Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Delivery Hero's Q1 2023 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, and thank you much for joining our Q1 2023 earnings call. We trust you have all received the presentation 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 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 Q1 performance. After that, we look forward to answering your questions. Now let me hand it over to you, Niklas.
Thank you, Christoph. Hey, everyone, and thanks for dialing in. Today we give a very comprehensive review for being a quarterly update. We do this because we know many of you have suffered lately, and your trust is incredibly important to us. Really hope that this detailed update will give you confidence that we hit our plans 100% in every area and on all metrics. This should also put us in a very strong trajectory going forward. We try to keep it brief, so let's jump straight into highlights for the first quarter. Our business continued to show very strong growth in four out of five segments, despite the very challenging environment. Delivery Hero, excluding Asia, grew by 16% year-on-year in Q1 2023.
Growth in Asia was heavily influenced by the COVID reopening effect this quarter or quarter last year. Three years of hyper growth driven by intense competitive environment in APAC markets. We are thrilled to say that as of April, Asia turned marginally positive again in local currency, driven by the acceleration in South Korea, where GMV is already up by more than 3% year-on-year. Overall, parallel to growth, we improved our adjusted EBITDA by nearly EUR 250 million to an adjusted EBITDA to GMV margin of -0.1%. With this, we are currently tracking EUR 30 million ahead of plan or of budget. Correctly said, in Q1, we were EUR 30 million better than our budget.
I would like to emphasize that this was achieved despite the fact that we had hardly any GMV growth this quarter on a year-on-year basis. We have also executed a new convertible bond in February. This was important as it allowed us to strengthen our balance sheet and better manage our maturity profile. Emmanuel will now take you through the financials in more details.
Well, thanks, Niklas, and hello, everyone. A quick remark from my hand. As we have prepared some interesting additional information for this quarter, I will not cover the slides on the quarterly financials in full detail and will only comment on the main highlights. With that, let's start with our slide 4. As Niklas mentioned, we grew very fast in 4 out of 5 segments in both GMV and revenues. This, despite a very tough environment and big improvement in profitability. Asia was a different story as their year-on-year comparison was distorted by the COVID tailwinds in Q1 of last year. We believe that by looking at the other 4 segments, gives a very good indication on how our business can continue to compound with double-digit GMV growth on group level as soon as we are completely out of the COVID comp.
Moving to the next slide. Despite GMV showing only a small uptick in Q1, the total revenue segment revenue increased by 12% year-on-year. The healthy development on our revenues, which continue to generate double-digit growth, is due to the increase of our own delivery, our fast-growing AdTech business, the additional revenues from service fee and subscription, as well as contribution from our Dmart. Let's quickly go over the individual segments, starting with Asia on the next slide. The GMV in South Korea, this is our largest market, as you know, declined 6% in local currency in Q1. As a reminder, in Q1 last year, the business grew by 35% year-on-year due to the COVID tailwinds.
As of April, we have gradually moved out of the tough COVID comp, we already see GMV growth of around 3% year-on-year in local currency. Despite this challenging top-line environment, the adjusted EBITDA margin in the region improved by more than 2 percentage points year-on-year and is already above 1% to GMV. In absolute terms, we have improved the profitability by close to EUR 170 million during the last 12 months for Asia. Now to MENA on the slide 7. MENA continued to perform very well with double-digit GMV development despite the somewhat unfavorable year-on-year comparison in 2023. This year, Ramadan started 10 days earlier as last year, which generates a slight negative impact on GMV development in Q1.
Last year, if you recall, the Ramadan was fully within Q2. There were also like the earthquake in Turkey, which impacted demand in the region, obviously. When looking at their countries in MENA, I must say that we are particularly happy with Saudi Arabia. HungerStation continues to gain category share while improving margin, and it has done so by focusing on the service offering and value proposition, while our main competitor took a more short-term pricing approach. This has particularly played out in our favor in the last 5 months, where category share has moved quickly in our favor. We're now moving to Europe on the next slide. The top line in Europe continued to perform well, with GMV up by 15% year-on-year, with Glovo countries continuing their rapid development.
The team is also making good progress on increasing the profitability in the region, expanding gross profit margin both through price initiatives and also through reduction of delivery costs. Moving to the Americas on the next slide. This business continued to generate strong GMV growth to 17% year-on-year. Despite also here profitability improvements and some headwinds from COVID reopening compared to last year. The hyperinflation accounting effects did not play a significant role in this quarter compared to Q4 2022, we will continue to show you the GMV and revenue, including and excluding the accounting effects on our operations in Argentina for the sake of clarity. We are very happy with the development of the region, both in terms of growth potential as well as with profitability.
Not only is America generating double-digit growth, it is now expecting to be close to breakeven at the end of this year after group cost. Now on to the next slide. The integrated verticals generate solid growth, GMV and revenue growth year-on-year despite the ongoing optimization of our Dmart footprint and the clear focus on unit economics. AOV increased by 24% year-on-year as we continue to optimize our service, enhancing both product assortment and SKUs. The operational improvements together with the closure of low-order Dmarts has led to an adjusted EBITDA uplift to close to 30% year-on-year in Q1 2023. We continue to evaluate our current footprint and plan to further reduce our Dmarts portfolio by at least another 150 Dmarts in the next 2 quarters.
This will further increase GMV per store and automatically improve the profitability of the entire business segment. Now on to the year contribution margin on the slide 11, please. We have been expanding our fully loaded contribution margin of our own delivery service, including vouchers and discounts for many quarters now, and it's massively increasing the margin from negative unit economics in 2019 to close to 6% by Q1 2023. We expect this positive trend to continue. In our view, we have proven that own delivery generates very attractive unit economics, which can be even more attractive than the marketplace business. We are now at the stage where we would start speaking about the gross profit margin of the entire platform business, including Glovo going forward. Hence we will discontinue the disclosure.
Before we do so, let me spend a couple of words on the high margin AdTech business. In Q1 2023, MCR revenue grew to 2.6% of GMV, excluding South Korea and Glovo, which is in line with our Q4 result of last year. The stable development is mainly due to seasonality, as advertising business usually is the strongest in Q4, whereas Q1 is usually a bit softer. In general, we are on track to reach our target of more than EUR 2 billion MCR revenues by 2025. Let's continue on the next slide. Here, the gross profit margin up for the entire platform business, including Glovo, has improved consistently in recent quarters. MENA and Americas are already close to the lower end of our long-term target range of 10%-13%.
Let me explain to you the individual levers behind this strong margin progression and give you some guidance on how we believe this is going to develop on the next slide. As announced on previous releases, we are actively driving the progression of our gross profit margin by pulling several levers in parallel. As you can see in the actual progression over the last year, the improvement was made by many small improvements to not impact customer experience negatively. This will also continue to be the case going forward towards target 10%-13% gross profit. On the bottom graph, you can see the planned initiatives over the next few years. We would argue that there are some of these levers, such as order stacking, have significantly more opportunity for further scale than what's in the graph.
However, just by pulling these levers, our gross profit will be far above our target level, and we are therefore also adding a possible margin of error. On the right side of the graph, you see our cost base, already today, we are not too far away from our long-term target. With increased scale, we believe that we would significantly improve further, some of our best markets are already at below 3% on all costs, including central capitalization. With all combined, it's why we are so confident to reach our targeted EBITDA margin regardless of our increased scale over the years. On to the next slide, where we briefly comment on our 2022 annual report financials published earlier today. First, please note that these numbers are not on the pro forma basis.
This means that Woowa and Glovo, two main acquisition during this time, are included since the closing of the respective acquisitions. In 2022, Delivery Hero generated GMV growth of 32% to EUR 42.8 billion, and achieved an even higher revenue growth of 44% year-on-year to EUR 9.2 billion. Beside healthy organic growth, this was driven by the consolidation effect of the two acquisition mentioned before, mainly which is Woowa and Glovo. In addition, we improve our adjusted EBITDA margin by 1.4 percentage point, which result in a significant reduction of the year, negative of the adjusted EBITDA loss by 41% year-on-year. On the next slide, I will now explain to you the items below adjusted EBITDA.
On the left-hand side of the charts, you have the largest cash relevant items below the adjusted EBITDA are of management adjustments, which mainly include expense related to M&A transaction, financing transactions, and reorganization measures, as well as interest costs and lease payments. On the right-hand side, you can see that the vast majority of the cost items below the adjusted EBITDA are non-cash relevant items. Largest component is a goodwill impairment loss of EUR 700 million circa or EUR 0.7 billion, related to increased interest rates and higher risk premium, which triggered the impairment, but also the initial application of IAS 29 and hyperinflation accounting. Furthermore, fair value remeasurement of investments in public and non-public entities had a negative impact of EUR 300 million net on the financial results.
Depreciation amortization increased compared to previous year, mainly due to the consolidation of Glovo and Woowa. Our share-based compensation remained broadly flat at almost EUR 300 million. It should come to no surprise that we have a relatively strong liquidity position, as you will see on the next slide. On the left-hand side, you can see our cash position amount to EUR 2.4 billion at the end of 2022. Adding our SCF, our undrawn SCF of EUR 450 million, and the cash inflow from the convertible bond transaction carry out in February. Our available pro forma liquidity amounts to EUR 3.2 billion. At the same time, the first maturity is due in 2024 and total less than EUR 300 million.
As we expect to achieve our free cash flow breakeven during the second half of the year, we believe that we are in a strong position to pay back our outstanding debt with our existing liquidity and future cash flow generation. With this, I would like to hand it back to Niklas, who will take us through some very interesting case studies, starting on slide 20. Niklas.
Thanks, Manuel. Starting with the cohorts, you can see on the left-hand side how new cohorts are better than old cohorts. More importantly, the cohorts improve every year a customer is with us. This makes our long-term growth very predictable. What is very clear from the cohort table is the significant impact from COVID and how it reverted back to pre-pandemic development. On the top of the right-hand side, you can see the upgraded frequency. The same thing here. Frequency increases slowly over time. COVID came, frequency increased very quickly until the end of 2021. Since then, things have gradually moved back to the normal frequency trend line. Since we get a lot of questions on Korea, we also added an active customer development chart here.
As you can see, we have continued to increase our customer base where there despite COVID reopening, although at much slower rate. Speaking of Korea, the next slide will give you a deep dive. As you know, Woowa remains the clear leader in the Korean food delivery space and continues to further develop the local market. In 2022, Woowa generated revenue growth of 42% year-on-year to EUR 2.3 billion. Besides healthy organic growth and the COVID boost beginning of 2022, growth was also driven by the rollout of our own delivery service, which is generating quite attractive unit economics. Due to Woowa's large scale and controlled OpEx and marketing spending, adjusted EBITDA grew to EUR 387 million. This excludes the allocation of Delivery Hero's central group cost.
It does include EBITDA losses from Vietnam and Integrated Verticals. These losses will significantly decline in 2023. Going to the next slide, staying with Korea in Q1 2023, orders declined by 9% year-on-year. Due to higher basket sizes, the GMV in local currency declined by only 6%. The key reasons for decline is the high comp from the COVID lockdown in Q1 2022, when GMV experienced an extraordinary high growth of 35% year-on-year. If you take a look at the 2-year performance, you can see that GMV in Q1 2023 was still 25% higher than in Q1 2021, highlighting that the market is actually growing healthy.
As already mentioned, we had a promising start into Q2 with GMV growth in April accelerating again to around 3% in local currency. We expect the GMV to accelerate throughout the year. Let's look at our path to profitability slide. With a continued focus on EBITDA development, we decided to bring back a few slides from the Q3 2022 trading update to highlight that we're slightly overperforming every aspect of our original plans around profitability. We expect that in total, around 75% of the platform business will be profitable in full year 2023. We will expand Q4 2023 run rate adjusted EBITDA from EUR 1 billion to more than EUR 1.3 billion in Q4 2023 on a run rate basis.
We expect to continue strong adjusted EBITDA growth also in the future years. The uptick in profitability will be achieved predominantly by the continued expansion of adjusted EBITDA in the current profitable countries, as well as the conversion of unprofitable countries to profitable. On the next slide, we will give you an update on the development on the unprofitable platform business. Here, looking at approximately 30% of our GMV coming from this loss-making or these loss-making markets. Here we continue to make gradual improvement on our path to profitability. By the end of the year, we now expect margin to be negative 2.5%, including group cost allocation, which is better than our previous estimates. Another couple of quarters, we should be at breakeven here as well. To slide 29, where we will catch up on the Integrated Verticals.
Here we have the Dmart being the major part. It's around 75% of the losses in the Integrated Verticals segment. We continue to adjust our operations to move quickly towards profitability. In Q1, our gross profit margin for Dmarts was minus 1.8%. This is already 9 percentage points better than a year ago. We expect to show positive figures by H2 this year. Not only do we continue to streamline our Dmart operations and reduce our unprofitable footprint. As we acquire customer quickly via our platform, the total cost is also quickly declining. To slide 31, where we wrap up this section and summarize what all of these profitability improvements mean on a group level.
We now have improved adjusted margin to GMV with 1.5% this point from 2021 to 2022, as there was a steep change in capital cost, which mandated a faster path to profitability from our side. We will further accelerate our margin improvements in 2023, reaching a margin of more than 0.5% for full year 23, which is nearly a 2 percentage point uptick between 22 and 23. We are in full control as we progress on our profitability path. We have achieved more than 2% this point year-on-year improvement this quarter alone and are very close to break even with a negative margin of negative 0.1% in Q1. In absolute terms, this translates into EUR 50 million on adjusted EBITDA burn for Q1.
With that, I hand over to Emmanuel again for the guidance.
Well, thank you, Niklas. For the full year 2023, we expect GMV to grow between 5% and 7% year-on-year on constant currency basis. GMV year-on-year growth is expected to accelerate throughout the next 12 to 15 months, with Q2 expected to reach 4% year-on-year on constant currency basis as we are still operating against difficult comps. Our reporting GMV will obviously be impacted by currency movement that we cannot control. Over the last weeks, we have seen negative FX headwinds with appreciation of the euro against the Korean won and the U.S. dollar, which most of the countries in the MENA region have their currency pegged to. We experienced a similar trend already in Q4 2022, especially in American business, which impacted our reporting GMV and revenues. We deliver at group level on our GMV guidance in constant currency.
Based on today's FX rates, our reported GMV will be approximately 2% lower than our constant currency guidance. For total segment revenue, we expect to grow on a constant currency basis by around 10% year-on-year. We reiterate our expectations for positive adjusted EBITDA to GMV margin on a group level to more than 0.5% for the full year and with more than 1% margin for the second half of the year. As mentioned in the highlight, in Q1, we overachieve our budget with our circa EUR 30 million, which will give a good argument to increase our guidance. We are also here negatively affected by the strengthening of the euros against the U.S. dollar and the Korean won.
Based on today's FX rates, we'll impact our reported full year adjusted EBITDA negatively, with more than EUR 40 million. Now back to Niklas, who will share a quick update on our long-term ambition on the next slide. Niklas?
Yes. just very brief, we would like to share a brief update on our long-term ambition. We will continue to execute our vision of always delivering amazing experience. We will carry on innovating and investing in technology to constantly improve our operations and ensure we have the best service provider in the markets. This should ultimately result in clear leadership within our current footprint and consequently higher EBITDA margins. On top, we plan to generate a GMV of more than EUR 200 billion in the long term. As you can see, we have postponed our initial GMV ambition by a couple of years due to our increased focus on profitability. However, EUR 200 billion still assumes very low order frequency or at least far below the long-term potential.
When it comes to our ambition in regards to profitability, we remain more confident than ever that we will reach 5%- 8% adjusted EBITDA margin range earlier than expected. Thank you all for the time today and your continued support. We now look forward to your questions. Christoph?
Thank you, Niklas. Before we start with the Q&A, the usual reminder from my side, please. As we would like to give every analyst the opportunity to ask a question, would kindly ask you to limit your question to one only. 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 following 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. Your question please.
Wonderful. Thank you very much for taking my question, team. look, I guess my question is based on the improvement on Korea that we can see in April relative to Q1. When I do my maths, I think it's likely that group GMV grew in the sort of mid-to-high single-digit % in April. Is that broadly fair? If so, I'm just trying to square that with your 5%-7% full year guidance. I think comps get a tad easier beyond April. Is there anything that you're seeing that could imply a slowdown sort of later in the year? Or is it just conservatism from your side? Thank you.
Thanks, Joe. Correct. We had a great start in April. Let's not get ahead of ourselves. We're only three and a half weeks into the quarter. You're correct. If the very positive development continues, then we have a chance to beat the guidance that we gave. I think we said 4% year-on-year in GMV for Q2. Correct, we are. If current development continues, which obviously I believe and hope, then we have a good chance here. I would also say, given that we ended up at the bottom of our guidance last year, we like to make sure that we also stay a little bit cautious here and do not overpromise. Yeah. Thank you.
Wonderful. Thanks, Niklas.
Thanks.
The next question is from the line of Giles Thorne with Jefferies. Your question.
Thank you. It was a question on the launch of Baemin One stacking in Korea this month. When Baemin One was first launched, the emphasis was on giving the consumer a better service, a one-to-one service. We've now gone back to offering stacking at a lower delivery cost for the consumer and the restaurant. This feels like a pro-growth decision with a overall neutral impact on unit economics. It'd be useful to hear your logic for the move and indeed what impact it could have on GMV growth and profitability in Korea this year. Thank you.
Sure. Thanks. Yes. We launched it just one or two days ago. It's still very early, but our expectation is that we can reduce prices for both restaurants and consumers while still maintain a similar margin on our logistics. The hope here is of course that we can expand our own delivery percentage more going forward, hopefully significantly so. If we do, that will significantly improve our profitability in the market because we still make more money on own delivery than what we do on the marketplace side. This will be very positive on an EBITDA basis. It's still too early to say How fast we are gonna increase our own delivery, proportion in the market. I think this is a clear step towards gradually increasing it over a long time.
Yeah, how fast it happens is still TBD. We'll come back on that maybe in a quarter or two when we see more.
Just to follow up. Was this in any way a response to some of the negative press? I mean, you always get negative press in Korea, so, it's not really a fair observation, but there has been some press out there around the cost to the consumer delivery. Was this a response to that or was this other logic, other reasons?
I think in general we prefer stack orders because we can make it more efficient cost-wise, even if it takes a few more minutes for consumers to prefer that it takes a few more minutes, but it can do it at a lower cost. Restaurants also of course prefer lower costs. I think we decided to not do stacking initially because we wanted to making sure that there is no difference in our service offering versus Coupang. Coupang came, as you know, very aggressively into the own delivery space, and we had no stacking policy, and we wanna making sure that the customer perception is not that we are slow and they are fast. That's why we also said we are not gonna stack, and that was a very clear value proposition to our consumers.
Now as Coupang has also moved to stacked delivery, we felt it's time for us to also move in on this path. I think it makes it cheaper for restaurants, it makes it cheaper for consumer, it improves our service, it hopefully helps us take down that perception of expensive, because it is a little bit expensive. Hopefully also then drive our own delivery to significantly higher levels than it is today. As I said, since we're stacking, we can do it more effectively, cost-wise, and that also helps us to. We won't make more money on it, but we might even make slightly less, but overall significantly more than on the marketplace side, which is still almost 85% of our business today.
I think if I may add, Giles, to your question, Giles, also like obviously we will measure the quality of the service. Like, you know, we want to offer stacking, and we continue to measure the quality of the service to the consumer and to the restaurant so that we don't have a negative impact from the stacking on this matter.
Got you. Thank you very much.
The next question is from the line of Andrew Ross with Barclays. Your question please.
Great. Good afternoon, everyone. I wanna just come back to the EBITDA guidance and clarify a couple of points. I think you said that you were running more than EUR 30 million ahead of budget, at the end of Q1. I'm assuming that is just for Q1, i.e., would be more than EUR 120 million on an annualized basis. You've said there's a EUR 40 million headwind for the full year from FX. A, have I got that right? B, assuming that I have, those two things don't net out. Just coming back as to why you haven't moved the EBITDA guidance, is there anything coming through the year or is there just some flex, as you're thinking about it? Thanks.
Well, maybe, I can start here, like, you know, yes, you're right, we are ahead of our budget for Q1 2023. This, despite the moderate growth in GMV, for the reason that we explained earlier, right? In our view, this result are the combination of, first of all, cost control, but also some decision that we take to drive adjusted EBITDA. We think that we are still at the beginning of the year to raise our guidance, and we want to deliver, as Niklas said before, on our promises, and we will continue to monitor the development quarter after quarter. Yes, we were ahead of our EBITDA budget, let's say for the first quarter by EUR 30 million.
As we said, like, you know, as I just said, we want to stay cautious in terms of our projection in raising the guidance. For the FX, this is what we monitor as of today in the FX development.
Maybe if I add, if I may, I think it's also very healthy for us to making sure that we have some flexibility. We cannot forecast what happens the rest of the year. Right now there is a very strong rationality in the market. We don't know if that will remain. Of course, we like to making sure that we have remaining some flexibility to respond or take advantage of opportunities that would come up. Yeah, we are ahead of budget also to making sure that we have that flexibility to respond or take advantage of opportunities. We felt like we keep that flexibility also for another quarter or two.
Cool. That's helpful. Thank you.
The next question is from the line of Miriam Josiah with Morgan Stanley. Your question please.
Great. Afternoon, everyone. Thanks for taking my question. Just one on the long-term gross profit drivers. I guess on that slide you show that order stacking is a big driver of that, and I guess you're given quite a big range there for 1%-3%. What do you see as driving that delta? Is that all really just around Korea and what you were talking about earlier, or are there other factors there? If you could just talk about where you are in your best-in-class markets in terms of the percentage of orders stacked.
Just generally around how you think around the execution risk on those drivers that you've put on that slide, 'cause I guess if all goes to plan, it looks like you could potentially beat your sort of long-term target of 10%-13%. How are you thinking about the broader execution risk there? Thanks.
I'm not 100% sure I covered the first question now perfectly, so please help me if I'm directing the question wrongly. Yeah. Was it more around the 6% that we have room there, or was it more around the gross profit?
No.
On the first one?
It was about the levers for the driving the gross profit and what we mentioned with the stacking, like, you know, like the progression of the stacking.
Yeah. Yeah. No, I get this. The order stacking is one I got, and execution is the risk. Maybe I covered that when you covered If the first question was not covered. On each of them, first of all, I would say we're speaking here about long-term. We might see more opportunity in one area, maybe we see a little bit less opportunity in another area. But we try to I know we have done a decent assessment of what we think is realistic to deliver in terms of gross profit improvements. I think order stacking is the probably the one that is the least ambitious.
You asked how we stand there and some markets like Korea is coming from 0%, other markets are probably at 50% or so order stacking. I think there's significantly room to improve. I think in peak markets, when we have a lot of volume in big markets, we can get up to 7 drops per hour. You can imagine how much room there is on the upside, from where we currently stand. It's all based on having a lot of volume, and continue to optimize our logistics and operations. Therefore, the percentage we have there is probably, yeah, it's fairly conservative. Of course, there's a lot of other levers like pricing. Of course you can always do pricing more. You can have...
When I look at U.S. players, they probably price around a 5% higher, then still it seems that demand is there. Here we have said, like, let's just assume that we improve pricing, get smarter and more efficiency there with a 0.5%-1%. AdTech, I think we have discussed in the past. I think basket size is of course also a big opportunity. Of course, if you improve your baskets with let's say 10%, and you have a take rate of, I don't know, 25%, then of course you improve your gross profit quite significantly. Same as subscription service fee, general CPO reductions. I think overall we feel very comfortable with the things we have in there, but we also say like, what if we are wrong?
We have also added kind of a marginal error or maybe unknown things that we don't know of. Now the question is, does it mean that if this risk and marginal error occurs, that we will be at 14%, 15%, 16%? Here I would say no. We maybe we could, but that would not be our strategy. We would just try to find maybe pricing, take pricing down instead. Maybe we would do something that makes it better for restaurants or consumers. We don't wanna make excessive profit because we don't think that is sustainable. We rather wanna be a company that can continue to reduce pricing and therefore drive more volume. I think excessive pricing is just gonna invite for disruption.
you said on the OpEx and marketing, and we are currently on -7.2% there, and we put here below 6, which is what we've said in the past. That wouldn't require any scale at all, I would say. That would have to be even a little bit more efficient in our setup. Of course, as we scale, as we double, triple, quadruple our business, it will be easier to drive this % significantly lower. That's also what we see in the best-in-class markets, which are below 3% or even a little bit lower than that. I think there's also some room there. Again, we don't wanna...
We don't aim to make more EBITDA than, kind of the 5%-8%, even if that would be possible, because we just think that is not long-term sustainable or that would just not be the right thing to do. Did I cover your first part of the question here also, Miriam?
Yeah. No, that's very comprehensive. Thank you. Just a quick follow-up on the order stacking. You said 50% in the bigger markets. Is that just a question of maturity?
In the best-in-class.
Or-
Correct.
The best-in-class markets, yeah.
Around 50% in the best-in-class. Then of course it could be-
Do you think-
It could be 2 orders stacked or 3 orders stacked and 4 orders stacked and so on. If 50% of orders being stacked on an average, on an average day.
Do you think that's something that's replicable in across most markets or it's really driven by density and things like that?
I think I know we always get a little bit better. Of course there's always a question if there is a little bit what customer wants, is to say like, "I'm willing to pay for getting my food very, very fast," then we might stack a little bit less. Maybe even give a priority. We have that in some markets, that you can pay for priority, that it is not gonna be stacked. In some markets people would rather pay less, but stack more. In other markets, the service level is more important, but getting it instantly. It's a little bit market by market. I think we have room to keep service level at the current level and still increase stacking. I think some markets are...
have been pushed in that more than others, in particular markets that have a lot of volume. In markets with less volume, the difference between how much they stack or not makes a little bit less difference. but as we grow, stacking becomes more and more important. That is also one of the advantage of being large in the market and being the leading player, that you can be significantly more cost effective. That's the benefit we have of being the clear leader in more than 90% of our business.
Great. Thank you.
Thanks, Mirriam.
The next question is from the line of Christopher Johnen with HSBC. Your question, please.
Thanks, everyone, for taking my question. On the same slide 13, I would just want to follow up with respect to what sort of size is required to get there. I know that the new guidance of more than EUR 200 billion is still fairly far away from what consensus expects in the next, let's say, years until 2030. Probably closer to EUR 100 billion than EUR 200 billion. I'm just curious how that chart might look like if it was closer to consensus expectations. How much of a difference does the, well, EUR 100 billion difference make here?
I would say just for the argument of the point, let's say that we would be able to reach the 5%-8% without any increase in size. We already have so much size and scale that we have now, that with the scale that we're currently having, we can be at the 5%-8%. It's rather an additional benefit if we can or if when, I would say, when we be double, triple, quadruple larger, the OpEx to marketing will be the one that we can driving even further. Some of the initiatives, such as order stacking, will be a little bit easier to do.
CPO reduction also a little bit easier with scale, but most of those other levers like pricing, AdTech, basket size, services, subscription, is not really scale dependent, so those can be executed already today. It's just that it takes a little bit of time. The only main difference in how can we get to the 5%-8% is the marketing OpEx. We are currently at 7.2 without growth, of course, getting to below 6 requires a lot of cost and push there. As we grow, you that 6% will hopefully come down to be, yeah, significantly lower than that 6%. Again, we don't require the growth in order to get there.
Obviously everyone who looks at the cohorts will see how predictable our long-term growth is because we can see how cohorts mature and how they get better. It's just a matter of time until we reach the EUR 200 billion.
Okay. That's what I want to hear. Thanks.
Thanks.
The next question is from the line of Monique Pollard with Citi. Your question, please.
Hi. Afternoon, everyone. For me, it was just a quick question on the Asian market ex-Korea, because you've given those details of how Korea performed in 2022. If I look at Asia ex-Korea, the EBITDA losses in 2022 were still over EUR 300 million. They narrowed somewhat year-on-year, but you know, about EUR 160 million. Also, you know, almost all the growth in that Asia business last year was from Korea. Given those two things, isn't there a potential to accelerate looking at rationalizing some of those markets, you know, and that could really materially lift the EBITDA for the group?
Yeah.
Without any real impact on growth?
Yeah. It has been a significant improvement in profitability of that Asia ex-Korea, as we all become more rational. Of course, there's also a little bit of a, or quite some COVID impact that we're reverting from also there. It's a difficult comp from that point of view, but also it was three years or so with hypergrowth driven by intense competition. Both us and our competitor, I don't know, grew a lot. As we both kind of moved more towards profitability, of course that takes a little bit of a hit on short-term growth. As that is soon out of the system, I would say, gradually out of the system, and I would expect that Asia ex-Korea will be the fastest growing part of our business.
It's still the part of the business that has the largest opportunity. We have very strong cohorts there. I would expect that will be the fastest part of our business in growth, but we probably will be 12 to 15 months from here that we reach kind of a normalized growth level in that Asia ex-Korea. We have also seen that our gross profit in Asia ex-Korea is very good. It's very good. It's on par with, or it's above the level of the group. Therefore it's fundamentally very strong business, but we now have to suffer through a little bit of a difficult comp for another 12 to 15 months.
We should see orders from this level that growth will improve, but we will only be at kind of a long-term growth, I would say, in 12-15 months from now. The potential is of course enormous, in that segment.
I think to echo Niklas, what you see in improvement of the margin in APAC in total, including Korea, is the possibility push for Korea that is improving, but also like we're improving our negative EBITDA in APAC, the rest of the region. This is a combination of both, and not only solely coming from Korea.
Okay. There are no markets within that segment that might not look so attractive to you? I know, you know, there have been issues in the past in Thailand.
I think in general, our strategy is always to be a clear number one, and you correctly point out that there are two markets there which are not at that level. Of course we are a little bit less excited about those two markets. I think overall as a segment or as part business, which also include a lot of markets outside of Southeast Asia that often referred to. It also includes Taiwan, Hong Kong, Pakistan, Bangladesh. A significant portion of that is still in a very clear leadership point of view. Yes, there are four or five markets where we compete still, and two of them we are distant two or even three, and that's normally not the position we want to be in.
Understood. Thank you.
Thanks.
The next question is from the line of William Woods with Bernstein. Your question please.
Hi there. Just coming back to that profitable and unprofitable guidance upgrade, obviously not changing group guidance. Is there anything that you're seeing in the market that makes you more cautious, for example, competitive intensity stepping up? If I look at your kind of vouchering and marketing spend on the in the annual report, it looks like they've increased as a percentage of GMV, HG versus H1 or for example, we've seen Coupang perhaps accelerating some discounts in some areas of Seoul. Is there anything that is concerning you in the market there? Thanks.
I would say if you look overall in our group, both profit and unprofitable, I would say that it has been further moved towards rationality. I believe that will maintain at least for the foreseeable future. obviously we don't always plan on that. We are always ready to in case that changes. as it looks right now, it seems to be very pragmatic approach on a constructive approach by all players. you're right, maybe kind of a little bit point there is Coupang, who launched a discount on their food delivery in 3 areas of Korea, where they give a discount to their subscribers. We have also responded to that.
Correct, that costs us a little bit of money, but we don't think it's too material. I think we still are standing very strong in the Korean market. I'm not too worried about that either.
Maybe William, if I may complete also, like, you know, the trend is that our percentage of vouchering to GMV is declining year after year, and this is still the case. We are now below 2% of GMV. It's declining over time.
Understood. Thank you.
Thank you. The next question is from the line of Jürgen Kolb with Kepler Cheuvreux. Your question please.
Yes, thank you very much. With respect on the Dmarts, you announced another closure round in Q1 and Q2, and maybe you end up at the end of 2023 with about 880 stores or so. Would that be the new equilibrium or, how should we see the further development? Is there anything else to be done? Specifically, as you pointed out, that you could reach your 5%-8% EBITDA margin even without scale. Does that also count for the Dmart business? Is there any necessary cuts in the planning even after these 150 in order to get to, you know, a more profitable level in the Dmart business? Thank you.
You want to cover it, Manuel or shall I?
Yeah. No, yeah. Happy to. Basically, Jürgen, for the first thing is, we're reviewing our portfolio since last year, as you know, and like we drew 79 Dmarts in the first quarter. We continue to do so in Q2, Q3. We're targeting 150 Dmarts. Yes, we'll be close to numbers that, you know, mathematically, we'll be close to this level of Dmart that you mentioned. I think you said 880. Mathematically we're there. It's still fair to say that, you know, this is a net. We also open certain Dmarts in very, very specific area. This to drive the unit economics which are improving. You've seen also, like we mentioned before, the path to being positive during this year on gross profit.
That's, you know, due to our basically larger basket size, bigger volumes, and also like better unique economics as we decide to close, to be very selective on certain Dmarts that are not reaching out this unique economics. This scrutiny, I would say, on every single Dmarts, like it's not a country logic, it's not a city logic, it's a Dmart logic that we do. We continue. Today we not try to close the Dmarts that are not providing unique economics.
This is for the benefit, obviously, of the result overall, because this business is not only providing service that the customers want, but also economically, we see already in a region that this is a very profitable business, once you reach the unit economics or the numbers of orders and the basket size that is required. In certain region it might take longer, but then we are, we continue that path of Extremely rational, looking at the amount that we need to be closed. When I say closed, sometimes it's also consolidation, so it's not only closing a Dmart, it's sometimes merging two or three Dmarts together so that you can continue to serve the customers with better unit economics.
This is the direction that we're taking since last year, and we continue to enforce this one during this year to, again, to reach our positive gross profit during the year and even more afterwards.
You asked about the long-term margin, I would say yes, we will also be at the 5%-8% on the Dmart side. We also already now in some markets, we are higher EBITDA margins, positive EBITDA margin in our Dmart business than we have in our food business. I think this is quite exceptional given that we are running our food business in some of those markets for 10 years and only 2 years of Dmart, still better margins there than in food. I would also add that we have only really started the advertising revenues, that could add another, maybe another 5 or...
I know we are already at a couple of %, you can probably add another 5 or so to reach kind of a 6%-8% advertisement revenue to GMV. Even if we haven't really optimized that, and even if it's just 2 years in, some countries already perform better EBITDA in Dmarts than in our food business.
Perfect. Understood. Thanks, guys.
Thanks.
Thanks, everyone.
The next question is from the line of Marcus Diebel with JP Morgan. Your question please.
Yeah. Hi, everyone. It's Marcus. One question is on cash flow. I mean, thank you first of all for giving the detail on improving profitability. I think it goes really in the right way. If you could help us also to understand, kind of like what is still the gap between adjusted EBITDA and the cash flow. If you can maybe take us through this from your point of view today, if there's anything that has changed. I've seen that you obviously reiterated guidance on cash flow, but it would be great if you can just get us up to speed again from your point of view about the gap between adjusted EBITDA and cash flow. That would be great. Thank you.
Yeah. You know, as we are on a trajectory to be or to reach our free cash flow breakeven during this year, which we reiterated today, I'm not like, this is our... this is another guidance reiterated today. What we will need to do is to manage our CapEx. As you know, we mentioned the investment of EUR 300 million for this year for CapEx and also like, the, how you say, the CapEx, and then the working capital that we switched on positive. All these aspects, which play a role in the free cash flow, will continue to be monitored and improve over time. I mean, we're reducing our CapEx to GMV, as you know, and this will continue.
We also improve our working capital, basically due to our Dmarts, which was at the beginning, not attractive for the cash flow, but is contributors in terms of cash flow at the end of last year. This is what we're doing in order to get to this cash flow breakeven at the end of the year. I think the trajectory and the planning that we have don't require any new measures on terms of all these aspects below the EBITDA. As you know, certain positions below EBITDA are not cash flow relevant. I'm thinking here about the share-based compensation program and other positions. The ones that are cash flow relevant, obviously we are monitoring them and they're improving over the years.
The trajectory is absolutely clear, so we don't need to do extra measures on this extra position this year.
Would you be able to share an absolute number broadly? I mean, let me say what are the items that we sort of need to discount off of adjusted EBITDA to get to cash flow? I mean, obviously we come up with our own EBITDA numbers, but the gap would be quite interesting.
I don't have the gap now. I'm in the bridge now. We can provide it for sure. We provided, I think, in the plan, in the last training update, you know, what will be the position in cash flow below EBITDA. I'm happy to provide a bridge next time.
Yeah, perfect. We wonder if there's any change, but that doesn't sound like it.
No, no. There's no-
Okay. Super.
No, there's no change compared to what we said in the planning. The only one change, and I mentioned this, I think, in the last training update in February, is that we've been quite conservative on the tax payment, if you remember. I mean, initially, we were planning a large proportion and then I think we're going to cut almost by half the tax payment this year compared to what we initially take into account for cash flow. That's one of the improvements that we are. We've been conservative on the cash planning and that will impact positively our cash flow. Other than that, the rest is unchanged. We continue to monitor. Obviously, we negotiate, we continue to negotiate better terms with the suppliers to improve our working capital. We also review, as we say, our CapEx.
I mean, like in the terms of tablets, I mean, as you know, tablets was like one of the big positions for the CapEx. Here we are working on other solutions so that we could eventually avoid any device in the future, which will also improve our CapEx or our cash out and bring a positive aspect to our, to the cash flow planning.
Super. Thank you.
In conscious of time, I don't wanna hold everyone up here. Maybe our last question.
The last question is from the line of Annick Maas with Société Générale. Your question please.
Hi. Good afternoon. My question is on advertising actually. You suggested that you're on track to reach your EUR 2 billion advertising revenue target. Can you give us a little bit more detail? I mean, in Q4, you suggested you had signed your first FMCG client. Can you tell us, you know, how many new clients have you signed up? In which regions? Or is it all existing clients that raised their budget? Thank you.
Thanks, Annick. You put the hardest question last here. I cannot share the new clients, but I can tell you that the excitement is very high among the FMCG companies. We didn't have proper solution before, and now they are there, and they really stand in line for doing things. We remain very positive on the advertisement side, on the quick commerce base, both the Dmarts as well as quick commerce in general. On the advertisement side, on the restaurant side, I know it's like a clockwork. I think we still have a lot of room in particular in markets where we haven't done this as much.
Speaking of the global market, speaking of Aruba, we still wanna rush it slow, making sure that we onboard properly, that the restaurants see actually value in what we propose. I think, yeah, we could probably move this a little bit faster, but we also wanna be a little bit cautious here that we keep the reputation intact. Yes, we still, we feel confident about this part of the business. Obviously it's a very high-margin part of the business.
Okay. Thank you.
I think that was it. Unless, Chris, if you have anything to say, I like to highlight how important your trust is to us. We will always work tirelessly to deliver on our commitments to you. The challenging market and the return from COVID has been very exhausting, but it's also been very healthy. We did not shy away from some very tough decisions, those decisions have made us stronger and faster. I'm very convinced of that. As we now gradually move out of the COVID comp, we believe that we are in a better position than ever to grow in a very healthy way. As we have all suffered through some challenging times together, we also very much hope to continue a more pleasant journey together for many years to come
Again, many thanks for all your trust here, everyone.
Thank you very much. All the best. Talk to you soon.
Thank you all for attending. Operator, you may now close the call.
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