Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Delivery Hero's Q2 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. Thank you very much for joining our Q2 2023 earnings call. 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 Q2 performance. After that, we are looking forward to answering your questions. Now let me hand it over to you, Niklas.
Thanks, Christoph, and hey, everyone. Thanks for dialing in. I think today there's a bunch of good news that we want to share with you, so let's jump straight into slide three for some key highlights. First, our business has regained significant momentum, with very strong growth in four out of five segments. Delivery Hero outside of Asia accelerated to 18% year-on-year on a constant currency basis in Q2. Including Asia, GMV growth accelerated from 2% to 8% year-on-year on a constant currency basis, and this is well ahead of our guidance of 4%. After a difficult Q1, Asia has returned to its growth path and generated GMV growth of 2% year-on-year on a constant currency basis, despite very tough comp.
One point that makes us particularly proud is the fact that our Dmart business broke even on a gross profit level in June this year. This is ahead of our previous guidance of positive gross profit in H2 2023. Just to avoid any misunderstanding, this is of course, the gross profit after delivery costs, store-related expenses, supply chains, et cetera. We have also performed ahead of our budget in terms of profitability, with the group achieving positive adjusted EBITDA for the entire first half of the year. The adjusted EBITDA margin in Q2 was already 0.2%, and we are very confident that we will reach our full year target of more than 0.5%. We are currently outperforming our budget by more than EUR 40 million.
Nevertheless, we decided to keep our earlier outlook, EBITDA, for the full year as we balance long-term growth, investments, and profitability. The liquidity side also looks very good. At the end of H1, we had EUR 1.6 billion in cash and cash equivalent, and in addition, we have an undrawn RCF of EUR 500 million. If you look at the next slide, you can see how both the GMV and revenues are accelerating. As mentioned, GMV growth has accelerated from 2% in Q1 to 8% in Q2 at a constant currency. Revenue growth increased to 16% at constant currency. This was done while at the same time we ramped up adjusted EBITDA by almost EUR 500 million on a year-on-year basis for H1 alone. This is more than a 2% margin improvement year-over-year.
I think it is also important to understand that the positive momentum is coming from almost all regions. Europe accelerated to 17% year-on-year, despite the challenging macro environment. MENA accelerated to 21%. Americas grew with 11%, including hyperinflation accounting. Excluding hyperinflation accounting, we grew with 17% on a constant currency. Integrated Verticals grew 26%, while our Dmarts grew 48%. The difference there is that some of the restaurant and kitchens businesses have been reduced outside of MENA. Asia was the only segment with below double-digit growth, but we expect to be there in a not too distant future. Now, let me hand over to Emmanuel, who will give a deeper dive into the financials.
Well, thanks, Niklas, and good afternoon, everyone. Let's start with our Asian segment. The GMV in Asia returned to growth in Q2 2023 on a constant currency basis, after some challenging comparisons driven by COVID and also excessive competitive spending and effect during 2019 to 2021. We expect to gradually accelerate growth from a strong basis over the next 12 months. South Korea have been performing very well and continue to grow their high GMV base in local currency. Although we have one competitor's introducing discount of up to 10% in Seoul in other cities, we have been successful in trialing most of the impact by shifting advertising budget, introducing our stack on delivery, and increasing our promotion activity in more competitive districts within Seoul. Despite these investments, we have continued to drive profitability by pulling other levers....
These actions together have contributed to a flat year-on-year development in category share in South Korea. If we are looking at the value customers, we believe that we have strengthened our category share further. In the APAC region, we expect that initiatives such as increased marketing efficiency through smarter high-value customers targeting, have been positioned us well for the second half of the year. Despite the negative growth for the first half in the Asian region, we have made strong progress in profitability and have generated adjusted EBITDA uplift of around EUR 250 million year-on-year for H1 only. This translate in our, in our, into a 2% point margin improvement. We are now in a, we feel we are now in a strong position to invest and in efficiency and sustainable growth.
Now let's move to our MENA on the slide seven. MENA continues to perform very well, with double-digit GMV and revenue development due to stronger customer demand. We continue to grow the category share in the region, with operations in Saudi Arabia developing particularly well, as we focus on better customer service, enhancing both choice and affordability while improving profitability. Also very happy with the development of our early-stage countries, and in particular with Egypt, where we have a strong foothold and a leading category position. We have achieved positive adjusted EBITDA before group cost, in this case. I always mention after group cost, but in that case, it's before. We achieved adjusted EBITDA before group cost for the first time, and we start operations in the country.
This was achieved by growing GMV by more than 2x in local currency, year-on-year in Q2 2023, while improving both CPO and advertising efficiency. In Turkey, our more competitive market in the region, we continue to improve our customer experience. The competitive pressure over the last 18 months has improved, and we have regained the lead in the food delivery category. Despite our continued investments in certain markets, adjusted EBITDA in MENA more than doubled year-on-year, reaching an adjusted EBITDA to GMV margin of 2.4% in H1 2023. Now moving to Europe, on the next slide. Top line in Europe continues to perform well, with GMV and revenue up by 17% year-on-year at constant currency, this despite our ongoing macro headwinds across the region.
We are constantly advancing on our path to profitability in the region, with the adjusted EBITDA margin improving as a result of better unit economics and also OpEx savings. The team in Europe has successfully completed the foodora rebranding and centralization of key functions. This was followed by a very successful promotion campaign that boosted brand recognition and top line development. With the increase of our centralization, Europe is simply better positioned for building product leadership, and we look forward to the coming quarters. Now moving to the Americas on the next slide. Americas performed well in the quarter, excluding hyperinflation accounting, this region continues to generate growth, strong GMV growth of 17% year-on-year, and this despite constant focus on profitability improvement.
We continue to gain market share in the region and currently leading 13 out of the 15 countries in which we are present today. We have steadily solidified our foothold in the local markets as we improve our customer experience and products, and also including our high-tech solutions. Quick Commerce also performed considerably well with GMV growing by 40% year-on-year in the quarter, as we continue to scale up this business across the region. Despite the strong top-line development, the region has also delivered on this path to profitability. As a result, the adjusted EBITDA margin in H1 2023 has improved by nearly three percentage point over year. Now to our Integrated Verticals on the next slide.
Integrated vertical generates strong GMV and revenue growth, despite the ongoing optimization of operations, which saw our footprint reduced by 14% year-on-year to now 982 Dmarts in Q2. We plan to continue our rationalization effort and expect an additional 50 Dmarts to be closed during the current quarter. We are also in the process of closing our, sorry, our kitchen vertical outside of MENA, which impact the overall top line growth of this segment, while Dmarts continue to grow considerably well, with a GMV uplift of 38% year-on-year in Q2 2023, on a constant currency basis. We continue to make headways in boosting profitability in Integrated Verticals, and I'm thrilled to say that this is the first quarter in which we have achieved positive gross profit for the entire segment.
We will continue to optimize operations, and further improve our unit economics towards a positive adjusted EBITDA. We will come, we come back to this later as part of our case studies. Now, on to the, the gross profit margin on the next slide. As a reminder, last quarter, we introduced this new slide here, which illustrate the gross profit margin development of the entire platform business. Even if there is still some way to go to achieve our long-term margin target of 11%-13%, we can clearly see that we constantly increase our gross profit margin across entire platform business. In Q2, we achieve a new record margin of 7.4%. This positive development is also driven by the rollout of our AdTech business.
In Q2, the year, the advertisement share grew by another 20 basis points quarter on quarter, and is now amount to 1.7%, including Uber and Glovo. We are still still progressing towards our 3%-5% long-term target. Now let's take a look at our liquidity development on the next slide. We finished last year with cash and cash equivalents of EUR 2.4 billion. The adjusted EBITDA has turned into a small profit in H1 2023. CapEx amounts of a bit more than EUR 100 million or 0.5% of GMV in H1 2023, and we expect this to increase slightly to 0.6% on the second half year for the year.
The third bucket, of roughly EUR 400 million includes working capital, interest, tax, lease, and others. But let me, let me shed here some more light on the individual components. The first one, leasing payments amount to 0.3% of GMV in H1 2023, and this is completely in line with our guidance. The cash outflow for tax payments stood at 0.5% of GMV in H1, and could be at the same level or slightly lower in H2 2023, as a percentage of GMV. Working capital was a minor cash inflow in H1, which is expected to continue in the second half of the year in H2. All in line with our previous, the communicated Adjusted EBITDA to free cash flow bridge.
Now in terms of M&A investments, we spend around EUR 300 million, which was mainly driven by the minority buyout at Hungerstation, a transaction that we're really happy about, and we will come back to this later during this presentation. Last but not least, we received a cash inflow from the convertible bond transaction that we made in February, as not all investors tendered their bonds. Putting all together, we finish H1 with cash and cash equivalents of EUR 1.9 billion. On top, we have now a slightly upside revolving credit facility of roughly EUR 500 million, bringing our liquidity to EUR 2.4 billion. Against the backdrop of our planning to generate the positive free cash flow during H2 2023, we believe that we have a quite solid liquidity position. Let me now hand back to Niklas, who will take you through some case studies. Niklas?
Thanks, Emmanuel , let's go to the Dmart. On the left side, on the chart, you can see how strong the GMV has developed during the last quarter. Although we started to optimize our Dmart network early last year, resulting in 14% year-over-year reduction in the number of stores, we were still able to generate GMV growth of 38% year-on-year in constant currency over the same period. The main drivers behind this are the constant development of product range that is relevant to our customers and increasing the product availability. We now offer an average of more than 6,000 SKU in our Dmarts, this is well above the industry average. In fact, we are really tracking what customers want and are creating new use cases, further developing Dmart from a convenience stores into a proper supermarket.
This can only be achieved with leading technology and best-in-class operation. If you go to the next slide, we can shed some light on our recent minority buyout in Saudi Arabia. As you have seen, we recently announced acquisition of all outstanding minority shares in Hungerstation, the leading food delivery player in Saudi Arabia, responsible for connecting more than 10,000 partners with a growing customer base. We had initially acquired 63% of Hungerstation in 2016, and now took the opportunity to acquire the remaining stake for $297 million. Taking sole ownership allows us to build stronger ties throughout the group, including greater opportunities for knowledge sharing and tech integration. Saudi Arabia is an amazing country. We believe in the country's long-term vision, ambition and potential, and are committed to contribute to its ongoing success through Hungerstation.
On to the next slide, where we take a look at our development in the country over the last 12 months. As you can see, Hungerstation continued to develop strongly and gain category position in Saudi. This is in large part due to our local leadership team, who have had a relentless focus on customer experience over the last few years. Today, we have a clear product and service advantage, which have allowed us to grow our category position. After a comparative push in response to our closest competitor during Q4 2022 and Q1 2023, we have again made good progress towards record margin levels while maintaining our competitive strength. On to the next slide, where Emmanuel will take us through the outlook for the year.
Well, thanks, Niklas. For the full year 2023, we continue to expect the GMV growth to be between 5%-7% range on the constant currency basis. Our reported GMV will obviously be impacted by currency movements, which we do not control, and mainly, but not only swings in the U.S. dollar and the Korean won against the euros. Today, we expect the FX headwind to amount between 4%-5% compared to the 3% at the time of Q1 reporting. For the total segment revenue, we now expect growth on a constant currency basis of around 15%. In our last trading update, we were still projecting around 10% year-on-year. The main reason for the guidance upgrade is our higher take rate that we are seeing across our business.
These are due to the numerous profitability measures that we have introduced in the recent quarters. We reiterate our expectations for positive Adjusted EBITDA to GMV margin on a group level to more than about 5% for the full year, with more than 1% margin for the second half of the year. We also reiterate our guidance to reach breakeven on labor free cash flow during the second half. Here you may ask yourself, why we did not raise the EBITDA guidance? I can tell you that the answers are virtually simple. I mean, at Delivery Hero, the focus was always being on growth and profitability. Our current EBITDA margin target already implies an EBITDA increase of around EUR 850 million within one year only.
If we trail towards an EBITDA that even exceeds this significant profitability improvement, we would consider to investing in our core business. I think our case study today on Hungerstation served as a good example of such reinvestments and the return that we could expect. Before starting on the next slide, before starting to comment on the next slide, I would like to highlight that we do not see this point as ambitions any longer, but rather track our performance against all those. We are very comfortable to deliver on it. We are progressing, grown, we're progressively grown our EBITDA over the last 18 months, improving adjusted EBITDA margin by more than 2% year-on-year for negative in H1 2022 to positive in H1 2023.
We have made good progress, and we will further accelerate our margin improvement in H2, 2023, to more than 1%, reaching a margin of more than about 5% for the full year. We will achieve this as a profitable platform business, continue to perform well, and we will expand our adjusted EBITDA to more than EUR 1.3 billion in Q4, 2023 on a run rate basis. The unprofitable platform business continues to see significant improvement in adjusted EBITDA as market scale, with the adjusted EBITDA margin expecting to reach around -2.5% in Q4, 2023, almost halving from the level that we saw in Q4, 2022. Last but not least, we expect Integrated Verticals to progress considerably.
In Dmart, we represent around 75% of the losses in Integrated Verticals segments, passed gross profit positive in June 2023, so this year, which will considerably boost profitability in the segment towards an adjusted EBITDA improvement of almost 50% year-on-year in Q3 2023. We are in full control of that three year as we progress on a path to profitability and expect to keep driving margin gradually upwards towards our long-term EBITDA margin ambitions of 5%-8% for the group. Here I'd like to thank you all for your time today and your continued support, and we look forward to taking your questions. Christoph?
Yes. Before we start with the Q&A, the usual reminder from my side, please. We would like to give every analyst the opportunity to ask a question, and therefore 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 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. One moment for the first question, please. The first question comes from Andrew Ross from Barclays. Please go ahead.
Great. Good afternoon, everyone. My question is about current trading. Apologies for asking such a short-term one, it's inevitable. Can you give us a sense as to how the growth looks into July, please, and then what you would expect for all of Q3? As an extension to that, based on what you know about your investment plans in Q3 to date, is there any reason you wouldn't be ahead of your budget at the end of this quarter? Thank you.
Thanks, Andrew. And, yeah, it's, it- and we don't generally comment on performance mid the quarter. I think overall, we, we are happy with what we see throughout the business and in all aspects of the business. We said in Q1 that we would continue to accelerate throughout the year. That was the time when we expected 4% for Q2. Now, of course, we did significantly better than 4% in Q2. We still remained all forecast for Q3 and Q4 in terms of growth, and those all forecasts will still take us to the 5%-7% guidance range. So, we, we, we remain the previous forecast we have for Q3 and Q4.
That, that's probably all I can say. We don't give a specific guidance for Q3. I can say that we, we, we generally think Q4 is gonna be higher than Q3, given that we have an easier comp in Q4 than Q3. But, but we don't get specifics more than the fact that we expect to be in the guidance range of 5%-7%. If you see that the strong development continues, maybe we can be in the upper end there. Investment plan. As Emmanuel said before, we are out beating our internal or our plans and probably also guidance or, or implied guidance. But also, we did that to making sure that we have the buffer and we have the ability to reinvest later in the year.
I would not expect that we keep on beating our own budget going forward, but rather that we release potentially some of the overachievement as we go into Q3 and Q4, and feel more confident that we are gonna be, be well or be above the guidance we have set. For us, it's very important that we meet the commitments that we've given, but we don't necessarily try to, to overachieve them, given that we also have to balance growth and profitability as well as long-term investments. I hope, hope that gives you an idea where we're standing.
Thanks.
Anything you wanna add, Emmanuel?
No, I think, you covered the investments. In case, Andrew was asking about CapEx, I don't know if this was about the direction of CapEx. We expect the CapEx to be between 0.5-0.6, but no, we don't expect significant change in our, in our CapEx spending for the second half of the year, so we should be in line with what we said so far.
Thanks.
Thanks.
Thanks, Andrew.
The next question comes from Joseph Barnet-Lamb from Credit Suisse. Please go ahead.
Thank you very much for taking my question. The group faces obviously well-documented FX headwinds. There's been a lot of discussion in the market around the scale of that impact from a revenue perspective, however, less so from an EBITDA perspective. I'd imagine, given central costs are in euros, the FX EBITDA impact in 1H 2023 is probably pretty sizable, perhaps in the sort of EUR mid-tens of millions. Can you give us some color on the FX impact on profits in the period rather than on revenues, please? Thank you.
Yeah, happy to do so.
Sure-
You, you wanna, you wanna go ahead first, and I go second?
Okay, I, I go first and Emmanuel for a better answer afterwards.
All right.
I think in the Q1, we gave a view that is roughly EUR 50 million impact, negative impact of EUR 50 million, if I don't remember incorrectly. Since then, FX has been even further a little bit against us, so a further slight slide, I think, of one as US dollar to euro. That means that, that EUR 50 million estimate, it was a full year estimate, is probably a little bit higher than that. I don't have the exact number. Maybe Emmanuel does. That estimate was only if you look at the local markets and the profitability in that local market and translating that into Europe.
It did not take into account the fact what you mentioned, which is, what if you have technology development in Europe, and euro is a stronger currency than, I don't know $1 at the moment? What would be the impact of that? That is correct. That would be, I believe, a further impact that was not part of that EUR 50 million. Y ou're right, that it's at least in the mid-teens millions, that, that our, our... Yeah, we had to kind of compensate through overperformance and other means to make sure that we hit the, the, the, the guidance commitment. Emmanuel, please.
Yeah, no, I can confirm. Basically, as you know, we had, we mentioned this in the presentation, around EUR 40 million ahead, and this will have been increased by, you know, between EUR 15 million-EUR 20 million, considering the FX impact on the EBITDA, only on the EBITDA profitability. It's quite considerable, the impact that we had this year. I think that's also one of the reasons why we guide on the margin, on the profitability, EBITDA. That's why we prefer to guide on the margin, because the margin is in our control, where the FX impact is not.
That's why, we feel for, especially for this year, with the FX movement that we see on the US dollar and on the Korean won, which we also see last year, that, we prefer to guide on the margin than absolute numbers.
Just to be clear, that Emmanuel has mentioned a slightly lower number than me, and that is to-date impact, but the, my number is...
Correct.
-to date, plus also estimate based on the current FX, rates, assumed, fixed from now until year-end.
Thank you, Niklas. Well, indeed, for H1.
That EUR 40 that you're ahead of budget, year to date, would, would have been EUR 55-60 at constant FX. That's what you're saying?
That's correct. Exactly.
Very much, gentlemen.
Thank you.
Thank you, Joseph.
The next question comes from Miriam Josiah from Morgan Stanley. Please go ahead.
Great. Good afternoon, everyone. Thanks for taking my question. Just a, a question on the potential reinvestment in the second half. I think you called out Asia as potentially one of the regions where you might reinvest. Should we take that to mean Korea, or is that potentially across the whole region? If you could sort of be a bit more specific on the type of reinvestment that we could potentially expect. Is it more promotions and vouchering or more so product investment, as you did in Saudi? Thanks.
I'll, I'll do the same again. I, I start. Emmanuel, please fill in with better answers or more granular answers. We, we look at opportunities, I don't know, across, across the group. I believe Asia is probably the segment where we see most opportunity to, to invest and, and, and, and, and, yeah, invest. I think Korea is maybe one place, but there, there are also a lot of places in Korea where we have a lot of levers to also do a little bit more. We believe that we continue to drive margins, even if you see that we have Coupang doing well subscription, and we, we also do, what Emmanuel mentioned in the script before.
We also do some investments there, but we still feel like we have a lot of levers to drive to making sure that we hit our EBITDA overall for the year, regardless of this. I would probably rather see that there are a little bit more investments in other parts of Asia, where we have done a lot of movement on profitability, optimizing our business, better audience targeting, and we feel like the investments we make now are significantly better return than investments we had, I don't know, a year ago. We think that we probably have a little bit more room to start driving growth a little bit more in the, the, in the, the rest of Asia.
There are also other investment areas which are not necessarily driving growth in the short term, but it would be new vertical areas, technology product areas for new verticals. That is, of course, impacting the full group, but, but, slowly, and not directly.
Maybe if I can add a bit, like, what is important to keep in mind is like you've seen if you remember, we, we, we inform you that we invest in Saudi in Q4, and we, we, we continued to invest a little bit more in Q1, and you see the result in Q2. This is also what Niklas said. Sometimes, I mean, like, you know, we do investments, but the, the immediate impact is maybe not in the same quarter, but the impact in case of Saudi that we disclosed today is, is significant. Yes, indeed, there could be marketing campaign, as you mentioned rightly, Miriam, but there's also some, some action that we do on the CPO.
For example, the delivery fee free campaign or, you know, launching certain part of subscriptions models to the country. The impact is not, maybe not immediate, but, in case, for example, of Hungerstation, you really see the impact in terms of category share. That's something that we will consider.
I think that is a very valid point. I think if, if we would take ourselves a little bit, give ourselves a little bit more criticism, probably the whole industry during back in 2021, some of the investments were a little bit more short-termish. It turned out to be short term, at least. I think we have been walking away from that, this, this discount voucher subscription, where you give 10% off kind of thing, what's happening in Korea. We don't really see that as a super effective. We see that can, that can easily earn 5%-10% growth, I think we have also seen that... We saw that in Turkey, we saw that in Korea back in 2021 with our competitors, it's not very sustainable.
It comes back as soon as you pull it back again. We see that in Turkey again, how we, we start taking share and how we start gaining leadership again after that craziness with vouchers and discount. We saw that also in Korea in 2021, 2022, and I think we are seeing it in 2023 as well. I think Saudi is an interesting example on that aspect. We saw our competitor there starting to do a lot of vouchers, discount, price pressure, and we, we, we asked ourselves: Do we really want to do that? Do we just want to copy what they do and, and promote them? I know this will cost whatever, X million per month.
We all said, "No, let's, let's spend the same amount of money that, that we think it would cost to counter this, but let's do it in a way that we think, we think we have the best return in the long term, in a sustainable way." What we saw there is that we lost share in the first one, two three months of Q4 as we did it. It just took some time to put the investment in place. Then we when we got into Q1, our product experience was just so much better because we put it at the right place with sustainability.
That's why even when we pulled back a little bit of those investments, we saw that in Q2, we still grew much faster than our competitor because we didn't go down this, this rabbit hole of doing discounts and voucher, but we really invested in things that had a long-term sustainable effect. That's why we are now gaining share without investing and actually having record level gross margin and EBITDA there because we did the long-term thinking. The same, when we look at investments now, it's not gonna be a voucher war. It's rather gonna be, let's invest the same amount of money, but with a more very long-term sustainable return.
It might not have an immediate effect to growth in the same month, at least not substantially, but it will have a big effect if you look at six, 12, 24, 36 months down the line.
That's really clear. Thank you.
Thanks, Miriam.
The next question comes from the line of Monique Pollard from Citi. Please go ahead.
Hello. Afternoon, everyone. I had a question probably for Emmanuel. Slide 12 on the sort of cash flow bridge. I'm just trying to understand what's going on in that working capital, interest, tax, leases and other. From what you said earlier, Emmanuel, you know, there was a small working capital inflow, about 0.5% of GMV. You know, we, we sort of know the interest will have been EUR 70 million-EUR 80 million, this is similar. It seems like there's a decent amount of cash outflow from others in the 1H. I'm just trying to understand what that is and how we should expect that to evolve into the second half of the year.
No, thanks, Monique, and quite frankly, thank you for highlighting this. We realized, as we reviewed this presentation this morning, we should have next time give you more color exactly for that position. Within this EUR 400, roughly. You just recap. CapEx in line, you're right. IFRS or lease in line, absolutely. Tax, a little bit upfronted because we pay more tax in H1 and H2, but completely in line with what we expected. Working capital, slightly positive inflow. This is confirmed. Then in there, you have around almost EUR 200 million, and I will explain what it is. Two, half of it is related to M&A/earn-out, and also reorganization of M&A. This is a one-off. This is something that we paid for earn-out of further, for previous M&A transaction.
The other part of it, the other 50% is due to our cash balance, the way we report it and the way the FX moves. We report from balance sheet to balance sheet. This is not a cash outflow, but it impact our cash and cash and equivalent. If I make this a very simple example, if I had EUR 100 million translating euros from the currency won, and the won lost 20%, then all of a sudden I'm losing EUR 20 million because the currency is weakening against the euro. That's really a translation, not a cash outflow, and this is above EUR 60 million.
Again, EUR 20 million in there, are the others that are linked partly to M&A and earn-out, and half of it is due to the cash recognition or the cash translation.
Forecast, that means if FX moves.
Oh, yeah. Sorry.
In our favor, then, of course, it will be the opposite for the cash.
Absolutely. Absolutely.
For the earn-out, I think I'm right, and I say it's below EUR 100 million remaining earn-out, all transaction that we have. Is that right, Emmanuel?
Absolutely. This is below EUR 100 million. This is assuming that everyone, every single M&A transaction or every single acquisition will perform as what we depreciated for the earn-out. This is less than EUR 100 million for all acquisition we've done so far.
Okay, understood. And just to be clear, that there's EUR 100 million then of drag from the FX, but like you said, translational, not cash impact.
Absolutely. Nothing due to your cash outflow, but really like a translation. If, as Niklas said rightly, if the FX go the other direction, then next time we'll have a kind of a we will have to rectify the cash and cash equivalent. It will not be means that we have more money, but we have more value in euro.
Understood. Yeah. Thank you.
The next question comes from Lisa Yang, from Goldman Sachs. Please go ahead.
Good afternoon. I have a question related to Asia. I was wondering if you can give us a bit more color on the performance of South Korea versus the rest of Asia in the second quarter. You obviously said that the last on the last earnings call, April was up 3% South Korea. Is it fair to assume, you know, Q2 was maybe a bit better than that? If you can confirm whether the rest of Asia was also a little better in Q2 versus Q1 for the year-on-year growth. I think more broadly speaking, obviously, there's still a big gap versus the other regions for the GMV growth.
I just wonder, is it still, you know, purely entirely due to the tough COVID comps, or is there any sort of, you know, market-specific issues, you know, like changing all the frequency or just market share loss? Just, yeah, I was wondering what gives you confidence you're gonna get back to double-digit growth there? Thank you.
Thank you. I, I'll start again. We don't give specific growth, growth per market, but I, I can say that, as we said in, in Q1 update, that Korea, did, did well and has continued to do well. I think April was a little bit, a little bit exceptional, but then since then, has been, been, been strong and solid, for the quarter. Rest of Asia has also been, I think, slight improvement, on, on a year-on-year basis. I don't have the exact number in my head right now, unfortunately. I think... I don't know, we, we, we, we, we see from the cohorts and the strength in the cohorts that we should come back to a decent growth. Let's speak about Korea first. We definitely see a lot of room and opportunity.
Example of that, for example, our Dmart. Our Dmart is doing incredibly well in terms of profitability, it's still very, very small. If we would just move that to the average of the rest of the group in terms of size, we would easily have 10% coming there in a very short matter. We still think that has room to grow, I don't know, significantly more to be than 10% of our business, or 10% or 50% of our business has potential being, yeah, significantly more. Just if you look at that aspect, there is plenty of room to grow in only the grocery vertical, Dmart vertical. There are a number of other verticals that haven't pushed it either. There's plenty of room to grow there.
I think on the food side alone, there is plenty of room to grow by just maturing the cohorts. We see that cohorts improve over a year and as they age. I think there has been a little bit, a little bit affected by, by inflation and also prices. I think we're working pretty hard to making sure that we can be attractive there. We do, the stack delivery is one example of making sure that we can offer lower prices to consumers, and I think that should also enable us to grow a little bit faster. There are a number of initiatives and things that we, we think should enable us to grow faster.
Also keep in mind what I said before, during pre-COVID to after COVID, we are significantly larger, and we grew the business in incredible pace, and we're still a little bit coming back to normal. There is a little bit of both aspects. I think when it comes to the rest of Asia, a little bit as I alluded to and mentioned in my, my script, it was incredibly competitive there. We spent a lot of money, and so did our competitor or competitors. I think there's, is mainly one that, that, that, Delivery Hero and another player is still doing, doing pretty well. We have both start moving more towards profitability, and of course, when we move profitability so fast as we have done, that does something to demand.
It means that we are a little bit less attractive for voucher seekers and, and discount hunters, and that means we are, we are, I don't know, way more sustainable, and investments we do now start to pay off in a more sustainable growth. There is a little bit of those two, three years of hypergrowth, and we're suffering a little bit from that, but I still believe that Asia is, or Southeast Asia, APAC, is probably long-term, the fastest growing segment. It's still probably the segment with the largest potential in Delivery Hero. But yeah, there is a little bit of now back to, to a little bit more normal spending levels. I hope that somehow answered. I tried to be as helpful as I can, I hope that helped.
Oh, that was great. Thank you.
If, if I may jump in, like, just like to highlight, you know, Korea, you know, we, we have a great product there. I mean, we have a super, the best product that you can find on the market, right? And also the team has proven that to be excellent in their execution. I think also that is a sign that, as Niklas said, we, we go back to comparison quarters, but the, the, the team there is extremely, extremely good in the execution. We think that we are really well positioned with our products and our offering.
If you referred anything to the compared environment, I think some people also questioned, does that play any role in there? No, it really hasn't impacted us, at all, on our users. I know we do believe that Coupang, in this case, they surely grown, I don't know, gain in the last-- honest, in, in the areas we have launched their Wow subscription, they've surely grown 6%, 7% share gain, but that usually happened in the first two, three weeks, and after that, we haven't seen any share gain at all in those areas. It's a very temporary, some users flipping a little bit between two platforms, probably order a little bit more incrementally, it hasn't impacted our business. It probably add a good boost to them.
If you look on a year-on-year basis, our share is actually flat to slightly upwards. Year-on-year versus our competitors. If you look year, two years, it, it's, it's also flat. We haven't, in the last two years, despite hundreds of millions of investments into our space, we still haven't seen any share, negative share development. The only thing we have seen are some temporary changes. If someone does a discount promotion, of course, it's a temporary move, but, but it hasn't been very sustainable, that, that change and let's see. Yeah.
Thank you.
Thanks a lot.
The next question comes from Christopher Johnen from HSBC. Please go ahead.
Also thanks for taking my question. It's a bit of a tricky one, I have to admit. I mean, if we're looking at consensus expectations, there is a great deal of improvement, ongoing improvement expected I think. If we look at the EBITDA line, consensus expects roughly, let's say, EUR 500 million of improvement going into next year. I'm just curious, when you're looking at the progress versus your budget, you know, all of the improvements in the unit economics that you've done, I mean, is there any view you can share on that? Assuming that there is no massive acceleration in growth or, you know, just, just that competition stays where it is today. Is that... Do you feel comfortable with that? Thank you.
Okay, I do again, first, then Emmanuel, please. Assuming, as you said, there is no acceleration growth or even assume, which I think is not a very good assumption, but assume it wouldn't grow at all. I think we had that assumption in the past. We would still grow to our 5%-8% EBITDA margin. It's just gonna be gradually through, I don't know, better stacking, better tool, maybe being a little bit smarter on pricing. There are so many features and opportunities that we can serve our customer at a lower cost, 5% difference from today is not material, or 4% different from H2 in that sense, is doesn't require a lot. Of course, you don't do it in one year.
That, that would hurt your business, and you couldn't do it because you couldn't bring the technology and those opportunities so fast. It rather takes, I don't know, a few years. I think in the past, we increased EBITDA margin with 1%. I think the last two years, we have improved EBITDA margin with rather two or so, or maybe even percent on a year-on-year basis. But, but I think that is maybe a little bit more the exception. Generally, we will keep on driving that EBITDA margin regardless of scale. Obviously, if you get more scale, it's much easier because you have, of course, more scale to cover your, your fixed cost. You also have a bit more scale, you have better opportunity to do cool stacking and other features and pooling and so on.
Of course, it will be much easier as we grow, and we are still very confident that over time we will be a EUR 200 billion GMV business from today, below EUR 50 billion. It's just a matter of compounding decent growth over many years, and we are very sure or confident with that growth also coming, given how early stage we are in food delivery alone in many markets, but also other verticals that are still at a very immature stage. If your question is now for next year, I would like to avoid giving specifics here. I think it's a little bit, what's the decision we do? What is the decision, how fast do we want to drive that EBITDA margin? How do we want to balance growth, profitability? What opportunities do we see?
I think we remain. Yeah, we keep that a little bit for ourselves to see what opportunities show up.
Okay. That's very clear. Thanks a lot.
Thanks a lot. I hope it helped, Christopher.
The next question comes from Giles Thorne from Jefferies. Please go ahead.
Hi there. I haven't heard my name pronounced like that in a long time. It's Giles Thorne here from Jefferies. It was a question on, back on the subject of potential future investments, and also your position on super app strategy. Niklas, you've been quite clear on super app for a while, but we are now seeing greater evidence from peers of its benefits, and we're seeing the same peers allocating more and more and more capital to it. Actually, if we look at Delivery Hero, you've now got a couple of super app-esque partnerships in Southeast Asia, and for completeness, I think Deliveroo did something similar in Singapore a couple of weeks ago. There's definitely movement out there from, from peers and from yourself. It would just be interesting to get your latest position.
Yeah. Thanks, Giles. Yeah, and we've said in the past that we kinda wanna be the super app of delivery, and that is food, that is groceries, that is, I don't know, pharma, pet food, where, like, all of the things that we can deliver to your door. We even have some other areas which not necessarily are delivery either, but still fits very well to our business. We feel like there is so much room to develop there. We are far from being at the levels we wanna be, and the product roadmap is very, very long of improvements.
I think if we would try to do super app in the sense that we would do ride-hailing and all sort of things, I think we would never be able to build the technology in the pace that we want, and we will also lose the focus for our consumers. The consumer sees us as a delivery company, not as a traveling company or anything else. I think it has rather proven that has been a good strategy, I think, and DoorDash is clearly winning in U.S. I think we are winning against Careem and other players in Middle East. I think, and we have been competing with Uber and others in 30 markets probably over the time.
I think there are only two markets left or three markets left where we are in, in strong competition, and the rest, I think we have been winning. I think that has been the right choice to be that focus and, and making sure that the customer mind is delivering. Having said that, what happens in three years, four years, five years, we'll have built all the features and roadmaps that we believe is necessary to have a great grocery offerings and a great offering of beauty products and so on, such that we can go into further verticals and become even more of a super app, is still to be seen, but I think in the foreseeable future, we are pretty happy with the focus of delivery.
Okay. Thank you.
Hey, thanks, Giles.
The next question comes from William Woods, from Bernstein. Please go ahead.
Good afternoon, and thanks for taking the question. We've, we've talked about Careem in terms of market share and the impact there on growth, but I'd be interested to think, hear about your thoughts on profitability. Obviously, Coupang have said that they're going to make the Eats discount a permanent feature and probably gonna roll it out to Busan and Vega and places like that. How much pressure are you feeling on EBITDA? As we've linked to your comments earlier, is it that Asia has room to reinvest because you're shifting some of your marketing spend out of Asia or ex-Korea, Asia into the Korean market? Should we expect that EUR 387 million EBITDA that we were last year to grow this year? Thanks.
Yeah, for Korea, we, we, we don't see that this would in any way hinder us from driving to our target margins. We will keep on improving those margins with or without coupons proposition. I t does mean we have been countering some of that, so we also do 10% discount for our users. I think we have found ways how we can do that in a good way. We have also done the stack delivery such that we can be cheaper than or same price as Coupang without costing us a lot of money, hundreds of millions. At the same time, we have so much scale and size that even if you do those things, there are so many other levers.
Even if we have been very aggressive in Q2 in Korea, we're still growing EBITDA margin. We will continue to do that in Q3, and we'll continue to do that in Q4, regardless if we go keep on being that aggressive, and this, this will continue. By no means does this impact our profitability path. It might mean that we marginally reshuffle a little bit our priorities, but we don't see it. We, I don't see a big risk if Coupang keeps on doing this forever, that's fine. I don't think it's very good return from their point of view.
I think there's a temporary boost maybe in Wow subscribers, but I think over time, I think that would probably drop over time, but who knows? We, we are not too focused about it. We are, we're focused on our business, and that looks pretty good.
Understood. Are you able to just elaborate on how you're able to counter the same price or the same level of coupon without costing millions? What are, what are the levers that you can pull there?
We make sure that, that those price-sensitive consumers, that they also have an option where they can find 10% and discounts and promotions on our platform. As I mentioned before, we, we are doing more efficient delivery and logistics, I think, than, than Coupang. We have better margins in the first place. On top of that, the stack delivery also means that we can reduce the fees and costs for the consumer, which means that without even having to do a discount, it's still cheaper to order via Baemin than it is by Coupang. There are a few other things that we do, too, I don't know, we, we haven't done, and we still used at the early innings of, of advertisement revenue.
We are about rolling out Joker, which is one of our advertisement service products. That is not yet in there. We still have so many other improvements that, and that's why we can be very aggressive and still improve our margins, and we'll continue to do so.
Understood. Thank you.
Thanks.
The next question comes from Annick Maas, from Societe Generale. Please go ahead.
Good afternoon. You briefly just touched on advertising. My question is actually on advertising. I was wondering how much of the AdTech revenues are currently coming from Asia? If you could give us the associated EBITDA, or shall we just apply 80% EBITDA margin on that number that you will give me? Thanks.
Emmanuel, do you want to cover them?
Yeah, I was searching for the unmute button. I don't have. I will, I will search for the proportion of Asia. I, myself, I don't have this off the top of my head. What I know is that we are at 1.7% of GMV at the end of H1 2023, knowing that Woowa we just launched last year. It will be, it will be a small proportion compared to the GMV that is produced in the region compared to other region where we are more farther advanced. I'm thinking about MENA, I'm thinking about Europe. Personally, I would have to look at the partition to the proportion of Asia, to the overall revenue that we generate with AdTech. The margin is... Sorry.
I think APAC is not too far away from, from all the other entities, Europe and MENA and so on.
Exactly. Yeah, 2.6%.
Excluding, excluding Woowa, I think we are at 2.7 in the quarter. I think a little bit higher if you look at current run rates, but yeah, 2.7, I think, excluding Woowa in Q2.
Yeah, 2.6%, exactly, for Asia, excluding Woowa.
Yeah.
the other-
The profitability is very high. And the profitability is very high. I mean, I, I don't know if we disclosed this in the past, but this is extremely profitable business in general, in EBITDA margin because once the product is launched, especially for the vendors or the restaurants, if you wish, are able to book the campaign on their own. We have some investments to be done to set up the team, to set to the team to educate the restaurants. But once a restaurant is educated, they access the platform very easily and can define by themselves how much they want to spend. They also see the return. I must confess, I don't know if we disclosed these numbers before.
I would have to be here a little bit more secretive, but this is a very highly profitable part of our business. That's why we, we are so willing to implement this on our food business side, but also on the Quick Commerce side for, for the Dmarts.
Thank you.
Thank you.
We start to roll out this product in global also, global countries.
The next question comes from the line of Silvia Cuneo from Deutsche Bank. Please go ahead.
Thank you. Good afternoon, everyone. I have one question about the business economics, trying to ask it a bit differently. In H1, you delivered an adjusted EBITDA uplift of close to EUR 500 million, which is roughly in line with the increase in segment revenues with a 90%+ drop through. Now, if we take your guidance for the full year and the 0.5% margin, that seem to imply you could be reinvesting something like hundreds of millions. Can you please comment about your views on how to think about your revenue to EBITDA drop through rate? Share some thoughts about whether these longer term type of investments can already have an impact to accelerate GMV growth in 2024? Thank you.
Yeah, thanks, Silvia. Yes, you're absolutely right. The growth that we have in GMV, and then you have a gross profit margin, and then that goes down then to EBITDA. If you grow, then, I don't know, currently 7.5% or so will drop down to bottom line. Of course, you also have an improvement in EBITDA, EBITDA, because we're improving that margin. I don't know, the current 7.4% gross profit to GMV has increased significantly since last year, H1 quarter. If you then pull it forward to H2, the improvement there, the incremental is a little bit lower because already in Q3 last year, we pushed a little bit.
We saw the effect of some of the investments and, and, and improvements we did on the efficiency side. That means there was a big step up in profitability also in Q3 last year. Making that continuous EUR 500 million improvement is maybe not the right way to look at it, or, or I would see it slightly differently. But, you're still right. There is still a decent amount of ability for us to do more if we would want to, but, but we still like to make sure that we are making the right investments and, and thinking in the long term rather than trying to please kind of short-term actions that I would probably be very appreciated for short-term shareholder, but not necessarily for the long-term shareholders.
We really try to balance that profit and, and, and long-term investments. I, I can't say exactly how much incremental would be be bottom line, because you would have to look at it rather, how much are we going to improve our gross profit versus last year, and how much are we going to grow? But I think the number is a little bit lower than what you mentioned.
The next question comes from the line of Jürgen Kolb from Kepler Cheuvreux. Please go ahead.
Thanks very much. Just there's one question on page 10, you mentioned that you were closing your kitchen vertical business outside of MENA. I was wondering if you would give us some additional details as to, you know, how many units we're talking about or how much losses are exiting your bottom line because of that? Is there anything coming your way in the second half in terms of closure costs or anything related to that? Thank you.
Thanks. The kitchen business wasn't very loss-making. It was actually gross profit positive, I think, in many places, depending a little bit which kitchen concept. We have some concepts, we have some where we actually do the whole cooking and everything ourselves, and some of it is just kinda kitchen stalls. Different models, but overall, the losses not being material, I would say. The reason why we still decided not to do it is that it was also not very incremental to our business. It didn't make us grow faster. It was just a very big distraction, and we said, in these times, we just wanna be laser-focused on what really matters, and this didn't matter enough, at least not outside of MENA.
In MENA, it felt like it kind of works for us, and we also see it more strategically there, but outside of MENA, it didn't really turn the needle. In terms of closure costs, we are selling those units, so all of these kitchen businesses are actually being sold, so we are getting some money rather from that. And there are no closure cost. Maybe a little bit closure cost in, in, in, yeah, last year, Q4 or so. So we already started to shut down some of those earlier, but the, the later kitchen business that we had are, are rather in late stage, yeah, sale process, so there should not be any closing cost there, at least not material.
Yeah, the positive impact, if I may jump in, was also like on the CapEx. I mean, some kitchen were requiring CapEx in the past, so that it was like, as Nick has said, it was not a heavily negative adjusted EBITDA business that we were building, but it was also not, we didn't have, like, a playbook to scale it globally, and that's why we see that we have a very good return and in economics for MENA. This is also, as Nick has said, incremental value for our platform business or for our food business. So the benefit is really on the CapEx savings, and the, the vast majority of the kitchen that we have today are going to be sold.
That, there, there have been some cost of, you know, reducing the amplitude of the business. You cannot We should not expect any kind of major cost going forward to close this business. We will still report some kitchen business because of the MENA, of MENA that we keep.
The closure, or sorry, the selling process has been started and should be expected to, to close sometime in the second half this year?
Yeah, this is happening as we speak. Basically, we are, we are ongoing, and this is happening in, if I'm not mistaken, two or at least three regions as we speak in parallel. It will be happening in the next weeks.
Fantastic.
We might not announce it, so you can just ask us next call and see if it actually happened, and I think it has been.
Will do. We'll, we'll take that question down. Thank you so very much.
Thanks.
The next question comes from Andrew Gwynn from BNP Paribas Exane. Please go ahead.
Yeah, good afternoon. A very quick one from me, but just, on volumes, if that's okay. Obviously, you have good, or reasonable acceleration in the GMV performance, but could you help us understand what's happening to volumes? Obviously, last year, cutting out some of those lower value options, but hopefully now we can get a bit of a better sense. Thank you very much.
Yeah. I think we've seen our volumes more or less, or, or it's a little bit lower still than a GMV. But, but it's almost the same as GMV. I would even argue that in euro currency, volumes are growing faster than the euro GMV. But in local currency, we still grow GMV slightly faster because we are still improving on, on baskets and other things. And I think that will always be the case, but, but we're speaking here where a couple of percent rather than something material. The big shift we did there was rather two years or so ago, then, then we really went for a drastic shift towards GMV rather than volume of orders.
I guess between the three and eight is, is the answer on volume?
Yeah, we don't give... Right now we are roughly, it's, it's roughly aligned. It will be, I think maybe for Q2 was probably closer to the 3%, or it was more around the 3%, maybe, but now I would say it's, it's even slightly higher than the euro growth rate.
Very clear. Thank you. Sorry, just one more on the tax. Just to clarify the comment made earlier, but what's the approximate tax payment for the year, in 2023?
Sorry, I was looking for my mute buttons. We were planning between EUR 150 million to EUR 180 million , and we gave up EUR 117 million . This, as I said, EUR 100 million, it was our upfront loaded. We had some payments, you know, because of some upfront tax that we are paying. I think, I would say the vast majority was in H1. We still have payments to be done in H2, but there is a seasonality, and that's why H1 was more impacted than H2.
so that's EUR 180 for the full year?
Yes.
What was it?
Yes.
Yeah.
Yes.
Okay, great.
That's what we planned.
Thank you very much. Have a good afternoon, and summer indeed.
Thanks.
Thank you.
Thank you very much.
Thank you, Andrew.
The next question comes from Sreedhar Mahamkali from UBS. Please go ahead.
Hi, good afternoon. Thanks for taking my question. Niklas, I think it'll be great if you could talk about Asia ex-Korea. I think you commented on long-term growth in Asia being probably the most interesting in the portfolio. Can you talk a little bit about progress towards profitability in some of these key markets, and markets where you continue to see it as a challenge? I guess what I'm trying to understand is how do you balance these ongoing losses here relative to this clearly attractive long-term growth? While I have the mic, very quick follow-up on Korea, relative to the comments you made earlier. I think maybe a couple of quarters ago, on one of these calls, you said Korea, you see medium-term growth of 5%-15%.
Over the past couple of quarters, has anything happened there that gives you a little bit more instructive in terms of where you see growth within that range, towards the lower end, mid-end, top end, heading into 2024? Thank you.
If you look Asia Ex-Korea profit. I think all markets should be on a good trajectory to get there. It's just a question how fast we will be there. That also depends a little bit how much we invest and the comparative dynamic and so on. I think it's very. Right now, it's a, it's a very, how should I say? It, it's not a very aggressive market or it's, it's, it's, I think it's doing, doing well, and I'm very optimistic. We might want to invest a little bit more, given that the returns have also increased, increased and improved, partially because of the actions we have done. I also don't want to profit or, or commit to profit too early here. I think all market is good, maybe with the exception of Vietnam.
I think Vietnam is, yeah, we... It's very tough. We don't see that we are not comparative there. This is the old part of the old Woowa, what we mean, international expansion. I think here, that might be one market which are not necessarily on track to be profitable, not even long term. I said Thailand is probably also a little bit further away. I think we did a few mistakes a couple of years ago. We still suffer from there. We have done significant improvements over the last year. Right now, we start getting back to growth on a much better, healthier basis. I think that's, it's just a matter of time. It might take a little bit more time for a market like Thailand.
Yeah, in, in terms of Korea, 5%-15% was said before. I think that's a good range. I think, I don't know, 10% is the midpoint. I think that would be a good number. I think ambitions level might be on the 15%, but I think 10% is, it would be a good outcome, I think, for that market.
Thank you.
I think then we also have to. Food alone might be a little bit short on that 10, but food plus the fact that we are doing fast grocery, grocery, other verticals and so on, that should enable us to grow a bit faster. It takes a bit of time because we're still small in that space. Even if we grow incredibly fast from now on, it still will not materially change the growth in Q3, Q4 for the next 12 months. That growth will start really to kick in maybe more in the six, nine, 12 months from now. Hope that helped.
There are no further questions at this time, and I hand back to Niklas Östberg for closing comments.
Thank you very much, sorry that we dragged out on the call. I'll try to answer faster next time. I'll also thanks for your continuous support. I'm using the opportunity here also like to extend a big thanks for everyone at the Delivery Hero team. Last 12 months or 18 months have been very tough, but we finally start seeing the results of the targets put in place almost two years ago. It's very clear to me that we have good times ahead, and I just like to thank for all your dedication. It's been a tough time, but I'm very optimistic going forward. Thank you, everyone.
Thank you, everyone. See you next time.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.