Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining Delivery Hero's Q2 2022 Trading Update conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. After a short introduction by the management, there are gonna 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. It is my pleasure, and I'd now like to turn the conference over to Mr. Christoph Bast, Head of Investor Relations. Please go ahead, Sir.
Hello and welcome everyone. We hope you are well, and thank you much for joining our Q2 2022 earnings call. We trust you have all received the press release and the presentation, which we published this morning. These documents are also available on our website. We would like to remind you that this call is being webcast, and a replay of the audio webcast will be available later today on our website. With me today, we have Niklas Östberg, CEO, and Emmanuel Thomassin, CFO of Delivery Hero, who will take us through the most relevant aspects of our Q2 performance and share further details on our outlook and the path to profitability. After that, we look forward to answering your questions. Now let me hand it over to you, Niklas.
Thank you. Hey, everyone. Thanks for joining our call today. Q2 marked another strong quarter for us, and in particular, when it comes to profitability improvements combined with extending our leadership in our core regions. All segments but Americas and integrated verticals are now break-even, and around 70% of group GMV is now being generated from profitable countries. You should expect this profit pool to ramp up materially over the next quarters while we still double down on our investments in selected competitive markets. I should add that the 7% includes Dmart, so 70% of the countries with and without Dmart. Coming to our vision. We remain very committed to our vision, and we push hard to build the best experience for our customers. Moving to the next slide.
As an investor in Delivery Hero, you are invested in the global leader in food delivery and quick commerce. Both categories will become very large and profitable mid to long term. With our regional footprint, we cover countries with around 2.2 billion of global population. This represents nearly half of the world's population outside of China and India. However, you are not only investing in the large food and quick commerce opportunity, but the leading platform in Asia, ex-China. Number one in Northern, Eastern, and Southern Europe. Number one in Middle East and Northern Africa, and the largest food platform in South and Central America, excluding Brazil. Last but not least, the largest quick commerce opportunity globally. Moving on. With this setup, we are ideally quick to achieve our ambitious 2030 targets.
First, we aim to generate a GMV of EUR 200 billion-EUR 350 billion. The lower end of this range corresponds to an annual average growth of around 20%. However, we are modeling this based on cohorts and expected acquisition levels. Secondly, we plan to strengthen our leadership in our existing countries. Long term, we aim to be number one in every country we operate, and we have made good progress towards this over the years. Thirdly, we will continue to invest in technology and innovation to guarantee the best possible customer experience. Last but not, definitely not least, we run this business to generate attractive profits and cash flow. In the long term, we expect an adjusted EBITDA to GMV ratio of 5%-8%.
We start seeing more and more markets moving towards these levels, and our confidence level to get there has increased further. Let's move to our highlights. We achieved strong GMV growth of 18% year-on-year and total segment revenue growth of 38%, despite headwinds from lifting of COVID restrictions. In addition, we also made progress to further strengthen our leadership position. We did this also along the lines of moving profitability. We achieved a new record high contribution margin in own delivery, which was mainly driven by Asia and Europe. What makes me really proud is the performance of own delivery business in Asia. The segment has improved consistently over the last few years and is at the same level as group.
Our platform business was already at break even on adjusted EBITDA level in May, June, excluding one-off effects such as hyperinflation impact in Turkey. The Asia segment, which represents 66% of the group GMV, generated a positive adjusted EBITDA for the entire second quarter. This puts us on a sustainable path to grow market share in the region. In addition, we closed the transaction of Glovo in July. Everyone knows already that they achieved exceptional growth. More importantly, now more than 50% of their GMV is generated from markets with positive adjusted EBITDA before group cost. As a result of these achievements, we expect a further ramp up in group profitability in H2 on adjusted EBITDA level, while at the same time maintaining high investments in competitive markets. Now on to the next slide, where we take a closer look at the development of GMV and revenue.
This slide shows an impressive growth trajectory of recent years, and as you can see, completely unaffected by macroeconomic environment or external effects like changing inflation rates. What you do see is a return to normal after exceptional growth between Q2 2020 and Q3 2021 driven by COVID. In Q2, we achieved strong group GMV and revenue growth, as mentioned, with GMV and revenue up 18% respectively 38%, from last year. Earlier this year, we explained the particularities of easing COVID restrictions in 2022 and the expected year-on-year impact. After a strong Q1, we experienced some headwinds in Q2. For Q3, we expect to be back into growth with a 7% quarter-on-quarter GMV growth.
This will result in a slightly lower GMV year-on-year growth driven by an exceptional Q3 last year with lockdowns in Korea and Taiwan and some other Asian markets. For Q4, we expect then an acceleration in year-on-year growth as we have an easier comp. This means GMV for the Q3 to land on EUR 10.6 billion excluding Glovo and EUR 11.5 billion including. Now let me hand over to Emmanuel for a deeper dive into the Q2 financials.
Thank you, Niklas, and welcome also from my side. Let me start with the performance of each of their business segments. Our platform business in Asia performed well in Q2, reaching EUR 6.5 billion in GMV and EUR 938 million in segment revenue, which corresponds to growth rate of 16% and 30% year-on-year, respectively. The GMV on the quarter-to-quarter basis declined as Q1 still saw benefits from COVID restriction in Korea and Q2 experienced the full impact of COVID re-opening and easing of distance restrictions. For Q3, we expect quarter-on-quarter growth of 8% to EUR 7 billion. The second half of the year usually generates materially higher GMV than the first one, with our Q3 seasonality particularly beneficial for food delivery as it is extremely hot and humid in the region.
We continue to follow our strategy to push up for profitability during the quarter, with AOV increasing close to 20% year-on-year as we actively manage the basket size. Furthermore, we had a clear focus on the value customers through our new audience targeting tool. This tool allows us to segment customers and to incentivize with different discounts and minimum order values, helping also to reduce voucher costs. We expect this tool to enhance our operation going forward, allowing us to further enhance AOVs while improving gross profit. In South Korea, we phased out their promotional campaign of Baemin One Delivery service, and we successfully launched our ad tech service, CPC. We have experienced very attractive vendor penetration in a very short period of time, with a large numbers of restaurants signing up through pure self-booking.
These restaurants are generating a very attractive return on advertising spend, and those we are experiencing high retention rates. We expect advertising in South Korea to reach the levels experienced in other regions in the long term. We also introduced service fees in three markets in the APAC region, with Taiwan being launched in June. We continue to roll out service fees to other markets in the region where we see rational competition. Now I would like to bring one point to your attention. As you know, the Asia platform business generates close to 70% of group GMV. For the first time, this segment has generated positive adjusted EBITDA for the quarter. This is a significant improvement year-on-year, and we expect to continue to build on this in the coming quarters.
Just as a side note, the adjusted EBITDA is here after the allocation of group cost. Now onto the MENA segment on the next slide. Strong Q2 for the platform business in MENA, achieving a record high GMV of EUR 2 billion, which marks a 25% year-on-year increase. Excluding Turkey, GMV grew even 35% year-on-year. Segment revenue posted considerable growth, increasing by 43% to EUR 515 million in the quarter. In Turkey, we successfully migrate to the Pandora platform, and this will allow us to improve both from the technology and products level, enhancing customer experience. Pandora has a more customer-friendly user interface, and we have already seen a clear increase of sixteen percent of non-subsidized GMV from pre-migration.
Migration will not only offer a nicer interface, but also allow us to offer new services such as our subscription, pickup, dining, and loyalty program. Overall, we continue to gain market share across the region while growing adjusted EBITDA and improving the margin profile for the segment, excluding Turkey. Now turning to the next segment, Europe on the next slide, please. The GMV in Q2 totaled close to EUR 700 million at 3% year-on-year decline. However, this was mainly driven by the deconsolidation of the Balkans countries. On the like-for-like basis, excluding divests and those who closed businesses, GMV grew by 8% year-on-year, and therefore above our European peers.
The segment revenue by 4% year-on-year to EUR 156 million with a sharp increase in advertising revenue, which now stand at 2.3% of GMV compared to 2.1% in Q1 2022. We expect this positive trend to continue also into the second half of the year. We have also rolled out service fees in Norway and Finland, completing our service fee introduction into the Nordics, and we continue rolling out the service fee also in Europe, where competition is rational as well. Including our global figures, GMV in the European platform business increased by 33% year-on-year to EUR 1.6 billion in Q2.
Here, we would like to point out that we intend to publish the figures for Delivery Hero, including global on a pro forma basis, as we have done for Woowa in the past, from the Q3 trading update onwards. We then also adjust the historical figures and make them available to you. Now I would like to briefly comment on operations in the Americas on the next slide. Our platform business in the Americas segment performed very well in Q2, reaching EUR 674 million in GMV and EUR 178 million in segment revenue, which correspond to 45% and 48% growth year-on-year respectively. Excluding the tailwind from hyperinflation, GMV growth would have been about three percentage points lower. Continue to optimize unique economics in the regions, which includes minimum order value, cross-selling, and less delivery fee campaigns.
This together with the inflation effect and the strong underlying demand, fulfilled the AOV by 23% year-on-year and drove gross profit margin to record high with a 1.6 percentage point improvement year-over-year. Operations in the region are developing nicely with recent services launched in key markets such as subscriptions in Argentina, Chile, and Peru. A new offering such as this allow us to increase our leadership in the market. Here we have also introduced service fees in Chile and similar to the other segment plan to roll out to further markets where we see rational competition in the coming months. Now onto our integrated verticals on the next slide. Both GMV and segment revenue present strong growth year-on-year, reaching EUR 439 million and EUR 397 million respectively. These are 75% and 68% respectively above Q2 of last year.
These growth rates are also reflecting a higher GMV per store, which is a key driver for the profitability. As we continue to optimize our service, our product assortment, improve our SKUs, AOV increased by 27% year-on-year. We expect this trend to continue as product recommendations will improve and customer adoption increase. At the same time, we have now reached suitable customer coverage with the current footprint of 1,125 stores, which corresponds to net additions of only three stores in Q2. Given the current funding environment in private market, we also expect our competitors to remain more rational. Going forward, we continue to open new stores in selected markets, but only when current stores achieve the targeted capacity.
We also plan to rationalize during the second half of the year between 50-100 stores which are not reaching the necessary scale to generate attractive economics. Now let's move to our next slide where we discuss our contribution margin. Here we continue to improve on the profitability of our own delivery business. As you can see on this slide, the contribution margin before vouchers now stand at close to 7%, and we expect further improvement in the second half of the year. A small remark regarding this point since Q2 2022, this chart also includes a contribution margin from Woowa. Keep in mind that Woowa had negative margin on delivery in Q1, so the increase quarter-over-quarter would have been even sharper with Woowa included.
The Asia segment now is in line with the contribution margin of the group level, and we believe this is a huge success as we are talking about a margin improvement of more than 15% over the last three years. Europe has also made significant improvement in own delivery, but lags behind our other segments as the region is just not at scale yet. We do believe Europe has a very good chance to achieve the same margin level as the group. Glovo, for example, already has a contribution margin of more than 5%. Even these numbers might not be fully comparable, we believe that it gives a clear indication on the long-term margin upside for Europe.
I would like to point out also that we start with our own delivery model six-seven years ago, but as recently as two-three years ago, few investors believed we could make money on. Even some of our competitors made vocal claims that own delivery doesn't work. We hope this, these graphs give you confidence that it can. On the next slide, you will also find the contribution margin after voucher cost. Here, as you can see, the fully loaded contribution margin after vouchers has reached a new record high and is positive in all four segments. Here again, you may remember that we made a significant push towards own delivery in 2019, where many people questioned whether we can ever generate profit with our own delivery business.
Now you can see that this slide here, every single segment in Q2 is generating profit per order even after voucher cost. We explained in the past that we're consistently work on reducing our voucher intensity. Here, as you can see, vouchers as a percentage of GMV have further declined by 0.3 percentage point year-on-year to 2% in Q2. For clarification, these numbers are including Woowa on like-for-like basis. For the remainder of the year, we expect the level of voucher to continue in this trajectory. In addition, I would like also to take this opportunity to refer to our non-commission based revenue or NCR. This mainly includes advertising revenue and stood at 2.1% of GMV in Q2, up from 1.5% in Q2 2021.
This excludes Woowa, which we only recently introduced their ad tech in South Korea. These ad margin revenues are not included in the contribution margin, as you can see on this slide. Now on slide 16, we present our cash flow bridge. Following the syndication of a term loan in the amount of EUR 1.1 billion in April, our cash position stood at a comfortable level of EUR 2.9 billion at the end of H1. On top of that, we have an undrawn revolving credit facility of EUR 425 million, which gives us additional flexibility. You may notice here that the FCF has increased from the EUR 375 million originally communicated. This is mainly due to stronger demand from lenders during the syndication.
As we progress on our path to profitability, cash consumption significantly improved compared to H1 2021. One key driver for this was our reduced M&A activity. In addition, capital expenditures were somewhat more moderate, so that the CapEx to GMV ratio was only 0.7% for the half of this year. We expect the CapEx to GMV ratio to stabilize around this level for the full year. Last but not least, the working capital impact was neutral to the cash flow development, and we expect further progress here in H2. A cash flow position of EUR 2.9 billion does not include the recent investments of Zomato shares, which was executed in July for close to $60 million.
Furthermore, we hold investments in Deliveroo, Just Eat Takeaway.com, and then Rappi that are currently worth around EUR 390 million, providing an additional layer of capital. Against the background of more than EUR 3 billion in total available liquidity, a large investment portfolio that can quickly turn into additional cash if needed, and our progress toward generating a positive adjusted EBITDA on group level in 2023, we view our cash needs as implied covered for over the planning horizon. That's also why we have started the partial buyback of our 2024 convertible bonds with a nominal value up to EUR 85 million, which equal approximately 10% of our 2024 convertibles. Now on slide 19, where we share additional information about the path to profitability with you.
What you see here is the strong expected trajectory of our profitable platform countries. In the first half of the year, these have already generated a significant increase in adjusted EBITDA to over EUR 200 million, reaching a positive adjusted EBITDA to GMV margin of around 1.5%, including group costs. All these countries will reach further scale, and we continue to improve our unit economics by adjusting minimum order values, reducing free delivery campaigns, increasing our marketing efficiency through smarter targeting tools, et cetera, et cetera. We expect the same countries to generate an adjusted EBITDA of more than EUR 400 million in the second half of the year alone.
Therefore, we expect the profitable platform countries, which account for 70% of group GMV, to generate adjusted EBITDA of more than EUR 600 million in full year 2022, again after group cost. This give us the confidence that we are on the right path to generate positive adjusted EBITDA on group level, including Glovo, in 2023 already. Now let me hand back to Niklas, who will update us on Glovo starting on the next slide. Niklas?
Thanks, Mano. On July 21st, we registered a capital increase and completed the Glovo deal that we first announced back at the end of 2021. We issued a total of 10.3 million Delivery Hero shares to Glovo's former shareholder. The final settlement and allocation of Delivery Hero shares to the sellers is still ongoing with the listing agent. With the shift in our share price, the transaction value for the acquired 50% non-diluted stake of Glovo totals nearly EUR 400 million, including the previous ownership in the company. Delivery Hero's stake in Glovo now accounts for approximately 94% on a non-diluted basis. As earlier announced, the European Commission made an unannounced inspection in relation to Glovo.
Such an inspection is likely to take at least two-three years or even longer. Any potential negative outcome will be challenged. As a standard procedure and calculation methodology, we may build an accrual, which by no means should be understood as an admission of guilt or wrongdoing. As of today, we assume a total contingency below EUR 100 million for both Glovo and Delivery Hero. Let's then go to the next slide, where we see Glovo's impressive growth trajectory. As you can see, Glovo has developed exceptionally well over the past few years from generating close to EUR 100 million GTV, so transaction value in 2021 to around EUR 4 billion this year. Furthermore, the profitability has improved. The Glovo is expected to generate a profit contribution of more than 5% of GTV this year.
The company has developed a proven expansion playbook into under-penetrated markets, and has consistently achieved strong GTV growth in new countries from shortly after the launch. Glovo has also been very successful in integrating acquisitions in food delivery, quick commerce, and adjacent verticals in various countries. Last but not least, we see a lot of synergies where Glovo can leverage our tools and services to further improve their operations. Moving to the next. One thing that we really like about Glovo is their ability to build leadership position in a cost-effective way. Glovo leads in the vast majority of the countries, with more than 70% of its GTV being generated in countries where it has a number one position. On a combined basis, Delivery Hero now generates more than 90% of group GMV from countries in which it is the number one player.
We are confident that the leadership position of Glovo's countries and look forward to a very positive future. In the first half of 2022 alone, Glovo continued to expand its footprint, footholds and further gain share in its number two markets in Western Europe. Furthermore, the strong leadership in Eastern Europe, Central Asia, and Africa will favorably benefit Glovo in the long term due to the secular growth expected in these countries. Again, last but not least, the volume in Ukraine has started to recover and now stands at almost 60% of pre-war levels. More importantly, Glovo's geographical footprint is 100% complementary to our own. This expands our TAM in attracting fast-growing countries. Glovo's current footprint translates into an incremental total addressable population of around 700 million people.
Combined, we have the ability to serve more than 2.3 billion worldwide. Now turning back to Manuel for the outlook.
Well, thanks, Niklas. Coming to our outlook, which we updated during our Q2 primary results a few weeks ago, and are now reconfirming. As we discussed earlier today, GMV performance Q2 experienced COVID headwinds, which limit year-on-year growth. We expect Q2 to show quarter-on-quarter improvement and Q4 to grow around 20% year-on-year. In addition, we expect the overall competitive environment to continue to ease, giving us the opportunity to shift our focus a bit more from growth to profitability, while still maintaining and even expanding our leadership positions. As a result, we reduce our GMV guidance and raise our adjusted EBITDA target. For the platform business, we continue to anticipate a positive adjusted EBITDA for the full year 2022 excluding Glovo. Including Glovo, the platform business will be profitable in H2 2022.
With the business breaking even, during Q3 and generating an adjusted EBITDA of EUR 40 million-EUR 120 million in Q4. This is including the negative EBITDA of Glovo. Furthermore, we will reduce our investments in integrated vertical segments with an adjusted EBITDA now expected to amount to up to -EUR 475 million, down from the original projection of EUR 525 million. I would like to point out that, the 475 million EUR is the maximum amount we will end up investing, but may end up below, if the current positive development continues. However, the large improvement in profitability will happen in 2023 as we start reaching targeted GMV level per store.
Including Glovo on the pro forma basis, for the full year, we have adjusted GMV to our EUR 44.7 billion-EUR 46.9 billion range. This marks a very healthy growth from 19%-25% year-on-year. The adjustment to GMV also trickles down to the total revenue, segment revenue, which we expect to range between EUR 9.8 billion-EUR 10.4 billion. In terms of adjusted EBITDA margin, we expect a range of -1.5% to -1.6% for the group in 2022, including Glovo on the pro forma basis. Again, we will achieve this while we accelerate some of our investments in competitive markets.
In 2023, we expect to generate positive adjusted EBITDA for the whole group, including Glovo. Furthermore, we are not only looking at adjusted EBITDA, but also have a clear focus on boosting our cash flow generation. Now on to the next slide, where we look into our long-term margin target. This overview have been introduced during the Q1 earnings update and illustrates how we expect to reach our long-term adjusted EBITDA margin. We reconfirm the 5%-8% margin target, which we believe we can reach without significant reduction in marketing and overhead, but may need improvement in our gross profit. The combination of increased revenue and improved cost structure will drive gross profit from the 5.1% achieved in 2021 to a range of 10%-13% in the long term.
In Q2, we already seen healthy progress. The gross profit margin has improved to 6.2%, including Woowa. We believe we are clearly moving in the right direction by improving unit economics throughout our market. Furthermore, we start to also see a further upside by improving marketing efficiency. We hope you find this deep dive helpful, and we are now looking forward to answering your question. Christoph?
Great. Thank you. Before we start with the Q&A, a quick remark from my side, please. As we would like to give every analyst the opportunity to ask a question, I would kindly ask you to limit your questions to one only. Now let's kick it off with the Q&A. Operator, please go ahead.
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 telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. We have the first question from Andrew Ross from Barclays. Please go ahead, sir.
Great. Good afternoon, everyone. My question is about slide 19, which is very helpful, so thank you for putting it up. I think if I add it up, it implies there's about EUR 30 billion of GMV in profitable markets this year. If you look at Q4, it looks like it's gonna exit with a margin on GMV of just above 3%. Is there any reason why that just above 3% shouldn't go higher into next year? If we were to assume some GMV growth, you know, I'm getting to maybe an EBITDA from profitable markets of well over EUR 1 billion next year. Perhaps just help us with the math and whether that sounds sensible. Thank you.
Thanks, Andrew. This question is for Emmanuel, but I start off and he'll cover afterwards. You're right. There is no reason why this percentage would go down, unless something unforeseeable happens. But you're correct that we would expect it would go slightly up as we improve, in particular on ad tech services. We might not rush it to get it to 5-7, 6-7%. We'll take it slow, but you're right, there is no reason why it would go down. We should be careful in setting expectations too high here. Also, keep in mind your assumption is correct around the EBITDA for the profitable markets. Keep in mind that we have integrated verticals will still make loss next year.
You will still expect that some countries will still make loss next year. Yeah, just be a little bit careful then not setting the expectations too high here.
Yeah, I can only agree, echoing Niklas here. I mean, Andrew, mathematically absolutely right. Your assumptions are correct. Obviously we don't guide for 2023, and we are cautious in general in our projections, but we don't see any reason mathematically and logically why it should not go in, you know. Your logic is right, let's say. As we said.
Maybe add here.
We won't guide on 2023.
Maybe add here, Ross, to drive down expectation a little bit. We are a company. We are gonna go for leadership. It's amazing that we have all these profitable countries generate good EBITDA and will continue to increase EBITDA there. We are willing to reinvest some of that profit also in markets where we are under-penetrated or where we see an opportunity to gain or improve market positions. As I said, we are not gonna think short-term about this. We think in the long term, and we will reinvest money for making sure that we become the leader in the markets we're operating.
Thank you.
Thanks, Andrew.
The next question is from Miriam Josiah from Morgan Stanley. Please go ahead, ma'am.
Great. Good afternoon, everyone. Thanks for taking my question. Just on the Dmarts. Now you've reduced the pace of your store openings. Do you have any more visibility on when you'd expect that segment to break even? How should we think about the GMV EBITDA impact from the 50-100 stores you're planning to close, particularly thinking about sort of the pace of losses into next year? If you could just give any update on the unit economics that you're seeing in your best-in-class markets. Thanks.
Right. Also maybe Emmanuel better to answer, but generally, we don't give the guidance on next year, neither on platform nor on integrated verticals. What you do see and what we might include, going forward is the gross profit that we generate in the Dmart, because that looks very attractive. It looks very similar to the contribution margin development that we saw in kind of Asia type of scenario, and where it moves very quickly into positive contribution margin. We might share that to give people confidence that we can drive profitability. Again, we are not yet in a position where we have the scale that we wanna have, before we drive to profitability.
We should expect this year there is still a lot of investments to keep growing the top line to the right level. Next year, you will start seeing that benefit in contribution margins and hopefully then at some point we will also cover our overhead cost in that vertical. We don't give more guidance on that.
Yeah. Maybe I can.
Okay.
I can also continue on that. You know, as I mentioned in there before, the slowdown on the ramp-up of numbers of Dmarts, you know, the net three Dmarts that we open in Q2, we can assume that we are concentrating our efforts on driving better unit economics from the Dmarts, and that would be the main focus for the rest of the year. Until the end of the year, we want to be in a position where the Dmarts that we have in our portfolio are on the path to generate healthy unit economics for 2023 onwards.
Great. Thank you.
The next question is from Giles Thorne from Jefferies. Please go ahead.
Thank you. It was a question for Niklas Östberg. It's an oversimplification, but the past six months in Delivery Hero moved from being on the offensive to being more on the defensive as you've addressed your cost of capital challenges. Given the evident momentum and giving some of the easing in those cost of capital challenges, and I appreciate, Niklas, you touched on this a moment ago, but looking into 2023, where and when do you think you would go back on the offensive, would you start to use your balance sheet, to, you know, to make step changes in your market positions or your growth? Any color on your thinking there?
Sure. I think in general, we've been surprised. We have been surprised how easy we have been able to drive to profitability or, yeah, increase profitability and platform profitability. Not group, but platform profitability. We've been speaking about that in the past, that you only need to move things like 0.5% to 1% and things just dramatically change. That percent hasn't or whatever number, a small percent, hasn't really changed the competitive dynamic at all for us. I think we have been gaining share in at least all core geographies, but we haven't lost really market share in more than maybe a couple places. I don't really see a need for going more offense, defense.
I know we can be on the offense and still make more money. I think also the fact that we have these profitable, beautiful markets that is generating very high EBITDA, and we continue to drive high EBITDA. That gives an opportunity to over time just to wear down our competitors gradually and slowly, without actually having a big impact on our kind of overall group performance of profitability. I think it also a little bit for that reason gives us a strategic edge. The fact that we are very close to profitability and we will be there very soon. It gives us room to fight harder. Again, I wouldn't assume that now we're gonna double down and it turn from profit to loss-making.
That will not happen. We will drive increasing profitability. The question is just how fast we're gonna go drive that profitability. I think we're in a very strong position. With 70 markets of which majority being in clear leadership, I think we're in a strong position to pick a few markets where we're gonna double down, and it's barely gonna be visible to our overall P&L.
Understood. Thank you.
Thanks.
The next question comes from Joseph Barnet-Lamb from Goldman Sachs. Please go ahead.
Hi. Thanks very much for taking the question. Pretty much, it's sort of a follow-on almost from Giles's, I guess. Am I doing the right math that in sort of 30% of the platform business where you're not making money, you're probably gonna lose around EUR 500 million this year? Then if you can just confirm how much of this is coming from the top five loss-making countries and how committed you are to staying in these markets, that would be great. Thank you.
Thanks, Rob. Yeah, you're absolutely right. Basically conclusion of what we said and two deals was we have so much profitability and there are so few markets that are negative. Some of those markets are just negative, not because of competition or anything, it's just that it's early stage. Take Latin America, I don't consider us having competition in more than maybe one or two markets of relevance at least. We're still not profitable because we're early stage. Same with Glovo. We are a clear leader in many of those markets, and we still don't make money because we think we're early stage. You only really speak about the comparative side of things, where we might wanna double down to maybe four or five markets.
Here we are putting a significant amount of money in. Maybe put a little bit less money in the last six months than we would have normally done. I think it's still fairly significant. I think we always will assess what is the best way for us to get to leadership. I think in all but one or potentially two markets, I think we are gonna get there by just organically invest and then double down. If you wanna buy someone, maybe buy someone. I think there are one or two markets where we may consider that the cost will be too high, that we would, you know, consider partnering with someone else to get there in an easier way.
We're really speaking here about maybe one or two markets. Yes, it's quite significant.
The losses in those markets, Niklas, is that, you know, we're talking hundreds of millions EUR 100 million, EUR 200 million in just those one or two markets?
I can't comment, but I would say that there are markets where we're still early stage. If you have the markets where we're still early stage, let's take some global markets where it's just all Latin America, where you can just see they're getting to profitability and we are losing a decent amount. I don't have it off the top of my head, but EUR 180 million or something. It's clear it's reaching towards that profitability. There are some losses in a couple of markets where it's high competition and yeah, there are probably. I don't know, at least on a combined basis, if you take one or two markets combined, it's probably in three digits, low three digits.
Maybe one comment on Americas. I think what is very, you know, they are not breakeven and are not profit-making, but at the same time, you see the progression over the years, which improve quarter after quarter. The trajectory is very clear. As Niklas mentioned, this is early stage market, but the trajectory and the path is pretty clear on the main KPIs that we are driving. This is a loss-making segment, let's say geographically, but we clearly see the improvement over time.
Very clear. Thank you.
I think maybe since we're on the global topic, or like also speaking, we have some losses coming there too. 60% of their business is now EBITDA positive before group cost. It's not gonna take long before the business is kind of profitable before group cost, like overhead and central cost. Then you keep on growing, and if you have, let's say, 5, 6, 7, 8% gross margin, and then you double the business, then you very quickly get into the profitability. It's all about driving that scale.
I think, we have, as I said, Latin America is a good example of that, how now we start seeing how it's quickly moving towards profitability. Not because we're cutting costs. We are optimizing efficiencies and so on, but we're mainly getting there because of size and margins.
Thank you.
The next question comes from Marcus Diebel from J.P. Morgan. Please go ahead.
Hi, everyone, and thank you again for providing the profitability slide. I think given the previous comments and following up maybe from Andrew's question. If the platform business all in, not only the 70% profitable business, all in for the platform business, you're guiding for, let's say round about, let's say EUR 100 million, that should be around EUR 500 million for next year. You commented, I think, and just remind me previously, that the integrated verticals business, or each Dmart takes about a year to ramp up and to turn profitable. You highlighted that on a net basis. You don't open any new Dmarts, so that means probably a slight loss.
For global, you obviously talk about the improvement of EBITDA versus the EUR 300 million you're currently guiding for this year. All this, which is just then math and gets me to about EUR 300 million plus in EBITDA all in for the group. Again, I know you don't guide, but given your comments, this is just pure math where you should end up. If you can just help me to understand if my math is correct.
I think you, your assumptions are reasonable. I do think that the current consensus is very conservative. I think, as you correctly pointed out, given the profitability in the profitable markets and that Dmarts is getting closer to there, as well as Glovo will get closer to there, and America is gonna get closer. All markets gonna get closer to profitability. I think your assumptions are not completely off. We will not give guidance for next year. I hope you still stay a little bit conservative. Yeah, we also wanna have. We don't know how next year will look like.
Currently, we have plans that are fairly positive, but again, the market might change and things might happen, and we would like to have that flexibility.
Yeah. Cool. Okay. Thank you.
Thanks.
The next question is from Monique Pollard from Citi. Please go ahead.
Hi. Afternoon, everyone. The question for me was just on AOV growth. If you could dig into that in a little more detail. I was wondering if you could give some sense, particularly in markets, take Asia, LatAm, where you're seeing, you know, massive double-digit AOV growth. How much of that is like for like? Or to put it another way, how much of the AOV growth is sort of getting rid of unprofitable orders or introducing minimal order sizes versus basket size initiatives and fees that you've talked about?
It's hard to differentiate the two. I know we sit with endless of data, and we love numbers and data. You would expect I would have a perfect answer to that, but because it's very hard because we make something like several thousand or actually probably million pricing decisions per month where we move things dynamically and so on. It's all also AI-driven, so we don't even know ourselves always. There's a lot in our models that is automated, and therefore it's not completely easy to differentiate what is what. I would say basket incentives, and it's just and it could be simple things like we don't give voucher to someone unless they have a reasonable basket.
Or if someone is ordering very small, then there will be a small basket delivery fee, and therefore people move up their basket to avoid that extra delivery fee or small basket fee. There will also be targeting, and we have an audience target model that works really well on the marketing side, such that people cannot go on over and over again and get exposed to any discounts, but really making it more targeted to acquisitions. That of course also improves. So there are probably 10+ projects and probably a million different pricing decisions that happens. I think if you would ask about inflation, I think that has a very small part.
I think the fact that we're working actively to increase baskets will be the larger part of it and eliminate some orders and so on. That is probably the larger portion of the increase, probably eight out of ten coming from there.
Okay. That makes sense. When we think about then if we take like the year-on-year decline, slight decline we've seen in orders in Asia in the Q2, it's quite a bit of that you actively churning orders that are unprofitable, versus the COVID impact.
Yeah. I think there is, in particular in Asia. We see like you can give someone a unprofitable order or accept that there's an unprofitable order to a user. You can do it once, you can do it twice. But if you cannot move that customers above such that you can make economics in that customers on those customers, then I don't know what why would you wanna kind of keep them? I think eventually either we move those unprofitable customers up to make them profitable or we move them to Grab or some of our competitors, and they are happy to have those customers.
That's good for us because we can then invest more money in good customers, while potentially then competitors will use most of the money to fund bad customers. We kind of have to take an active choice that either we move them up to be profitable or we move them out of our system. We have probably been a little bit more aggressive on that over the last year, three quarters at least.
Understood. Thank you.
Thanks.
The next question comes from Sarah Simon from Berenberg. Please go ahead, ma'am.
Yes. Hi. Just quite a simple question, just back on the non-profitable markets versus profitable ones. Are any of your Latin American markets profitable at the EBITDA level at the moment?
Do you wanna answer, Manuel?
Yes. At the group cost, we are not profitable right now, but before group cost, we are in some markets, and we are close to become profitable or break even after group cost. But at this stage, after group cost, we are not, and we consider that the real EBITDA, positive EBITDA should always be considered after group cost.
The 70% chart was also after group costs, right?
Yeah. Correct. Always.
Okay.
Always. I mean, for us, it's a I mean, we will always consider EBITDA after group cost, never before. Today, we done an exception with Glovo, as we mentioned before, but then from Q3 onwards, we will set real same logic also for Glovo. For us, when we talk about positive EBITDA, it's always after group cost.
Perfect. Thanks very much.
Thanks, Sarah.
The next question comes from William Woods from Bernstein. Please go ahead.
Hi, there. Just to take a look at that profitability slide again, sorry for the multiple questions. If we take a couple of pieces of your disclosure, the EBITDA margin, the midpoint of the guidance, the guidance on the integrated verticals and Glovo, and then the increase in the profitable markets profits, then it could look like that the losses and the margin in your unprofitable markets are worsening or at least staying flat into H2. Would you agree with that? I suppose, are you planning to invest any more in the unprofitable markets in H2, or should midpoint be taken as too conservative?
I think I know we don't wanna change guidance here. I think in general we were a little bit pulling back on investments in some of those comparative markets because for all regions you can understand things have turned out a little bit better. I think both in those markets as well as in the profitable markets and in many other aspects of the business as well that we feel like maybe we can we can move back a little bit money into. As I mentioned before, we have improved market share in almost every country. There are a couple of markets where we have lost market share, and we don't like that.
We might push a little bit harder in some of those markets, and that's why we like to have that room to be able to do that, make those investments if need be. Therefore maybe added a little bit of conservatism that we might overspend in one or two or three or four places.
Perfect. Thanks.
Thanks.
The next question is from Andrew Gwynn from BNP. Please go ahead.
Hi there. Yeah, not a question on those charts, but a question on Glovo. Four billion of GMV with a 5% contribution margin, that is losing EUR 300 million, obviously around about EUR 500 million in marketing and overhead costs. First, just double-check that math. Second, is there a significant cost-saving opportunity if you embed Glovo into the groups, obviously some of those overhead costs and probably some duplication? Thank you very much.
Thanks. Yeah. The EUR 4 billion, I know, is GTV. I think we have guided to slightly less, around EUR 3.8 billion or so on GMV basis. I think the contribution margin is a little bit higher than the 5%. That makes your comment even more valid, that marketing and overhead costs being about EUR 500 million or so, according to this. I think you would assume that those aspects are about the same. Marketing and overhead is about the same levels. That means that the percentage to GMV will be, I don't know, double at least what we aim for in the long term. I think in the long-term target, we say that marketing and overhead should both be around 3%. Let's say Glovo is double of that.
Just for simple math, and don't take it literally. It's around that level and maybe 1% higher even. Now, of course, Glovo is growing faster than anyone else. It's growing multiple faster than all the peers that we have been seeing. That means if we keep just the marketing level and OpEx level at the current level, not even reducing it, but just keeping it, and we double our business, then we are more or less down to the target, long-term target of 3% or let's say 3.5%. That's how we think about it. We think, like it's a lot of money right now, but if you just keep growing the business at the current pace for a couple of years, then we kind of go to our long-term target.
Especially if we can also improve gross margin or gross profit from, let's say, above 5% to kind of, I don't know, to 8%, 9%, 10%, then we even move faster to that profitability basis. Now to the synergies. Yeah, we think that there are ways that we can find some synergies. We on one synergies, of course, ad tech, and we are probably a couple of years ahead of them in terms of ad tech development. That means that we can add maybe 1% or 2% more on the gross profit side. I think we probably have invested more in logistics. We also have a lot of partnership.
If you look at just the cost level of negotiations with certain providers, if that is HR tools or communication tools or payment solutions.
ERP solution.
Especially the ERP solutions, we have way better pricing there. So there is a massive cost saving that we already start implementing as we speak. We have been incredibly fast from the time of closing to start getting them on board to our contracts. That will even then actually reduce OpEx even from the current levels. Again, the way to think about it is that they're probably twice where they should be in terms of marketing OpEx, but they also grow much faster. So take it two years forward, and it should be more or less where we want our long-term target to be.
Okay, that's all super clear.
What
Sorry, go on. Sorry, Manuel. Sorry.
No, I just wanted to add, like physically, you know, this is savings or synergies, but this is also accelerating their operations because we can support them with knowledge and solutions that we already developed. This is not a savings if you want, but this is maybe an acceleration of the features of services that they can offer to the consumer without having spending.
That's super clear. Obviously they operate in some very competitive markets. You know, Spain for instance, there's no reason to assume there that there's, you know, structurally higher marketing costs, for instance. Just to double check on that.
No. I would also not say that Spain is a particularly tough competitive market. I would say Italy is a tough one, and a few other markets might be tough. I wouldn't say Spain is particularly tough competitively wise.
Okay, that's great. Thank you very much.
Thanks.
The last question comes from Clément Genelot, from Bryan, Garnier & Co. Please go ahead.
Yeah, hi. Only one from my side on the very long term. You have reaffirmed your EUR 200 billion to or 300 to EUR 350 billion.
Yeah.
GMV target. Do you think that's still realistic and achievable given your focus on EBITDA and cash flow? Thank you.
Yeah. I mean, we've done these models based on cohorts and acquisition levels that we can expect. Of course, we have data from a lot of markets. Markets have been around longer, markets that have matured more. We can have a reasonable guess how acquisition levels will evolve, and we can have a reasonable guess also how our cohorts will evolve. Also, particularly upside, I don't know, moving a little bit from the bottom to the top is, I don't know, done new verticals, done new areas, and we obviously know that the Dmarts and the groceries and expansion there are a few others that can even further improve engagement with the users. That's kinda how we model it.
If we then also kind of sanity check it with, for example, what is the order per capita levels and so on by market to reach certain levels, is that reasonable? Then we look at other markets, and we can see that is very reasonable. I think we feel pretty confident with that, and I think improving margins and getting to target margins is even easier to drive 200 billion of GMV because your overhead is then. Even if you double your overhead, you still have half your overhead to GMV. Same with marketing. Even if you double your marketing, you would only be at 1.5% or so on marketing cost to GMV. Same with efficiencies.
We see as we start stacking more, we have a little bit of a test center in Berlin, as you know, where we deliver things, and we can start getting stacked and deliver like it's not unusual that someone can do seven drops per hour, and consistently like five drops per hour. We start seeing like we can do so much more if we have scale and volume than we do today. We are very, very far from those numbers, I should say. I think the size will even further enable us to drive better margins. I would have very little concern on the margin side and on the growth side. As I said, it's all cohort-based, bottom-up, and we feel good about it.
I hope that helped, Clément Genelot.
Thank you. Yeah, sure. Perfect. Niklas, I think that was the last question. Would you like to close with some final remarks?
Yeah, sure. I'd just like to thank everyone for attending the call, but even more so, your interest and your support in the company. It means a lot to us. We keep fighting every day to deliver on any promises that we give. I would also like to extend a big thanks to the team. They have pushed pretty hard on both growth but even more so on efficiencies for the last 10 months. I think the results are amazing, and they have done tremendously well. I know it's not been easy, so an extra thanks to the team. I'm confident that this efficiency push that we've done is gonna be a competitive advantage for us in 2023.
Thanks to every investor and everyone on the call, and thanks to the full team.
Thank you, everyone. You may now close the call.
Ladies and gentlemen, the conference is now concluding, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.