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 Q2 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. Thank you very much for joining our Q2 2023 earnings call. 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 Q2 performance. After that, we are looking forward to answering your questions. And now, let me hand it over to you, Niklas.

Thanks, Christoph, and hey, everyone. Thanks for dialing in. I think today there's a bunch of good news that we want to share with you. So let's jump straight into Slide 3 for some key highlights. So first, our business has regained significant momentum with very strong growth in 4 out of 5 segments. Delivery Hero outside of Asia accelerated to 18% year-on-year on a constant currency basis in Q2. Including Asia, GMV growth accelerated from 2% to 8% year-on-year on a constant currency basis and this is well ahead of our guidance of 4%. After a difficult Q1, Asia has returned to its growth path and generated GMV growth of 2% year-on-year on a constant currency basis despite very tough comp. One point that makes us particularly proud is the fact that our Dmart business broke even on a gross profit level in June this year. This is ahead of our previous guidance of positive gross profit in H2 2023. And just to avoid any misunderstanding, this is of course the gross profit after delivery costs, store-related expenses, supply chains, et cetera. We have also performed ahead of our budget in terms of profitability with the group achieving positive adjusted EBITDA for the entire first half of the year. The adjusted EBITDA margin in Q2 was already 0.2% and we are very confident that we will reach our full year target of more than 0.5%. We are currently outperforming our budget by more than EUR 40 million. Nevertheless, we decided to keep our earlier outlook for EBITDA for the full year as we balance long-term growth investments and profitability. Liquidity side also looks very good at the end of H1 of EUR 1.6 billion in cash and cash equivalent. And in addition, we have an undrawn RCF of EUR 500 million. If you look at the next slide, you can see how both the GMV and revenues are accelerating. As mentioned, GMV growth has accelerated from 2% in Q1 to 8% in Q2 at a constant currency. Revenue growth increased to 16% at constant currency. This was done while at the same time we ramped up adjusted EBITDA by almost EUR 500 million on a year-on-year basis for H1 alone. So this is more than a 2% margin improvement year-over-year. I think it is also important to understand that the positive momentum is coming from almost all regions. Europe accelerated to 17% year-on-year despite the challenging macro environment. MENA accelerated to 21%. Americas grew with 11% including hyperinflation accounting. Excluding hyperinflation accounting, it grew with 17% on a constant currency. Integrated Verticals grew 26% while our Dmarts grew 38%. The difference there is that some of the restaurant and kitchens businesses have been reduced outside of MENA. Asia was the only segment with below double-digit growth, but we expect to be there in a not too distant future. Now, let me hand over to Emmanuel, who will give a deeper dive into the financials.

Well, thanks, Niklas, and good afternoon, everyone. Let's start with our Asian segment. GMV in Asia returned to growth in Q2 2023 on a constant currency basis, after some challenging comparisons driven by COVID and also excessive competitive spending in APAC during 2019 to 2021. And we expect to gradually accelerate growth from the strong bases over the next 12 months. South Korea have been performing very well and continue to grow their high GMV base in local currency. Although we have one competitors introducing discount of up to 10% in Seoul and other cities, we have been successful in driving most of the impact by shifting advertising budget, introducing our stack-on delivery and increasing our promotional activity in more competitive districts within Seoul. And despite these investments, we have continued to drive profitability by pulling all the levers. These actions together have contributed to our flat year-on-year development in category share in South Korea. And if we are looking at the value customers, we believe that we have strengthened our category share further. In the APAC region, we expect that the initiatives such as increased marketing efficiency for smarter high value customers targeting have been -- positioned us well for the second half of the year. And despite the negative growth on the first half in Asian region, we have made strong progress in profitability and have generated adjusted EBITDA, I believe, of around EUR 250 million year-on-year for H1 only. And this translate in our -- into a 2% point margin improvement. So we are now in a -- we think we are now in a very strong position to invest in efficiency and sustainable growth. But now let's move to our MENA on Slide 7. So MENA continues to perform very well with double-digit GMV and revenue development due to stronger customer demand. We continue to grow the category share in the region with operations in Saudi Arabia developing particularly well as we focus on better customer service, enhancing both choice and affordability while improving profitability. Also very happy with the development of our early-stage countries and in particular with Egypt where we have a strong foothold and a leading category position. We have achieved positive adjusted EBITDA before group cost in this case. I always mention after group costs, but in that case it's before. So we achieved adjusted EBITDA before group cost for the first time and we start operation -- that we started operations in the country. And this was achieved by growing GMV by more than 2x in local currency year-on-year in Q2 2023 while improving both CPO and advertising efficiency. In Turkey, our more competitive market in the region, we continued to improve our customer experience. The competitive pressure over the last 18 months has improved and we have regained the lead in the food delivery category. And despite our continued investments in certain markets, adjusted EBITDA in MENA more than doubled year-on-year, reaching an adjusted EBITDA to GMV margin of 2.4% in H1 2023. Well, now, moving to Europe on the next slide. Topline in Europe continues to perform well with GMV and revenue up by 17% year-on-year at constant currency, this despite our ongoing macro headwinds across the region. We are constantly advancing on our path to profitability in the region with the adjusted EBITDA margin improving as a result of better unit economics and also OpEx savings. Also the team in Europe has successfully completed the foodora rebranding and centralization of key functions, and this was followed by a very successful promotion campaign that boosted brand recognition and topline development. And with the increase of our centralization, Europe is significantly better positioned for building product leadership, and we look forward to the coming quarters. So now moving to the Americas on the next slide. Americas performed well in the quarter. Excluding hyperinflation accounting, this region continues to generate growth GMV -- strong GMV growth of 17% year-on-year and this despite customer focus on profitability improvement. We continue to gain market share in the region and currently leading 13 out of the 15 countries in which we are present today. We absolutely solidified our foothold in the local markets as we improve our customer experience and products and also including our high-tech solutions. Quick Commerce also performed considerably well with GMV growing by 40% year-on-year in the quarter as we continue to scale up this business across the region. And despite the strong topline development, the region has also delivered on this path to profitability. And as a result, the adjusted EBITDA margin in H1 2023 has improved by nearly 3 percentage point over-year. Well, now, to our Integrated Verticals on the next slide. Integrated Verticals generated strong GMV and revenue growth despite the ongoing optimization of operations, which saw a footprint reduced by 14% year-on-year to now 982 Dmarts in Q2 and we plan to continue our centralization effort and expect an additional 50 Dmarts to be closed during the current quarter. We're also in the process of closing our Kitchen vertical outside of MENA which impact the overall topline growth of this segment while Dmarts continue to grow considerably well with a GMV uplift of 38% year-on-year in Q2 2023 on a constant currency basis. We continue to make headways in boosting profitability in Integrated Verticals and I'm thrilled to say that this is the first quarter in which we have achieved positive gross profit for the entire segment. And we continue to optimize operations and further improve our unit economics towards the positive adjusted EBITDA. We will come back to this later as part of our case studies. Well, now, on to the gross profit margin on the next slide. So as a reminder, last quarter, we introduced this new slide here which illustrates the gross profit margin development of the entire platform business. And even if there's still some way to go to achieve our long-term margin target of 11% to 13%, we can clearly see that we constantly increase our gross profit margin across entire platform business in Q2. We achieved a new record margin of 7.4%. But this positive development is also driven by the rollout of ad-tech business. In Q2, the advertisement share grew by another 20 basis point quarter-on-quarter and now amounts 1.7% including Woowa and Glovo and we're still progressing towards our 3% to 5% long-term target. Well, now, let's take a look at our liquidity development on the next slide. We finished last year with cash and cash equivalents of EUR 2.4 billion. The adjusted EBITDA has turned into a small profit in H1 2023. So CapEx amounts of -- albeit more than EUR 100 million or 0.5% of GMV in H1 2023 and we expect this to increase slightly to 0.6% of the second half year for the year. The third bucket of roughly EUR 0.4 billion includes working capital, interest, tax, lease and others. But let me shed here some more light on the individual components. So the first one, leasing payments amounted to 0.3% of GMV in H1 2023 and this is completely in line with our guidance. The cash flow for tax payments to 0.5% of GMV in H1 and could be at the same level or slightly lower in H2 2023 as a percentage of GMV. And then working capital was a minor cash inflow in H1 which is expected to continue in the second half of the year in H2. So all in line with our previously communicated adjusted EBITDA to free cash flow bridge. Well now in terms of M&A and investments, we spent around EUR 300 million, which was mainly driven by the minority buyout at Hungerstation, a transaction that we're really happy about and we will come back to this later during this presentation. And last but not least, we received a cash inflow from the convertible bond transaction that we made in February as not all investors tendered their bonds. So putting all together, we finished H1 with cash and cash equivalents of EUR 1.9 billion. On top, we have now slightly upsized revolving credit facility of roughly EUR 500 million, bringing our liquidity to EUR 2.4 billion and against the backdrop of our planning to generate positive free cash flow during H2 2023. We believe that we have a quite solid liquidity position. So let me now hand back to Niklas who will take you through some case studies. Niklas?

Thanks, Emmanuel and let's go to the Dmart. So on the left side on the chart, you can see how strong the GMV has developed during the last quarter. Although we started to optimize our Dmart network early last year, resulting in 14% year-over-year reduction in the number of stores, we were still able to generate GMV growth of 38% year-on-year in constant currency over the same period. The main drivers behind this are the constant development of product range that is relevant to our customers and increasing the product availability. We now offer an average of more than 6,000 SKU in our Dmarts and this is well above the industry average. In fact, we are really tracking what customers want and are creating new use cases further developing Dmart from a convenience stores into a proper supermarket. And this can only be achieved with leading technology and best-in-class operation. Then if you go to the next slide, we can shed some light on our recent minority buyout in Saudi Arabia. So as you have seen recently announced acquisition of all outstanding minority shares in Hungerstation, the leading food delivery player in Saudi Arabia responsible for connecting more than 10,000 partners with a growing customer base. We had initially acquired 63% of Hungerstation in 2016. And now took the opportunity to acquire the remaining stake for USD 297 million. Taking sole ownership allows us to build stronger ties throughout the group, including greater opportunities for knowledge sharing and tech integration. Saudi Arabia is an amazing country. We believe in the country's long-term vision, ambition and potential and are committed to contribute to its ongoing success through Hungerstation. Now on to the next slide, where we take a look at our development in the country over the last 12 months. So as you can see Hungerstation continued to develop strongly and gained category position in Saudi. This is in large part due to our local leadership team who have had relentless focus on customer experience over the last few years. Today, we have a clear product and service advantage which have allowed us to grow our category position. After a competitive push in response to our closest competitor during Q4 '22 and Q1 '23, we have again made good progress towards record margin levels while maintaining our competitive strength. Now on to the next slide where Emmanuel will take us through the outlook for the year.

Well, thanks, Niklas. For the full year 2023, we continue to expect the GMV growth to be between 5% to 7% range on a constant currency basis. Our reported GMV will obviously be impacted by currency movements that we do not control and many but not only swings in the U.S. dollar and the current one against euros. And today, we expect the FX headwind to amount between 4% to 5% compared to the 3% at the time of Q1 reporting. For the total segment revenue, we now expect growth on a constant currency basis of around 15%. And in our last trading update, we were still projecting around 10% year-on-year. The main reason for the guidance upgrade is a higher take rate that we are seeing across our business. These are due to the numerous profitability measures that we have introduced in the recent quarters. We reiterate our expectations for positive adjusted EBITDA to GMV margin on a group level to more than 0.5% for the full year, with more than 1% margin for the second half of the year. And we also reiterate our guidance to reach breakeven unlevered free cash flow during the second half. So here, you may ask yourself why we did not raise the EBITDA guidance. And I can tell you that the answer is pretty simple. I mean, at Delivery Hero, the focus has always been on growth and profitability. Our current EBITDA margin target already implies an EBITDA increase of around EUR 850 million within 1 year only. So if we trail towards an EBITDA that even exceeds the significant profitability improvement, we would consider to investing in our core business. And I think our case study today on Hungerstation serve as a good example of such reinvestments and the return that we could expect. Before starting on the next slide -- before starting to comment on the next slide, I would like to highlight that we do not see at this point as ambitions any longer, but rather track our performance against those. So we are very comfortable to deliver on it. And we are progressing -- progressively grown our EBITDA over the last 18 months, improving adjusted EBITDA margin by more than 2% year-on-year from negative in H1 '22 to positive in H1 2023. We have made good progress, and we'll further accelerate our margin improvement in H2 2023 to more than 1%, reaching a margin of more than 0.5% for the full year. We will achieve this as our profitable platform business continue to perform well, and we will expand adjusted EBITDA to more than EUR 1.3 billion in Q4 2023 on a run rate basis. The unprofitable platform business continues to see significant improvement in adjusted EBITDA as market scale with the adjusted EBITDA margin expecting to reach around minus 2.5% in Q4 2023, almost halving from the level that we saw in Q4 2022. And last but not least, we expect Integrated Verticals to progress considerably. Our Dmarts group represent around 75% of the losses in Integrated Verticals segments has turned gross profit positive in June 2023, so this year, which will considerably boost profitability in the segment towards an adjusted EBITDA improvement of almost 50% year-on-year in Q3 2023. So we are in full control of that we are -- as we progress on a path to profitability and expect to keep driving margin gradually upwards towards our long-term EBITDA margin ambitions of 5% to 8% for the group. So here, I'd like to thank you all for your time today and your continued support and we look forward to taking your questions. Christoph?

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

[Operator Instructions] And the first question comes from Andrew Ross from Barclays.

My question is about current trading. Apologies for asking such a short-term one, but it's inevitable. Can you give us a sense as to how the growth looks into July, please? And then what you would expect for all of Q3? And as an extension to that, based on what you know about your investment plans in Q3 today, is there any reason you wouldn't be ahead of your budget at the end of this quarter?

Thanks, Andrew. And yes, it's -- and we don't generally comment on performance mid-quarter. But I think overall, we are happy with what we see if we're at the business and in all aspects of the business. We said in Q1 that we would continue to accelerate throughout the year. That was a time when we expected 4% for Q2. Now, of course, we're doing significantly better than 4% in Q2. We still remain the old forecast for Q3 and Q4 in terms of growth. Those old forecast will still take us to the 5% to 7% guidance range. So we remain the previous forecast we have for Q3, Q4. Yes, that's probably all I can say. So we don't give a specific guidance for Q3. I can say that we -- generally, we think Q4 is going to be higher than Q3, given that we have an easier comp in Q4 than Q3. But we don't get specifics more than the fact that we will -- we expect to be in the guidance range of 5% to 7%. If you see that the strong development continues, yes, maybe we can be in the upper end there. Investment plan some -- and as Emmanuel said before, we are outbeating our internal plans and probably also guidance implied guidance. And we also believe that to making sure that we have the buffer and we have the ability to reinvest later in the year. So I would not expect that we keep on beating our own budget going forward, but rather we release potentially some of the overachievement as we go into Q3 and Q4 and feel more confident that we are going to be well or be above the guidance we've set. For us, it's very important that we meet the commitments that we've given. But we don't necessarily try to overachieve them, given that we also have a balanced growth and profitability as well as long-term investments. I hope that gives you an idea where we're standing. Anything you want to add, Emmanuel?

No, I think you covered the investments. In case, Andrew was asking about CapEx. I don't know if this was about the direction of CapEx, we expect the CapEx to be between 0.5 to 0.6, but no, we don't expect significant change in our CapEx spending for the second half of the year. So we should be in line with what we've seen so far.

And the next question comes from Joseph Barnet-Lamb from Credit Suisse.

So the group faces, obviously, well-documented FX headwinds. There's been a lot of discussion in the market around the scale of that impact from a revenue perspective, however, less so from an EBITDA perspective. I'd imagine giving central costs are in euros, the FX EBITDA impact in 1H '23 is probably pretty sizable perhaps in the sort of mid-tens of millions. Can you give us some color on the FX impact on profits in the period rather than on revenues, please?

Do you want to go ahead first and I go second?

Okay. I'll go first and Emmanuel, for a better answer afterwards. I think in the Q1, we gave a view that is roughly EUR 50 million impact -- negative impact of EUR 50 million, if I don't remember incorrectly. Since then, FX has been further a little bit against us. So a further slide, slide, I think, [ won as U.S. dollar to euro ]. So that means that, that EUR 50 million estimate was a full year estimate is probably a little bit higher than that. I don't have the exact number, maybe Emmanuel does. That estimate was only if you look at the local markets and the profitability in that local market and translating that into Europe. It did not take into account the fact what you mentioned, which is what if you have taken all the development in Europe and euro is a stronger currency than one U.S. dollar at the moment, what would be an impact of that. And that is correct. There would be, I believe, a further impact that was not part of that EUR 50 million. But you're right that it's at least in the mid-teens millions that our -- yes, we had to kind of compensate over-performance and other means to make sure that we hit the guidance commitment. Emmanuel, please?

Yes. No, I can confirm. Basically, as you know, we had -- we mentioned this in the presentation, around EUR 40 million ahead. And this would have been increased by between EUR 15 million to EUR 20 million considering the FX impact on the EBITDA -- on EBITDA profitability. So it's quite considerable the impact that we had this year. And I think that's also one of the reasons why we guide on the margin and on the profitability EBITDA. That's why we prefer to guide on the margin because the margin is in our control where the FX impact is not. So that's why we feel for -- especially for this year with the FX movement that we see on the dollars [indiscernible] that we also see last year that we prefer to get on the margin and absolute numbers.

And just to be clear that Emmanuel's number id slightly lower number than me, and that is to date impact, but my number is to date plus also estimate based on the current FX rates assumed fixed from now until year-end.

Thank you, Niklas. It was, indeed, for H1.

So that EUR 40 million that you're ahead of budget year-to-date would have been EUR 55 million to EUR 60 million at constant FX, that's what you're saying?

That's correct. Exactly.

And the next question comes from Miriam Josiah from Morgan Stanley.

Just a question on the potential reinvestment in the second half. I think you called out Asia as potentially one of the regions where you might reinvest. So should we take that to mean Korea? Or is that potentially across the whole region? And if you could be a bit more specific on the type of reinvestment that we could potentially expect. Is it more promotions and vouchering or most of the product investment as you did in Saudi?

I'll do the same again. I'll start and, Emmanuel, please fill in with better answers or more granular answer. So we look at opportunities, I don't know, across the group. I believe Asia is probably the segment where we see most opportunity to invest and -- yes, invest. I think Korea is maybe one place, but there are also a lot of places in Korea where we have a lot of levers to also do a little bit more. So we believe that we continue to drive margins even if you see that we have Coupang doing Woowa subscription, and we also do what Emmanuel mentioned in the script before. We will also do some investments there, but we still feel like we have a lot of levers to drive to making sure that we hit our EBITDA overall for the year regardless of this. So I would probably rather see that there are a little bit more investments in other parts of Asia where we have done a lot of movement on profitability, optimizing our business, better audience targeting and I feel like the investments we make now are significantly better return than investments we had, I don't know, a year ago. So we think that we probably have a little bit more room to start driving growth a little bit more in the rest of Asia. Then there was other investment areas, which are not necessarily driving growth in the short-term, but it would be new vertical areas, technology product areas for new verticals, So -- and that is, of course, impacting the full group, but slowly and not directly.

Maybe if I can add a bit like, what is important to keep in mind is like you've seen -- if you remember, we informed you that we invest in Saudi in Q4, and we continue to invest a little bit more in Q1. And you see the result in Q2. This is also what Niklas said sometimes. I mean, like we do investments, but the immediate impact is maybe not in the same quarter. But the impact in case of Saudi that we disclosed today is significant. And yes, indeed, they could be marketing campaign, as you mentioned rightly, Miriam, but there's also some action that we will do on the CPO. So for example, we did a free campaign or launching certain product subscriptions model to the country. So the impact is not -- maybe not immediate. But in case, for example, of Hungerstation, you will see the impact in terms of category share. And that's something that we will consider.

And I think that's a very valid point. I think if we would take ourselves a little bit -- give ourselves a little bit more criticism and probably the whole industry during -- back in 2000 -- 2021. Some of the investments were a little bit more short-term-ish or it turned out to be short-term at least. I think we have been walking away from that. This discount vouchers, subscription where you give 10% off kind of thing, what's happening in Korea, you don't really see that as super effective. You see that that can easily earn 5% to 10% growth. And I think we have also seen that -- we saw that in Turkey, we saw that in Korea back in 2021 with our competitors. But it is not very sustainable. It comes back as soon as we pull it back again. And we see that in Turkey again, how we start taking share and how we start gaining leadership again after that craziness with vouchers and discount. We saw that also in Korea in 2021, 2022, and I think we are seeing into 2023 as well. And I think Saudi is an interesting example on that aspect. We saw our competitor there starting to do a lot of vouchers discount price pressure. And we asked ourselves, do we really want to do that? Do we just want to copy what they do and promote and this will cost whatever X million per month. And we're rather say, no, let's spend the same amount of money that we think would cost to counter this, but let's do it in a way where we think we have the best return in the long-term in a sustainable way. And what we saw there is that we lost share in the first 1, 2, 3 months of Q4 as we did. This also took some time to put investment in place. But then we -- when we get into Q1, our product experience was just so much better because we have to put it at the right place with sustainability. And that's why even when we pull back a little bit of those investments, we saw that in Q2, we still grew much faster than our competitor because we didn't go down this rabbit hole of doing discounts and voucher but we really invested in things that have a long-term sustainable effect. And that's why we are now gaining share without investing and actually having a record level gross margin and EBITDA there because we did the long-term thinking. And the same when we look at investments now, it's not going to be a voucher war. It's rather going to be less investment, same amount of money, but with a more very long-term sustainable return. It might not have an immediate effect of growth in the same month, at least not substantially, but it will have a big effect if you look at 6, 12, 24, 36 months down the line.

So the next question comes from the line of Monique Pollard from Citi.

I had a question probably for Emmanuel. Slide 12 on the sort of cash flow bridge. I'm just trying to understand what's going on in that working capital interest tax leases and other. From what you said earlier, Emmanuel, there was a small working capital inflow, tax, about 0.5% of GMV. We sort of know the interest would have been EUR 70 million to EUR 80 million leases similar. So it seems like there's a decent amount of cash outflow from others in the 1H. I'm just trying to understand what that is and how we should expect that to evolve into the second half of the year.

Thanks, Monique, and quite frankly, thank you for highlighting this. We realized as we review this presentation this morning, we should have next time give you more color, it's likely for that position. So within this EUR 400 million roughly, so you just recap. CapEx in line, you're right, FX or lease in line absolutely. Tax a little bit upfronted because we pay more tax in H1 and H2, but completely in line with what we expected. Working capital slightly positive inflow. So this is confirmed. And then in there, you have around almost EUR 200 million, and I would explain what it is. So half of it is related to M&A/earn-outs and also reorganization of M&A. So this is a one-off. So this is something that we paid for earn-out of further previous M&A transaction. The other part of it, the other 50% is due to our cash balance to where we report it and the way the FX moves. So we report from balance sheet to balance sheet. This is not a cash outflow, but it impacts our cash and cash and equivalent. So if I make as a very simple example, if I had 100 million translate in euros from the currency won and the won lost 20%, then all of a sudden, I am losing 20 million because the currency is weakening against the euro. So that's really a translation, not a cash outflow, and this is about half of the EUR 200 million. So again, EUR 200 million in there. On the others that are linked partly to M&A and earn-out and half of it is due to the cash recognition or the cash translation.

And forecast that means if FX is in our favor, then of course, it will be the opposite for the cash. And for the earn-outs, I think I am right, now it's below EUR 100 million remaining earn-outs all transactions that we have. Is that right, Emmanuel?

Absolutely. This is below EUR 100 million, and this is assuming that everyone, every single M&A transaction or every single acquisition will perform as what we depreciated for the earn-out, but this is less than EUR 100 million for all acquisitions we've done so far.

And just to be clear, there's a EUR 100 million then of drag from the FX, but you said translation or not cash impact.

Absolutely. Nothing due to a cash outflow, but really like a translation. So if, as Niklas said rightly, if the FX go in the other direction, then next time we'll have a kind of -- we will have to rectify the cash and cash equivalent. It will not -- it means that we have more money, but we have more value in Europe.

The next question comes from Lisa Yang from Goldman Sachs.

I have a question related to Asia. I was wondering if you could give us a bit more color on the performance of South Korea versus the rest of Asia in the second quarter. You obviously said that on the last earnings call, April was up 3% in South Korea. So is it fair to assume Q2 was maybe a bit better than that? And then if you can confirm whether the rest of Asia was also a little better in Q2 versus Q1 because of the year-on-year growth? And I think more broadly speaking, obviously, there's still a big gap versus the other regions for the GMV growth. So I just wondering, is it still purely entirely due to the tough COVID comps? Or is there any sort of market-specific issues, like changing or the frequency or just market share loss, so just, yes, I was wondering. And what gives you confident you're going to get back to double-digit growth there?

Thank you. I'll start again. So we don't give specific growth per market. But I can say that, as we said in Q1 update that Korea did well and has continued to do well. I think April was a little bit exceptional. But then since then has been strong and solid for the quarter. Rest of Asia has also been, I think, slight improvement on a year-on-year basis. I don't have the exact number in my head right now, unfortunately. I think we see from the cohorts and the strength on the cohorts that we should come back to a decent growth. Let's speak about Korea first. So we definitely see a lot of room and opportunity. Example of that, if, for example, our B-Mart. Our B-Mart is doing incredibly well in terms of profitability. But it's still very, very small. So if you would just move that to the average of the rest of the group in terms of size, we would easily have 10% coming there in a very short manner. And we still think that has room to grow, I don't know, significantly more to be than 10% of our business, or 10% or 50% of our business as a potential being significantly more. So just if you look at that aspect, there is plenty of room to grow in only the grocery vertical, B-Mart vertical. There are a number of other verticals that haven't pushed there either. There's plenty of room to grow there. I think on the food side alone, there is plenty of room to grow, but it's mature in the cohorts. We see that cohorts improve over a year and as they age, I think it has been a little bit affected by inflation and also prices. I think we are working pretty hard to making sure that we can be attractive there. We do -- the stacked delivery is one example of making sure that we can offer lower prices to consumers. And I think that should also enable us to grow a little bit faster. So there are a number of initiatives and things that we think should enable us to grow faster. But also keep in mind what I said before. During pre-COVID to after COVID, we are significantly larger, and we grew the business at an incredible pace, and we're still a little bit coming back to normal. And so there is a little bit of both aspects. I think when it comes to the rest of Asia, a little bit as I alluded to and mentioned in my script. We -- it was incredibly comparative there. We spend a lot of money and so did our competitor or competitors. I think this is mainly one that -- Delivery Hero and another player is still doing pretty well. But we have both start moving more towards profitability. And of course, when we move profitability so fast as we have done, that does something to demand. It means that we are a little bit less attractive for vouchers, stickers and discount hunters. And that means we are way more sustainable, and investments we do now start to pay off in a more sustainable growth, but there is a little bit of those 2, 3 years of hyper growth. I know we're suffering a little bit from that, but I still believe that Asia is -- Southeast Asia APAC is probably long term, the fastest-growing segment. There's still probably the segment with the largest potential in Delivery Hero. But yes, there is a little bit of -- now back to a little bit more normal spending levels. I hope that somehow answered. I tried to be as helpful as I can. I hope that helped.

If I may jump in, just like to highlight Korea. We have a great product there. I mean we have a super -- the best product that you can find on the market, right? So -- and also the team has proven to be excellent in the execution. So I think also that is a sign that, as Niklas said, we go back to comparison quarters, but the team there is extremely, extremely good in execution. So we think that we are really well positioned with our products and our offering.

And if you refer to anything to the compared environment, I think some people also question, does that play any role in there? No. It really hasn't impacted us at all on our users. And we do believe that -- and that Coupang in this case, they surely grown -- gain in the last -- I don't know, in the areas we have launched there, Woowa subscription, they've surely grown 6%, 7% share gain, but that usually happened in the first 2, 3 weeks. And after that, we haven't seen any share gain at all in those areas. So it's very temporary, some users flipping a little bit between 2 platforms, probably order a little bit more incrementally. So it hasn't impacted our business. It probably had a good boost to them. If you look on a year-on-year basis, our share is actually flat to slightly upwards. So year-on-year versus our competitors. If you look at 2 years, it's also flat. So we haven't, in the last 2 years, despite hundreds of millions of investments into our space, we still haven't seen any share -- negative share development. The only thing we've seen are some temporary changes if someone does a discount promotion, of course, is a temporary move, but it hasn't been very sustainable that change. And so let's see.

And the next question comes from Christopher Johnen from HSBC.

It's a bit of a tricky one, I have to admit. It's -- I mean, if we're looking at consensus expectations, there is a great deal of improvement or ongoing improvement expected, I think. If we look at the EBITDA line, consensus expect roughly, let's say, EUR 500 million of improvement going into next year. And I'm just curious, when you're looking at the progress versus your budget, all of the improvements in the economics that you have done, I mean, is there any view you can share on that, assuming that there is no massive acceleration in growth? Or just that competition stays where it is today? Is that -- do you feel comfortable with that?

Okay. I do again first and then, Emmanuel, please. So what -- assuming as I said, there is no acceleration growth. We even assume, which I think is not a very good assumption, but assume we wouldn't grow at all. I think we had that assumption in the past. It will still grow to our 5% to 8% EBITDA margin. It's just going to be gradually through, I don't know, better stacking, better tool, maybe being a little bit smarter on pricing. There are so many features and opportunities that we can serve our customers at a lower cost and 5% difference from today is not material or 4% different from H2 in that sense is -- doesn't require a lot. Of course, you don't do it in 1 year, that would hurt your business and you couldn't do it because you couldn't bring the technology and those opportunities so fast, but it rather takes a few years. I think in the past, we increased EBITDA margin of 1%. I think the last 2 years, we have improved the EBITDA margin with rather 2% or so or maybe even more percent on a year-on-year basis. But I think that is maybe a little bit more the exception. So generally, we will keep on driving that EBITDA margin regardless on scale. Obviously, if you get more scale, it's much easier because you have, of course, more scale to cover your fixed cost, you also have a bit more scale, you have better opportunity to do cool stacking and other features and pooling and so on. So of course, it will be much easier as we grow and we are still very confident that over time, we will be [ EUR 200 million ] GMV business from today below [ EUR 50 million ]. It's just a matter of compounding decent growth over many years and we are very sure or confident with that growth also coming given how early stage we are in food delivery alone in many markets, but also other verticals that are still at a very mature state. So if your question is now for next year, I would like to avoid giving specifics here. I think it's a little bit what's the decision we do, what is the decision, how fast do we want to drive that EBITDA margin, how do we want to balance growth, profitability, what opportunities do we see? And I think we remain -- yes, we keep that a little bit for ourselves to see what opportunities show up.

And the next question comes from Giles Thorne from Jefferies.

It was a question on -- back on the subject of potential future investments and also your position on super app strategy. So Niklas, you've been quite clear on super app for a while, but we are now seeing greater evidence in peers with benefits, and we're seeing the same peers allocating more and more and more capital to it. And actually, if we look at Delivery Hero, you've now got a couple of super app as partnerships in Southeast Asia. And for completeness, I think Delivery Hero did something similar in Singapore a couple of weeks ago. So there's definitely movement out there from peers and from yourself. So it would be interesting to get your latest information.

Thanks, Giles. So yes, and we've said in the past that we kind of want to be the super app of delivery and that is food, that is groceries, that is a pharma, pet food, but like all of the things that we can deliver to a door. We even have some other areas, which not necessarily a delivery either, but still fits very well to our business. And we feel like there is so much room to develop there. We are far from being at the levels we want to be and the product road map is very, very long of improvements. And I think if we would try to do super app in the sense that we would do ride-hailing and all sort of things, I think we would never be able to build the technology in the pace that we want and we will also lose the focus for our consumers. The consumer sees as a delivery company, not as a traveling company or anything else. And I think it has rather proven that, that has been a good strategy. I think DoorDash is clearly winning in U.S. I think we are winning against Careem and other players in the Middle East. I think we have been competing with Uber and others in 30 markets probably over time. I think there are only 2 markets left or 3 markets left where we are in strong competition and the rest, I think we have been winning. So I think that has been the right choice to be that focus and making sure that customer mind is Delivery. Having said that, I know what happens in the next -- what happens in 3 years, 4 years, 5 years, we will have good -- all the features and road maps that we believe is necessary to have a great grocery offerings and a great offering of beauty products and so on such that we can go into further verticals and become even more of a super app is still to be seen. But I think in the foreseeable future, we are pretty happy with the focus on delivery.

And the next question comes from William Woods from Bernstein.

We've talked about Korea in terms of market share and the impact there on growth, but I'd be interested to think -- hear about your thoughts on profitability. Obviously, Coupang have said that they're going to make the discount a permanent feature and probably going to roll it out to Busan, Bagan and places like that. How much pressure are you feeling on EBITDA? And as we've linked to your comments earlier, you think that Asia has room to reinvest because you're shifting some of your marketing spend out of Asia or ex-Korea, Asia into the Korean market? And should we expect that EUR 387 million EBITDA that we were last year to grow this year?

Yes. For Korea, we don't see that this would, in any way, hinder us from driving to our target margins. We will keep on improving those margins with or without Coupang's proposition. It does mean we have been countering some of that. So we also do 10% discount for our users. And I think we have found ways how we can do that in a good way. We have also done the stacked delivery such that we can be cheaper than -- or same price a Coupang without costing us a lot of money, hundreds of millions. And then at the same time, we have so much scale and size that even if we do those things, there are so many other levers. So even if we have been very aggressive in Q2 in Korea, we're still growing EBITDA margin. And we will continue to do that in Q3 and we'll continue to do that in Q4 regardless if you go and keep on being that aggressive and this will continue. So by no means does this impact our profitability path, it might mean that we marginally reshuffled a little bit our priorities, but we don't see it. So we -- I don't see a big risk. If Coupang keeps on doing this forever, that's fine. I don't think it's very good return from their point of view. I think there's a temporary boost maybe in Woowa subscribers. But I think over time, I think that would probably drop over time, but who knows. We are not too focused about it. We're focused on our business and that looks pretty good.

And are you able to just elaborate on how you're able to counter with the same price or the same level of Coupang without costing millions. What are the levers that you can pull there?

Yes. So we make sure that those price-sensitive consumers that they also have an option where they can find 10% and discounts and promotions on our platform. As I mentioned before, we are doing more efficient delivery and logistics, I think, than Coupang. We have better margins in the first place. On top of that, the stacked delivery also means that we can reduce the fees and costs for the consumer, which means that without even having to do a discount, it's still cheaper to order by our means than it is by Coupang. We -- there are a few other things that we do, too. But then I don't know, we haven't done -- I know we're still at, yes, at early innings of advertisement revenue. We are about rolling out Joker, which is one of our advertisement service products. So that is not yet in there. We still have -- yes, we still have so many other improvements that -- and that's why we can be very aggressive and still improve our margins and we'll continue to do so. So…

And the next question comes from Annick Maas from Societe Generale.

So you briefly just touched on advertising. My question is actually on advertising. So I was wondering how much of the ad-tech revenues are currently coming from Asia? And then if you could give us the associated EBITDA or shall we just apply 80% EBITDA margin on that number that you will give me?

Emmanuel, do you want to cover?

Yes, I was searching for the one with button. I don't have -- I will search for the proportion of Asia. I don't have this on top of my head. What I know is that we are at 1.7% of GMV at the end of H1 2023, knowing that Woowa we just launched last year. So it will be a small proportion compared to the GMV that is produced in the region compared to other regions where we have further advance. I'm thinking about MENA and thinking about Europe. So presently I would have to look at the partition to -- proportion of Asia to the overall revenue that we generate with ad-tech. The margin is -- sorry.

I think APAC is not too far away from all other entities: Europe, MENA and so on. Excluding Woowa, I think we are at 2.7% in the quarter, I think a little bit higher if we look at current run rates. But yes, 2.7%, I think, excluding Woowa in Q2.

Yes, 2.6% exactly for Asia, excluding Woowa. And the profitability is very high. I mean, I don't know if we disclosed this in the past, but this is an extremely possible business in general, in EBITDA margin because once the product is launched, especially for the vendors or the restaurants, if you wish, are able to book the campaign on their own. So we have some investments to be done to set up the team, to the team to mitigate the restaurants. But once the restaurant is indicated, they access the platform very easily. They can define by themselves how much they want to spend. They also see the return. So I must confess, I don't know if we disclosed these numbers before. I would have to be here a little bit more secretive, but this is a very highly profitable part of our business. That's why we are so willing to implement this on our food business side but also on the Quick Commerce side for the Dmarts. And we start to roll out this product in global -- also global countries.

And the next question comes from the line of Silvia Cuneo from Deutsche Bank.

I have one question about the business economics, trying to ask it a bit differently. So in H1, you delivered an adjusted EBITDA uplift of close to EUR 500 million, which is roughly in line with the increase in segment revenues with a 90% plus drop through. So now if we take your guidance for the full year and the 0.5% margin, that seemed to imply you could be reinvesting something like hundreds of millions. So can you please comment about your views on how to think about your revenue to EBITDA drop through rate? And share some thoughts about whether these longer-term type of investments can already have an impact to accelerate GMV growth in 2024.

So part of the -- yes, so you're absolutely right. So the growth that we have in GMV and then you have a gross profit margin and then that goes down then to EBITDA. So if we grow, then on a currently 7.5% or so we drop down to bottom line. Then, of course, you also have an improvement in EBITDA because we're improving that margin. I don't know the current 7.4% gross profit to GMV has increased significantly since last year H1 quarter. Now if you then pull it forward to H2, the improvement there, the incremental is a little bit lower because already in Q3 last year, we pushed a little bit. We saw the effect of some of the investments and improvements we did on the efficiency side. So that means there was a big step-up in profitability also in Q3 last year. So making that continuous EUR 500 million improvement is maybe not the right way to look at it or I would see it slightly differently. So -- but you're still right. There's still a decent amount of ability for us to do more if we would want to, but we still like to make sure that we're making the right investments and thinking in the long-term rather than trying to please kind of short-term actions that would probably be very appreciated for short-term shareholder but not necessarily for the long-term shareholders. We really try to balance that profit and long-term investments. But I can't say exactly how much incremental would be bottom line because you would have to look at it rather how much are we going to improve our gross profit versus last year and how much are we going to grow? So -- but I think the number is a little bit lower than what you mentioned.

So the next question comes from the line of Jurgen Kolb from Kepler Cheuvreux.

Just this one question on Page 10, you mentioned that you were closing your kitchen vertical business outside of MENA. I was wondering if you could give us some additional details as to how many units we're talking about or/and how much losses are exiting your bottom line because of that? Or is there anything coming your way in the second half in terms of closure costs or anything related to that?

So the Kitchen business wasn't very loss-making. It was actually gross profit positive, I think, in many places, depending a little bit with kitchen concept. We had some concepts, some where we actually do the whole cooking and everything ourselves and some of it is just kind of kitchen stores. So different models. But overall, the losses not being material, I would say. It -- the reason why we still decided not to do it is that it was also not very incremental to our business. It didn't make us grow faster. It was just a very big distraction and we said in these times, you just want to be laser-focused on what really matters and this didn't matter enough, at least not as sort of MENA. In MENA, I felt like it kind of works for us and we also see it more strategically there. But as sort of MENA, it didn't really turn the needle. In terms of closure costs, we are selling those units. So all of this kitchen business has actually been sold. So we are getting some money rather from that. And there are no closure costs, maybe a little bit closure cost in last year Q4 or so. So we already started to shut down some of those earlier, but the later kitchen business that we had are rather in late stage, yes, a sale process. So it should not be any closing cost there, at least not materially.

It had positive impact, if I may jump in, it was also like on the CapEx. I mean some kitchen wares requiring CapEx in the past, so that it was like your -- as Niklas said, it was not a heavily negative adjusted EBITDA business that we were building, but it was also -- we didn't have like a playbook to scale it globally and that's why we see that we have a very good return in economics for MENA. And this is also, as Niklas said, incremental value for our platform business or for food business. So the benefit is really on the CapEx savings and the vast majority of the kitchen that we have today are going to be sold. So that there have been some cost of reducing the amplitude of the business, but you cannot -- we should not expect any kind of major costs going forward to close this business. And we will still report some kitchen business because of MENA that we keep.

And the closure -- sorry, the selling process has been started and should be expected to close sometime in the second half of this year?

Yes. This is happening as we speak. So basically, we are ongoing and this is happening and, if I'm not mistaken, 2 or at least 3 regions as we speak in parallel. So it will be happening in the next weeks.

We might not announce it. So you can ask us the next call and see if it actually happened and I think…

We'll do. We'll take that question down.

And the next question comes from Andrew Gwynn from BNP Paribas Exane.

A very quick one for me. But just on volumes, if that's okay. Obviously, you have good or a reasonable acceleration in the GMV performance. But could you help us understand what's happening to volumes? Obviously, last year, cutting out some of those lower value options, but hopefully, now we can get a bit of a better sense.

Yes. I think we've seen our volumes more or less or it's a little bit lower still than a GMV but it's almost the same as GMV. I would even argue that in euro currency volumes are growing faster than the euro GMV. But in local currency, we still grow GMV slightly faster because we are still improving on baskets and other things. And I think that will always be the case, but we're speaking here, we're a couple of percent rather than something material. The big shift we did there was rather 2 years or so ago, then we really went for a drastic shift towards GMV rather than volume of orders.

So I guess between the 3 and 8 is the answer on volume?

Yes. We don't give -- but yes, right now, we are roughly -- it's roughly aligned, yes. So it will be -- I think maybe for Q2 was probably close -- it was closer to EUR 3 more around the EUR 3 maybe. But now I would say it's even slightly higher than the euro growth rate.

Very clear. Sorry, just one more on the tax. So just to clarify the comment made earlier, but what's the approximate tax payment for the year for '23?

Andrew, I was looking for unmute buttons. We were planning EUR 150 million to EUR 180 million, and we're -- gave up EUR 117 million. So this, as I said, 100 -- it was upfront-loaded. We had some payments because of some of our tax that we are paying. So a big -- and we said, the vast majority was in H1. We will still have payments to be done in H2, but there is a seasonality and that's why H1 was more impacted a bit.

So that's EUR 180 million for the full year or that's what was in…

Yes, yes.

And the next question comes from Sreedhar Mahamkali from UBS.

Niklas, I think it will be great if you could talk about Asia ex-Korea. I think you commented on long-term growth in Asia being probably the most interesting in the portfolio. But can you talk a little bit about progress towards profitability in some of these key markets and markets where you continue to see it as a challenge? And I guess what I'm trying to understand is how do you balance these ongoing losses here relative to this clearly attractive long-term growth. And while I have the mic, very quick follow-up on Korea relative to the comments you've made earlier. I think maybe a couple of quarters ago on one of these parts, you said Korea, you see medium-term growth of 5% to 15% over the past couple of quarters, has anything happened there that I think gives you a little bit more instructive in terms of where you see growth within that range towards the lower end, mid-end, top end heading into 2024?

Yes. So if we look Asia ex-Korea profit, yes, I think all markets should be in a good traction to get there. It's just a question how fast we will be there. That also depends a little bit how much we invest and the competitive dynamic and so on. But I think it's very -- right now, it's a very -- how should I say, it's not a very aggressive market or it's -- yes, so it's -- I think it's doing well. And I'm very optimistic we might want to invest a little bit more given that the returns have also increased and improved partially because of the actions we have done. So I also don't want to profit or commit to profit too early here. I think all market is good, maybe with the exception of Vietnam. I think Vietnam is -- yes, we -- it's very tough. We don't see that we have -- we are not competitive there. This is the old -- part of the old Woowa or Baemin international expansion. And I think here, that might be one market which are not necessarily on track to be profitable, not even long-term. As I said, Thailand is probably also a little bit further away. I think we did a few mistakes a couple of years ago. We still suffer from there. But we have done significant improvements over the last year. And right now, we start getting back to growth in a much better, healthier basis. So I think that's -- it's just a matter of time, but it might take a little bit more time for a market like Thailand. Yes. In terms of Korea, 5% to 15% we said before, I think that's a good range. I think 10% is the midpoint. I think that will be a good number. I think ambitions level might be on the 15%, but I think 10% is -- it would be a good outcome, I think, for that market. But I think that also have to -- food alone might be a little bit short on that time, but food plus the fact that we are doing fast grocery, grocery, other verticals and so on, that should enable us to grow a bit faster. But it takes a bit of time because we are still small in that space. So even if we grow incredibly fast from now on, it still will not materially change the growth in Q3, Q4 for the next 12 months. But that growth will start really to kick in maybe more in 6, 9, 12 months from now. Hope that helps.

So there are no further questions at this time and I hand back to Niklas Oestberg for closing comments.

Thank you very much and sorry that we dragged out on the call. I'll try to answer faster next time. And I also thank you for your continued support and for -- and using opportunity here also like to extend a big thanks for everyone at Delivery Hero team. Last 12 months or 18 months have been very tough, but we finally start seeing the results of the targets we put in place almost 2 years ago. It's very clear to me that we have good times ahead. And I just like to thank for all your dedication. It's been a tough time, but I'm very optimistic going forward. So thank you, everyone.

Thank you, everyone. See you next time.

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