cohorts? I noticed that the 2021 cohort seems to be falling below the 2020. So anything to sort of note there. And then the second one was really around sort of long-term targets. You've given sort of targets around advertising revenue out to 2025. Obviously, talking about breakeven in 2023 at group level. I'm just wondering if you're willing at this point to talk about when you might sort of get into that 5% to 8% EBITDA target range.

Yes. So on the cohort, you're absolutely right. We -- cohorts improve every year, but we had a big up in 2020. Of course, with the COVID impact. We believe there might also be a little bit COVID impact in frequency in 2021. If you look at the cohort uptick from the slide there, you saw that [ 15 ] cohort improved significantly in '21 and [ 16 ] cohort improved. And so all cohorts improved a little bit. So we saw an uptick there and our guidance that we set out, which is in the order of magnitude, 25-or-so percent growth. I don't take the exact number here. But in that order of magnitude, that all includes that there is some reverse to normal coming in here. If you go into 2023, we would then compare to, hopefully, a more normal year and could maintain a high growth there. But it's definitely harder to grow this year than next year than previous year given that there is some reverse to normal. In terms of -- and I think every player you will see, you will see lower growth this year than last year. We compared to a very tough comp, I still believe that we will outgrow our peers in general. When we look at the long-term targets, yes. So as you saw, there is a little bit of improvement of advertisement every year, even if this is not even done in '24, '25. There's still a couple of percent improvement from that point. There are other things that might also take longer. I don't want to say exactly the date and timing. I think, generally, our food business, we have moved EBITDA margin with roughly 1% per year historically. I cannot confirm or deny that will be the case, but I think when we grew with 1% only, that means that we are getting more and more aggressive. We -- it sounds like not. It sounds like we are less aggressive because we make more money. But the reality is that means that a significant portion of the increased gross profit is actually going to invest. And when we do that, we still improve margin with at least 1%. And then, of course, we have other verticals, which are a little bit behind and there are mix effects between them, that's why you could see an overall profitability, slightly different movements. But if you look at the core Platform business, approximately 1% improvement per year is what we have seen in the past.

Next question is from the line of Jurgen Kolb from Kepler Cheuvreux.

Two questions from my side. First one, your January and February performance implies that you've done a very good performance on the take rate. I was wondering what the main drivers have been here on a significant improvement of the take rate? And then secondly, with the financing that you've done, I think there was a similar question earlier on, but maybe ask it differently. Do you think that's enough to cover all the upcoming maturity profiles and you don't need to, for example, do additional selling of any stakes that you still have? And in this respect, how far you would wrap the sell-down of the stake there?

And Emmanuel, do you want to take those 2 questions?

Yes, on the take rate. I mean, like the take rate, we didn't do like a massive push up in the first quarter. We increased our take rate on a regular basis. As you know, we -- we do an increase of commission rate when we get new restaurant onboarding, new restaurant joining the platform. We continuously increase our revenue in terms of delivery fee, with dynamic pricing. So I don't think there is a better push, especially for January, February, but the constant improvement. Also, Niklas mentioned before, some measures also levers that we already implemented, like the increase of minimal order value in order to get profitable orders from -- or to get the orders with, I would say, [ discount hunters ], so that we improve our take rate in general. So I think there is no massive push or nothing special in terms of the first quarter, but in general, ongoing improvement. Concerning the position -- financial position. Pro forma for the transaction, the Delivery will have over EUR 3 billion cash on balance sheet and also access to EUR 375 million undrawn RCF after that transaction. So this is a very robust liquidity and a very strong strategic advantage for us, and this transaction will make us even stronger. So I've been -- I think that in this position, I don't expect any kind of further transaction or for the next 2 years or so concerning this particular financing.

Yes, and then based on... sorry, please...

I wanted to say that this transaction will also diversify our capital structure by tapping a new long date sources of the financing. So I think it's a very important transaction that we're doing here.

And I think you asked a little bit about our -- some of our holdings. I think some of them are -- I know there's always been a strategic rationale when we've done investments that have been to foster relationships, that have been knowledge, there has been potential further opportunities, and let's say we take Zomato as a good example or Rappi and so on. So there are many examples where we hope that there has been a very clear strategic rationale, one way or another. But of course, we've also done it when we feel like there has been a good opportunity as well, but there always has been a strategic rationale. Sometimes this strategic rationale that we keep in mind are playing out. And sometimes, it already played out. If you take the Rappi as an example, we feel like the strategic rationale that played out, and therefore, we were more a willing seller. In other scenarios, we might be also willing sellers. But of course, we are in no urgency kind of sitting with more than EUR 3 billion in cash. There's no urgency for us to sell down if we think that the prices are low. But of course, it always gives us that buffer if we need to or we want to monetize when the time is right, by no means do we have any audience in any of our holdings.

We have a question from Miriam Josiah from Morgan Stanley.

Firstly, just on the advertising revenues and the ramp-up of that. I think you mentioned that only 9% of restaurants are utilizing this product. So is it just a question of availability? Or is there any work in convincing restaurants to actually use it? Just trying to think through any challenges in terms of scaling that part of the business? And do you also think there's enough headroom in the restaurant P&L to grow both commissions and ad revenue? Or will there be a trade-off at some point? And then secondly, just a follow-up on Korea. If you could just comment any more on just the impact from normalizing the commissions in March, what's been the response from restaurants? And then any further color just on the progress of own delivery?

Thanks, Miriam. So on the first one, so we see it a little bit similar to, let's say, Google AdWords. If you remember how they sold the product in the beginning where big sales teams knocking on companies' doors trying to sell ad space and how it works and they try to educate on AdWords and some did it. But if you look 10 years ago, most companies did never advertise anything on Google AdWords. Over time, more and more companies realize there's a good opportunity. And also those who already did advertise, they started getting more sophisticated. They start to use new keywords, they start to find new places, new times to start to optimize how much is the value in the customers and get more and more sophisticated. If you look now 10, 15 years later, we obviously see that almost every company is visible on AdWords. Also, Google has become much better that's taken on an AI you're spending, you tell how much you want to spend. You do tell what your churn profile should be like and they will optimize your keywords and placing and accordingly to make sure that you are visible at the right time, in the right place with the right customers. And I think similar with our product is that we are in the early days of AdWords in this case. We are in 15 years -- 10, 15 years back with some. And in this case, for us, 9% are using the product they can still improve how they use the products to get them more and more online in the usage. And over time, I would hope that every restaurant, not only restaurant but vendor, as well as partner will use those online tools that help them to optimize their bidding for generate maximum value for the merchants there. And of course, the more participants you have, the more dynamic the pricing setting will be and price discovery will be. And that is, of course, very helpful, but we are not yet there. We are still reliant on some sales team, but decreasingly so I would say. Then in terms of commission and...

Do you want me to cover Korea?

I'll come there soon. I'll come first to the commission. And I would say because the trade of commission versus other tendency, I would say, normally markets with lower commission would usually have a little bit more room for the ad spending. But in general, yes, so there might be a little bit more margin in those places with lower commission basis to do that. But every market, there is there is room for at least average go to 3% to 5%. And in terms of Korea, yes, Emmanuel, feel free to tap in.

So yes, in Korea, as you know, we announced during December that we will phase out their promotion campaign on Baemin 1, which is our own delivery services. This phaseout started in March 2022 for Seoul Metropolitan for the last Seoul and its area. That was on 22nd of March and since today, also like for the whole country. So far, successful implementation or phasing out from the ecosystems or also from the society. We didn't see any headwinds, but 92% of the restaurants that we have on Baemin 1 are also like using on the new pricing. So the new pricing scheme is implemented and for Seoul and since today, Seoul and the whole country.

Great. This was the last question. So Niklas, would you maybe like to close with some final words?

Yes. Thank you, everyone, for listening in and for still being supportive to our business. And we definitely care a lot for you. We want to build the best possible company. We want to make sure that you have a very good journey. We know it has been a tough last few months. But we definitely listen to your feedback. We take it at heart and we work harder than ever to making sure that they're going to deliver on what we say. It's very important for me, it's a very important for Emmanuel. It's very important for the whole team. And I also like to thank all the heroes who might be listening, you have done a tremendous job and the last few months have been tough. We have been pushing very, very hard, but it has been very successful, and I'm very confident that we are on a very, very good track. So thank you, everyone, for the hard work.

Thank you, everyone.

Thank you, everyone, for attending. And operator, you may now close the call.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.