HelloFresh SE (HFG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the HelloFresh SE conference call. [Operator Instructions] Let me now turn the floor over to Dominik Richter.

Good morning, everyone. I'm here today together with Christian, who will start by giving you a short abstract of our Q4 and full year 2023 earnings, before. I will then give you a more comprehensive business update given the downgrades and pulling of our 2025 goals that we communicated to the market yesterday. With that, I'll hand over to Christian.

Thanks, Dominik. So let me start with a brief review of our key full year 2023 results and Q4 2023 results. We discussed this, obviously, in more detail on our scheduled earnings call on March 15. Now Q4 2023 itself has come in very much in line with the outlook that we provided in November last year. I would like to first go through on this page through the highlights of the full year before then drilling into our revenue and AEBITDA development and then focus on the outlook for 2024. Now with respect to the highlights for 2023. 2023 marks the fifth consecutive profitable year for us. We grew our business 4x over the last 5 years, meaningfully expanded our capabilities and our physical infrastructure by diversifying our revenue streams. We funded this journey mostly through internally generated funds by also giving back money to our shareholders via share buybacks. Secondly, we grew in 2023 our revenue to EUR 7.6 billion, a 3% growth rate on a constant currency basis. A key contributor to this growth was our ready-to-eat business. Despite being production capacity constraints for most of the period and certain delays for unlocking new capacity discussed in Q4 last year. Our RTE business by now has reached EUR 1.4 billion of revenue, is profitable and continues to grow strongly. Despite still elevated inflationary pressure during large parts of 2023 and despite extra costs in Q4, as discussed earlier, we managed to expand our contribution margin by 130 basis points to 27%. Our 2023 AEBITDA has come in at EUR 448 million in the middle of the revised guidance, which we provided in November last year. Now while this is 6% down year-on-year, if you adjust for around about EUR 20 million FX, negative FX impact, this is very close to the prior year AEBITDA of EUR 477 million. Despite the slightly lower AEBITDA year-on-year, we have expanded both our operating cash flow and our free cash flow in 2023. Free cash flow in '23 has returned to being positive, and CapEx in '23 is already down by around about EUR 120 million versus 2022. Let me now turn to our top line development for last year. We grew our revenue in '23 on a constant currency basis by 2.8% for the full year to EUR 7.6 billion. In Q4, we achieved a slightly higher growth rate of 3.4%, which was a combination of slightly negative volume growth and continued robust average order value expansion. Both our segments, North America and International, contributed positively to this growth in Q4 and on a full year basis. Our ready-to-eat business continues to grow strongly. In '23, despite capacity constraints for the majority of the year, we achieved EUR 1.4 billion of revenue and a positive AEBITDA margin. Given our expansion of production capacity on continued strong customer demand, this business is in a very good position to continue its strong growth in 2024. In meal kits, on the other side, we are experiencing a softer trading environment and lower new customer acquisition activity, as previously flagged. This means that we saw higher single-digit percentage negative weekly revenue growth in 2023. On a year-on-year trend that we expect to continue into Q1 2024 before starting to improve. Let me now turn to our AEBITDA development for '23. As mentioned earlier, we achieved an AEBITDA of EUR 448 million in 2023. If you add back EUR 20 million impact from weaker U.S. dollar, Aussie dollar and other currencies versus 2022, we were circa EUR 10 million lower than in 2022. This performance is driven by on the positive side, a meaningful expansion of contribution margin of circa 130 basis points, driven by decent underlying efficiency improvements across our meal kit businesses. This contribution margin expansion will unfortunately take a pause in 2024 due to factors that I will elaborate on the next slide, negatively by somewhat higher relative marketing expenses where a meaningful part of this increase primarily stems from our rapid expansion of the RTE business. Lastly, our AEBITDA was also impacted by around about EUR 50 million extra costs in the U.S. in Q4, which we had discussed earlier. Now let me now turn to our indicative outlook for 2024. We are planning for full year 2024 with a single-digit percentage top line growth rate on a constant currency basis. This is driven by a number of factors within ready-to-eat, which is currently delivering around about 50% year-on-year and around about 50% year-year growth rate. We expect to continue capitalizing on strong demand for our brands as we continue to ramp up production capacity. For meal kits, which currently experiences, as previously mentioned, negative revenue growth in higher single percentage digits. We expect to increasingly close the negative volume and revenue gap versus the comparative period as we progress through the year. We expect our ongoing investment into our physical and digital products to contribute to this trend, as well as increasingly easier comps. Based on these trends, we are targeting for '24 a constant currency revenue growth of 2% to 8%. We expect our North America segment revenue to grow at a higher rate than our International segment, driven by the higher share of ready-to-eat of total North America revenue. Now from a profitability perspective, we are facing a temporary AEBITDA margin compression in 2024. This is primarily driven by on the ready-to-eat side, the continued ramp-up of our production capacity and innovative marketing expenses, given the strong growth in customers that we are targeting. On the meal kit side, some deleveraging impacts due to lower volume. Secondly, the ramp-up of 2 key fulfillment centers in our 2 largest markets within the International segment, U.K. and Germany, Austria, which then for 2024 means we have to operate fulfilling centers basically run a double strategy in terms of our production volume for these markets. But from 2025, these newer, more modern, more efficient fulfillment centers will deliver attractive efficiencies. And then thirdly, we are planning further product investments in meal kits. This means that we expect absolute AEBITDA in 2024 to be lower than in 2023 and lender in the range of EUR 350 million to EUR 400 million. We expect the AEBITDA margin in our North America segment to be higher than in our International segment, as was the case in 2023. For Q1, we indicatively expect constant currency revenue growth in the lower end of our full year guidance and breakeven to slightly negative. Adjusted EBITDA margin given, that's number one, Q1 is the seasonally high period in terms of marketing expenses. And then secondly, the rapid RTE ramp-up that we are in the midst of it. Lastly, we would also like to pull our 2025 target of EUR 10 billion revenue and EUR 1 billion AEBITDA. Our operating environment is clearly different to when we had set these targets. While we are still confident, given the leading global market share we have across our 2 main verticals that we can break through the EUR 10 billion revenue and achieve AEBITDA margin of 10% or more in our segments, it's not realistic anymore to get there by 2025. Before I move on to Dominik to take us through where we stand from a strategic perspective, I would like to briefly touch upon 2 disclosure topics. Firstly, from Q1 2024 onwards, we will drop quarterly active customers as a reported KPI. This is, as we discussed with quite a few of you in the past, it's a KPI that we were stuck with since our IPO in 2017. Given we were then only public company who reported the metric, it is, however, not a metric we manage the business towards. The development of orders much better tracks the development of our weekly customers. Therefore, we would like you to more focus on number of orders AOV and revenue going forward, similar to most FMCG companies. Secondly, and more importantly, given the increased importance of ready-to-eat in our business mix and the somewhat different growth dynamics we experienced between meal kits and ready-to-eat, we will give you going forward as voluntary additional disclosure, our revenue and AEBITDA development for the group broken down into ready-to-eat and meal kits. Again, this is voluntary additional disclosure on top of the normal segment P&Ls for North America and the International segment, which we already provide to you. With that, I will hand it over to Dominik.

Let me spend the next few minutes providing some more context on the business strategy and outlook for 2024 and discuss a number of drivers. 2023 marked the fifth conserve year of profitable self-funded growth in which we delivered over 1 billion meals to our customers, up 4x since early 2019. Over this period, we delivered a net revenue CAGR of 33% and an AEBITDA CAGR of 57%. However, growth on both revenue and AEBITDA during that period was anything but linear, with 2023 in particular a year that has been disappointing and clearly below our expectations. With the benefit of hindsight, it's clear that especially in 2020 and 2021, we were over-earning in some of our most advanced meal kit markets when a very sudden demand spike came at low marketing intensity and met artificially high operating leverage in fulfillment and on the G&A side. . This allowed us to pile up a lot of cash in a short period of time, but it also led to a level of AEBITDA margins higher than what is sustainable in the long run. We're maintaining AEBITDA margins in many of our day 1 markets significantly higher than 10% today, but off of the pandemic highs of greater 15% AEBITDA margins that we experienced during the pandemic. We see a clear path to growing all business units for our scaled business lines, meal kits and RTE to greater 10% adjusted AEBITDA margins, but to achieve this in a normalized demand and supply environment is much harder than during the peak pandemic period and given the significant inflationary pressures we have been seeing over the past 2 years. Looking at the broader company development over a longer time horizon, we scaled faster than literally any other consumer company with revenues up 4x since 2019. During the same time, other scaled e-commerce companies saw revenues increase about 2x from their pre-pandemic levels, while showing comparable growth rates to us for 2023 and sharing similar growth outlook for 2024. Our forceful and timely pivot to focusing on RTE has allowed us to continue to grow our top line revenues also post pandemic, as meal kits struggled to hold on to the volumes observed during peak pandemic periods. While we appreciate that a more linear growth path is not only much more desirable for our shareholders, but also much easier to digest for our culture and organization, we need to live with the fact that we did pull forward a lot of consumer demand in meal kits during the pandemic and have entered a stabilization and consolidation phase since the second half of 2022. We were wrong in our assumptions how quickly we can go back to sustainable growth for meal kits and that we would be able to maintain our margins at some of the peak pandemic levels we've seen. During 2023, we managed to increase cash flow from operations and return to producing free cash flow despite an extremely challenging macro environment. We used the proceeds generated internally to push ahead on our transformation agenda. We largely completed the next phase of the modernization of our fulfillment and automation footprint, which will allow us to decrease the cost to serve an order to our customers in the midterm and which provides additional flexibility to invest into the customer value proposition, something that has not been able to, before. We also paid the earn-out to former shareholders for our RTE brand factor, which provides the nucleus for ongoing strong growth for the group and which will be the single most important growth driver in 2024 and 2025. We also initiated a share and convertible bond buyback program to reduce our share count and grow free cash flow per share meaningfully in the midterm. Finally, we've also invested in finding product market fit for 2 additional business lines, our brands Good Chop and Pets Table, which have been developing nicely in 2023. The result of all of these initiatives combined is that we've created additional moats around our 2 scaled business units, meal kits and RTE, which have both shown very strong market share gains while identifying the next billion-dollar business line that will help us to diversify the revenue streams on the HelloFresh Group umbrella further. Over the past 4 years, our revenue and AEBITDA composition changed very considerably, and we expect this trend to continue for the foreseeable future. For the first 8 years of our existence, we were a meal kit-only company, and 100% of our revenues as well as our AEBITDA in 2019 came from the meal kit vertical. By 2021, meal kits were still responsible for over 95% of our revenues and over 100% of our AEBITDA. With our forceful push into RTE and new business units by 2023, we generated only about 80% of our revenues in meal kits, while still producing more than 90% of our AEBITDA in meal kits. With more than 20 geographies or business lines under HelloFresh, mixed shifts between geographies and business lines often hide underlying profitability improvements. We continue to generate double-digit AEBITDA margins in the majority of our advanced meal kit markets, but not at the same levels we have seen during the pandemic given high inflationary pressures. At the same time, we increased AEBITDA margins strongly for all of our younger business units in meal kits and in RTE, and expect most of our business units to converge to greater 10% AEBITDA margins in the midterm. We expect the trend of revenue and AEBITDA composition to change to continue as we find and scale the next billion-dollar business line and build HelloFresh into a digital native, next-generation FMCG group with diverse revenue and free cash flow streams at different levels of maturity. Starting in H2 2022, a lot of pandemic tailwinds reversed and became strong headwinds for the business that led to temporary slowdown in meal kits. While navigating the business through COVID definitely did not feel anything like a walk in the park. With the benefit of hindsight, we greatly benefited from a lot of free traffic, word of mouth, a fairly relaxed labor market and an outsized percentage of meals consumed at home during that period, enlarging the opportunity set we were going after. Despite doing some of the best work we've ever performed in '23, this was just enough to counter the material obstacles we faced such as lapping outsized COVID cohorts, generationally high input cost inflation and operating in a number of day 1 markets at very high penetration levels. Therefore, a lot of the wins we drove were just enough to mitigate any additional adverse effects and did not lead to the improvements in underlying business performance we were hoping for. All of 2023 required a lot of proactive day-to-day management and fast decision-making. While we would claim that on balance, we got more things right than wrong, we clearly underestimated how quickly we could turn our meal kit business around and return to growth. This has proven more difficult than anticipated given all the headwinds. While performance improved in the second half of the year and we reaped the first benefits of improving our core product and service levels, it will take more time for the changes to come through in all markets and overall AEBITDA to start improving again from the levels we currently see. On a positive note, we have seen strong results in some of our underlying key customer KPIs and enter 2024 with a healthier customer base and more attractive customer unit economics, held back by lower volume of new customer acquisition. Our improvements to the assortments, the higher share of own deliveries with better associated quality metrics and many new features around meal customizations have driven higher basket sizes and a higher order frequency. This has led to strongly improving revenue per customer over the past 3 years, which has helped us offset higher marketing costs post pandemic and provides for ongoing attractive ROIs on our advertising spend. Now where does this leave us for meal kits for 2024? With new customers becoming relatively harder in times of low consumer confidence, elevated cost of living, and given the saturation levels we have, we are shifting our focus towards delighting existing customers. We aim to stabilize revenues at the high rates we have reached during the pandemic as we build out the muscles required for the next leg of growth. Specifically, we will focus on 3 areas that have shown promising results in early testing and will be rolled out to the whole customer base over the next 12 months. First of all, we will continue to provide more value to customers by adding more choice to our menus, in particular, new options around quick-to-prepare meals, introducing new cuisines and allowing for greater customization of meals. Where we have done so already, we tend to see higher order rates and increased basket sizes. Secondly, we will launch our HelloFresh loyalty program to our existing customer base, rewarding high tenured customers for their loyalty and providing them with better value for the money they spend with us. Thirdly, we've started to move away from pure financial incentives to attract new customers and have innovated around providing product incentives instead. This is a core part of our strategy to evolve our pricing and incentive strategy. As we roll this out, this should result in a decrease of our marketing spend in the midterm and help to build a healthier customer base. While it's disappointing that we will not be able to grow AEBITDA margins for our meal kit business in 2024, our midterm ambition to reach greater 10% AEBITDA margins in our meal kit vertical is very much intact. As Christian referenced, we will see some operating deleverage from lower volumes in 2024, alongside extra costs associated with migrating our 2 largest international markets to new and automated fulfillment centers while running our older centers in parallel for 2024. During that transition period, we will have to run different centers in parallel, adding some extra costs, which will lead to AEBITDA margins in meal kits to temporarily contract by about 1 point from the 9% AEBITDA margin that we saw in 2023. In order to sustainably grow AEBITDA margins again by 2025, we will focus on 4 main dimensions. While we have been disciplined in not growing G&A in 2023 new volume outlook and a slower return to growth, we see opportunities to right-size our cost base, including our production infrastructure. Those benefits should become visible from 2025 onwards as we execute them over the next few months. Within our fulfillment footprint, there are additional opportunities to enhance productivity as we exit older sites and benefit from better productivity in newer sites. We will also continue to deploy technology to automate workflows and benefit from a higher degree of automation in the business, especially our efforts to deploy generative AI in customer service, in meal photography and then content creation should start to show cost benefits in the midterm. Finally, our drive to move toward product incentives should allow us to lower marketing costs materially in the midterm, marketing costs which have been roughly on par over the last 2 years. With that, I'd like to turn to our RTE vertical and our expectations for that vertical for 2024. In '23, we scaled our RTE business unit by over 60% over the course of last year at about 10x since acquiring the business 3 years ago, making it one of the fastest-growing businesses at scale globally. We target around 50% growth for this vertical in 2024, given a good start to the year and continued low TAM penetration. Growth in RTE will come both from scaling up our production capacity in the U.S., scaling up recently launched RTE geographies in Benelux and Canada as well as launching our factor RTE brand into additional international markets. We're excited about the growth prospects of this business and can deploy a lot of the playbook we have successfully executed for meal kits before. Our RTE vertical has managed to achieve its first full year of AEBITDA profitability in 2023, reaching around an AEBITDA margin of 4%. Given the costs associated with renting up a more complex production network in '24 and the costs associated with launching and scaling new RTE markets, additional underlying improvements in our U.S. business in '24 will be offset by these initiatives and we intend to keep AEBITDA margins stable for 2024. In terms of margin profile, RTE should convert to a similar AEBITDA margin at scale to what we see for our mature meal kit markets at the moment. That means it should grow to north of 10% AEBITDA margin over time. The path to getting there includes additional AOV improvements through broadening our assortment and factor marketplace offerings, strong productivity improvements in our cooking operations as we mature our new fulfillment footprint and most importantly, a strong decrease of our marketing expenses as a percentage of revenue, which currently trade in the mid-20s as our customer base matures and more orders come from our existing customer base. The very same dynamic has played out in every single meal kit geography over time, which gives us confidence that there is a clear path to grow the RTE vertical to greater 10% AEBITDA margins in the midterm. Our 2 biggest verticals, meal kits and RTE, have grown in profitable multibillion dollar business lines with many moats around them. The capabilities and assets we have created inside HelloFresh have allowed us to not only grow faster than most consumer companies over the last 4 years, but also allowed us to take significant share within our category, both in boom times as well as in times of lower category demand. Across both existing and future verticals, we're well positioned to capitalize on our expertise in food, marketing, subscription management, technology and data. This enables us to realize significant synergies across the group and scale our individual business verticals faster and more effective than any of our standalone competitors. Our geographic footprint, our revenue and profit mix, as well as our organizational structure have evolved a lot over the last 5 years. We expect this trend to continue as we stabilize our meal kit business, as we significantly grow our RTE business and find and scale the next billion-dollar business line to build HelloFresh into a digital native next-generation FMCG group with diverse streams of revenue and free cash flow at different levels of maturity. As an example, in 2023, we successfully found product market fit for our premium butcher brand, Good Chop, and our human grade pet food brand, the Pets Table. Especially the latter provides strong long-term retention and high margins while benefiting from a secular trend of the humanization of pets. Piggybacking on our strong internal capabilities, we have managed to create a desirable brand and started to scale the business in the second half of 2023. Especially noteworthy here is the fact that the association with HelloFresh has resulted in strong consumer confidence right from the start and industry-leading low customer acquisition costs. It's still early days, but the initial development gives us hope that this become -- that this can become another strong contributor to HelloFresh Group's growth in the future, helping us to diversify our revenue line away from meal kits. To quickly sum up, these are the main messages to take away. Number one, we were too optimistic in our base case on how quickly meal kits can return to sustainable growth and have entered a consolidation phase in our meal kit vertical that will expand into 2024. Overall growth for the group should accelerate in 2024 versus 2023, driven in large parts by our attractive and fast-scaling RTE vertical. Group AEBITDA will be down in '24, but we have taken measures to return to sustainable AEBITDA margin expansion again in 2025. Both meal kits and RTE and any new business units should eventually convert to AEBITDA margins in excess of 10%. Some mixed shifts in our revenue and profit composition tend to temporarily hype the strong like-for-like improvements we have been driving in many parts of the business. We expect the trend of changing revenue and profit contribution to continue as we identify and scale the next business dollar business -- the next billion dollar business lines, taking advantage of the assets, technology, people and competencies we have built up within the group. After this comprehensive update, we're very happy to take your questions.

Ladies and gentlemen, we will now start the Q&A session. [Operator Instructions] And the first question comes from Luke Holbrook, Morgan Stanley.

My question is just on the RTE facilities in the U.S. With EUR 1.4 billion of revenue, how you utilize those facilities? Or are we to expect another CapEx cycle to be incurred in the U.S. anytime soon? And secondly, just the clarification point. Did you say no active disclosure going forward earlier?

Luke, it's Christian. So on your 2 questions, for the target that we articulated here for 2024, so the -- versus the basis, the EUR 1.4 billion that we have, which we are planning to grow by around about 50%. For that 50% growth, we are good with the, let's say, physical facilities that we have, assuming a further ramp-up and throughput in those existing facilities, mainly the one that we had discussed at length in Q4 last year. Beyond that, so further growth beyond that 50% push will then also require additional capacity, production capacity. On your second question, yes. So from Q1 2024 onwards, we will not report quarterly actives anymore.

Understood. Did you say later this year, we might expect a CapEx cycle then if you were to grow back to further as well into '24 -- sorry, '25?

So for this year, you should assume CapEx in line with what we had guided on before. So if you recall in our previous discussions, we said around about EUR 280 million US CapEx or thereabouts for this year. That then is the right ballpark assumption for this year. And then going into 2025, you should assume basically further RTE CapEx, but substantially none on the meal kit side. So the meal kit side, we are fine, done with our infrastructure build out certainly also versus the near term volume expectations we have there. So overall, there will be a further step down in CapEx, but the CapEx that's left will be very much focused on RTE.

The next Question comes from Emily Johnson, Barclays.

I've got a couple of questions. Firstly, just on the margin drag in '24 from RTE. Can you just clarify whether that is because profitability in the RTE division is declining in FY '24 or whether it's just a revenue mix effects because it's a lower relative margin business that is growing faster within the mix? Secondly, on the point you made around refocusing on existing customers and given you're not going to be disclosing the active customer KPI anymore, can you just walk us through the KPIs that you will be disclosing and how we can gauge success on the existing customer front there? How much of that is about growing AOV versus frequency, for example? And then the third question I had was just on the kind of resetting of the medium-term targets. Can you talk about how that flows through into your free cash flow guidance? And on the rightsizing of the meal kit cost base that you mentioned in the slides, how should we think about that? Is that kind of an OpEx reduction? I know you mentioned the CapEx is going to be much lower going forward. Is there scope to reduce or kind of rationalize your existing meal kit fulfillment site footprint at all to kind of reduce the fixed cost element there?

Emily, it's Christian. Let me rattle through this. I hope I noted all of you -- I noted 4 questions only from you. So firstly, RTE impact on our 2024 margin, is there a decay in the RTE margin itself or is it purely mix effect? It's more the latter. So just the fact that RTE takes a higher share of our revenue mix in '24 than it did in 2023. And given that we are basically in this fast push are incurring certain costs, both on the COG side as well as on the marketing side, that basically means that the RTE margin itself is broadly going sideways and the share of RTE in total -- in our total revenue in 2024 is higher. And therefore, the impact on group margin is margin dilutive in 2024, not in the mid- to longer term, as Dominik had elaborated. I hope that's clear. Secondly, orders versus quarterly active customers. So we very much would like you to focus on orders. And obviously, AOV that you mentioned, you will still get that based on orders, quarterly active customers. And I don't belabor too much on it, but as we have discussed in the past, is a very artificial metric for us. That doesn't reflect the quality of a new customer coming in is a household there for 1 or 2 orders or for longer, it doesn't reflect intra-quarter reactivations and therefore is a metric that we don't manage the business towards because it would not create value. Therefore, it's also not a great metric for us to guide upon on it and it leads to more confusion and increasingly so than anything else. So therefore, orders is the better metric to focus on. Free cash flow for 2024, given that the AEBITDA compression that we discussed for this year, that will have an impact on free cash flow as well. So free cash flow will be down this year as well. We're still planning with slightly positive free cash flow, but slightly. The last point I noted down from your questions was rightsizing meal kits. What could that entail? We will give you a more dedicated update basically on one of our next earnings calls. But only particular question, could that include rationalizing the production footprint as well? That's something that we are working through. And if you recall, we've taken steps in that direction at some point in the past as well, and that's something that we also work through in this context.

[Operator Instructions] And the next question comes from Clement Genelot, Bryan Garnier & Co.

Just one on my side. You have any view on the customer profile that is highly churning as of regular day. I mean, is it a modest outsource still less offering of inflation? Or is it all kind of customers being a real modest one or like the [indiscernible], which would have a point with kind of meal kit, I think.

Thanks for your question. We see different developments in our meal kit business. So when it comes to customers, the customers we have been winning over have actually shown an attractive ROI. But compared to the outsized cohorts we did attract to HelloFresh during the pandemic, the number of new customers has become smaller. So it's not a customer quality problem. Customer quality has actually improved. We have higher AOVs. We have higher order frequencies. Every customer delivers more revenue and that has helped us to continue to provide attractive ROIs. And the same applies to our existing customer base, which also, as we have expanded the customer experience, put more meals on the menu, more abilities to customize our meals, the customer quality is actually quite strong. If you zoom in, the problem and the challenge that we have been having is really that at the levels we operate, we have not been able to replace the very large cohorts of customers that we have seen during the pandemic come in and then, over time, slowly churning out with the same amount of new customers. This is a development that should settle. And sort of like as we approach the new baseline of customers and of our customer base, then we can start to grow again.

And the next question comes from Sven Sauer, Kepler Cheuvreux.

Just a quick question on the 2024 adjusted EBITDA outlook and the reasons why it is so low was given ramping up the RTE process, but also new fulfillment centers and higher marketing costs. Could you maybe provide a split, maybe some more color on those different factors? And also, how long do you expect this process of ramping up to continue?

Yes. Sven, it's Christian. So if you take 2023 basically as a -- so 2023, actually, as a baseline, that AEBITDA compression in '24 is mostly driven by meal kit vertical. The ramp-up of our 2 new international fulfillment centers and the transition basically from the old ones over a certain period where we operate basically in over broader fulfillment infrastructure, that by itself impacts our 2024 AEBITDA by roughly around about EUR 20 million. The rest is split across basically impact of lower volume from higher margin, more mature meal kit markets. Secondly, the fixed cost deleveraging that I went through. And then thirdly, the product investments, so that mix together the delta to get to those EUR 70 million plus if you compare midpoint of our guidance this year versus basically last year. When we take basically a number that's concurrent with the prior consensus for this year as a baseline, where we are roughly EUR 150 million lower, then it's all of the above. But then also higher COGS and marketing expenses, primarily from our accelerated ramp-up of our U.S. RTE business and then the international ramp-up in -- of again, a factor in Canada and in the EU. Is that broadly clear? Or was it confusing?

That was clear. Just do you have any idea how long this ramp-up will still take for the RTE business?

So for the RTE business, we expect definitely from 2025 onwards expanding margins at the healthy year-on-year growth.

And the next question comes from Marcus Diebel, JPMorgan.

It's one question. Just one question for Christian. Again, on the customer numbers and the withdrawal of reporting them going forward. Isn't it now the time to do more reporting rather than less, given where we are? We have full year results. Can we at least assess kind of like what the customer developments are for the kind of like longer, more loyal customers? Yes, I guess that's obviously what we've been asked after for some time, but if it's only about the orders, now I appreciate your comments that for you, it's a more important metric, it would be great to get something at the full year results to really assess what the kind of like loyal customers are actually doing. So I think it's -- that will be very, very helpful. Is there something you can show us in this regard? Because I think the ask from the market is there.

Yes, I would say on the, let's say, overall customer quality and loyalty, you had some basically steps in Dominik's slide from Slide 13 that we just went through, that we definitely want to bring in a week, when we speak on our full year results call again, we can discuss any questions here for that in that regard. Again, on the quarterly active customers, to replace that with a different customer metric would be average weekly customers, which is much better tracking the performance of the business. But then frankly, that is -- the trend there is very much in line with what you see in orders from. Let's keep it simple and focus directly on orders.

And the next question comes from Joseph Barnet-Lamb, UBS.

Wonderful. Can you talk me through the sort of the CAC levels in factor and meal kit and how both have developed at the beginning of the year, both in absolute terms and relative to LTV. And I guess, building off that, the evolution of the strategy, which appears to be less customer acquisition driven, can you talk a bit about how that should impact both CAC and LTV? Orders aside, I certainly echo Marcus' point about not wanting to lose disclosure. And if anything, wanting to understand more about net versus gross adds.

On the disclosure point, please don't forget that we will be providing a lot more detail on RTE versus meal kits than we did before. I think this is hopefully something that should be welcomed. On CAC levels, so I think what we did see is post pandemic. I think I referenced this on one of the calls before, post-pandemic, like an increase in customer acquisition costs. But since then, so basically for the last 15 months, it has remained broadly in line with where we would expect it. We haven't seen sort of like additional spikes. The problem that we have seen is that we have not been able, at the levels that we're willing to pay, to convert as many customers as we would have hoped. So the problem is not so much the CAC levels per se. The problem is what's the volume of new customers that we could attract at the efficiency levels they we want. And given how we have improved a lot of the revenue per customer driven by both basket sizes and frequency, we have been able to generate continued strong ROI on our marketing spend, but we have not been able and we were wrong in assuming how much we could continue to scale that.

So I guess the point then is if you were to spend more money to try and acquire customers at the level [indiscernible] is expecting, CAC would rise substantially. That's what you're sort of saying, so you're managing it to a CAC level?

So of course, you always manage to a CAC level. I think that's what we have always done. That's why during the pandemic, we had been able to acquire a lot of customers, given despite the fact that marketing intensity was fairly low post-pandemic now. It's not like -- I mean, we're not talking about new customers falling off a cliff. But given our business model, in order to continue to grow, you would want to see that you can acquire the same number of customers or more customers going forward and this has not -- and we have not been able to do that in the last 6 months. And this is why we now look to pivot our strategy, number one, around incentives, more to product incentives, where we have seen good initial results. And to delighting our existing customer base better, we have seen that for a lot of initiatives, we have been able to drive average order rates from our existing customer base up. A lot of those initiatives are not rolled out to all markets yet. So there's a lot more to come over the next 12 months. These are the things that we're focusing on right now, but definitely taking back sort of like our ambition level for the number of new customers that we can attract in the current environment that is still marked by a fairly low consumer confidence and elevated cost of living. So in our view, this is not the right environment to just push through the boundaries that we're seeing. We have been trying that at some point and it was not successful, and that's why we're pivoting the strategy here.

The next question comes from Kiranjot Grewal, Bank of America.

I just had one question that's around the deleverage you're seeing from the pullback in meal kits. Are you able to give a sense of the size of the deleverage?

Well, we're not breaking that out beyond what I said further -- before on the call.

And the last question comes from Nizla Naizer, Deutsche Bank.

Given how important RTE is for growth going forward, just wanted to understand that a bit better. The operational issues that were there in Q4, could you give us an update as to how resolved they are? And that's the concern in terms of ramping up. Some color there would be great. And linked to that, how do the RTE sort of KPI metrics compared to meal kits in terms of number of orders per customer, the revenue retention, the potential for customer lifetime value. What are you seeing in this segment versus meal kit that makes it may be more attractive or as attractive, if you could give us some color there would be great.

So on the operational issues that we faced in Q4, we are basically in the process of scaling up our cooking operations every week. So we're not blocked by any lacking permits or anything like that. We have on-boarded a lot of new labor. That new labor still needs to kind of like get to the same productivity levels that we've seen in our old facility. But I think this is the normal course of ramping up, as we see it in every meal kits operation -- new meal kit operation, every new RTE operation. So I would say that, at the moment, scaling up such a massive facility is complex and requires a lot of proactive day-to-day management, on-boarding new labor, et cetera. But generally, we feel we have it under control. We would -- and we also actually feel that there is sort of like a limit as to how fast we want to scale and how fast we can scale so that we maintain quality and that we maintain productivity, at least at some minimum levels. Despite the fact that we're not operating at the levels that we would expect once that facility is fully ramped, every single order that we deliver from our new facility is obviously highly profitable. And hence, sort of like it's really finding the balance between how quickly can you scale up and how quickly do you want to scale up, given the sort of like profitability of each order. On the broader point of RTE and RTE customer KPIs, we tend to have higher AOVs in our RTE vertical. We tend to have a similar contribution margin profile, at least if we look at our scaled facilities. And CAC levels, given penetration -- given TAM penetration at the moment are a bit lower than what we see for our mature meal kit market. So if you put all of these things together, you do see that at the moment, every order that -- or every customer that we acquire into RTE is more profitable than every customer that we acquire into meal kits, which is also part of the reason why we don't want to spend on meal kits if we can also spend on an RTE customer. So part of the shift in marketing budget is certainly also driven by the fact that we see stronger unit economics, customer unit economics in the RTE business at the moment, driven by higher AOVs and given by the lower customer acquisition cost, given the saturation and TAM penetration levels we have for RTE versus meal kits.

And this concludes today's Q&A session, and I hand the floor back for closing remarks to the company.

Thank you, everybody, for jumping on the call on short notice. I hope we could provide more context. It's obviously a disappointing day and it has been a couple of disappointing months for us. I think we're very much focused on now driving through with that new strategy. Again, I think long term, there is a very credible path to getting both meal kits and RTE to greater 10% AEBITDA margin and also especially in the RTE vertical to show some profound growth in the next couple of years. . But certainly, the shape of our performance is not where we wanted it to be and it's been painful and disappointing to see that. We're now definitely heads down and want to work through that so that we can show a much, much better company and business performance towards the end of the year and into 2025. Thank you.