Delivery Hero SE (DHER) Earnings Call Transcript & Summary

A wonderful good afternoon, ladies and gentlemen. Welcome to the Delivery Hero conference call. My name is Francis, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it is 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 call today. We would like to remind you that this call is being recorded and streamed live on our website. In addition, there will also be a replay of the call available later today. With me today, we have Niklas Oestberg, CEO; and Emmanuel Thomassin, CFO of Delivery Hero, who will take us through all the details of the transaction and the rationale behind the divestment of our Taiwan operations. After that, we look forward to answering your questions. And now let me hand it over to you, Niklas.

Thanks, Christoph. And hey, everyone. Thanks for joining. As you have seen in our announcement, we have reached an agreement with Uber to acquire our operations in Taiwan. So let's jump straight into it in the next slide. So earlier today, we announced that we sold our operation in Taiwan for USD 950 million in an all-cash transaction to Uber. Negotiations have been tough and ongoing for several months, but we believe the transaction offers clear value for both Delivery Hero, Uber as well as the Taiwanese food delivery ecosystem. For Delivery Hero, it offers an attractive valuation for our Taiwanese operations. It also allows us to focus our efforts on our -- on other parts of our global footprint, those further strengthening our market-leading ecosystem and creating value for our shareholders. The transaction values our Taiwan business at 0.6x enterprise value to GMV multiple based on the last 12 months ending 2024, which is almost 3x higher than what our shares are currently trading at. The transaction is targeted to close in the first half of 2025, subject to the fulfillment of customary closing conditions and obtaining the required regulatory approval, including merger control approval. In addition to the divestment of our Taiwan business, Uber will invest USD 300 million in newly issued Delivery Hero ordinary shares at EUR 33 per share, which represents a premium of roughly 30% versus yesterday's closing price. We intend to use the net proceeds from the capital increase to buy back convertible bonds and improve our capital structure. It's a bit too early to say how we are going to deploy the proceeds from the divestments since regulatory approval might take some time. However, from today's point of view, we would say it's fair to assume that the vast majority of the proceeds for the divestment would be used to enhance our capital structure. Now on to the next slide. Some additional context to the transaction. We will continue to run our operations in Taiwan as business as usual. This preserves the business value and market position of our foodpanda brand until we receive regulatory approvals to conclude the transaction. Over the last 12 months ending March 2023, we generated GMV of EUR 1.6 billion in Taiwan. And this is approximately 3% of our global GMV. Until the transaction is finalized, we will continue to consolidate our operations in Taiwan into Delivery Hero Group. So no changes for now on our operating structure -- reporting structure. In regards to the sell agreement, we anticipate finalizing Uber's investment in Delivery Hero shares within the week. This means that Uber will become a minority shareholder with slightly less than 3% of our share capital going forward. And now on to the next slide, where Emmanuel will take us through the usual proceeds.

Thanks, Niklas, and good day, everyone. So we currently have nearly EUR 3.9 billion in net debt, considering our current cash, also like our outstanding convertibles and term loans. And this is the balance either of year-end 2023. After the investments of the Delivery Hero shares, the upside of term loans and [indiscernible] convertible bonds, which include the 2024 maturity as well as the partial repurchase of 2025 and 2026 maturities. So we will now receive a cash inflow of USD 300 million, obviously, for the sale of Delivery Hero shares. And we will then receive a cash inflow of USD 950 million for the investments of operations in Taiwan once the transaction closed. Both figures have been converted from U.S. dollars into euros using current FX rate in the charts for any study purposes. And as Niklas already mentioned, we attempt to use the net proceeds from the capital increase to buy convertible bonds and to improve our capital structure. The net proceeds from the investments should be mainly used to strength our balance sheet as well. So we estimate the net debt reduction of up to around 30%. We -- if you were to allocate the whole cash inflow from the transaction towards paying down our debt or decide to keep the cash on the balance sheet. This would result in a pro forma net debt of EUR 2.7 billion post-closing of the transaction. And as mentioned before, we are in a comfortable position to repay all of that majorities organically over the coming years through our cash flows, if so desired. This still offers an upside to our cash flow projection shared in the previous trading update, and we will not hesitate to engage in further portfolio rationalization or pursue additional efficiency gains in operation. So now we look forward to taking your questions. And operator, please go ahead.

[Operator Instructions] Our first question today comes from Joe Barnet-Lamb from UBS.

Excellent. I've got many, but I'll kick off with one. Within the release, you sort of talked about deal protections or contractual agreements to make sure that both parties are incentivized to close the deal. Can you give us some more color on what's been agreed here? Is there a break fee? How big is it? Any color on sort of the contractual language would be fantastic. I appreciate you probably don't want to go into detail, but anything even high level would be very helpful.

Thank you, Joe. Yes, I can't go into detail here. But as we said in prior discussions with -- or when it comes to M&A, price and value is equally important to certainty or I think in many cases, we even value certainty higher than price and in this regard, we are very happy that we came to a good conclusion with Uber to create that certainty. So I can't go into specifics, but as I said, we value certainty probably even higher than value. Yes.

The next question comes from Marcus Diebel from JPMorgan.

Yes, I'll go on. It's fine. I think you can hear me now. Yes, just again on breakup fee, is there really nothing you can say in this context? I mean, should we just assume that there's no cause and therefore, the rights issue, you are participating is sort of like and then having skin in the game is kind of like the real breakup fee? Or is there any contractual point? I think it would be just important to give maybe as an investors a bit more on this? And then maybe just a question related to this. Does that actually mean with this deal, you restore the balance sheet quite significantly from your perspective? Does it change your view how you think about other disposals? Again, I appreciate you can't go into specific details. But -- are you now more inclined to say, given where the balance sheet is as of sort of today, disposals from here are a bit less likely, yes. But maybe if you could follow up on Joe's question because I think it's important.

So the investment has nothing to do with creating certainty and so on. So there is a separate part of the deal. But when I speak about certainty, I don't know there are other aspects of it. I can unfortunately not go into the specifics here. But as I said and we value certainty at least as high as value. And I think we found a very good solution together with Uber to create that certainty for us. So -- but unfortunately, I cannot go into specifics at least not at this point in time. In regards to other transactions I can't really go into that. I think we always remain very rational, and we always act in the interest of all shareholders. I think we have proven that many, many times over in Delivery Hero, not only now, but in prior deals, both buying as well as been selling. So we have proven that rationality. But again, in order for a transaction to happen, needs to be a clear value for shareholders and there needs to be high certainty of a deal to close. So under those conditions, we evaluate anything that would be additive to the shareholder and accretive to shareholders. But I cannot make any further comments on that.

The next question comes from Giles Thorne from Jefferies.

Apologies, I've only just joined so my question might have been asked already, but it was on the antitrust review. There's a reference in the release today around fierce competition in the market, which comes in a little bit of a surprise for a lot of us. And I suppose it depends on your market definition. So it would be useful to get some insights, Niklas, into the lines of argument that you'll be pushing for approval with the Fair Trade Commission? And then secondly, on the assumption that the previous foodpanda Southeast Asia deal with Grab fell apart not necessarily on valuation, but just on Grab commitment to certain remedies or deal terms. Do you think this deal could be a template to revisit that deal with Grab?

Thanks. The discussion with the regulator will mainly be driven by Uber. So you would have to maybe ask them the line of arguments, of course, we think there are a lot of arguments for the benefits of consumers, riders and ecosystem. But I'll leave it up to the Uber team. And yes, I said, we -- in terms of other deals, yes, again, certainty is very important experiment for taking any decision of us. So any other potential deals that we would consider would need to have a high certainty and clear aspects to yes -- to get it done. I -- but again, I cannot speak to specifics around any future potential transactions. Yes. I'll have to leave it there.

Just a follow-up on that last one. And again, apologies if it's already been asked. But is there any -- is there any possibility that proceeds will be redirected towards some of those Southeast Asian assets that you're now no longer serving?

I cannot comment on that. And we constantly evaluating the opportunities across the globe. At the same time, we are rational in how we're investing. Yes, I cannot comment on how we will invest and allocated our focus. I do think, in general, we spent a lot of focus on Taiwan. Of course, that means that we can reallocate at least our focus of effort and mind share in other places. I think you have seen, as an example of that, in Korea, we have put a lot of efforts over the last few weeks, and I think the development there has been very strong. I think now we can even put more focus into areas such as Korea, but potentially also other areas of our business where in order to gain even further leadership. We are clearly in most geographies, and we want to remain in that position. So of course, this helps us to take one big [ball ground] out of scope and put that energy and effort into other areas.

The next question comes from Joseph McNamara from Citi.

Thanks for giving the GMV EBITDA stats to Taiwan over the last 12 months. I was hoping you could maybe tell us a bit more about how the business has grown as the past year or 2. For instance, I see back in 2021 that it was your second largest market by revenue. And then also similarly on EBITDA, I guess, how that's progressed and whether you expected kind of meaningful improvement this year in Taiwan profitability.

All right. We could have gone into country specifics here, but I think it's fair to assume that Taiwan has been growing as the rest of APAC is similar. I don't know they had a similar pattern both leading up to during COVID, before COVID as well as after COVID. So the market followed a similar path as we have seen in the rest of Southeast Asia. So I think that is a fair assumption. That also then means that it's growing slightly less than the group. And in terms of EBITDA, I can't really comment there. I think we have said prior to this, that it's a slight positive EBITDA for the Southeast Asia, our APAC business, not including group costs, but including regional costs, I think that's also a fair assumption for Taiwan being in that range that slight positive, excluding group cost, I think, is an assumption you can work with.

The next question comes from Jurgen Kolb from Kaplan.

Two questions on my side. First one, I understood that you cannot talk about potential additional deals, but maybe with a different angle. Are there any other regions, countries where you have a similar competitive environment as in Taiwan, where it looks like you both have been competing head-to-head from a market share perspective. Any of those similarities from a regional or market perspective, helpful. Second one, just a clarification. So the fact that Uber will buy or will become a minority shareholder that is independently from this deal if it gets approval or not, right?

So starting with the second question, yes, that's regardless of anything, so there will be a shareholder regard -- yes, essentially to a separate transaction, of course, agreed at the same time, but 2 separate transactions. On the first one, yes, I think in general, markets that where there are 2 strong players generally have a lot of synergy values. We can also, in those places, be more value add to the consumers as well as drivers and general ecosystem, when those markets consolidate. So I think there is a lot of value for companies to find ways and paths to, yes, to consolidate. But -- yes, in the end, any deal requires 2 sides of it. And it -- as also said before, it's not only about price, but it's also about driving certainty if there are transactions. Yes, that's all I can say.

The next question comes from Silvia Cuneo from Deutsche Bank.

My first question is a follow-up on the antitrust process. Even you expect closing in H1 2025, that's about a year. Just wondering if you could share some thoughts about how the process typically works in Taiwan perhaps in comparison with the U.K. or some European countries where we might be more familiar of just to think about the phases that we should expect? And then the second question is on something you mentioned during the presentation in terms of your delivery not pursuing additional efficiency gains in your operations for the time being. Does this mean anything for your plans and guidance for 2024? Were you expecting to drive efficiencies in Taiwan?