Ladies and gentlemen, thank you for standing by. Welcome, thank you for joining Delivery Hero's Q4 2022 trading update conference call. Throughout today's recorded call, all participants will be in a listen-only mode. The presentation will be followed by 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 welcome everyone. We hope you are well. Thank you very much for joining our Q4 2022 earnings call. We trust you have all received the presentation and the press release we published this morning. All 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 Q4 performance. After that, we look more forward to answering your question. Now let me hand over to you, Niklas.
Thanks, Christoph. Hey, everyone. Thanks for dialing in. Before jumping into our Q4 numbers, I'd like to go back to early 2022. We had just ended an enormous growth year on the back of COVID lockdowns. Despite this, we ended the last quarter of 2021 with over EUR 300 million of negative adjusted EBITDA on a like-to-like basis. As the market changed, we quickly had to change gear.
Now, a year later, I'm happy to say that we ended 2022 very close to breakeven. Equally important, we achieved this while at the same time gaining market share in almost all our countries, especially on a GMV weighted basis. This is also visible looking at the European, MENA, and LatAm segment.
Asia had a little bit lower growth, I like to remind everyone here that Q4 2021 and also Q1 2022 had strong pandemic boost in some of our largest markets. An example of this is Korea, where there were restaurant restrictions as late as April 2022.
We also achieved this enormous profitability shift while still investing big time into quick commerce, something we are very happy about now as we can see this slowly moving into a very positive direction. Even if today's presentation is a bit shorter than last time and no path to profitability section, I can assure you we progress very, very well on these metrics too. We now run rate above EUR 1 billion EBITDA in our profitable markets.
The loss-making markets are on path to half its EBITDA margin, more and more Dmart stores are now profitable. We will come back on these topics during the year. It's just that, it's a bit repetitive if we will do it every quarter. I promise you we will come back to these topics sometime during this year. With this, let's jump into slide three. Here you can see part of the story that I just told you. In Q4, we achieved GMV growth of 9% and total segment revenue growth of 21% year-on-year. This despite further headwinds from COVID reopening, substantial negative hyperinflation adjustments in Argentina, market environment, and huge improvement in profitability.
On a constant currency basis, GMV increased 1.3% quarter-on-quarter, total segment revenue was up 3.5% quarter-on-quarter. Very similar to last year. When it comes to profitability, we always said that we can easily dial up this or dial down without much impact to growth. I hope 2022 proves this. We still have a significant possibility to keep dialing up EBITDA quickly if we see the need to do so. However, we like to make sure that we don't move too fast such that it impacts market leadership, product development, customer experience, and in general, long-term shareholder value. We still believe we are in a very early days of our development. Let's look closer into our highlights for the quarter. As already mentioned, healthy top line growth despite significant headwind.
Here again, keep in mind we are now 3 x larger than the pre-pandemic. Growing on the back of the pandemic boost is challenging. Our AdTech business had a run rate of more than EUR 750 million in Q4, this is well on track to reach our midterm target of over EUR 2 billion. As mentioned, 3 percentage points improvement, now -0.3% EBITDA to GMV margin in Q4 2022. Our integrated verticals also performed better than expected with adjusted EBITDA losses excluding Glovo of EUR 345 million for the full year, which is far below the guidance range of EUR 380 million-EUR 400 million. Last but not least, we closed the year with a robust cash position of EUR 2.4 billion.
On top, we still have undrawn revolving credit facility of EUR 425 million that allows for additional flexibility. Now handing over to Emmanuel to review our performance in 2022 compared to the guidance, and run us through the numbers on the next slide.
Well, thanks, Niklas. Good afternoon, everyone. We delivered on our full year 2022 guidance, especially in terms of profitability. As you can see, we achieve our adjusted EBITDA margin of minus 1.4%, including Glovo, on a pro forma basis, and therefore reach the upper end of our guidance. This represent an adjusted EBITDA improvement of more than EUR 300 million in the second half of the year, and this was driven by our platform business, including Glovo, which achieved a positive adjusted EBITDA of EUR 36 million for the full year. Including Glovo, the platform business reached a positive adjusted EBITDA of EUR 56 million in Q4. In addition, our Integrated Verticals business, excluding Glovo, consume materially less EBITDA than are previously expected.
Global came in slightly below the guidance, but the business has made very good progress during the year, and we expect a material reduction in adjusted EBITDA losses in 2023. On GMV and revenues, we've fell slightly below the guidance. This was mainly driven by lower fixed rates in Asia and mainly in Korea, as the KRW lost 6% to EUR between early November and end of December, as well as by some adjustments that we had to make regarding the hyperinflation accounting in Argentina. On the custom currency basis, the GMV has grown by 1.3% quarter-on-quarter to EUR 11.6 billion in Q4, bringing the GMV for the full year to EUR 44.9 billion, which is perfectly in line with our guidance, again, on custom currency basis.
Now let's look at the segment numbers, starting with Asia on the next slide. GMV in Asia grew by 2% and segment revenue grew by 10% year-on-year in Q4 2022, despite COVID reopening effects across the region. Korea grew GMV year-on-year with low single digits in Q4. On a custom currency basis, Asia generates multi control growth quarter-on-quarter. We continue to improve our competitive situation against our peers in South Korea. On top, we improve our adjusted EBITDA in the rest of Southeast Asia. The changes we made to operation during 2022 will allow us to scale this market more efficiently going forward, and in particular, 2023.
All in all, the segment are profitable in the second half of 2022 and generate an adjusted EBITDA margin of 1% despite moderate top line development and reinvestments in some markets. Now let's move to MENA on the next slide. MENA continues to develop very well with GMV growing at 27% and segment revenue growing 35% year-on-year in Q4. On a custom currency basis, we see growth in Q4 even accelerating versus the previous quarters. We continue to improve our customer experience fast and we believe we today have significantly better services than our competitors. This is also visible in our strength position in Saudi Arabia, while talabat keeps doing incredibly well across all countries in the region.
Despite investing in certain markets, adjusted EBITDA more than doubled in H2 versus H1, with adjusted EBITDA to GMV margin of 2% in H2. Now on to Europe on the next slide. GMV in Europe grew by 18% year-on-year in Q4, despite some inflationary pressure across the region with basket growth and also seasonal uptick in Q4 2022. While growing our business fast, we continue to drive profitability through both cost and revenue initiatives, such as our AdTech business, now generating 2.7% of GMV for the segment, excluding Global. iFood are have result in positive adjusted EBITDA during the second half of the year, here again excluding Global. Now I'd like to move to the American segment on the next slide.
Americas was heavily influenced by the hyperinflation accounting in Argentina during this quarter. According to the accounting standard, IAS 29, hyperinflation accounting is conducted monthly, and year-to-date numbers are restated to express current purchasing power at the reporting date. As there was a negative impact from currency devaluation that overcompensated the positive impact of the decline of CPI during this quarter, the numbers from Q1 2022 onwards had to be respectively adjusted to reflect this with the full impact being booked in Q4 and more predominantly in December. We have presented both the GMV and segment revenue graphs, including and excluding hyperinflation accounting impacts for better clarity on this topic.
While you will see quite some fluctuation between the quarters, the impact on full-year GMV was less than 1% of segment GMV. The impact on adjusted EBITDA was neutral. If we exclude the hyperinflation accounting, the GMV grew by 40% year-on-year in Q4, driven by healthy customer demand, growing basket size, and new services such as our subscription in Argentina, which has now been fully rolled out to the entire country. Beside the strong top line development, the segment also delivers on its path to profitability. As a result, the adjusted EBITDA margin has improved from -6.5% in the first half of the year to -3.9% in H2, including group cost allocation. Now on to the Integrated Verticals segment on the next slide.
The Integrated Verticals generate robust GMV growth of 45% year-on-year in Q4, despite optimizing our global footprint, concerning the demand and clearly focusing on unique economics, which has resulted in a gross margin improvement of 15 percentage points excluding Glovo. In addition, we have started to roll out new AdTech products for quick commerce and signed our first advertising contract with a global FMCG company in December. Now on to the contribution margin on the next slide. We expand our fully loaded contribution margin, including vouchers and discount through the year, increasing the margin from below 4% in Q1 to close to 6% by Q4 2022. During the quarter, Americas reached a new record high as we improved the unique economics mainly through better UTR or utilization rate and rider availability.
We also continue decreasing our vouchers intensity, including Glovo, we are now at 1.9% of GMV. This is 1 percentage point better than last quarter, we expect to continue decreasing it during 2023. Also good to highlight the development of our AdTech revenue. We now do 2.6% of GMV, excluding Woowa and Glovo. Including Glovo and Woowa, which we launched less than a year ago, we are at 1.7% of GMV already. This means that in Q4, we are generating an NCR run rate of more than EUR 750 million and are on track to generate over EUR 2 billion by 2024/2025. Well, let's look at our liquidity bridge on the next slide.
The key driver for cash development in H2 was the adjusted EBITDA loss of only top EUR 1 billion. Furthermore, we optimize also our CapEx, both in food delivery as also for our Dmart business. We invest only the equivalent of 0.5% of GMV or roughly EUR 140 million. Also, working capital results in an inflow in H2, whereas interest, tax and lease, leasing payments result in an outflow. In addition, we saw a larger negative impact from FX effects, bringing the entire bucket to somewhat below EUR 300 million. If you take only working capital interest, leasing and tax into account, the numbers would have been obviously less negative.
In addition, we generate some cash from the investments in our minority stakes and other M&A related transactions, brought back a tranche of our 2024 convertible bonds. By the results, we finished 2022 with a strong balance, cash balance of EUR 2.4 billion, even slightly ahead of some market expectations. In addition, we have an undrawn RCF, as Niklas mentioned, of EUR 425 million. Our portfolio of minority investments is currently evaluated at more than EUR 500 million. All in all, we have ample liquidity to fund the business and turn cash flow positive during H2 2023. Niklas will take us through the outlook for this year for 2023, starting on slide 14. Niklas?
Hey, thanks, Emmanuel. Before turn to the guidance, we want to just highlight very quickly that the markets have operate in. We are currently in 70 markets. 90% of our GMV is generated from countries where we are clear leaders. This is important. Our portfolio composition is a clear structural advantage, and most markets benefit from both economical and demographic growth tailwinds for decades ahead. Looking at 2024, our global macro level GDP growth of our top 15 markets, which together represent roughly 80% of our GMV, is expected to be much stronger than in many other regions. This positive trend is also expected to continue in 2024 and onwards. If we go to the next slide, we have our guidance. Against the backdrop, or Sorry.
Against the background, we confirm the 2023 guidance we published in November during the Q3 trading update. We will continue to balance growth and profitability and expect a positive adjusted EBITDA to GMV margin on a group level of more than 0.5% for the full year, with more than 1% margin for the second half of the year. We are also committed to break even on a cash flow basis during the second half of 2023. Further guidance on GMV and total segment revenue will follow with the publication of our annual report in April. Since we face some high COVID comps in Korea in Q1 2023, and in APAC during the first half of the year, we would like to await the development during the first months before communicating specific top-line targets.
Irrespective of this, I would like to repeat that we already or what Walter said last year, we decide how much we invest, therefore we have a very high control of EBITDA. As a reminder, in H2 2022, there was little sequential GMV growth, we still achieved an adjusted EBITDA uplift of more than EUR 300 million compared to H1, despite reinvestments in several markets. Emmanuel, take you through our, I think EBITDA and cash flow guidance.
Yeah, correct. Thanks, Niklas. This overview on slide 16 was first introduced in the beginning of 2022 and illustrates how we expect to reach our long-term adjusted EBITDA margin target of 5%-8% of GMV. The gross profit margin reached over 6% in 2022 on a pro forma basis, including Go, and we're expected to continuously increase over the coming years to between 10% and 13%. We will reach this through a mix effect of increasing AOVs, high margin advertising revenues, service fees, order stacking, et cetera, and improving profitability of our Dmarts. At the same time, we will work towards enhancing our marketing efficiency and improving our operating leverage. This should result in adjusted EBITDA margin of about 0.5% in 2023 and 5%-8% in the long term.
Some of our best-in-class markets already generate an adjusted EBITDA margin between 5%-7%, we are sure on a long-term target is achievable as markets scale. We now introduce our long-term expectations for free cash flow. We forecast a long-term free cash flow of 3%-6% of GMV, which means a highly attractive long-term cash conversion. Now looking at the lines between adjusted EBITDA and free cash flow. First of all, I'd like to start with CapEx. CapEx in 2023 is expecting to remain flat at 0.6% of GMV as we are expanding some of the local office in certain countries. From 2024 onwards, CapEx to GMV should improve to around 0.3% for the long term.
Working capital has resulted in a small cash inflow in 2022, as I mentioned before, the food delivery, in general, is a cash-accretive business, while Dmarts consumes working capitals. As Dmarts scale and we are able to achieve better terms, this business could achieve a negative working capital too. However, we prefer to take a, here a prudent approach and therefore expect rather little cash inflow from working capital going forward. Lease payments will continue to grow going forward, but at a slower rate than GMV, which means that we will see a reduction from today, 0.3% in 2022 to around 0.2% in the long term. I'm glad to say that tax will have a higher negative impact going forward as our profitable markets become even more profitable and as we convert unprofitable markets to profitability.
Tax as a percentage of GMV should grow to between 0.9%-1.9% in the long term, with a long-term cash or tax rate of 25%. Last but not least, we also like to give you an update on share-based compensation. In 2022, it represent around 0.8% of GMV, so well below the average of our industry. We also believe that this figure is going to be the upper limit in the long-term development. Now onto the Q&A, and I'll pass it to Christoph.
Thanks, Emmanuel. Before we start with the Q&A, the quick reminder from my side, as we would like to give every analyst the opportunity to ask his question, I would kindly ask you to limit your questions to one only. With that, 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. 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. The first question is from the line of Joseph Barnet-Lamb with Credit Suisse.
Excellent. Thank you for taking my question. When we look at GMV and revenue delivery versus consensus expectations, I think one area of relative weakness was Asia. Given the commentary around low single-digit growth in Korea, which I think is likely better than some expected, it sort of draws attention to the non-Korea Asia segment. Can you talk to growth in non-Korea Asia? Have you maybe reined in investment in some of the countries where profitability is more distant? Any color you can give there would be great. Thank you.
Thank you. Yeah. I think also the other part of Asia had a little bit of a coming back from COVID rebalancing. On top of that, we have been actively working on profitability. There is significantly better profitability and gross profit in that region. That means that now we're in a position where we actually have a very healthy gross profit. I don't have exact percentages here on top of my head, but it's an order of magnitude of 8% or so. 8%, maybe 8.5%. That means very healthy gross profit, which means that we can invest more and grow nicely without spending more money. I think overall, I'm very pleased to see that APAC market.
I think 2022 was a little bit of a transition year where we had to make a little bit these painful trade-offs between growth and profitability, and that has happened. I think from this point, we did pretty well. I think also a little bit the growth is partially. It was a sequential growth in Asia, but unfortunately due to FX, it was not sequential growth if you look at a euro currency basis. If you look at constant currency, it was sequential growth there. Yeah. Overall we are pretty happy about it. Yeah, it's looking at the enormous potential we have there, it's obviously very low.
Also keeping in mind that we grew 10x, I don't know, prior to this year, and some of that might have been a little bit unhealthy or a little bit boosted by money. I think we're in a good position now.
Thank you, Niklas.
Thanks, Joseph.
The next question is from the line of Miriam Josiah with Morgan Stanley. Your question please.
Great. Good afternoon, everyone. Thanks for taking my question. Just another one on the growth. Appreciate you not giving top line guidance, but could you just give a bit of color on some of the dynamics around growth that you're seeing at the moment, just the interplay between macro, the COVID comps, the impact on the profitability levers? Because I guess in respect to Asia and Korea, we've had a few quarters to measure the impact of reopening. Just wondering if there's anything that you're seeing at the moment that indicates...
Yeah.
The slowdown in Q1 might be a bit more sort of worse than what you'd imply from just the normalization of trends. Anything you can share there would be helpful. Thanks.
No, overall we're pretty happy, especially with Korea, I would say. I don't know. For those who remember, Q4 was a big COVID time. There were a lot of restrictions. Also Q1 had a lot of restrictions. There were max number of people, sometimes where two people could go out to restaurants, sometimes four people were allowed to go to restaurants.
Sometimes there was a restriction after 7 o'clock or 9 o'clock or 10 o'clock, you were not allowed to go to restaurants. There were a lot of restaurant restrictions that of course boosted our business dramatically in Korea, during, I don't know, Q4 and Q1. The fact that we're still growing on the back of that at this scale, I think is enormous strength. That's what we see there. I think Southeast Asia, I commented on before.
If you look at Middle East, incredibly strong. I think we have by far the best product, possibly globally. If you look at talabat, I think there's no product in the world that is comparative with talabat today. I think HungerStation is close to be there too. I think we're significantly, we are probably three, four years ahead of our competitors when you look at a product point of view.
You also see that now in market share. We make more money while still gaining market share, both in Saudi as well as in most of Middle East. I think growth is doing pretty well there. Turkey is a little bit of a slightly different story given the. I know we are growing now, so luckily we are back into decent growth.
At least from a GMV basis, it's a little bit more challenging market, I would say. If you look at Europe, you have seen we had somewhere around 20%. I think that stands pretty well compared to our peers. I think overall we are pretty pleased with growth there. If you look at Latin America, same there. Of course, there were some accounting things now that make the reporting numbers a little bit odd. Sometimes the hyperinflation is in our favor, sometimes it's against us. If you look on a non-accounting basis, but on reality, we're growing 40% there, which I think is also above our peers there.
I think overall, both if you look at region as well as in the countries, we definitely outgrow our competitors in almost every country with a couple of maybe exceptions. Dynamics going forward, I think we should expect that Q1 will be a little bit lighter in Korea, given March in particular will be a little bit weaker, given that we have probably 10% extra boost in March because of restrictions. That will be one point. Other than that, I don't know how much impact the whole market environment inflation, possible or maybe not. I don't know. Our economy looks a little bit stronger than before, but I think we are fairly immune, to be honest. I also don't think that our growth is substantially hindered by profitability.
Of course, I know we moved our profitability to more than EUR 300 million per quarter, so of course it must have had some effect, otherwise we would have done it before. I don't think it's super material. I think the biggest impact is probably the back to COVID, slow down a little bit. I hope that when we get into Q2 and even more so the second half of 2023, I hope that we can be on a more normalized growth level.
Great. Thank you. Thanks.
The next question is from the line of Giles Thorne with Jefferies. Your question, please.
Thank you. My question's on advertising. The FMCG advertising platform was launched in October last year, and even then it was only in nine countries. Is it fair to assume the EUR 750 million run rate must largely, if not completely, be restaurant advertising? As an extension of that, given FMCG advertising budgets are generally far larger than restaurants, and today the contribution is close to nil, but the platform's built, and contracts with FMCG companies are being signed, doesn't this collectively point towards you comfortably beating your EUR 2 billion revenue by FY 2024 or 2025? Thanks.
Hey, thanks to Giles, yeah, I'm equally optimistic as you are here. I also don't wanna celebrate too early. I know it's already ambitious target to be there. I don't think anyone believed us when we said it a couple of quarters ago, that we would already be in EUR 750 in our run rate. I agree. The FMCG is doing incredibly well, and it's gonna be much larger than the advertisement space that we have for restaurant. We already see now as proportion of GMV, it's already potentially beating the restaurant side already, even if they've only been up in a very short time.
I think, yeah, there will be a significantly larger percentage of advertisement revenue to GMV on the D-mart side and the Quick Mart side than on the restaurant side. But you're also correct that it's fairly small as a grand scheme of thing because D-mart and Integrated Verticals is a small part of our business, so therefore it will not come a dramatic impact to our overall today. Right now, the majority of that EUR 750 is still in our restaurant space. Yeah, I think we feel pretty good with the guidance that we gave. We feel pretty comfortable that we get there. Yeah, if we get there earlier, even better, but I'm not changing guidance today.
I think we'd rather celebrate when we get there.
Thank you.
Thanks.
The next question is with the line of Andrew Ross with Barclays. Your question, please.
Well, hi there. Good afternoon, everyone. Sorry to come back to short-term trading, was hoping just to press you a bit harder on what you're seeing in January. You've clearly flagged tough comps. I'm still trying to get a sense of the magnitude of this headwinds. Anything you can share on how we think about January and the Q1 growth would be helpful. Thank you.
Yeah. I'd like to be a little bit cautious here, but I would say most of our business will be continue as normal, more or less. I don't know. I don't know, maybe there is maybe 1% or 2% or a little bit more weakness if there is macroeconomic environments. Overall we feel pretty good. As I said, Korea, that is likely a big part of the quarter was 10+% impact from those lockdowns. Some months probably more than 10%, some months a little bit less. Let's say there's at least a 10% impact traditionally on Korea in that quarter, mainly coming in March.
Of course, we can make the average from there. I'm a little bit hesitant to give too much guidance. It's a difficult environment, due to reopening macroeconomics, profitability. We also, I don't know. Yeah, I think we are slowly rebalancing to a more baseline growth. Yeah, we have strong conviction, but I'd we feel a little bit early to kind of give you a proper guidance now. I would also say that we're a little bit uncomfortable to give guidance now as we're also evaluating different opportunities to accelerate our path to profitability. Given all that, we think that we'd rather wait until April to give a more proper guidance then.
Okay. Cool. Thank you.
The next question is from the line of Christopher Johnen with HSBC. Your question please.
Yes. Thanks for taking my question. Another one for Niklas. I'd like to get a bit of an update on M&A and potential footprint changes, if possible, please. I mean, do you generally see this as a theme for 23? I mean, I guess you probably heard, Utz was not convinced that the lots of deals in Europe this year. Yeah, I'd just like to pick your brain. Wonder what your take is. I think a lot of markets are ripe for consolidation, and Europe in particular, but, you know, I mean, open question really, not just related to Europe. I'm curious to see what your take is on M&A and footprint changes in 23. Thanks.
I think there's gonna be more activities in 2023. I think, in some cases might be a rebalancing of expectations, and we have now been a little at a lower value for soon over a year, so we start getting used to maybe new multiples, in some cases. That should make it a little bit cheaper for us to maybe do something. At the same time, we feel like we are, in many cases, in a very strong position, given our leadership position in almost every market. I think, from that point, we will also be disciplined.
I think when it comes to, I don't know, potential sell opportunities, I don't know, we there has been a lot of interest from multiple parties in various markets, and that continues to be the case. I think it's also very helpful with input from the question from investors in this topic. We value this input, and we're taking that into account. At the same time, we are in a situation where we don't have to sell or trade anything. We are of course very fortunate to be in that situation, but to have a portfolio where this is possible. Again, I know we are in a position where we don't have to do anything.
Yeah, as I said, having options also means that we have an obligation to ensure that any deals we do are the right ones for the long-term holders, especially when you consider how under-penetrated some of our markets generally are. Our business plan for 2023 and beyond does not assume any asset sales. If anything, yeah, our budget gave us room to invest more in 2023 into the markets where we aren't clear leaders. From our point of view, I think we are in a very fortunate option where we can choose to buy if we see opportunities, and we are not forced to sell in any place if we don't feel like there are good opportunities.
Okay. Clearly understood. Thanks.
Thanks, Marcus.
The next question is from the line of Jürgen Kolb with Kepler Cheuvreux. Your question please.
Thanks very much, guys. Question on the adjusted EBITDA line. In H1, you obviously had quite a bit of one-offs, aside of the SBCs. I was wondering if you could give us an indication if there are any significant one-offs in the second half that we could be aware of or should be aware of. Thank you.
Yeah, maybe I can answer that one, but can you repeat on H one, what was the, you mentioned before?
Well, according to at least my numbers here.
Yeah.
In H1, you had the SBCs of about EUR 150 million.
Oh, yeah. I get it. Okay.
You had other one-offs, obviously including the goodwill, impairment losses. I was wondering if there is anything in the second half that we should be aware of.
At this point of time, I mean, we are still, you know, in the audit phase. In these numbers that we present for H2, we don't see any kind of major one-off at this point of time.
That's already very helpful. Very good. Thank you.
Thank you.
The next question is from the line of William Watts with Bernstein. Your question please.
Hi there. Thank you for taking the question. My question is on the contribution margin evolution. Obviously in slide 11 you show that increasing throughout 2022, but it looks like it flattens off in Q4 and Europe takes a dip. I suppose how comfortable are you with the levers into H2 2023 that you can continue to expand that? Where do you see the biggest room to expand that contribution margin further? Thanks.
Yeah. Shall I cover it or you, Emmanuel? Shall I start? You add?
Yeah. I mean, yeah, I can continue. Yeah. Okay.
Yes, I think Yeah, for Q4 maybe, Emmanuel, there were a few smaller things that may have kept it a little bit lower than what we even would have expected ourselves. I think, as we go into the new year that, I'm still fairly optimistic that we'll continue to drive that upwards. You never know one quarter to another. There could be one-off events, there could be something that happens, there could be so. There will be, I know you have Ramadan and other things, but overall you will see this going upwards. I would say, yeah, I would say the largest lever for upward improvement is probably on the stacking side.
At least if you look long term, I think we could probably improve our margins with up to 5% by just doing better stacking with more volume. I think there's significant opportunities there. Of course, that might be counterbalanced with any increase that we wanna pay for riders or anything that would be on the opposite. We still have also, I think, some efficiencies in our system that can still be improved beside the batching. Could also be smarter pricing to making sure that we can price according to willingness and ability to deliver. That's probably a few percent already there, 2%-3% maybe over the long term.
Those are probably the largest. Then there's a lot of small things like payment cost, we can probably cut EUR 0.05, EUR 0.06, EUR 0.07, maybe EUR 0.10 there. We can probably, over the years, there are so many small things that we can also improve. That probably adds up all of it a couple of percentage. We always have the last option, which is just pricing higher. That you say instead of, if you order for EUR 20, maybe we add another, I don't know, 1% of that would mean they would pay EUR 0.20 more. That only adds 1% to our EBITDA bottom line with that EUR 0.20 that we charge on that EUR 20 order.
That is the last option that you simply charge a little bit more or add a service fee or something else. That is not generally the path we are taking. We first want to work on the efficiencies, and I think that will alone take us to the 10%-13%. If we don't get there, then last resort is probably pricing. Anything to add, Manuel?
Yeah.
Okay.
I mean, like, this is in line with what, you know, when you talk about levers in the future, I mean, this is also like exactly what Niklas said, focusing on revenue line, but also on efficiency in the cost line. Sometimes you might also like have quarters where we decide to maybe like be less focused on optimizing the rider payment, but just like to offer to make an offering to the market. This is also like one way to look at it. In general, we see the contribution margin continue to grow and to optimize it on both on the revenue side, but also on the cost side.
There are still a lot of levers also in terms of efficiency. That's why we believe that this gross margin will continue, contribution margin continue to grow in the future.
One thing that wasn't been mentioned, we do almost 2% of vouchers and funding. A little bit less, but that's still a significant proportion. We also see that restaurants are very willing to do this funded that they want to fund and they want to give discounts because they want to have new customers. They want to return customer, they want to build loyalty. I think there's also some efficiencies there. I think also our subscription program, in some cases we are able to make more money per order while increasing number of orders per customer. Of course, not per customer basis, you always make more money on the subscriber base, actually making more GMV per order from a subscriber base.
I have absolutely no concern that we will not get to the 10%-13% over the long term. As I said, the last resort is that we just add 1% or 2% on pricing, but I don't think that is needed.
Understood. Thank you.
The next question is from the line of Sreedhar Mahamkali with UBS. Your question please.
Yeah. Hi, everyone. Thanks for taking my question. Actually, Niklas, one super quick follow-up on Korea and then a question. The follow-up is you referred to you should see normalized growth in Korea beyond Q1. What do you see as sort of medium-term potential for GMV growth in Korea? That's the follow-up. The question is, in terms of your EBITDA guidance, which you reiterated for 2023, what are you assuming, please, in terms of Integrated Verticals? Thank you.
On the normalized growth, it's the reason why it's a little bit hard to answer, if you would ask the pre-pandemic, I would have been able to give you a very good answer based on cohorts, frequency, acquisition growth. The COVID came and distracted all of that. That means acquisitions went up a lot, like a lot. Frequency went up and even changed the balance of the portfolio. Sorry, basket sizes also changed during that time. We have over time been in and out of COVID and now I also have a little bit of inflation in there, which makes it very hard to know where is the normalized level now.
We can assume, let's go back to 2019 and use those model and use that for predicting the future growth direction. That, that is of course assuming as assumption that we grew 3 x and we still have the same kind of growth dynamic afterwards, which is still a big assumption. That is something that we'll have to see now when we kind of completely get out of it. Where do the cohorts normalize? How was acquisition level? It went up a lot, and it went down a lot because there was a kind of removed all demand from future acquisitions into one year, one or two years. Now at some point we also normalize acquisition rates. Therefore, I'm a little bit hesitant to give you a number there.
I think the potential, even in a place like Korea is multiple larger than we are today. How long it will take there is probably the harder question. Yeah, it's probably somewhere between five and 15. Hopefully it's double-digit, but somewhere between there, I would hope. I don't dare to narrow it down too much more in a place like Korea. If you look at it, even Korea and really, frequency is only eight times a month. And if you look at good customers in many markets, the frequency is more like 25x, 30 x a month from customers that have been customers for a long time. And it could probably go higher.
If I look at myself and many customers, we see that that frequency go higher than 30 x a month, because you order coffee, order lunch, order breakfast, order your Dmarts. Yes, I think we are still early in that phase, I think we are early in the acquisition phase. The number of customers we have is still a lot of people haven't tried, every year there's a new cohort of customers growing up and getting to the age when they can order food again. We are adding new verticals, we're adding new use cases, dine in, pick up, et cetera. Sorry for not being able to give you more concrete number here, we can definitely grow a couple of times still in Korea.
Thank you.
Can I say on Dmarts?
Yeah, IV, yeah.
Sorry.
I think on Dmarts, I think it's fair to say that if you look at the trajectory during 2022, we really materially improved the profitability of the Dmarts, and this will continue in 2023. We expect there to generate a positive gross profit during H2 2023, and this will be continued in 2024. During this year, as you know, starting middle of the year, we've been reassessing our footprint. We evaluate the development of each local store. You know, the most majority of the stores are still, let's say, mature, because we opened up less than two years ago.
We see the traction of this business, and we also see the rationalization of the competition to a degree that we have many we've seen in many markets that we have a nicer tailwind. I think we are building on the foundation for steady and predictable GMV because customers are more and more rely on these quick commerce or on the Dmart business for the daily needs. Basically, we think that will be or become visible in our adjusted EBITDA next year compared to this year. As you know, this year, as we announced today, we finish with our Integrated Verticals at -EUR 345 million negative adjusted EBITDA, and we expect this to improve significantly next year.
The footprint remains more or less what it is today. Do you see substantially reduced or increasing footprint again?
If you look at Q4, we opened 15 Dmarts, so we're still opening some. H2, sorry. H2, and we were opening 15 Dmarts, and while we closed 76. We are improving the footprint, and I think now we've done this exercise, and we might in the future continue to open certain Dmarts where we see good traction, in certain regions where we are profitable already. Makes sense to continue to open certain Dmarts. In others, we might decide to continue to close it if we don't see or the unique economics that we expect from them. In general, we should not expect a rapid growth of the numbers of Dmarts or within the degree.
We will still continue to open some while we also optimize and reassess the footprint in certain cities or countries where we don't see the unique economics that we expect.
May I add? We showed you a slide on this last quarter when we had a path to profitability focus, where we kinda walked through how we're gonna get to profitability and how profit's gonna grow. I think there was one comment or one remark there. We said that we expect end of next year, so I think Q4 next year will be half the losses in Integrated Verticals, assuming we don't start something new. Half the losses that we have today. And yeah, we are definitely on track when it comes to Integrated Verticals. That is probably still valid.
The next question is from the line of Clément Genelot with Bryan, Garnier & Co. Your question.
Yes, thank you. On margins, maybe what portion of the EBITDA margin, the improvement implied by the guidance for 2023 would actually come from self-help levels versus all the scale efficiencies, the stacking and growth. Just to really assess what the secured margin trend and where does it, and where could it go with some GMV growth? Thank you.
Sure. maybe I can try and Emmanuel you can add. If you look at where we stand right now, we were very close to... I know we were minus 0.3% EBITDA in GMV in Q4. We said that the second half of the year will be above 1%, next year. For the full year, above 0.5%. That means at the minimum, we'll be zero profit, or well, we'll be above 1%. That means there will be, if you assume 1% at second half, that means 0% in the first half. That means more or less no improvement from where we are right now. There could be maybe a few percent or few point percentage points.
The generally we see that it's more like a 1.5% or so improvement in EBITDA margin for the second half of the year versus this end of this year. That one half, I think the majority of that will still come from Better contribution margin, is probably the largest lever, and we do expect a little bit of growth. That is also gonna help. Actually, that doesn't help them, EBITDA to GMV, apologies for that. I would say the contribution margin is by far the largest lever. I take back again, yes, growth will help because we'll get operational leverage, and marketing and operational costs will be lower as proportion of GMV with the growth that we expect.
Again, biggest driver is gonna be contribution margin of that percentage. I hope it was clear. Sorry for being.
I can confirm. I can confirm. I can confirm, Clément, I mean, like, the gross margin is clearly a focus. For that is a bit also like to repeat what we said before. Yes, we have some revenue and growth is important, but revenue levers we still have. We still have a plan how to roll out certain revenue streams and increase certain revenue streams that we have that we just implemented last year. Here, we might think, for example, of service fee. AdTech is important, basically the key focus is really on gross margin. While we will keep our OpEx or in terms of percentage to GMV and also marketing, at the level that is, you know, going down almost every quarter. Yeah, I think in particular of marketing to GMV.
We continue to optimize here, in terms of efficiency, but also in terms of spending to GMV while we keep our OpEx and discipline high. Basically, this will drive at the end our EBITDA margin. Clearly, gross margin will continue to increase. We see that from quarter to quarter. I could also say from month to month, when I look at the monthly numbers, and that will continue next year. This gross margin will come from increasing revenue and efficiency gain in terms of, well, delivery, if you want, but also, as Niklas mentioned earlier, like optimizing our payment fees and so on and so forth.
That be clear. Thank you.
Thank you, Clément.
The next question is of the line of Karen So with JP Morgan. Your question please.
Great. Thank you for taking my question. On the platform business, you mentioned that you reached EUR 56 million of adjusted EBITDA in the fourth quarter. Could you maybe talk about how does this split between the profitable and the unprofitable part of the platform business? How should we think about the path of these numbers towards the run rate guidance, that you provide at the last presentation? Thank you.
I think if you think about the platform business, this will reflect a bit what we also presented in Q3, in terms of percentage of countries that are, you know, I mean, in terms of percentage of GMV or countries that are producing of GMV producing positive results. I think this is around 70%, as we mentioned before. The path will be that these countries will continue to produce positive result, positive EBITDA, and it will remove more and more countries that are unprofitable today to their break-even point/to the profitability. This platform business, I mean, the whole platform of Delivery Hero, as we mentioned today, was profitable. The food platform was profitable last year for the full year.
We will continue to increase the numbers of countries that are profitable on the food platform next year and the year onwards.
Thank you.
Yeah. I think looking at the last trading update should hopefully help here. We didn't have an update on that profitability segment now, but the numbers we have there, we have followed those numbers. I don't know. It's very precisely. If you look at the profitable markets, there are now EUR 1 billion of EBITDA coming from those markets. There has been a significant increase. I don't remember the exact number at the beginning of the year, but it was quite a substantial movement. Also in the loss-making markets, they have also all significantly improved profitability. I think that slide is still valid. We just didn't wanna repeat the same message again in this quarter. That's why we didn't take it in.
Very helpful. Thank you.
The next question is from the line of Silvia Cuneo with Deutsche Bank. Your question please.
Thank you. Good afternoon, Niklas and team. I have a question on the MENA markets, where you launched the subscription and talked about how the customer experience improved, in particular in Saudi Arabia. Can you please talk a little bit more about how this subscription works in terms of pricing and how that compares with the alternative options available in the country? Maybe related to that, just wanted to ask if you could share your thoughts or views since the deal between two of your main competitors was announced, Jahez and The Chefz. Thank you.
Yeah. Looking at subscription in general, so we have, if you look at talabat, you have participating restaurants. All participating restaurants are paying or covering for the delivery fee. Therefore for us, the economics are similar because the restaurants choose to cover the delivery fee in order to get larger volume and get access to a very good customer base. When it comes to Saudi here restaurants co-finance the free delivery. We reduce some of the free delivery we cover, some of the free delivery the restaurants cover. And that's how we can get the economics to work out there. Compared to our competitor, I think at least twice the number of restaurants have chosen to be with us on our subscription program to participate.
For a user, it means that there are way more source of free delivery. Besides that, we of course have significant more quality restaurants on our platform, faster delivery, better customer experience, easier to use app, more choice, more varieties. I think at least three, maybe four years ahead of them in terms of product development. The Jahez and The Chefz doesn't impact very much. Of course it gives them another, I don't know, maybe EUR 150 million or so of GMV. That will of course improve their growth at least, if you don't look on a like-to-like basis.
Yeah, if you don't pro forma, that will add some growth to them, it's still only let's say EUR 100 million-EUR 150 million or so in our estimates. It will not materially change much.
Thank you very much.
Thank you, Silvia.
The next question is from the line of Catherine O'Neill with Citi. Your question please.
Thank you. just wondered if you could give us a bit of detail on what kind of trends you were seeing around AOVs across your market. I mean, typically they seem to have been rising across the course of the year for most food delivery companies. I wondered if you could give us a bit more color on that for Delivery Hero across your markets in terms of that dynamic around your GMV growth.
Yeah. There's a little bit less difference now in AOV. There was a big difference if you look at it, starting end of 2021, beginning of 2022 because we pushed a lot of quick EBITDA drivers. For example, we excluded or we increased minimum order value or we reduced vouchers for very small baskets. We did certain actions that drove AOV up. Since then, now we're almost a year since then, which means that now it's probably more AOV increase driven by inflation in most places. It's much smaller difference between. The increase in AOV is on a year-on-year basis, much smaller now than it was six months ago.
EVGian, yeah, I think I have to pass on that one because I don't wanna say anything incorrect, and I don't have all of it on top of my head, unfortunately. I don't wanna say something wrong here.
All right. Thank you.
Thank you.
The next question is from the line of Andrew Gwynn with PNB. Your question.
Yeah, just a quick one to round up. On the Q3 call, you said that double-digit growth for GMV in 2023 was a reasonable forecast. I don't think you wanted to tie yourself too tightly to that, but you did say it was reasonable. Is it still reasonable? Thank you.
I think it's still reasonable. I think especially when we get beyond Q1, I think it's pretty reasonable that it will be double-digit. I haven't changed my view since then. As I said, Q1 is a little bit different because Korea is a big part of our business, and we have at least 10% headwind here. Therefore, the growth here will be lower. I also think second half a little bit stronger than the first half, is what we expect. Yeah, overall, double-digit is reasonable. I think if you look at, y eah, we should at some point come into normalized growth. I think that is in many cases more in the 20%, maybe not in Korea, I said 5%-15% there.
Same maybe for one or two other markets. There are also a lot of markets that I would expect 30%, 40%, 50% and I say for many, many years. As they growing a larger proportion of our base, you will also see that there is a generally tailwind for us over the years that we could potentially even accelerate growth or at least maintain a fairly high growth. In many places that will also be above 20%, I hope. But, yeah, once we're out of the COVID rebalancing, we definitely will be in double digits. Yes.
Okay.
Sorry.
Sorry. Go. Please. Please, Emmanuel. Sorry.
No. I wanted to add, like, just for the benefit. I mean, as you do remember the restriction, the COVID restriction in Korea were lifted on April 28 last year. That's why, you know, the Q1 last year was fully restricted with the restrictions of COVID. That's why we always refer to the
The growth rate that will be after the Q1, because then it will be more like for like, while this year we compare, especially in Korea, you will compare a quarter without any restrictions this year compared to a one that had heavy restriction last year. As I said, the restrictions were lifted on April twenty-eighth in Korea. That's why we always refer to that.
Okay.
There was one or two other markets like Taiwan also had a little bit, I think some restrictions also during the first half, Korea being the biggest one.
Just to clarify, growth for the full year could be a little bit below double digit, but for the sort of 9 months, post Q1, it could be double digit. Is that what I should take from that or?
I don't wanna comment now because then I'm very close to give a guidance here, but I think in general, growth for the full year could also be above 10%. I don't say one or other, that it will be below or it will be above. We will have to look at that probably in April. If you look after Q1, then I think it's more safe to say that we will come to a growth that is gonna be above 10%. If that is happening in April or May or June, I don't wanna say. At some point, most of our markets should be more in the 20% once they're coming to more normalized growth. Korea may be a little bit lower given the maturity there.
That means on blended basis, we're probably slightly below. Yes, I hope I'm still pretty generous here.
Yeah. No, indeed. Thank you. South Korea, we think sort of 45-ish% of GMV for the group. Is that unreasonable?
I think, yeah, it was 50%. It's less now and it will continue to go down. 45%. We will get there. We are not there yet, I think, but we'll probably be there soon. At some point it will also be 30%, 25% and so on.
Okay.
Soon be in the 2045.
Yeah. Yeah. Great. All right. Thanks so much. Thank you.
Thank you very much.
The next question is from the line of Adrien de Saint Hilaire with Bank of America. Your question, please.
Good afternoon, everyone, or good morning. Emmanuel, correct me if I'm wrong, but I think you mentioned after Q3 that the cash position was EUR 2.8 billion at the end of September. It seems to be EUR 2.4 billion at the end of the year. Why was there a EUR 400 million cash burn in Q4, if my numbers are correct?
If you compare H2, we provide the cash flow development here. In Q4, I think we didn't have a negative development. On working capital, we've been slightly in flow. In terms of lease payment, it was stable. Interest rates were a little bit higher due to also the TLB and also the evolution of the interest rates. We paid some tax, which is not season. It's not income tax that we had to pay. It's not your quarter by quarter. It's really due to some payment terms.
We also had like to adjust for rehabilitating our Euro position with our FX development for the foreign currencies like the US dollar and the Won, and that was impacting the overall cash flow position. In general, you've probably seen that we put a lot of efforts. I mean, like, besides obviously the positive development on our EBITDA, but also like in terms of CapEx, I mean, like we below that 5% to GMV, this will continue. Lease payments are stable, are really slightly increased in the future, but not a lot in terms of the percentage to GMV. I think Q4 is more related to, as I said, mainly some payments like due to tax payments and then also like to these FX development, nothing else.
I think the comment was that we actually have better cash balance than what the consensus is. We are EUR 100 million or so better.
Correct.
I think the main driver for this is that we have been more cautious with CapEx. I think the market expected us probably to do more. working capital has also been improved probably than the market expected and a few other things.
I think in general, Adrien, I mean, like, the CapEx we present today in the first, the CapEx range that we think for the future, we managed already this year to go down. As I said, the second part of the year was about 5% to GMV, and working capital came from being positive to an inflow for us. Also like a lot of efforts. We're prudent for next year on working capital. As I said today, I think we will remain prudent because of the Dmarts, but there I can guarantee that the focus is there to improve our terms and conditions toward the supplier, but we prefer to be conservative in this area, on this specific topic.
Maybe if I can squeeze one follow-up, if I may. You've got a nice problem now, which is that you're paying taxes indeed. How should we model cash taxes going forward? You said from 0.2% to 0.9%, but what's the sort of trajectory there, in the next maybe three, four years?
Yeah. Projection, tax projection, I don't have this on top of my head, but we calculated here is with a tax rate around 25% long term. It will obviously depend how many tax losses can we use, and as you surely know, it depends from country to country. Sometimes you can use 100% in the full year or you're able to use 75% of the losses in specific years. But in general, what we calculate with, it's a long-term cash tax rate of 25%. Obviously depending on which country is turning profitable and which cash losses can we use, we get then slowly but surely to this 25% cash tax rate that we are calculating with.
But you are correct to assume that there's still significant losses carried forward.
Absolutely.
That's of course some markets, have already covered those, and some markets will take another five or 10 years, maybe in some cases even, until they're completely repaid. That, that will keep that tax rate a little bit lower for some time.
Depending a little bit which market is reaching profitability. Some markets are slightly above 25%, many markets are below 25%. It's very hard to model, but I'm sure you'll do a good job.
That's right. Thank you, guys.
Thank you.
Thank you.
There are no further questions, and I have.
Thank you.
Thanks Christoph.
Yep. Thank you. I think that was the last question. Niklas, is there anything you would like to close with some final remarks?
Thanks, Christoph, and thanks, everyone. Sorry for making this a marathon call again. We try to be open, transparent. Maybe I should be shorter in my answers, but I really wanna be as helpful as possible here. Hope you don't mind too much. I think, as I said, we had a very good year. We improved profitability significantly. We gained market position in almost every place. We significantly improved and innovated in our products. I think overall, pretty decent growth given where we're coming from and the pandemic and so on. With that, I would also like to thank all working team members who keep fighting every day. Thank you, everyone.
Thank you.
Thank you all for attending. Operator, you may now close the call.
Ladies and gentlemen, the conference is now concluded. You may disconnect your telephone. Thank you for joining. Have a pleasant day.