Delivery Hero SE (DHER) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Delivery Hero Conference Call and Live Webcast. I'm Andrey, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christoph Bast, Head of Investor Relations. Please go ahead, sir.

Hello and welcome, everyone. Thank you very much for joining our Flash Update call today. 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 details of the announced financing transaction. And after that, we look forward to answering your questions. And now let me hand over to you, Niklas.

Thanks, Christoph, and hey, everyone. Thank you for joining this update call at short notice. We would like to keep it very efficient for you and start with a very brief overview of the transaction and then subsequently address any questions you might have. So let me also repeat very clearly what we said some weeks ago. We do not require additional finances to fund our operations. We have the great privilege of a very significant cash balance and are able to service all our future maturities entirely through our planned organic cash flows, if so decided. Further, as we also explained some weeks ago, we closely monitor market opportunities to further optimize our capital structure when beneficial to our company and its shareholders, and hence, the transaction we announced today. So moving to the specifics of the transaction. Firstly, we are taking advantage of favorable market condition to reprice and extend our existing EUR 1.1 billion equivalent term facilities. Secondly, we aim to raise through one or more add-on term facilities the equivalent of EUR 500 million with the intention of using a majority of the proceeds to repurchase some of our outstanding convertible bonds. And thirdly, through the contemplated transaction, we are taking advantage of a strong lender interest in Delivery Hero and very supportive financing conditions as now is a good moment to further optimize our capital structure. Moving on to some of the key transaction highlights on the next slide. The announced transaction will extend the maturities of our existing EUR 1.1 billion equivalent term facilities from August 2027 to December 2029. Furthermore, given current conditions in the debt capital market, we have a very high degree of confidence that transaction would favorably amend the terms of those facilities, resulting in a material reduction of our associated interest expenses. Separately, we are intending to raise an additional EUR 500 million equivalent term facility, of which we estimate to use at least EUR 300 million to repurchase selected convertible maturities below par. Depending on the convertible bond tendering dynamics, we may buy back more and/or from time to time continue repurchasing more of the outstanding convertibles, if doing so would be beneficial to further optimize our capital structure. In line with our overall commitment to deleveraging our balance sheet, the transaction is expected to be net debt-positive, considering the buyback of convertible maturities below their nominal values. So in summary, this is a great transaction for us and a transaction which underlines our commitment to capital structure optimization by proactively addressing upcoming maturities and deleveraging or leveraging the strong lender interest in Delivery Hero, and the very supportive conditions in the debt capital markets. We will extend the maturities of our existing term loans from August '27 to December 2029. And again, as I said, we were [ favor amend ] the terms of the term loans. We will reduce the interest expense of the term loans. We will repurchase some of our assets and convertible bonds at a more attractive price than repaying them at maturity. So now moving on to a simplified pro forma cap table on the next slide to give everyone an overview of how our capital structure could look like following completion of the transaction. While the ultimate amount will depend on the tendering dynamics, let's look at some possible pro forma cap tables. So pro forma production transaction, there could be approximately EUR 2 billion cash on our balance sheet. As mentioned earlier, we intend to use at least EUR 300 million of the term loan add-on to repurchase some of the outstanding convertible bonds in short order and potentially also make further repurchases in the future. Our term loans, which I mean our senior debt, will consequently be upsized to a total amount of EUR 1.6 billion, with the maturity being favorably extended from August '27 to December '29, and that's expected to be repriced on favorable terms. Again, pro forma for the redemption of the convertible bonds, which already took place early this year, we will have EUR 4.4 billion of convertible bonds outstanding. This amount will be reduced by at least EUR 300 million using proceeds from the upsized term loan. And again, depending on tender dynamics, we may further repurchases in the future, if and when doing so will further optimize our capital structure. And then considering we will be repurchasing convertible maturities below par, this transaction is therefore expected to be net debt-positive. As mentioned earlier, this transaction also allows us to take advantage of favorable market condition in the debt markets to meaningfully improve the terms of our outstanding term loans. The margin indication we went out with this morning is SOFR plus 500 to SOFR plus 525 and comparably favorable versus the existing interest expenses that are currently associated with our term loan B facilities. Please note that the final pricing and terms of the Term Loan B will be announced on March 7 once the term loan is priced and allocated. Moving to the transaction timeline. We are launching the transaction today and we'll hold a global lender call later this afternoon within time. We then expect to run a 4-day syndication period with final commitments due by Thursday, 7th of March. Subsequently, the transaction is expected to be allocated and priced on Thursday, 7th of March, which will be confirmed in due course. That being said, we reserve the right to accelerate this timeline. Now before wrapping up the presentation, we wanted to take this opportunity to reiterate our commitment and confidence in our full year 2024 guidance. 2024 is off to a very strong start and constantly give us further confidence and proof points that we are fully on track to deliver our guidance. We expect to grow our GMV by 7% to 9% and our total segment revenue by 15% to 17%. As we continue expanding our margins, gross profit growth is expected to outperform our top line growth. We expect to generate significant adjusted EBITDA in the range of EUR 725 million to EUR 775 million as we continue delivering on our profitability levers. Finally, we are fully committed and focused on building a successful and highly cash-generative business, which will see us generating positive cash flow in full year 2024. We now look forward to taking your questions, Christoph?

Yes. Thank you. So before we start the Q&A, I would like to ask you to limit your questions to one per analyst. So this way we can ensure that everybody can ask his question. Thank you.

[Operator Instructions] Your first question comes from the line of Marcus Diebel with JPM.

Just a question on your actual cash costs. At the end of the day, you're placing higher interest debts for the convertible debts, yes, which is lower in coupon. I mean clearly, it's probably a helpful move. But I know, Emmanuel, if you have any ideas about your future cash cost increased in the next 2 years. And then maybe related to this, just your thoughts around obviously, doing it at this point, yes. You highlighted obviously payroll market economics. But obviously, investors are asking where you -- how to square your confidence on further cash flow generation versus doing a transaction now. Because in the past, the rhetoric was that you can repay organically. Just to highlight a bit more why we do this now.

Sure. Do you want to take the first?

Yes, sure. I mean like maybe I covered this question with the second part of it, right? First one is like we won't, as Niklas said, reiterated what we said like, I think, 2 weeks ago that we don't require additional funding for operations. So that's what we said 2 weeks ago. But our cash flow projection on Slide 14 for the '20 (sic) [ '24 ] update. So that remains unchanged. We have a significant balance sheet. We are able to meet our maturities with the cash flow that we generate organically. But we also said, if you remember that we are also monitoring the market very closely, and we saw a lot of opportunities to refinance and a lot of inbound calls to refinance or optimize our capital structure. And I think that's the reason why we do this today. Concerning the higher cash cost or the cost of the bond, as you know, we're going to negotiate. Niklas also highlighted a better rate, interest rates, for the term loan while pushing the maturity from 2027 to 2029. And we will repay the converts or at least EUR 20 million of converts which will also impact positively the cash cost. Going forward, obviously, we don't need any further financing, as we said. Organically, we'll finance business and we'll face every debt obligation that we will have in the future. But we think that at the end of the day, pushing the maturity and also like negotiating better cost of financing for the term loan in total makes a lot of sense for the company, and that's why we started the transaction today.

And I think maybe adding to that, I don't know -- you're right. So there is a strong interest from lenders. There is a great opportunity to improve on interest rates and so on. So even if we can't cover it ourselves, I know it's a good opportunity and why not take advantage of it. I expect that there will also be good opportunities in the future. But I've also stopped a little bit making these predictions, because you never know. We're living in a uncertain world as well. So when you have good opportunities, you take advantage. Also, even if we are very confident about our balance sheet and our ability to repay, we still hear that there are some investors or significant investors still standing on the sideline because they are not sure and so on. And 2027 was a -- something that was raised to us as a potential concern for getting some of those investments on board. And we want to have great investors on board, great long-term investors. And if you can resolve this concern, we are happy to invite more shareholders to our cap table over the months to come.

The next question comes from the line of Joe Barnet-Lamb with UBS.

Yes, I guess my first question would be, can you talk a bit about your decisions with regards which debt to buy back, i.e., specifically which combats to target, sort of targeting near-term combats over longer term? And specifically, how you're going to think about the '25s and the '26s? I guess it's a question of sort of economic benefit versus pushing out the profile of the debt. So I would love to hear your thoughts there.

Surely. So I mean, so we look at what is financially the most advantage for the company, but we will address the convert 2025, 2026. And during the tender, we'll adjust depending on the dynamic but also on the conditions. So we didn't announce yet the tender. As you know, we will do the transaction first that we announced today and then announce the tender and the structure of the tender. But that would be a certain dynamic, as always. I mean, we had the dynamic last time, if you remember, concerning we were ready to pay the entire convert and at the end, for whatever reason, certain investors preferred to be paid in January 2024. So that's why you have a certain dynamic here. But for sure, when we look at both convert today are below par and we look at the best conditions for the company.

And Emmanuel, would you consider looking at anything further dated dependent upon how the pricing of those '25 and '26 comes out to you?

Potentially, but I would express that basically, today, we focus on 2025, 2026. But obviously, we will look agnostically on all convert.

There are some valid points -- great opportunities for the longer converts. But I think and also addressing some of the investors' feedback and so on, I think we want to focus on the shorter term. But I agree, there are great opportunities for the longer dated ones as well. And we've made the guidance of that, too.

[Operator Instructions] The next question comes from the line of Silvia Cuneo with Deutsche Bank.

I'd like to ask a follow-up question. I understand that you are refinancing certain conditions on the loan that are more favorable for the maturity and the interest rate. But can you explain a little bit with a little bit more color why you needed to expand the size as well? Is this something that was required by the lenders to renegotiate the terms? And related to that, are you still hedging part of the exposure with the swap agreement that you announced in January 2023?

Well, the size, if I may say, so the size were not required by the lenders in order to get better terms. It's obviously facilitate or, as you can imagine, negotiation, but we are starting. So as Niklas said before, we're going to have the presentation to the lender today. We're contemplating this increase of the term loan to also like to address the converts so that's faster. So that's why we did the size. But I think today, it's more -- there is no prerequisite to do this transaction from the lenders. And on the swap, it's a little bit too early to say. I think we will find -- we will continue in the same logic as we did. But I mean, it's too early to say. We have to first finalize the transaction.

I think the swap is still in place. So [indiscernible] [ interest rate ] guaranteed. So that's all true. If we extend it for the -- yes, so that's in place. And the EUR 500 million, yes, I know we have 1 year until the converts running out. We felt it was a good opportunity to combine it there. We take the feedback from investors very seriously and we have taken the concerns at heart, and therefore, I want to clear out some of those concerns.

We now have a follow-up from Joe Barnet-Lamb with UBS.

I'm just going to do two, if that's okay as well, to fly caution to the wind. So are there any meaningful fees associated with the refinancing? Can you talk about that? And then secondly, I'm interested about sort of issuing the dollar debt as well because there's obviously quite a big base rate differentials between Europe and the U.S., and you don't have meaningful sort of dollar pegged U.S. profitability. So is that just what was available? Or if you could just talk a little bit about sort of why the dollar side.

So on the currency side -- sorry?

Sorry, yes, please.

On the currency side, we are addressing U.S. lenders mainly, but we could also have address European lenders. But today, we focus on U.S. lenders. We might also adjust to beat the currency structure during transaction. But today, I think this is the starting point. And we are addressing mainly U.S. lenders, investors that have been basically quite happy with the transaction that we did together by the first term loan and follow us and also have been reaching out to us in form of calls. So that's I think -- that's why we're focusing on the U.S. dollar. But indeed, I mean, we're looking at the currency baskets and where the profit pool are, so that's something also that we are analyzing as you can imagine, too. And the first...

Those profit pools -- and those profit pools are in Korean won and in U.S. dollar-determined currencies. So currencies pegged to U.S. dollar or at least closely linked to U.S. dollar. So it's way more of that than in Europe. So therefore, U.S. dollars are more appropriate given the EBITDA that's coming from Middle East, in particular.

And then the first part of the question, I mean, the second part was on the currency but the first part...

Yes. The first was on the fees -- significantly lower fees than in our previous term loan, so significantly lower.

Okay. But you're not able to quantify them for us?

No, not at this moment.

Okay. Understood. And then maybe, sorry, one follow-up. Are there any change in the covenant terms?

No, the covenants remain the same. So the EUR 800 million minimum cash, there is no change in the covenants.

Ladies and gentlemen, that was the last question. I will now hand over to Mr. Niklas Oestberg for any closing remarks.

Not much from my end. Just thanks, everyone, for joining on short notice. Wish you a great week. Thank you, everyone.

Thank you, everyone. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.