Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Delivery Hero's Q4 2021 trading update conference call. Throughout today's recorded call, all participants will be in a listen-only mode. After a short introduction by the management, there will be a question -and -answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Christoph Bast, Head of Investor Relations. Please go ahead.
Hello, and good afternoon, everyone. We hope you are well, and thank you very much for joining today's conference call as part of our Q4 2021 trading update. We trust you have all received the press release and the presentation, which we published this morning. As always, all documents are available on our website, and we would like to remind you that this call is being webcast. Replay of the audio webcast will be available later today on our website. Niklas Östberg, our CEO, and Emmanuel Thomassin, our CFO, will now summarize the most relevant aspects of our Q4 2021 performance and provide an outlook for 2022. After that, we are looking forward to answering your questions. Now let me hand over to you, Niklas.
Thanks, Christoph, and hi, everyone. Thanks for joining the call. We believe that we had a very good quarter, and are very happy with the progress into 2022. We have kept executing on our vision. As a result, we have, by far the largest multi-vertical delivery offering compared to any large scale European or American peer. Moving to the next slide. During the last four and a half years, Delivery has grown at an incredible pace, far exceeding our guidance given in 2017 as we IPOed. Back then, we generated 3 billion GMV, and now we comfortably guide towards EUR 44 billion-EUR 45 billion. We take this as an opportunity to reflect and set out new long-term targets. Firstly, growth has always been our first priority and will remain so in the future.
With an average organic GMV growth of circa 60%, we think that we can tick the box, both for the 70% short term as well as the 30% long-term target that we set out. Growth is also going to be number one priority in the future. We aim to achieve a GMV of EUR 200 billion-EUR 350 billion by 2030. So far they have performed well to our growth guidances and expect this will also be the case going forward. The difference between the upper and the lower end of the growth guidance is circa 10% per year, but makes a difference of EUR 7.5 billion-EUR 12 billion in yearly EBITDA in eight years' time. This is exactly why growth is our number one priority.
We generally believe we will outgrow global peers by at least 10%-15% per year, and the reason for this being that we operate a more multi-vertical offering. We have a larger TAM potential. Many markets at earlier stage. GDP growth in emerging markets expect to be higher. And we also believe there is stronger regional tech and execution setup. We made a commitment that we would invest for clear leadership, and that's the second pillar. We were around 70%-80% back in 2017. We have managed to push this leadership to 90% of GMV, and this includes global. Our new ambition is to become the number one in every single country we operate. We committed to double down on building tech and product leadership, and we were also the first to really transform our business to own delivery.
We were fastest to build our dark stores, multi-vertical offering kitchens, to mention only the largest areas. There are so many other areas where we have innovated. We will keep fighting to be the leader and committing to be the number one preferred delivery app in every single country we operate in. Last but not least, we believe we are better set up for good EBITDA margin compared to our peers as we operate more leading positions, less key account dependencies and more scale. We plan to generate another EBITDA to GMV margin of 5%-8% in our existing business. We will gradually reach these levels as we further gain scale, combined with a gradual increase in our contribution margin. Based on this, we would comfortably reach long-term earnings power of at least EUR 10 billion in today's business lines. Moving to the next slide.
Here is a quick reminder before we dive into the numbers. The following numbers are presented on a pro forma basis as in the previous trading updates. That means we exclude activities of Delivery Hero Korea for the full year and include Woowa for the full entire year. On the next slide, you see some high-level numbers and performance against guidance. We dive deeper into this on the following slides. Starting with the highlights here on slide seven. First of all, Q4 marked another quarter of strong revenue growth, 66% to EUR 1.9 billion. We had this growth on the back of increased profit contribution in most markets and reduction of small orders or less valuable orders.
We accelerated our Dmart rollout with 213 store openings in Q4, following 174 in Q3 and 84 in Q2. A significant acceleration in rollout of our stores. At the end of the year, we operate close to 1,100 Dmarts. We finished the year by acquiring a majority stake in Glovo. It is a fantastic company with a strong foothold in many large emerging markets. Their main footprint is emerging markets. It's Eastern Europe, CIS, Africa, as a significant portion of today's as well as the future business. We believe there are many synergies between the companies, and it further builds on our long-term growth target. Last but not least, we have received a B rating for our participation in the Carbon Disclosure Project.
This rating is the third best grading you can achieve, and it outperforms the global average. At Delivery Hero, we are fully aware of the importance of ESG. We know that we are just at the beginning, but I can assure you that we will continue our efforts to develop Delivery Hero into a sustainable company, and to further improve our disclosure on ESG. As such, you will find a lot of additional information in our non-financial report section of our upcoming annual report. Moving to slide eight. Very happy with the development towards the end of Q4. We managed to grow GMV quarter-on-quarter after an exceptional Q3. But the key here is that we managed to do it on the back of reduced lockdowns in Asia and a clear push for improved economics to build strong foundation to grow on.
We had to fight hard this quarter, but ended up above our guidance this quarter. Not surprisingly, revenue did well in Q4. We reached a new record high of EUR 1.9 billion in total segment revenues, resulting in revenue growth of 66%. However, due to the cut in low value orders, we post a slightly softer order growth of 27% to 775 million orders in Q4. With this, let me hand over to Emmanuel for a deeper dive into the financials for the fourth quarter.
Thank you, Niklas. Good afternoon, everyone, also from my side. As you already comment on the positive group performance, I propose to jump straight to the segment deep dive. Let's now have a look, a closer look at the Asia platform business on slide 10. Despite headwinds from our COVID reopening and natural disasters in the Philippines and Malaysia, which are two of the largest markets in the region, excluding South Korea, we generate strong GMV growth of 40% year-on-year to more than EUR 6.5 billion. Due to our active basket size management and fewer free delivery campaigns, we not only overcompensated softer order growth, but even pushed the contribution margin to a new all-time high. Korea showed a very satisfying performance and generate over 100 million orders again in December.
Our market share relative to our main competitors dropped temporarily by 1% or 2% as they launched big and aggressive promotion campaigns in November until early December, but went back. This market share went back to normal as soon as they started. Also an additional push in our Baemin One services during Q4 resulted in an own delivery share over 13% in December for operations in South Korea. In addition, we had already announced that we will divest our business in Japan in Q1 2022 to pursue more attractive growth opportunities elsewhere. Now let's have a look at MENA on slide 11. The segment generates decent order growth of 33% year-on-year in Q4. Furthermore, we had strong progress in our own delivery rollout.
GMV grew by 39% at constant currency, and the higher own delivery share contribute to the strong revenue increase of 63% at constant currency. Besides the pure numbers, we are also a traditional success story. In August, we announced the acquisition of Marketyo, an online shop platform for local stores in Turkey. We are very happy with integration and the value this platform adds to our ecosystem there. This really help us in scaling our quick commerce in Turkey. Turning to Europe, on slide 12. Despite the reopening here also and gradual easing of COVID restrictions across many European countries, we generate a healthy GMV growth of 34% during this quarter. The own delivery business showed a strong performance and generate high order growth of 69% year-on-year.
These numbers are on like-for-like basis, meaning that this is adjusted for the investments of the Glovo countries, including Romania, where the closing took place in December. Now moving to the Americas segment. Our optimization of unit economics also came here to play. Due to fewer free delivery campaigns and also reduced vouchering campaigns, the average order value increased around EUR 3 year -on -year. As a result, the monthly order development of 14% year-on-year in Q4, which was also impacted by the migration of the former Glovo countries in Q1 2021. However, this was significantly overcompensated by 54% GMV growth and even higher revenue growth of 68%. In addition, the gross profit per order achieved a new record high, and Americas now has the highest contribution margin before vouchers within their delivery group.
Now let's turn to slide 14 and have a closer look at our Integrated Verticals segment. In Q4, we again accelerate the numbers of new stores, as Niklas mentioned, to 213 compared to 174 stores in Q3 and 84 in Q2. This bring us to a total, numbers of 1,074 Dmarts at the end of September. To make this clear and really understand the speed, we are talking about two new Dmarts every day in Q4. A successful rollout result in order growth of 96% year-on-year in Q4. Due to the constantly increasing product assortment, the average of order value rose by 19% year-on-year to EUR 12.5 , and the GMV grew by 133% year-on-year on constant currency.
Over the year, the 1,100 stores we operate today makes us the largest global player in the industry, as per our estimate. Moving to the next slide. In addition to the strong top-line growth that we've seen, we also improve our contribution margin. You can see here, delivery will reach a new record high in the contribution margin of own delivery in Q4. For 2022, we obviously expect this positive trend to continue. Something that makes us particularly proud is the strong development in Asia and the Americas, where we have already started to cut low value orders in Q3 and now see the economic benefits. Both segments have achieved a new all-time high for the contribution margin.
Due to the size and the high growth profit margin in this segment, we were even able to compensate for the temporary margin decline in Europe with the launch in Germany and the rollout of own delivery service in Greece had an impact. Excluding these two countries, the contribution margin was more than 2 percentage points higher. Sorry. As you know, we have not integrated Glovo's contribution margin here. However, we saw a margin drop in Q4 as we scale our logistics offering while maintaining the promotion pricing in South Korea. Non-commission revenue on a group level also continued to grow to 1.9% of GMV in Q4 compared to 1.7% in Q3. This trend accelerated during the quarter and reached over 2% in December.
All these numbers are, by the way, excluding Glovo. As a reminder, the graph also does not include non-commission revenue or what we call NCR. Now on slide 16, you can see that the contribution margin in the own delivery business stands at a record high in Q4, also after voucher cost, and we expect this to improve further the year, this year. The positive development is also driven by the constant improvement of our larger segment, Asia, which now operates on a positive contribution profit, now also after vouchers. Furthermore, we have continued to reduce the level of vouchering. In Q4, vouchers as a percentage of reported segment revenues stood at 10.6%, which is a decrease of about 4 percentage points compared to our Q4 last year.
On a full year basis, the level of vouchers declined to 11.4%. This is also below last year's level of 11.8%, and therefore in line with our guidance. On slide 17, we provide an overview of our large investment portfolio in the global food delivery space. As you know, we are quite active when it comes to M&A. It has been proven in the past that we can significantly scale and improve the business that we acquire. In addition, we also take minority stakes in industry peers to improve our network, expand our know-how, explore ways to collaborate or even drive some consolidation. We see a lot of long-term value in this. Even short-term investments have realistically generated very attractive returns. One example is Rappi.
We invest in the company in 2018 through several funding rounds. In Q4 2021 and early this year, we decided to reduce our stake because we saw more interesting opportunities elsewhere, and we generated a very good multiple on this investment. Looking at the total value of the portfolio, it's noticeable that it has declined from EUR 2.5 billion to EUR 2.1 billion since last quarter. This is primarily due to the fact that we have reduced our stake in Rappi with proceeds of the amount of circa $250 million in January. In addition, the recent stock market tumult has weighed on the valuation of our public assets obviously.
Allow me to make a short comment on Glovo as the closing of the transaction is still subject to regulatory approvals. We include a minority stake of circa 44%, on a non-diluted basis here in the investment portfolio. As a reminder, we signed an agreement in December 2021 to acquire an additional stake of 39.4% on top of the preexisting stake. Now on slide 18, we present an overview of our cash flow development. We started the second half of the year with EUR 1.7 billion cash, and we end the year of 2021 with a cash position of EUR 2.2 billion. Besides the negative adjusted EBITDA, the main drivers for this development were the placement of the convertible bonds with a volume of EUR 1.2 billion.
In addition, our CapEx was around EUR 200 million or 1.1% of GMV. In the long term, we expect this ratio to fall to below 1% of GMV. Furthermore, we had a small positive cash inflows from M&A transactions as we received the proceeds for the sales of Yogiyo and the Balkan countries. In addition, we also received a cash flow inflow from $250 million of the partial sale of our Rappi stake in Q1 2022. This come on top of the EUR 2.2 billion that you see here we had at the end of the fiscal year 2021. Against the background and in combination with our investment portfolio, which we could convert into cash if necessary, we feel well-equipped in terms of liquidity.
With that, let me hand back to Niklas. Niklas?
Thanks, Emmanuel. Now let's have a look at our guidance for 2022. On a small note, these figures are excluding Glovo as we do not yet control this asset. For 2022, we expect to generate GMV of between EUR 44 billion and EUR 45 billion. Total segment revenue should amount to between EUR 9.5 billion and EUR 10.5 billion. Our adjusted EBITDA margin is expected to come in at -1.0% to -1.2% of GMV, out of which Integrated Verticals expect negative EUR 525 million to EUR 550 million adjusted EBITDA. At the same time, we expect our platform business to be break even for the full year. To clarify, when we talk about platform, we mean four regional segments and not them excluding Integrated Verticals.
The four regional segments and including group cost, I should add there. If you now take a look at the graph on the right-hand side of the slide, you can see that this, that the platform business and these numbers excluding Germany and Japan to make it comparable. In reality, the step up is better than what it looks like here, but excluding Germany and Japan to make it comparable. As you can see, we slowly but gradually improve our margin with around 1% per year. For 2022, we expect a margin improvement of the platform business of at least 1 percentage point. We could obviously improve margins with more than 1 percentage point per year, but it would risk us not fulfilling our long-term commitment with growth as number one priority. Let me also share some details around our four platform segments.
For Asia, we expect adjusted EBITDA break even in 2022 on a full year basis, and the profitability to significantly improve in the second half of the year compared to the first half as we move to standard pricing in our own delivery in Korea. In Americas, we expect the mature markets to be moving towards profitability while we keep investing in the markets we acquired and launched in 2021. All in all, adjusted EBITDA in 2022 should improve marginally. In MENA, we plan to generate a moderate adjusted EBITDA increase as we accelerate our growth investments in Egypt, Iraq, and Turkey. Europe should be at around EBITDA break even in 2022 on a full year basis, excluding Glovo.
Let me give you some quick remarks on the next slide, on Glovo. As already stated during our Glovo flash update in January, we expect the platform business, including Glovo, to generate a positive adjusted EBITDA of between EUR 0 million and EUR 100 million in Q4 2022. In general, we have agreed with Glovo management team that 2022 should be a significant investment year for Glovo to gain meaningful size and extend its leadership. They have proven good economics in the past, but we find it too early to optimize for profitability at this stage. Based on this, we expect a negative EBITDA of close to EUR 330 million .
We expect to generate GMV of EUR 4 billion-EUR 4.3 billion, excluding a meaningful M&A transaction that we decided not to close. We expect Glovo to be included in our Europe and Integrated Verticals segment once the transaction has been closed. We will also share with you further details on group guidance, including Glovo after the closing of the transaction, which is expected to occur in the second quarter. We also expect there will be clear synergies as we can start working together in the second half of the year. One final remark here. As of January 31st, over 95% of all Glovo's non-operative shareholders decided to opt in for Delivery Hero shares instead of cash settlement. We take this as a sign that most shareholders believe in the long term of this partnership.
Upon closing, expected to be Q2, subject to receiving regulatory approvals, Delivery Hero's stake in Glovo will amount to approximately 95% on a non-diluted basis. Potential cash settlement will amount to a single-digit million amount. Last slide. Here again, the summary why we still believe or are big believers in Delivery Hero. I think for now, we will move to Q&A. Thank everyone.
Ladies and gentlemen, at this time, we will begin the question- and -answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from the line of Joseph Barnet-Lamb from Credit Suisse. Please go ahead.
Excellent. Thank you very much for taking my questions. My first question is, I mean, the market is clearly punishing unprofitable tech at present, and at the same time, you're choosing to materially ramp up investment in Glovo and continuing to invest in Integrated Verticals. I guess that's a result of the value creation you think you can get in those businesses. Could you elaborate a little bit on how you weigh those two things up? A related second question. Emmanuel gave us some color with regards to balance sheet, but could you talk a little bit more about balance sheet and the funding of that investment? You obviously have out of the money convertible bonds that start coming due in January 2024.
While you mentioned liquid investments in your liquidity bridge, you know, should you not be at risk, you'll still need to repay or refinance that debt. Can you talk about how you view debt markets at present? My final question. With the shares where they are, there's going to be significant uncertainty on the path to profitability. You've guided on 2030 to give us some help, but can you help at all on 2023? Are you willing to say that 2023 will be break even or better? Thank you.
Thank you. We feel obliged to do what's best for the business. Of course, we had a discussion as to what extent we should tailor to the market and what the market wants. We clearly came to conclusion that we should not. We should do what we think is the best for the business. We think the best for the business is to ramp up investments as long as in quick commerce in particular, in Dmart in particular, as long as private market players have significant funding. We think that will remain this year. That's why we decided that we have to make sure that we have the firepower to fight back if we get into tougher competition.
So far, we are not really overlapping, but we still want to make ourselves ready and having the firepower to stand up and fight when need be. The same with Glovo. I know we had a lot of back and forth in terms of who is leader, who's not leader. We believe that we are leader in many of the markets, but we're not leader in all markets, and we have given a commitment to shareholders, and we have stated that clear. We are going to be number one in every market. Therefore, we decided that it's too early for Glovo to try to start moving towards profitability, even if they have proven that in the past, that it can be profitable during COVID time.
We decided now is the time to double down and making sure that we're clearly there also in markets where we're not yet there. That will happen. In terms of the balance sheet, of course, we keep an eye on that. We have a good balance sheet now, but as we mentioned, we have convertibles in 2024. We think it's a little bit too early to. Of course, we're cash. Always think about cash and cash flow as in general. That's why we have also assets like Rappi and potentially other stakes that we are going to sell for that cash flow point of view. We think it's too early to kind of optimize for that now.
We think it's better to build the size and scale and build the basis for such that we can sit in a better position 2023 or already in 2022 second half. Such that we have more flexibility and optionality when it comes to 2024. I think we have a lot of alternative advantages. I think more importantly is that we're going to hit our guidance, what we say now, that we are actually beating it, and that we're proving to investors that we are sticking to our plans. We are overseeing our plans or we are hitting them. Then I think we have plenty of time to rebuild the trust that seems to have been a little bit broken today for some reason.
2023, I'm not willing to give any guidance. I understand that would be very helpful for the stock if I did. I know that's not where we want to operate. We want to operate best for the business. Me now giving 2023 guidance would corner us, and it would also give our competitors room or take advantage of. I think that is in general also the why we're giving the guidance we are. We want to be in a position that we are not in the corner in any way. But we can invest in the most in the best possible way. At some point in time, we will also give 2023 guidance.
I have no urgency to do that now to tailor to the market.
Thank you, Niklas.
Hey, thanks a lot.
The next question is from the line of Marcus Diebel from J.P. Morgan. Please go ahead.
Yeah. Hi, everyone. Yeah, thanks, Niklas, for these comments. There's obviously a lot of focus on potential refinancing. I mean, if you assume the current guidance of about EUR 850 million, roughly negatives for the group, that's at least where I end up, EUR 800 million-EUR 850 million. If we include CapEx, if we include also some cash outflows in the one-offs, you very quickly get to, like, EUR 600 million-EUR 700 million end of 2022. Yeah, I mean, with the CBs being due. Just if you can, I think it would be helpful, at least can help us to understand what would be potential ways to repay the ones at least due in February. I think that would be very helpful.
If you can elaborate a little bit on this, that would be great. Related to this, I think more importantly, I think just out of the box, just on some technicals, what would actually happen if one of your majority shareholders goes above the 30% threshold on the bonds? Because it seems that the control is actually fixed then. Bondholders could go to any majority shareholder who that might be. I think it would be interesting if you can talk about the dynamics there in a little bit more detail. Thirdly, maybe on Asia. Yeah, obviously a bit of a slowdown. You gave some expressions about the disasters in there.
Given that you're overexposed clearly to the bigger cities, if you can just tell us a bit more on what you see on the ground in terms of competition. Related to this, we just noticed that the revenues per dark store went down. Yeah. Is it just a ramp up versus Q3, or what is behind it? Thank you.
What was the last one? What country or what region did you refer to?
Asia.
Asia.
The segment Asia. Yeah. I mean, I may start with the first one and the technicality about refinancing. Obviously, Marcus, we're looking at all optionality here that we can access. One of those is our straight debt investments that we could consider, and that we are looking at. Here I'm thinking about bonds, for example. We do also have, like, disposal of assets, or non-core assets, and other optionalities. You can be reassured that the company, and we as management are looking at this, at this, how you say, convertible bonds in 2024. That is out of the money. We're looking at all optionality available in the market, of which, debt is one of the options.
That would be one solution to refinance. As I said, disposal of core assets or non-core assets would be another optionality. There are many more. This is the main one that I would like to first-
Just to understand it, the bondholders would have the right, if one of the majority shareholders goes above 30%, would have the right to approach them directly. That's correct, right?
I don't think we want to.
Yeah. Okay.
I don't think we're in a position to comment on the second part with the 30% threshold.
Yeah, fine.
On the first one, I also again want to reiterate what Emmanuel said. We sit on good cash, and we sit on pretty liquid assets as well, in both public, at least three companies, soon four companies being public, and one company that we sold $250 million easily, during January. I think what is more important is that we're going to drive our business and drive also profitability in our business and platform business, this year. You can expect that the profitability of the platform business will only increase. That also will give a lot of possibility for covering the convertible with debt, if we want a listed bond or some other instrument. I think we have plenty of opportunities.
As long as we drive our platform business to profitability, I think we have endless optionality there. I don't know, more important that we drive a good business. I think you're right. We are not going to do an equity thing, and there is absolutely no need for it either. On Asia, yeah, I think. You mentioned Integrated Verticals, but just so that is that the point you want to do that, Emmanuel? Otherwise, I can say, let's speak about the-
No, I'm happy.
Oh.
Yeah, happy to do that. As we mentioned, we had some natural disasters in Philippines and Malaysia that impacted obviously partly the growth orders that you've seen. Also like, you know, the reopening and the easing of restriction of COVID had an impact on Q4. Having said that, as mentioned, I mean, like, you know, in October, November, a reduction of the orders that in Korea, for example, we end up with over 100 million orders in December. I think the factors, all the factors combined had those development on Q4, natural disasters and yes, the easing of their COVID restrictions.
Yeah. I think also overall, I know we had an incredible Q3, and that was also probably partially driven by some COVID lockdowns, especially in Taiwan. Therefore, the fact that we kept the business at this level, and also keep in mind, we significantly improve our contribution margin. We cut all low value orders, which also hits us on orders but also hits us on GMV. A little bit less on GMV, but nevertheless, if you lose some orders, then you also lose some GMV. The fact that the business did so well, I'm personally very happy, especially with the December numbers in Asia.
Okay. No, I think.
I think like what you said, like, you know, the cleaning up, as we call it, like on the other side, as Niklas mentioned, had a very good impact on the margin, as you could see in Asia. I think both combined are a very good quarter, despite the fact that the softness on the orders has been explained.
Sorry for doing a little bit. I just want to make sure that also it's clear so that there is no misunderstanding later on when the financials. We improved margins significantly, as I said, in APAC. In Korea, I mentioned this a couple of times before. We are on promotional pricing, and we pushed OD a lot. Therefore, we worsen our gross profit in Korea quite substantially over the last couple of quarters as we grew OD orders. Additionally, since we have used our sales team to drive our OD business and sign up OD business, also means that we haven't signed up the marketplace business on more listings. Currently the business is still based on listing business, but we have to sign them up on more listings. Of course, the more orders you have, the more listings you can sell.
If you don't have your sales team selling the listing, that also means that our revenue in the marketplace has been more flat than the GMV. The GMV has grown very fast, but we haven't kind of followed through with the sales activity. That also means that the margins in the marketplace has come down. On the positive side now, we have communicated our pricing change, and it's been very positively received, and we are moving beyond the promotional pricing. And that's why we also have such a big tailwind in the second half of this year. First half of the year is still a little bit impacted by negative economics and OD on because of promotional pricing.
Yeah, I think that is a big driver also for our second half being, I don't know, we believe very strong.
Okay. No, thanks a lot for the comments, particularly on Asia. Thank you.
The next question is from the line of Andrew Ross from Barclays. Please go ahead.
Great, good afternoon, everyone. I've got two. The first one is, it's following up on the theme of liquidity. Can you just give us clear guidance about what you expect for CapEx in 2022 and also the other moving parts around tax and interest, so we can get a sense of what the free cash flow burn is actually going to be this year? Then second question is to come back to Glovo and the -EUR 330. Can you just give us a sense as to what that number was in 2021, i.e., how much you're spending incrementally and maybe some more color in terms of where you're spending it? I guess as part of that, should we be worried by what's going on in Spain after the change in employment law last year? Thank you.
Thanks. Emmanuel, do you wanna cover the first two?
Yes. You mean like the CapEx? The CapEx level that we are looking at for 2022, 2023 is around 1% of GMV. This is that or below. This is the targets, and this is the KPI that we're using internally. That should be at this level. We were close to this as you heard today, like 1.1% of GMV in 2021. 1% of GMV is the KPIs on CapEx that we're forecasting for CapEx. The second was about? The second question, sorry.
It was about Glovo and giving us a sense as to how much incremental investment there was in 2022 against 2021.
Yeah. Yeah. I can cover that. I thought the tax was a separate question. On Glovo, yes, we are significantly scaling up this year. I don't know, on Glovo we pushed also last year, but there is a clear decision to up spend in 2021, 2022 now. I don't have the number for 2021, but significantly less. We think it's the right thing to do. I think, yeah, I know you mentioned Spain. I know Spain has done tremendously well. In our view, it's not that we are equal size or not even that we are double the size.
We think that we're three, four times the size of closest competitor, and we have expanded that leadership quite substantially. We believe that they have a very good setup and we have no concerns when it comes to Spain in terms of the setup of riders and had no reason to feel like there would be any problem there either. Spain, let's also be clear. A lot of people think that Spain is Glovo. On a global, Spain is going to be a small market.
It's already today a small market within that group that the big part is going to be in the CIS and Eastern Europe, the Balkans, doing tremendously well in Poland, Morocco, a certain part of Africa. I think the business is so much larger. We didn't buy this business for Spain. We bought it for the emerging markets, and Spain was a bonus. We think Spain is fantastic for Glovo, but it's just a small part of it.
Thanks. If I could just follow up on that free cash flow question as well. Could you just give us a sense for leases, exceptional items and tax as well through the manuals so we have the full bridge for the cash flow in 2022?
I must confess, I don't have it or in front of me. I will have to prepare this.
Okay. Thank you.
We'll follow up with you, Andrew.
Yeah.
Thanks a lot.
That'll be great. Thanks a lot. Cheers.
Sure. Cheers.
The next question is from the line of Rob Joyce from Goldman Sachs. Please go ahead.
Thanks very much for taking my questions. First one, just sorry to go back to it, but Integrated Verticals and Glovo, I think you've got what, 15% of next year's GMV accounting for around EUR 800 million of EBITDA losses. Can you just be a bit more precise on what you're actually spending in Integrated Verticals and where the investment's going in Glovo? Just so people understand that. Second, in terms of the 5%-8% EBITDA margins, I mean, I think you mentioned Integrated Verticals, you're spending there partly due to private players. Do you need to see private funding dry up to get to that 5%-8% EBITDA margin? Or can you help us bridge the gap between today's margins and that 5%-8% guidance, please? Thank you.
Yeah, absolutely. Yes, on the Integrated. One is, of course, to build out coverage. As Emmanuel mentioned in Q3, and in particular, so in Q4, we scale the number of stores substantially faster than we have done ever before. We do that to build that coverage and have a head start. Of course, when you build a new location, it takes some time to drive the demand, and you need a significant amount of demand in order to have a store profitable. We usually think that we need to get the kind of five or 100 orders per store in order to be in a realistic position to break even. Ideally, we want to go to 1,000 orders per store.
It will take some time to get to the 500, especially since the launches, the latest launches are not in the most. It's kind of the second priority areas. The first priority areas was already happening before. We have so much demand that we think that even in those kind of second-tier areas, that we're going to go to the 500 - 1,000 orders per store. Of course, it's going to scale there gradually. As you scale gradually or actually the other way around, you want to grow not gradually, slowly to those levels in those areas because you burn every month that you are not at the scale.
You have a store managers and you have pickers and you might have higher wastage and you have real estate and so on. Therefore, you want to grow the number of orders in that store fairly fast, which also means that you will have to do some sort of visibility for customers, that they can see it, that they can try it out. It might be some free delivery, it might be some other things to get the ball rolling. Of course, that is the big cost. That's why the cost is quite substantial, probably more than even thought in the beginning, to be honest, to making sure that we drive there in each store.
Having said that, we see that in a lot of places we are getting there. We are definitely getting there and we like what we see. We like the customer behavior, we like the margins that we can generate. Of course, it has not spread to all stores in all markets.
Niklas-
Of course with-
Can I also understand maybe the most profitable stores? Have you got 50 stores that are making very good money or something we can put up some context around what stores we have?
We do have stores. I don't have a number if it's 50 stores, 100 stores or, but we do have markets and areas where we are even profitable, that we can get the stores to profitability. But then the other point is that you want to drive also certain scale, and with scale, you have a little bit more leverage in your procurement capabilities and so on. We still haven't really pushed that enough. The other one is that you have way more possibility to add tech revenue. I think our competitor in the U.S. is already referring to $2 per order in ad revenue. They hope to go to $2.75 per ad revenue.
It's maybe in the higher end, but it's kind of in the order of magnitude of where we think that we can drive the ad revenue, as a percentage of basket, if you assume a 30 or so basket. There is more potential for ad revenue than there is in the restaurant space. But of course, we haven't even built that tool. We have 0% ad revenues. We're basically missing our 5%-8% ad revenue per order. There are so many levers there that we have to pull, and we haven't had the time and to fully build them and sell this product. That's why we haven't moved our unit economics to the place where we want to be long term.
We can clearly see that we're gonna get there. We can get there now by adding more delivery fees and other things, but then we're also hurting our growth, and we need a little bit of growth in order to also have the store profitability or store ordering and building extra distribution centers, et cetera, et cetera. There are so many levers and so many things that we have to build, and that simply takes time. We still decided that what we see, we like, and that's why we go for coverage, even if you're not at the place where I don't know. In a perfect scenario, if there would be no competition, we probably build that coverage later.
Now we've decided we have to build out there, making sure that we are first and that there is no one who can challenge us in a very attractive space. That's why we think it makes sense. On the Glovo side, most of it is for the food. I know they also do quick commerce, they also do dark stores. It's the most of the spending is still in the food space. They have unit economics which are better than ours in Europe, but it's still not at the level where we think that we can get it with our logistics and our. I don't know.
We have a lot of synergies additional value there, so we could easily move. I don't want to say a percent, but let's assume for the time being that if they would make 5% in gross profit, we could easily add another 3%, 4%, and 5% just by efficiencies. But that we cannot count on because we are not working together yet. Then of course, there's marketing, there's city launches, and so on. It's the same as Delivery Hero. It's only two years earlier. Same as Delivery Hero platform business a couple of years ago. Yeah. Then to the 5%-8% margin. The question was how. Can you rephrase that question, please?
Yeah. I was just saying, is that contingent on private funding d rying up, or can you help us bridge the gap between -2% and +5%?
I think at the current state, with the current size, which I think is still small. We can argue it's EUR 44 billion-EUR 45 billion small, but it's small compared to what we believe it can be. If you're that size, I think it's too early. You could get to 5%-8% margin then as well, but then you might lose market share, and you lose long-term margin. Therefore, it's not sustainable to go to that level in a competitive market with the subscale that we still consider that we have.
There are markets where we have strong competition, where we have players like Bolt, where we have players like Deliveroo, where we have players like Coupang, where we think that we can probably get to this level, even if they go very hard on us because we have the scale in those markets. A handful of markets which actually have a scale. If you take Korea, we do two orders per capita per month or two orders per month per capita. We have the same two orders per capita per month in a couple of other markets. In those markets, we have enough scale that we can get to 5%-8%, even if we have a strong competitor. In some of those markets, we are also there.
Not in Korea because they run their own pricing, but in other markets.
It's simply scale. It's a function of scale from here.
It's scale. Yes. I would say scale, yes. But of course it's. Let's say we have scale, but there is a three-player market with all having equal share, then of course there will always be a hunt who can win. So even if all three players would have scale, maybe we'll come to the 5%-8%. That's why I think we are much better positioned than anyone to generate good EBITDA margin because we are in a comparative place much in a much better place than any of our global peers. We are leading in more markets and have a multiple to number two that is larger in more markets than anyone else.
I think if anyone can get to the 5% or 8%, I think it should be us. We operate in markets which I think are also unit economics more attractive. I know right now the best unit economics we have is in Asia, APAC to Southeast Asia, basically it's there, and Latin America is getting there as well. Yeah. If anyone can get there, it should probably be us. I think everyone will get there, but yeah.
Okay. Thank you.
The next question is from the line of Sreedhar Mahamkali from UBS. Please go ahead.
Yes. Hi. Good afternoon. Three questions, if I can quickly please go through. First one, in terms of Asia, helpful guidance on sort of platform business there. Could you perhaps break it into Korea and Southeast Asia, please? I think you've already alluded to Korea probably going backwards, perhaps in Q4. At nine months, you talked about Korea being EUR 165 million EBITDA. Assuming that's gone back in Q4, should that grow meaningfully into 2022? If it does, obviously the implication is for Southeast Asia to be up very significantly in terms of losses going into breakeven. What's driving rest of Southeast Asia losses lower? Second, maybe just building on Rob's questions there in terms of IV. A lot of good color, Niklas. Thank you.
I think clearly we're all worried about paths to profitability here. If we're competing with private players who clearly, I don't know where we are in that cycle of public market multiple compression really drying up private funding or not. This could be a very long, drawn-out battle from a shareholder perspective. Can you give us a sense of how you see with this investment the path to profitability? Clearly, I think early on you were talking about Q1 losses and quick commerce being peak. Is that still how you feel? That's the second one on quick commerce. Even if you're unable to, maybe just the third one in that case is you talked about Q4 guidance of EUR 0 million-EUR 100 million EBITDA, including Glovo.
I think investors would really appreciate if you could actually give a full group EBITDA guidance for Q4. That way, while you're not committing to a 2023 EBITDA, we can at least have a sense of what the direction of travel will look like into 2023 EBITDA to sort of paint our own picture, if you like.
Yeah.
Those are the three. Thank you.
Sure. No, good questions. Thanks for those. Yes, correct on Korea. We increased our OD share. It grew and we are negative economics there. And we had, at least in November, beginning of December, one competitor. Well, actually, both competitors doing a little bit promotional and we are competitive. We don't want to give them that space. We stepped up a little bit too, which is also the net outcome is that I think we gained market share during that period, at least when you look at the weekly basis, credit card data in January. You're correct that profitability you should expect will have gone down there in Korea. In APAC, I would say that we are on a good path on the profitability side.
You would expect that continuing, as we've improved unit economics, and we keep on scaling. I think you would expect that that would be a more or less gradual increase, quarter-over-quarter, but you never know. It could always be a quarter better or worse. Generally it's a good direction there. Maybe I missed the question a little bit. You can follow up later. The path to profitability and competitors and the funding cycle. Our experience is that you can be the new kid on the block for a couple of years, and you can sell stories that are gonna grow 10 times the next year or two, and everything is gonna be amazing.
You can do that a couple of times and if you get a lot of money, you can even fulfill some of those top lines. At some point, the larger you get, the harder it's gonna be to just increase the spending to keep the growth. Growth will come down. As they all lose a lot of money, there will also be then a question, how sustainable? People start asking questions, "Why would I invest here when I can invest in companies like Delivery Hero?" In our experience, this is not the first sector we have seen it with, also the second generation logistic companies that came, and we have seen it in other spaces too. There are two, three years, I think.
I don't know, maybe it's one more year, maybe it's two more years, but it's not an infinite funding as a private company there. As long as you do, we wanna keep up. The good part is also that we start reaching such a size that we. If you take the food as an example, use the profit contribution that we generate, then we reinvest that, and that's taking what we do to a large extent. Private players, even if they can burn hundreds of millions than we spend billions of euros in investments into marketing and scale and efficiencies because we have that efficiency.
At some point you get the size that it doesn't matter if someone spends EUR 1 billion in a certain vertical because you actually have profit contribution of billions that you counter, and you have the size and the customer and awareness already. I think at some point it doesn't really matter, and we have seen that in many cases as well, that it increases the awareness but not necessarily anything else. However, we are not at that place in many locations. We have seen, take the example of Turkey, someone coming in with a grocery offering came before us. We get started on that grocery offering three, four years later, and we have not been able to catch up. The same for their food business.
They have spent 50% off, but even if they have spent 50% off on the food business for in November, December, they're still. On a gross basis, half our size on a net after vouchers, that's still four times smaller probably. It just shows that it's very tough and that is still a market where we're still very mature. We probably could have done a better job as well, to be honest. Yeah. If I don't think that private companies aren't funding, that is not an endless problem. It might be a problem in a vertical in a certain time, but that is the larger Deliveroo is getting, the less and less problem that gets. In two, three years, I don't think it will matter. Then group Q4.
We said there will be, including Glovo, the platform business will generate between EUR 0 million and EUR 100 million. We have also said that our quick commerce business and Dmart business is at peak loss, Q4, Q1, a significant investment. That will gradually, slowly, we will tell people, go down. Of course, there might be a few other investments that we do also that quick commerce based that we are evaluating. But in order of magnitude, it is still small in relative to Delivery Hero terms. But if exclude that for a moment, you would expect that, I don't know, let's say I would divide EUR 500 million with 4, then EUR 125 million, and I said that it gradually declines a little bit over the year.
If I go to the maximum, it's like EUR 120 million. Then I said we do profit on the food side on EUR 0 million-EUR 100 million. I think that should hopefully give a kind of a feeling of where we will stand in 2023. Again, we don't want to guide to 2023 because we don't know what's happening, we don't know the market, we don't know environment, and we don't know if there will be new opportunities coming as well. We want to keep that flexibility as well.
Got it. Maybe just super short follow-up. Is there anything you're seeing in terms of metrics, order per store or mature market contribution in the IV segment that gives you confidence that into 2023, the IV losses could be substantially better? I mean, by the order of magnitude h undreds of millions of euros, or is that too early to talk?
Yes. Generally, I'm sorry that I tried to explain, but I just want to be helpful to everyone here because I understand there are some questions here. Generally what we see is that when you scale a business with negative economics, the losses will increase as you scale, and obviously. Once you get to positive economics, it should change fairly fast. It's gonna be larger and larger losses until you get to that point. Now, with the quick commerce and the Dmarts, it's not gonna be the case this year because we are growing that business, but we are significantly improving the economics. We are counteracting the fact that we have negative economics with improvement in economics.
The growth and improvement in economics is kind of netting each other out such that we don't increase the losses from the current basis Q4, Q1, but actually marginally gradually go down. The question is when are we gonna reach gross profit neutral? It will not be this year. It will also not be end of the year. I don't dare to say when it is, but we're gonna be profitable in many places, but not on a group basis on contribution margin. We're gonna be there in 2023, I'm pretty sure. Once we get to that level, then you would also expect that the losses would drastically go down because every incremental order will be contributing.
That is probably 2023. At some point in 2023, it will drastically decline, but not in 2022.
Thank you.
Coming back to your initial point, we are in a challenging market, and we have a lot of liquidity. But as someone said, in 2024, we have converts, and even if we have a lot of capital and we have a lot of liquid assets and so on, we need to be in a position where we can pay back those converts. If you want to have cheap financing in terms of debt and others, then of course, we need to show a clear profit path as well, and especially important for 2023.
If the market is as dire or is getting worse than where it is now, then even more important that we're going to drive that profitability in 2023 because it's going to increase our ability to take on debt to refinance the converts in a cheaper way or in a most cheap and effective way.
Thank you.
By the way, I think the 2024 is also a fairly small one, but we still gonna. There's also convertible for 2025 as well. 2025 and 2027. Next question. Thank you.
The next question is in the line of Adrien de Saint Hilaire from Bank of America. Please go ahead.
Thank you very much for taking these questions, Niklas and Emmanuel. The first one is, during the call that you made around Glovo a couple of months ago, actually last month, I was under the impression that you were talking about GMV growth in the low 30s%.
Your guidance today is about 25% growth. Has anything changed in the market or is that your, I would say your usual conservatism? That's the first question. Second question is, you make a lot of comments in your presentation about contribution margin. I'm struggling to understand why, while the contribution margin is improving and hitting all-time high, whereas actually EBITDA keeps on deteriorating or maybe not improving as fast as we would expect.
Yeah. No, great. Thanks for that. Yeah, I don't think anything's changed. On the contrary, I think January has been very good, and it was the best month in our history. It was on a GMV basis. Nothing has changed here. Yeah, maybe. We want to be sure that we are not setting ourselves up for failure or in any way. We want to make sure that we have the trust as you have in the past, so we deliver on what we say. There's nothing that's changed, but we want to make sure that we don't set a guidance that is putting us into trouble, putting it this way.
Especially because of the challenging environment. We wanna keep building the trust, do not guide too high. On the contribution margin to EBITDA, yes. That's I think that's very right. Now coming back a little bit to Korea. Korea is 50% of our business, on our GMV. Actually, it's a little bit more than 50% of our GMV. Of course, if we improve APAC, we improve Latin America, I mean, Europe was actually a slight decline, but and MENA is already good.
Even if we improve all of those places, if in Korea we move on promotional pricing and OD and we're reducing our contribution margin there with 1.5% or so, that anything we did on the other is being balanced out. That's the net effect is that the contribution margin, I don't have it in front of me, contribution margin on an aggregated basis may not have improved if you include Korea. Maybe Emmanuel can confirm or disprove that. He might have.
No, I can confirm.
That's the thing. The contribution margin for the group had not increased. It actually declined, but it's a one-off effect of promotional pricing in Korea. That is, I don't know, pricing has been communicated and the change is happening. Once that is sorted, you would expect that the contribution margin for the group will go up and therefore the EBITDA will go down or improve.
Super. If I could just ask one tiny follow-up is, in that EUR 44 billion-EUR 45 billion and that growth that you expect, what is the sort of growth differential that you expect between Integrated Verticals and the platform business, if any?
We don't guide there. It will obviously grow faster. I don't wanna give an additional guidance here. I don't wanna be wrong on anything. I don't wanna throw something out there either or my internal thinking and beliefs here. I need some more time on it as well. It's growing really well, especially the last couple of months, I would say. It's gonna grow faster, but it's also a long-term game. I don't know. People are not changing the behavior overnight and ordering their groceries on an on-demand basis from one moment to another. I think building this vertical is gonna take 10, 20 years.
I think that's also. It's taken tens of years for people to start ordering food. Delivery existed back in the 1990s. Grocery delivery has existed much shorter and especially this quick commerce type of grocery. It's gonna take a long time. It's gonna grow faster than our food. Compounding effect is gonna be enormous. It comes back to my initial point. We believe that we're gonna grow faster than the peers or the industry with 10%-15% per year. That means over eight years, you're double the size. The same if you look at quick commerce, maybe that will grow even more faster and over 4 years, it might have been double versus the food. But I don't wanna give a number there.
No. Thanks.
Understood. Thank you, guys.
Thank you. Only one left?
Yeah. The next question is from the line of Miriam Josiah from Morgan Stanley. Please go ahead.
Great. Thanks for taking my questions. Two for me. Just another one, firstly on the operational leverage, this time specifically for MENA. I guess that's a region where we haven't seen as much operational leverage come through as we might have thought by now. I think you mentioned Turkey as one of the reasons for that. I guess historically that was quite a strong market. Do you think that the cost of maintaining number one positions is increasing generally, or do you think that's more specific execution issues in Turkey? I guess generally, how should we think about just the trajectory of operational leverage in the markets where you already have that leading position? Is it just a question of increasing the gap to the number two? Just any color on how you think about that would be helpful.
Then secondly, just around sort of macro concerns around inflation, how concerned are you around consumer demand in a higher inflationary environment, particularly on the grocery business? On the cost side, are you seeing that inflation come through in rider costs, and are you passing that through at all? Are there any other buckets of cost inflation to be concerned about, like headcount, et cetera? Thanks.
Yeah. No, great. I think the operational leverage is coming through, but we also said in the past, we wanna move very slowly. This is not a sprint. We don't wanna build this business quick and get rich and go home. I wanna build this business for 100 years. I have no rush in improving our economics and driving profitability. I'm not a seller. I'm so. We do this gradually, slowly. I think there are. If you take MENA, there are still markets like Egypt, Iraq, which are still very new, that we invest in, but you also mentioned Turkey.
I think I don't think that, as I said, that I think they are more the exception to the rule where we maybe have, I would say, being a little bit challenged from behind, we've had a stable position. I think one was four or five years ago in Colombia with Rappi coming with a multi-vertical offering. We were not fast enough to build multi-vertical. I think we learned from that mistake, and as we you know they expanded into Argentina and other places, we already had a multi-vertical offer even before they came and managed to kind of turn that market to be significantly larger than there. The same one was in Kuwait. We thought logistics is maybe not so important. That was a mistake.
A company called Carriage managed to get 20% or so of the market, and we ended up acquiring it because we needed that capability. I would say in Turkey, I think we were not fast enough in realizing the grocery warehouse model fast enough. We were a few years behind. They have a little bit disrupted us by coming into that warehouse model and then expanding a little bit in the food. Even there, I would say again that they're doing 50% promotion and still we are growing very nicely in Turkey on the food side. We also believe that once someone is taking off, and if we lost any customers, will be those who are very price sensitive.
The moment they turn down the promotion and we do a promotion, all their customers can come to us. We just have to wait and attack when the moment is right. I don't think too much concern there. There are very few reasons why one should be able to lose some market position. I think we have gained market position or even won markets from nothing, but exactly because we had a customer experience that was better. We did something differently. The same with Glovo. I mentioned in the article, Glovo has been phenomenal at coming from nowhere, years and years after in places and still manage because they are so focused on product. Again, if you have a good product, good execution, good product offering, there is no.
We don't see a reason. We don't have to counter and spend because someone does vouchers. We can still drive gradually our business to the 5%-8%, and it doesn't matter if competition is there or not. We just have to make sure that the product is not having any gaps. I think even in MENA you will see that coming through very gradually, that EBITDA margins in those places which are profitable. But there are three investment areas right now, or two investment areas, two and a half. Inflation, rider cost. We have operated with inflation many times before, and this is not the first time. We've been operating in Argentina, we have been operating in Turkey. Over many years we have had inflation and hyperinflation.
We have had also many other markets with inflation. We don't see that as a big risk for our business. Food prices go up, and we take a commission on those food prices. We don't see that people stop consuming because they have less spending power. People still order food. They might not go to expensive restaurants and drink a glass of wine, but they order in. We still. Very few people will order every day, or even every week. Even under lower buying power, they do consume. Otherwise, a business like the one we have in Bangladesh and Pakistan wouldn't work if purchasing power would eliminate food delivery. Rider cost, we haven't seen that.
One issue we have is in Turkey. We increased rider cost, but inflation has been so high, I think. That is probably an exception, but maybe we could have managed that better. In general, we don't think inflation is a big problem from that point of view.
That's helpful. Thank you.
Thank you very much for listening in. I would like to reiterate where we are, that we are moving our business to EBITDA positive for the full year this year. And this is a massive milestone. We have lost over many years, 11 years, and large amounts, and we are moving. That platform business has been highly loss-making, and people have said that we can never get profitable. We are now proving it, that this is positive EBITDA for the full year, and even profitable, including Glovo in the fourth quarter. Of course it's a food business. We have also doubled down in quick commerce, and we are big believers in this, and I think we have also the firepower to win in our markets.
We have made sure that we have the tools to respond if need be. I think this is a massive opportunity we strongly believe in. I thank everyone who still believe in us, and we will continue to work day and night to deliver on those expectations. Thank you, everyone.