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 Q1 2023 Trading Update Conference Call. [Operator Instructions] I would now like to turn the conference over to Christoph Bast, Head of Investor Relations. Please go ahead.

Hello, and welcome, everyone. We hope you are well, and thank you much for joining our Q1 2023 earnings call. We trust you have all received the presentation we published this morning. All documents are also available on our website. We would like to remind you that this call is being webcast and a replay will be available later today on our website. With me today, we have Niklas Oestberg, CEO; and Emmanuel Thomassin, CFO of Delivery Hero, who will take us through the most relevant aspects of our Q1 performance, and after that, we look forward to answering your questions. And now, let me hand it over to you, Niklas.

Thank you, Christoph, and hey, everyone, and thanks for dialing in. So today, we give a very comprehensive review for being a quarterly update. We do this because we know many of you have suffered lately, and your trust is incredibly important to us. Really hope that this detailed update will give you confidence that we hit our plan 100% in every area and on all metrics, and this should also put us in a very strong trajectory going forward. We try to keep it brief. So let's jump straight in the highlights for the first quarter. Our business continued to show very strong growth in 4 out of 5 segments despite the very challenging environment. Delivery Hero, excluding Asia, grew by 16% year-on-year in Q1 2023. Growth in Asia was heavily influenced by the COVID reopening effect this quarter and -- or quarter last year, and 3 years of hyper growth driven by intense comparative environment in APAC markets. We are thrilled to say that, as of April, Asia turned marginally positive again in local currency, driven by the acceleration in South Korea, where GMV is already up by more than 3% year-on-year. Overall -- or differently, parallel to growth, we improved our adjusted EBITDA by nearly EUR 250 million to an adjusted EBITDA to GMV margin of minus 0.1%. With this, we are currently tracking EUR 30 million ahead of plan or budget or correctly said, in Q1, we were EUR 30 million better than our budget. I would like to emphasize that this was achieved despite the fact that we had hardly any GMV growth this quarter on a year-on-year basis. We have also executed a new convertible bond in February. This was important as it allowed us to strengthen our balance sheet and better manage our maturity profile. Emmanuel will now take you through the financials in more details.

Well, thanks, Niklas, and hello, everyone. A quick remark from my end. As we have prepared some interesting additional information for this quarter, I will not cover the slides on the quarterly financials in full detail and will only comment on the main highlights. And with that, let's start with our Slide 4. So as Niklas mentioned, we grew very fast in 4 out of 5 segments in both GMV and revenues. And this, despite a very tough environment and big improvement in profitability. Asia was a different story, as their year-on-year comparison was distorted by the COVID tailwinds in Q1 of last year. But we believe that by looking at the other 4 segments, give a very good indication on how our business can continue to compound with double-digit GMV growth on group level as soon as we are completely out of the COVID comp. So now moving to the next slide. So despite GMV showing only a small uptick in Q1, the total revenue -- segment revenue increased by 12% year-on-year. And the healthy development on our revenues, which continued to generate double-digit growth is due to the increase of our own delivery, our fast-growing AdTech business, the additional revenues from service fee and subscription, as well as contribution from our Dmarts. So now let's quickly go over the individual segments, starting with Asia on the next slide. The GMV in South Korea, this is our largest market, as you know, declined 6% in local currency in Q1. And as a reminder, in Q1 last year, the business grew by 35% year-on-year due to the COVID tailwinds. As of April, we have gradually moved out of the tough COVID comp, and we already see GMV growth of around 3% year-on-year in local currency. And despite this challenging top line environment, the adjusted EBITDA margin in the region improved by more than 2 percentage points year-on-year and is already above 1% to GMV. So in absolute terms, we have improved the profitability by close to EUR 170 million during the last 12 months for Asia. So now to MENA on Slide 7. So MENA continued to perform very well with double-digit GMV development and then despite this somewhat unfavorable year-on-year comparison in 2023. So this year, Ramadan started 10 days earlier as last year, we generated a slight negative impact on GMV development in Q1. And last year, if you recall, that Ramadan was fully within Q2. There were also like the earthquake in Turkey, which impacted demand in the region, obviously. And when looking at the countries in MENA, I must say that we are particularly happy with Saudi Arabia. Hungerstations continues to gain category share while improving margin, and it has done so by focusing on the service offering and value proposition, while our main competitor took a more short-term pricing approach. This has particularly played out in our favor in the last 5 months, where category share has moved quickly in our favor. Now, moving to Europe on the next slide. The top line in Europe continued to perform well, with GMV up by 15% year-on-year with global countries continuing their rapid development. The team is also making good progress on increasing the profitability in the region, expanding gross profit margin both through price initiatives and also through reduction of delivery costs. Now, moving to the Americas on the next slide. This business continued to generate strong GMV growth to 17% year-on-year despite also here profitability improvement and some headwinds from COVID reopening compared to last year. The hyperinflation accounting effects did not play a significant role in this quarter compared to Q4 2022, but we will continue to show you the GMV and revenue including and excluding the accounting effects on operations in Argentina for the sake of clarity. But we are very happy with the development of the region, both in terms of growth potential, as well as the profitability. Not only is Americas generating double-digit growth, but is now expecting to be close to breakeven at the end of this year after group costs. So now on to the next slide. The Integrated Verticals generated solid growth, GMV and revenue growth year-on-year, despite the ongoing optimization of our Dmart footprint and the clear focus on unit economics. AOV increased by 24% year-on-year as we continue to optimize our service, enhancing both product assortment and SKUs. The operational improvements together with the closure of low order Dmarts has led to an adjusted EBITDA uplift to close to 30% year-on-year in Q1 2023. We continue to evaluate our current footprint and plan to further reduce our Dmart portfolio by at least another 150 Dmarts in the next 2 quarters. This will further increase GMV per store and automatically improve the profitability of the entire business segment. So now on to the contribution margin on Slide 11, please. We have been expanding our fully loaded contribution margin of our own delivery service, including vouchers and discounts for many quarters now, and it's relatively increasing the margin from negative unit economics in 2019 to close to 6% by Q1 2023, and we expect this positive trend to continue. So in our view, we have proven that own delivery generates very attractive unit economics, which can be even more attractive than the marketplace business. So we are now at the stage where we will start speaking about the gross profit margin of the entire platform business, including Glovo going forward. And hence, we will discontinue the disclosure. But before we do so, let me spend a couple of words on the high-margin AdTech business. In Q1 2023, NCR revenue grew to 2.6% of GMV, excluding South Korea and Glovo, which is in line with Q4 results of last year. The stable development is mainly due to seasonality as our advertising business usually is the strongest in Q4, whereas Q1 is usually a bit softer. But in general, we are on track to reach a target of more than EUR 2 billion NCR revenues by 2025. Now, let's continue on the next slide. Here, the gross profit margin up for the entire platform business, including Glovo has improved consistently in recent quarters. MENA and Americas are already close to the lower-end of our long-term target range of 10% to 13%. Now, let me explain to you the individual levers behind the strong margin progression and give you some guidance on how we believe this is going to develop on the next slide. So as announced on previous releases, we are actively driving the progression of our gross profit margin by putting several levers in parallel. As you can see in the actual progression over the last year, the improvement was made by many small improvements to not impact customer experience negatively. This will also continue to be the case going forward towards target 10% to 13% gross profit. On the bottom graph, you can see the planned initiatives over the next few years. We would review that there are some of these levers, such as order stacking have significantly more opportunity to reach further scale than what's in the graph. However, and just by putting these levers, our gross profit will be [indiscernible] our target level, and we have, therefore, added a possible margin of error. On the right side of the graph, you see our cost base. And already today, we are not too far away from our long-term target. With increased scale, we believe that we will significantly improve further. And some of our best markets are already at below 3% on all costs, including central costs [ allocation ]. With all combined, it's why we are so confident to reach our target EBITDA margin regardless of our increased scale over the years. And on to the next slide, where we briefly comment on our 2022 Annual Report financials published earlier today. So first, please note that these numbers are not on the pro forma basis. This means that Woowa and Glovo, 2 main acquisitions during this time, are included since the closing of the respective acquisitions. In 2022, Delivery Hero generated GMV growth of 32% to EUR 42.8 billion and achieved an even higher revenue growth of 44% year-on-year to EUR 9.2 billion. And besides healthy organic growth, this was driven by the consolidation effects of the 2 acquisitions mentioned before mainly, which is Woowa and Glovo. In addition, we improved our adjusted EBITDA margin by 1.4 percentage points, which resulted in a significant reduction of the negative of the adjusted EBITDA loss by 41% year-on-year. On the next slide, I will now explain to you the items below adjusted EBITDA. On the left-hand side of the chart, you have the largest cash relevant items below the adjusted EBITDA of management adjustments, which mainly include expense related to M&A transaction, financing transactions, and reorganization measures, as well as interest costs and lease payments. On the right-hand side, you can see that the vast majority of the cost items below the adjusted EBITDA are non-cash relevant items. Largest component is a goodwill impairment loss of EUR 700 million circa or EUR 0.7 billion related to increased interest rates and higher risk premium, which triggered the impairment, but also the initial application of IAS 29 hyperinflation accounting [ instrument ]. Furthermore, fair value remeasurement of the investments in public and non-public entities had a negative impact of EUR 300 million net on the financial results. Depreciation and amortization increased compared to previous year, mainly due to the consolidation of Glovo and Woowa, and our share-based compensation remained broadly flat at almost EUR 300 million. Hence, it should come to no surprise that we have a relatively strong liquidity position, as you will see on the next slide. On the left-hand side, you can see our cash position amount to EUR 2.4 billion at the end of 2022. And adding our RCF, our undrawn RCF of EUR 450 million and the cash inflow from the convertible bond transaction carried out in February, our total amount or available pro forma liquidity amounts to EUR 3.2 billion. At the same time, the first maturity is due in 2024 and total less than EUR 300 million. As we expect to achieve our fresh cash flow breakeven -- free cash flow breakeven during the second half of the year, we believe that we are in a strong position to pay back our outstanding debt with our existing liquidity and future cash flow generation. And with this, I would like to hand it back to Niklas, who will take us through some very interesting case studies starting on Slide 20. Niklas?

Thanks, Emmanuel. So starting with the cohorts, you can see on the left-hand side how new cohorts are better than old cohorts. More importantly, the cohorts improved every year a customer is with us. This makes our long-term growth very predictable. What is very clear from the cohort table is the significant impact from COVID and how it reverted back to pre-pandemic development. On the top of the right-hand side, you can see the upgraded frequency. The same thing here, frequency increases slowly over time, but then COVID came, frequency increased very quickly until the end of 2021. Since then, things have gradually moved back to the normal frequency trend line. Since we get a lot of questions on Korea, we also added an active customer development chart here. As you can see, we have continued to increase our customer base there despite the COVID reopening, although at much slower rate. Speaking of Korea, the next slide will give you a deep dive. So, as you know, Woowa remains the clear leader in the Korean food delivery space and continues to further develop the local market. In 2022, Woowa generated revenue growth of 42% year-on-year to EUR 2.3 billion. Besides healthy organic growth and the COVID boost beginning of 2022, growth was also driven by the rollout of our own delivery service, which is generating quite attractive unit economics. Due to Woowa's large scale and controlled OpEx and marketing spending, adjusted EBITDA grew to EUR 387 million. This excludes the allocation of Delivery Hero's central group cost. But it does include EBITDA losses from Vietnam and Integrated Verticals. These losses will significantly decline in 2023. Further, the next slide, staying with Korea. In Q1 2023, orders declined by 9% year-on-year. However, due to higher basket sizes, the GMV in local currency declined by only 6%. The key reason for decline is the high comp from the COVID lockdown in Q1 2022 when GMV experienced an extraordinary high growth of 35% year-on-year. Moreover, if you take a look at the 2-year performance, you can see that GMV in Q1 2023 was still 25% higher than in Q1 2021, highlighting that the market is actually growing healthy. As already mentioned, we had a promising start into Q2 with GMV growth in April accelerating again to around 3% in local currency. We expect GMV to accelerate throughout the year. Now, let's look at our path to profitability slide. So with a continued focus on EBITDA development, we decided to bring back a few slides from the Q3 2022 trading update to highlight that we're slightly overperforming every aspect of our original plans around profitability. We expect that, in total, around 75% of the platform business will be profitable in full year 2023. We will expand Q4 2022 run rate adjusted EBITDA from EUR 1 billion to more than EUR 1.3 billion in Q4 2023 on a run rate basis. We expect to continue strong adjusted EBITDA growth also in the future years. The uptick in profitability will be achieved predominantly by the continued expansion of adjusted EBITDA in the current profitable countries, as well as the conversion of unprofitable countries to profitable. Now, on the next slide. We will give you an update on the development unprofitable platform business. So here, looking at approximately 30% of our GMV coming from this loss-making or these loss-making markets. Here, we continue to make gradual improvements on our path to profitability. By the end of the year, we now expect margins to be negative 2.5%, including group cost allocation, which is better than our previous estimates. Another couple of quarters, we should be at breakeven here as well. Now, to Slide 29, where we will touch upon the Integrated Verticals. And here, we have Dmarts being the major part is around 75% of the losses in the Integrated Verticals segment, and we continue to adjust our operations to move quickly towards profitability. In Q1, our gross profit margin for Dmarts was minus 1.8%. This is already 9 percentage points better than a year ago, and we expect to show positive figures by H2 this year. Not only do we continue to streamline our Dmart operations and reduce our unprofitable footprint, but as we acquire customers quickly via our platform, the total cost is also quickly declining. Now, to Slide 31, where we wrap up this section and summarize what all of these profitability improvements mean on a group level. So we now have improved the adjusted margin to GMV with 1.5 percentage points from 2021 to 2022 as there was a steep change in capital cost, which mandated a faster path to profitability from our side. We will further accelerate our margin improvements in 2023, reaching a margin of more than 0.5% for the full year 2023, which is nearly a 2 percentage point uptick between '22 and '23. We are in full control as we progress on our profitability path. We have achieved more than 2 percentage points year-on-year improvement this quarter alone and are very close to breakeven with a negative margin of -- negative share of 0.1% in Q1. In absolute terms, this translate into EUR 15 million on adjusted EBITDA burn for Q1. So with that, I hand over to Emmanuel again for the guidance.

Thank you, Niklas. So for the full year 2023, we expect GMV to grow between 5% and 7% year-on-year on constant currency basis. GMV year-on-year growth is expected to accelerate throughout the next 12 to 15 months, with Q2 expected to reach 4% year-on-year on constant currency basis as we are still operating against difficult comps. Our reported GMV will obviously be impacted by currency movements that we cannot control. And over the last weeks, we have seen negative FX headwinds with appreciation of the euro against the Korean won and the U.S. dollar, which most of the countries in MENA region have their currency [ base, too ]. We experienced a similar trend already in Q4 2022, especially in American business, which impacted our reported GMV and revenues, although we deliver at group level on our GMV guidance in constant currency. Based on today's FX rates, our reported GMV will be approximately 3% lower than our constant currency guidance. For total segment revenue, we expect to grow on a customer currency basis by around 10% year-on-year. We reiterate our expectations for positive adjusted EBITDA to GMV margin on a group level to more than 0.5% for the full year and with more than 1% margin for the second half of the year. As mentioned in the highlight, in Q1, we overachieved our budget with circa EUR 30 million, which will give a good argument to increase our guidance. However, we are also here negatively affected by the strengthening of the euro against the U.S. dollar and the Korean won, and based on today's FX rates, we will impact -- this will impact our reported full year adjusted EBITDA negatively with more than EUR 40 million. So now, back to Niklas, who will share a quick update on our long-term ambition on the next slide. Niklas?

Yes. So, yes, very brief -- I would like to share a brief update on our long-term ambition. We will continue to execute our vision of always delivering an amazing experience. We will carry on innovating and investing in technology to constantly improve our operations and assure we have the best service provider in the market. This should ultimately result in clear leadership within our current footprint, and consequently, higher EBITDA margins. On top, we plan to generate a GMV of more than EUR 200 billion in the long-term. As you can see, we have postponed our initial GMV ambition by a couple of years due to our increased focus on profitability. However, EUR 200 billion still assumes very low order frequency or at least it's far below the long-term potential. When it comes to our ambition in regards to profitability, remain more confident than ever that we will reach a 5% to 8% adjusted EBITDA margin range earlier than expected. Thank you all for the time today and your continued support. We now look forward to your questions. Christoph?

Thank you, Niklas. So before we start with the Q&A, the usual reminder from my side, please. As we would like to give every analyst the opportunity to ask a question, I would kindly ask you to limit your question to one only. Operator, please go ahead.

[Operator Instructions] The first question is from the line of Joseph Barnet-Lamb with Credit Suisse.

Look, I guess, my question is, based on the improvement on Korea that we can see in April relative to Q1, when I do my math, I think it's likely that group GMV grew in sort of mid- to high-single-digit percentage in April. Is that broadly fair? And if so, I'm just trying to square that with your 5% to 7% full year guidance? I think comps get a tad easier beyond April. So is there anything you're seeing could imply a slowdown sort of later in the year or is it just conservatism from your side?

Thanks, Joe. Correct, we had a great start into April, but let's not get ahead of ourselves. We're only 3.5 weeks into the quarter. But you're correct, if the very positive development continues, then we have a chance to beat the guidance that we gave. I think we said 4% year-on-year in GMV for Q2, and correct, we are -- if current development continues, which obviously, I believe and hope, then we have a good chance here. But I would also say, given that we ended up at the bottom of our guidance last year, we like to make sure that we also stay a little bit cautious here and do not overpromise, yes.

The next question is from the line of Giles Thorne with Jefferies.

It was a question on the launch of Baemin 1 stacking in Korea this month. When Baemin 1 was first launched, the emphasis was on giving the consumer a better service, a one-to-one service. And we've now gone back to offerings, stacking at a lower delivery cost for the consumer and the restaurant. So this feels like a pro-growth decision with an overall neutral impact on unit economics, but it'd be useful to hear your logic for the move and indeed what impact it could have on GMV growth and profitability in Korea this year?

Sure. Yes, so we launched it just 1 or 2 days ago, so it's still very early. But our expectation is that, we can reduce prices for both restaurants and consumers while still maintain a similar margin on our logistics. The hope here is, of course, that we can expand our own delivery percentage more going forward, hopefully, significantly so. And if we do, that will significantly improve our profitability in the market because we still make more money on own delivery than what we do on the marketplace side. So this will be very positive on an EBITDA basis. Still too early to say how fast we are going to increase our own delivery proportion in the market. But I think this is a clear step towards gradually increasing it over a long time. But how fast it happens, still TBD. We'll come back on that maybe in a quarter or 2 when we see more.

Okay. Just to follow up, was this in any way a response to some of the negative press? I mean, you always get negative press in Korea. So it's not really a fair observation, but there has been some press out there around the cost to the consumer of delivery. Was this response to that? Or was this the logic or the reason?

I think in general, we prefer stack orders because we can make it more efficient cost-wise. And even if it takes a few more minutes for consumers they prefer to take the few more minutes, but they can do it at a lower cost. Restaurants also, of course, prefer lower cost. But I think we decided to not do stacking initially because we wanted to making sure that there is no difference in our service offering versus Coupang. Coupang came, as you know, very aggressively into the own delivery space. And with a no stacking policy, and we want to making ensure that the customer perception is not that we are slow and they are fast. And that's why we also said we are not going to stack and that was a very clear value proposition to our consumers. Now, as Coupang has also moved to stacked delivery, we felt it's time for us to also move in on this path. And I think it is a -- it makes it cheaper for restaurants, it makes it cheaper for consumer, it improves our service, it hopefully helps us take down that perception of expenses because it is a little bit expensive and hopefully also then drive our own delivery to significantly higher levels than it is today. And as I said, since we are stacking, we can do it more effectively cost-wise, and that also helps us to -- and we won't make more money on it, but -- we might even make slightly less, but overall, significantly more than on the marketplace side, which is still almost 5% of our business today.

And I think if I may add, Giles, to your question. Obviously, we will measure the quality of the service. So like we want to offer stacking, and we continue to measure the quality of the service to the consumer and to the restaurants, so that we don't have a negative impact from the stacking on this matter.

The next question is from the line of Andrew Ross with Barclays.

I want to just come back to the EBITDA guidance and clarify a couple of points. So I think you said that you were running more than EUR 30 million ahead of budget at the end of Q1. I'm assuming that is just for Q1, i.e., would be more than EUR 120 million on an annualized basis. And then you've said there's a EUR 40 million headwind for the full year from FX. So, a, have I got that right? And then, b, assuming that I have those 2 things don't net out, and so just coming back as to why you haven't moved the EBITDA guidance. Is there anything coming through the year? Or is there just some flex as you're thinking about it?

Well, maybe I can start here. Like yes, you're right, we are ahead of our budget for Q1 2023. And this despite a moderate growth in GMV for the reason that we explained earlier, right? So in our view, these results are the combination of, first of all, cost control, but also some decision that we take to drive adjusted EBITDA. But we think that this is still -- we are still at the beginning of the year to raise our guidance, and we want to deliver, as Niklas said before, on our promises. And we will continue to monitor the development quarter-after-quarter. But yes, we were ahead of our EBITDA budget, let's say, for the first quarter by EUR 30 million. So as we said, like I just said, we want to stay cautious in terms of our projection in raising the guidance. And for the FX, this is what we monitor as of today in FX development.

And maybe if I add -- if I may, I think it's also very healthy for us to making sure that we have some flexibility. And we cannot forecast what happens to the rest of the year. And right now, there is a very strong rationality in the market. And -- but we don't know if that will remain. And, of course, we like to making sure that we have remaining some flexibility to respond or take advantage of opportunities that would come up. So, yes, we are ahead of budget also to making sure that we have that flexibility to respond or take advantage of opportunities. So we felt like we keep that flexibility also for another quarter or 2.

The next question is from the line of Miriam Josiah with Morgan Stanley.

Just one on the long-term gross profit drivers. I guess, on that slide, you showed that order stacking is a big driver of that. And, I guess, you've given quite a big range there, sort of 1% to 3%. So what do you see is driving that delta? Is that all really just around Korea and what you were talking about earlier? Or are there other factors there? And if you could just talk about where you are in your best-in-class markets in terms of the percentage of orders stacked? And then just generally around how you think around the execution risk on those drivers that you've put on that side? Because, I guess, if all goes to plan, it looks like you could potentially beat your sort of long-term target of 10% to 13%. So how are you thinking about the broader execution risk there?

Right. So I'm not 100% sure I cover the first question now perfectly. So please help me if I'm directing the question wrong. But yes, so was it more on the 6% that we have room there? Or was it more around the [ lower traffic ] on the first one?

It was about what the levers for driving the gross profit and what we mentioned with the stacking like generally the potential for stacking?

Yes. I guess, the order stacking [indiscernible] execution, if there is risk. Maybe I cover that and you cover the -- if the first question was not covered. So on each of them, first of all, I would say, we're speaking here about long-term. We might see more opportunity in one area, maybe we see a little bit less opportunity in another area, and -- but we try to -- kind of we have done a decent assessment of what we think is realistic to deliver in terms of gross profit improvement. I think order stacking is probably the one that I still least ambitious. And you asked how we stand there and some markets like Korea is coming from 0%, other markets are probably at 50% or so percent order stacking. I think there is significant room to improve. I think in peak markets, when we have a lot of volume in big markets, we can get up to 7 drops per hour. So you can imagine how much room there is on the upside from where we currently stand. But it's all based on having a lot of volume and continue to optimize our logistics and operations. Therefore, the percentage we have there is probably -- yes, it's fairly conservative. Then, of course, there's a lot of other levers like pricing. And of course, you can always move pricing more. You can have a look at U.S. players, they probably price, I don't know, 5% higher. And still, it seems that demand is there. And here, we have said like, let's just assume that we improve pricing, smarter and more efficiency there with 0.5% to 1%. AdTech. I think we have discussed in the past, I think basket size is, of course, also a big opportunity. Of course, if you improve your baskets with, let's say, 10% and you have a take rate of, I don't know, 25, then of course, you improve your gross profit quite significantly. Same subscription service fee, general CPO reduction. So I think overall, we feel very comfortable with the things we have in there. But we also said, like, what if you are wrong, so we have also added kind of a marginal error or maybe unknown things that we don't know of. Now, the question is, does it mean that if this risk in margin error occurs that we will be at 14%, 15%, 16%? And here, I would say, no. Maybe we could, but that would not be our strategy. We will just try to find maybe pricing -- take pricing down if that, or maybe we would do something that makes it better for restaurants or consumers. We don't want to make excessive profit because we don't think that is sustainable. We rather want to be a company that can continue to reduce pricing, and therefore, drive more volume. I think the excessive pricing is just going to invite for disruption. Then on the -- you said on the OpEx and marketing and we're currently on minus 7.2% there, and we put here below 6%, which is what we have said in the past, that wouldn't require any scale at all, I would say. We have to be even a little bit more efficient in our setup. But of course, as we scale, as we double, triple, quadruple our business, it will be easier to drive this percent significantly lower. And that's also what we see in the best-in-class markets, which are below 3% or even a little bit lower than that. So I think there's also some room there. But again, we don't want to -- we don't aim to make more EBITDA than, I don't know, the 5% to 8%, even if that would be possible because we just think that is not long-term sustainable or that would just not be the right thing to do. Did I cover your first part of the question here also, Miriam?

Yes. No, that's very comprehensive. Just a quick follow-up on the order stacking. So you said 50% in the bigger markets. Is that the question of maturity?

The best-in-class, correct.

The best-in-class markets, yes.

[indiscernible] 50% in the best-in-class. And then, of course, it could be 2 order stacked or 3 order stacked or 4 order stacked and so on, but 50% of orders being stacked on an average day.

And do you think that's something that could go in -- across most markets or it's really driven by [indiscernible] things like that?

I think -- I know, we always get a little bit better, then, of course, there's always a question if there is a little bit what customer wants is to say like I'm willing to pay for getting my food very, very fast, then we might stack a little bit less. So maybe we even give a priority. We have that in some markets that we can pay for priority that it is not going to be stacked. So in some markets, people would rather pay less, but stack more. In other markets, the service level will be more important than getting it distantly. So it's a little bit market by market. But I think we have room to keep service level at the current level and still increase stacking. And I think some markets are -- have been pushed in that more than others, in particular markets that have a lot of volume. In markets with less volume, the difference between how much they stack would not make it a little bit less different. But as we grow, stacking becomes more and more important. And that is also one of the advantage of being large in the market and being the leading player that you can be significantly more cost-effective. And that's the benefit we have of being the clear leader in more than 90% of our business.

The next question is from the line of Christopher Johnen with HSBC.

On the same Slide 13, I would just want to follow up with respect to what sort of size is required to get there? I know that the new guidance of more than EUR 200 billion is still fairly far away from what consensus expects in the next, let's say, years until 2030, probably closer to EUR 100 billion and EUR 200 billion. I'm just curious how that chart might look like if it was closer to consensus expectations? How much of a difference does the EUR 100 billion difference make here?

So I would say just for the argument of the point, let's say, that it would -- we would be able to reach the 5% to 8% without any increase in size. We already have so much size and scale that we have now that with the scale that we're currently having, we can be at the 5% to 8%. And it's rather an additional benefit if we can -- or if when, I would say, when we be double, triple, quadruple, larger, the OpEx to marketing will be the one that can driving even further. Some of the initiatives, such as order stacking, will be a little bit easier to do. CPO reduction, also a little bit easier with scale, but most of those other levers like pricing, AdTech, basket size, services, subscription is not really scale dependent. So those can be executed already today. It's just that it takes a little bit of time. So the clear -- the only main difference in how can we get to the 5% to 8% is the marketing OpEx. We are currently at 7.2% without growth, then, of course, getting to below 6% requires a lot of cost and push there. But as we grow, you -- I don't know, that 6% will hopefully come down to be, yes, significantly lower than that 6%. So -- but again, we don't required growth in order to get there. Obviously, everyone who looks at the cohorts will see how predictable our long-term growth is because we can see how cohorts mature and how they get better. So it's just a matter of time until we reach the EUR 200 billion.

The next question is from the line of Monique Pollard with Citi.

So it was just a quick question on the Asian market, ex Korea, because you've given those details of how Korea performed in 2022. So if I look at Asia, ex Korea, the EBITDA losses in 2022 were still over EUR 300 million. They narrowed somewhat year-on-year, but about EUR 160 million. But also, almost all the growth in that Asia business last year was from Korea. So given those 2 things, isn't there a potential to accelerate looking at rationalizing some of those markets and that could really materially lift the EBITDA for the group without any real impact on growth?

Yes. So there has been a significant improvement in profitability of that in Asia, ex Korea, as we all become more rational. Then, of course, there's also a little bit of -- or quite some COVID impact as we're reverting from also there. So it's a difficult comp from that point of view. But also, it was 3 years or so with hyper growth driven by intense competition. So both us and our competitor, I don't know, grew a lot. But as we both kind of moved more towards profitability, of course, that takes a little bit of a hit on short-term growth. As that is soon out of the system, I would say, out of system, and I would expect that Asia, ex Korea, will be the fastest-growing part of our business. It's still the part of the business that has the largest opportunity, and we have very strong cohorts there. So I would expect that will be the fastest part of our business in growth, but we probably will be 12 to 15 months from here that we reach kind of a normalized growth level in that Asia, ex Korea. We have also seen that our gross profit in Asia, ex Korea, is very good. It's -- yes, it's very good, it's on par with the -- or it's above the level of the group. So we -- yes. So therefore, it's fundamentally a very strong business, but we now have to suffer through a little bit of a difficult comp for another 12 to 15 months. We should see [indiscernible] from this level that growth will improve, but we will only be at kind of a long-term growth, I would say, in 12 to 15 months from now. And the potential is, of course, enormous in that segment.

[indiscernible] Niklas, what you see an improvement of the margin in APAC in total, including Korea, is the profitability push for Korea that is improving, but also like improving our negative EBITDA in APAC in the rest of the region. So this is a combination of both, and not only solely coming from Korea.

Okay. And there are no markets within that segment that might not look so attractive to you? I know -- you know there have been issues in the past in Taiwan.

I think in general, our strategy is always to be a clear #1. And you correctly point out that there are 2 markets there which are not at that level. So of course, we are a little bit less excited by those 2 markets. But I think overall, as a segment or as part business, which also include a lot of markets outside of Southeast Asia that often referred to -- it also includes Taiwan, Hong Kong, Pakistan, Bangladesh. So a significant portion of that is still in a very clear leadership point of view. But yes, there are 4 or 5 markets [indiscernible] compete still. And 2 of them, we are distant 2 or even 3. And that's normally not the position we want to be in.

The next question is from the line of William Woods with Bernstein.

Just coming back to that profitable and unprofitable guidance upgrades, but obviously not changing group guidance. Is there anything that you're seeing in the market that makes you more cautious, for example, competitive intensity stepping up? If I look at your kind of outturn in marketing spend on the -- in the Annual Report, it looks like they've increased as a percentage of GMV H2 versus H1? Or for example, we've seen Coupang perhaps accelerating some discounts in some areas of Seoul. So is there anything that is concerning you in the market there?

I would say if you look overall in our group, both profitable and unprofitable, I would say that it has been further move towards rationality. And I believe that will maintain at least for the foreseeable future. Obviously, we don't always plan on that. We are always ready to, in case that changes. But as it looks right now, it seems to be a very pragmatic approach by -- a constructive approach by all players. You're right, maybe kind of a little bit point there is Coupang, who launched a discount on their food delivery in 3 areas of Korea, where they give discount to their subscribers we have also responded to that, and correct that that cost us a little bit of money, but we don't think it's too material. And I think we still are standing very strong in the Korean market. So I'm not too worried about that either.

And maybe, William, if I may complete also, like the trend is that our percentage of [ partnering ] to GMV is declining year-after-year, and this is still the case. So we are now below 2% of GMV, declining over time.

The next question is from the line of Jurgen Kolb with Kepler Cheuvreux.

With respect on the Dmarts, you announced another closure around in Q1 and Q2, and maybe you end up at the end of 2023 with about 880 stores or so. Would that be the new equilibrium? Or how should we see the further development? Is there anything else to be done? And specifically, as you pointed out that you could reach your 5% to 8% EBITDA margin even without scale. Does that also account for the Dmart business? So is there any necessary cuts in the planning even after these 150 in order to get to a more profitable level in the Dmart business?

[indiscernible] Emmanuel?

Yes, that'd be true. So basically, Jurgen, the first thing is, we're reviewing our portfolio since last year. As you know, I mean, like we reduced [ 79 ] Dmarts in the first quarter. We continue to do so in Q2, Q3. We're targeting 150 Dmarts. And yes, we'll be close to the numbers that -- mathematically, we'll be close to this level of Dmarts you mentioned, I think you said 880. So mathematically, we're there. It's still fair to say that this is a net. So we also opened certain Dmarts in a very, very specific area and this to drive the unit economics, which are improving. You've seen also like we mentioned before the path to being positive during this year on gross profit. And that's due to basically larger basket size, bigger volumes, and also like better unit economics as we decide to close to be very selective on certain Dmarts that are not reaching out these unit economics. So this scrutiny, I will say, on every single Dmart. Every single Dmart like it's not a country logic, it's not the city logic, it's a Dmart logic that we do. We continue. And hence, today, we not try to close the Dmarts that are not providing the unit economics. And this is for the benefit, obviously, of the results overall because this business is not only providing service that the customers want, but also economically, we see already in a region that is a very profitable business once you reach the unit economics or the numbers of orders and the basket size that is required. So in certain regions, it would might take longer, but that we will continue that path of being extremely rational looking at Dmart that we need to be close. And when I say close, sometimes is also a consolidation. So it's not only closing a Dmart, it's sometimes merging 2 or 3 Dmarts together so that you can continue to serve the customers with better unit economics. So that is the direction that we've taken since last year and we continue and foster this one during this year to -- again, to reach a positive gross profit during the year and even more afterwards.

You asked about the long-term margin. And I would say, yes, we will also be at the 5% to 8% on the Dmart side. We also already now in some markets where higher EBITDA margins, positive EBITDA margin in our Dmart business than what we have in our food business. And I think this is quite exceptional given that we are running our food business in some of those markets for 10 years and only 2 years of Dmart and still better margins there in food. I would also add that we have only really started the advertisement revenues, so that could add another -- maybe another 5 or -- I don't know, we are already at a couple of percent, but you can probably add another 5 or so to reach kind of a 6% to 8% advertisement revenue to GMV. So even if we haven't really optimized that and even if it's just 2 years in some countries already performed better EBITDA in Dmarts than in our food business.

The next question is from the line of Marcus Diebel with JPMorgan.

One question is on cash flow. I mean, thank you, first of all, for giving the detail on improving profitability. I think it goes really in the right way. But if you could help us also to understand kind of like what is still the gap between adjusted EBITDA and the cash flow, if you can maybe take us through this from your point of view today, if there's anything that has changed. I've seen that you obviously reiterated guidance on cash flow, but it would be great if you can just get us up to speed again from your point of view about the gap between adjusted EBITDA and cash flow that will be great.

Yes. So as we are on the trajectory to be -- to reach our free cash flow breakeven during this year, which we reiterated today, and like this is another guidance which we reiterated today. What we need to do is to manage our CapEx. As you know, we guide -- we mentioned the investment of EUR 300 million for this year for CapEx and also like the -- as you said, the CapEx. And then working capital actually should turn positive. So all these aspects, which play a role in free cash flow, will continue to be monitored and improve over time. I mean, we're reducing our CapEx to GMV, as you know. And this will continue. We also improve our working capital, basically due to the Dmart which was at the beginning, not attractive for the cash flow, but is contributors in terms of cash flow at the end of last year. And it will -- and this is what we're doing in order to get to this cash flow breakeven at the end of the year. I think the trajectory and the planning that we have don't require any new measures in terms of all these aspects below the EBITDA. As you know, certain positions below EBITDA are not cash flow relevant. I'm talking here about the share-based compensation program and other positions. But the ones that are cash flow relevant, obviously, we are monitoring them and are improving over the years, but the trajectory is absolutely clear. So we don't need to do extra measures on this extra position this year.

Would you be able to share an absolute number broadly? I mean, let me say, what are the items have been sort of need to discount of adjusted EBITDA to get to cash flow? I mean, obviously, we come up with our own EBITDA numbers, but the gap would be quite interesting.

I don't have the gap -- I mean, the bridge now, but we can provide it for sure. We provided, I think, in the last Trading Update, what will be the position in cash flow below EBITDA, but I'm happy to provide a bridge next time.

Yes, perfect. Wanted to see if there's any change, but that doesn't sound like [indiscernible].

No, there's no change compared to what we said in the planning. The only one change, and I mentioned this, I think, in last trading update in February is that we've been quite conservative on the tax payment, if you remember. I mean, initially, we were planning a large proportion and then I think we agreed to cut almost by half the tax payment this year compared to what we initially take into account for cash flow. So that's one of the improvement that we are -- we've been conservative on the cash planning, and that will impact positively our cash flow. Other than that, the rest is unchanged. We continue to monitor. Obviously, we negotiate -- we continue to negotiate better terms with the suppliers to improve our working capital. We also review, as we say, our CapEx. I mean, like in the terms of [indiscernible], I mean, as you know, [indiscernible] was one of the big position for the CapEx. Here, we are working on other solutions so that we could eventually avoid any device in the future, which will also improve our CapEx or our cash-out and bring a positive aspect to the cash flow planning.

So in conscious of time, I don't want to hold everyone up here. Maybe our last question.

And the last question is from the line of Annick Maas with Societe Generale.

My question is on advertising actually. So you suggested that you're on track to reach your EUR 2 billion advertising revenue target. Can you give us a little bit more detail? I mean, in Q4, you suggested you had signed your first FMCG client. So can you tell us how many new clients have you signed up in which regions or is it all existing clients that raise their budgets?

You put the hardest question the last here. So I cannot share the new clients. But I can tell you that the excitement is very high among the FMCG companies. We didn't have proper solution before and now they're there, and they really stand in line for doing things. So I -- we'll remain very positive on the advertisement side on the quick commerce base, both the Dmarts as well as quick commerce in general. Then on the advertisement side, on the restaurant side, I know it's like a clockwork. And I think we still have a lot of room, in particular in markets where we haven't done this much, speaking of the global market, speaking of Woowa. We still want to rush it slow, making sure that we onboard properly, that the restaurants see a clear value what we propose. So I think, yes, we could probably move this a little bit faster, but we also want to be a little bit cautious here that we keep the reputation intact. But yes, we still feel confident about this part of the business. And then obviously, it's a very high margin part of the business. So I think that was it, unless Christoph you have anything to say. Then I'd like to highlight how important your trust is to us. We will always work tirelessly to deliver on our commitments to you. The challenging markets and the return from COVID has been very exhausting, but it's also been very healthy. We did not shy away from some very tough decisions, and those decisions have made us stronger and faster. I'm very convinced of that. So as we now gradually move out of the COVID comp, we believe that we are in a better position than ever to grow in a very healthy way. And as we have all suffered through some challenging times together, we also very much hope to continue a more pleasant journey together for many years to come. So again, many, many thanks for all your trust here, everyone.

All the best.

Thank you very much. All the best. Talk to you soon.

Thank you all for attending. 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.