Just Eat Takeaway.com NV

AEX:TKWY

Earnings Call Transcript 2022-Q2

[Operator]

Hello and welcome to the Just Eat Takeaway.com Half Year 2022 Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions]

And I will now hand you over to your host, Jitse Groen, Chief Executive Officer, to begin today's conference. Thank you.

[Jitse Groen, CEO]

Thank you, operator. Good morning, everybody, and welcome to this analyst and investor conference call to discuss the half year 2022 results for Just Eat Takeaway.com. On our corporate website, you can download our press release and the slides for this analyst and investor conference.

I will start today's presentation by taking you through the highlights for the first 6 months of 2022. I will share some additional background regarding our strategy to build and operate the highly profitable food delivery businesses, the already actioned improvements that we made to deliver our adjusted EBITDA guidance for the full year, and the opportunities to accelerate a path to profitability further. Brent Wissink, our CFO, will then take you through the financial details of the results group level and for each of our operating segments individually. I will end the presentation with some concluding remarks, after which we will open up the call for your questions.

And as you will have seen from our release this morning, the supervisory board's external investigation has now been concluded, and based on that outcome, it has been determined that Jorg can continue in his position as the Chief Operating Officer for the business.

Please follow me to Slide 4. I want to spend some time to talk about the crucial elements of our strategy to build and operate profitable food delivery businesses. First, we take a long-term view of our business. We invest to maintain and expand market leadership in our target markets. We believe these leadership positions will drive the strong network effects that characterize the food delivery sector, and will enable us to grow efficiently and be sustainably profitable over the longer term. Following the merger of Just Eat and Takeaway.com, and the pandemic, we have made significant investments most obviously in the United Kingdom, but also in other countries in our portfolio. Most of these investments were around partner supply and the rollout of a bigger delivery network.

Because new consumer addition is so important to expand our leadership, we continue to enhance brand awareness across countries, to always be top of mind of the consumer. We do such things through, for instance, television spots with stars like Katy Perry, and outdoor billboarding, but also via long-term partnerships such as our Champions League sponsorship. We announced our consumer and partner experience through best-in-class tech and product. We are continuously working on improving the profitability of our proven hybrid model, by leveraging powerful network effects. And since mid last year, the focus on improving profitability has become even more important, and is now one of our key priorities. We are extending our delivery operations and are continuously working on driving efficiency by increasing our tech, operational efficiency and our density. I will talk later about the opportunities in pooling, for instance. And on top of that, we have made significant progress in further expanding our market through convenience grocery, many partnerships announced already, and our footprint that now stretches to over 25,000 sites across all markets. Lastly, we pursue a disciplined portfolio management approach evidenced by our recent decision to discontinue operations in Norway, Portugal.

And now on Slide 5. After a period of exceptional growth, Just Eat Takeaway.com is now 2x larger than pre-pandemic which, of course, helps to provide the scale required to operate this successful profitable online food delivery company. We are, of course, also much bigger than the standalone Takeaway.com was back in 2019, which is the darker color orange you see on the slide. This is relevant because it shows you the magnitude of change that has been in the business in the last few years. As you will know, we have invested very significantly in scaling our delivery network of the past few years, in particular in legacy Just Eat markets, which has undoubtedly materially enhanced our overall consumer proposition.

And as you can see on Slide 6, encouragingly, the delivery share is now stabilizing, and share of total orders versus marketplace. These trends alongside the focus we have on lowering our delivery cost per order, is an important development. The graph excludes our businesses in the U.S. and Canada as the contribution margin, of course, for marketplace and delivery, are similar in North America. And we are therefore agnostic whether we process a marketplace or delivery order in those markets. Lastly on this slide, with market base generally offering a better consumer value proposition than delivery, we expect this stabilizing trend to continue in an inflationary environment.

Follow me to Slide 7. Brought from the focus we have around the business model, we are also very much focused around the geographies in which we operate. We are market leader in 17 of 22 markets in which we are present. We are very selectively only a market in which we believe we can make significant profits, and we choose very carefully where we operate. To illustrate this, approximately 90% of our GTV is in Northern Europe, North America and the U.K. and Ireland.

Now on Slide 8. As mentioned previously, the first half of 2021 was a record period with Just Eat Takeaway.com in order in GTV growth due to COVID-19 restrictions and significant investments in delivery. Exiting the pandemic has resulted in a 7% decrease in orders in the first 6 months for 2022 compared to the same period in 2021, which was offset by higher average transaction value, consumer pricing improvements and positive currency movements, leading to stable GTV at €14.2 billion, and strong revenue growth of 7% to €2.8 billion in the first half of 2022. However, adjusted EBITDA significantly improved by 29% to minus €134 million or minus 0.9% as percentage of GTV. This year-on-year improvement clearly demonstrates the path to profitability both on an absolute level and as a percentage of GTV. We have told you at previous meetings that our EBITDA improvements for this year are backend [loaded]. So, as you can see, we are expecting a minus 0.3% EBITDA margin as percentage of GTV for the second half of the year. I will talk later about how we already actioned improvements that will get us to this level.

On Slide 9, we show the adjusted EBITDA for each of our 4 operating segments. North America was close to adjusted EBITDA breakeven in the first 6 months of 2022, and even adjusted EBITDA positive in the second quarter of 2022, despite fee caps in the U.S. and Canada, negatively impacting adjusted EBITDA by €73 million. Northern Europe continued to generate significant profits with an adjusted EBITDA of €124 million. And in the U.K. and Ireland, we are particularly encouraged by the progress we have made on profitability with adjusted EBITDA improving 70% to minus €18 million in the first half of 2022. This segment was adjusted EBITDA positive as well in the second quarter of 2022. Southern Europe and Australia and New Zealand saw a notable reduction in losses, and with peak investments now behind us, we expect profitability to continue to improve going forward. So, to summarize, we were adjusted EBITDA positive in 3 out of 4 operating segments in the second quarter. A clear indicator of our success is to cover data across the group.

The chart on Slide 10 covers all our markets outside of the U.S., and most of the orders for any food delivery company are, of course, from existing consumers. Consumers are highly recurring, and order more frequently over time. During the pandemic, we've seen a period of exceptional growth, and whilst exiting the pandemic has resulted in reduced order volumes. Consumers acquired during the pandemic, are proving to be very loyal. Our cohorts are therefore intact, and the performance of the newer cohorts is excellent.

Moving to Slide 11. While we saw active consumers at group level come down 4% year-on-year, excluding the U.S., the number of active consumers and order frequency metrics both grew.

On Slide 12, we'd like to update you on the good progress that is being made in addressing the principal challenges in the U.S. First, on 6th July, Just Eat Takeaway.com and Amazon entered into a commercial agreement in the U.S., offering Amazon Prime members a free 1-year Grubhub+ membership, strengthening Grubhub's competitiveness in the U.S. market and representing a significant opportunity for growth. Since the announcement, orders have accelerated, and the agreement will be cash flow accretive for Grubhub from 2023 onwards. Secondly, as I said previously, we believe fee caps are constitutional, and fee caps have now expired or have been amended in most places, and we have been very encouraged by the city of San Francisco's management most recently. We continue to pursue legislative and legal solutions to eliminate the remaining fee caps in New York City. In short, we are very optimistic about the developments around these fee caps in the U.S. And thirdly, together with our advisors, we continue to actively explore the partial [full sale] of Grubhub.

Now moving to Slide 13. We've already made good progress to improve the profitability of our business, and we have made further levers to enhance this. We have many further levers to enhance this. The 3 main levers are: revenue for order; improvements in delivery cost per order; and overheads and OpEx. Revenue is driven by increasing average transaction values, optimizing consumer fees and improving yields. Improvements in delivery are mainly driven by scale and density as well as tech innovation. In our markets, we typically have the leading market position, which brings consumer density. This is important to increase the number of drops our couriers can make per hour, hence to reduce the cost per gram. Continuous enhancements in technology are principle in our industry, and we are implementing enhanced demand management, further optimize order pooling and efforts to reduce waiting times. Overheads and OpEx will be improved by automation, marketing efficiency and reduced overheads.

Now I would like to spend some time on the already actioned improvements to deliver adjusted EBITDA margin guidance on Slide 14. On the left side, you see the adjusted EBITDA margin that we have delivered in the first half of 2022, and that we will use as a starting point for the slide. Within pricing, we have increased consumer fees throughout the first half of 2022, and we have increased commission rates in Europe in the first week of July. We have also realized efficiencies and marketing from July onwards. In the U.S., we've realized efficiencies following the commercial agreement with Amazon. I'd like to stress that these improvements have already been actioned, and will bring us to the middle of our guided adjusted EBITDA range for the full year 2022. And on top of this, we expect further improvements in pricing, reduction of delivery cost per order, for instance, by pooling, and other operational efficiencies. In June, we announced a hiring freeze for the entire business, and we are implementing several cost reduction initiatives.

On Slide 15, we would like to dive into one of the drivers to increase the number of drops our couriers can make per hour, and to reduce the cost per drop, which is pooling or sometimes called matching. We have now introduced order pooling across our markets, which became a much greater opportunity after we signed a long-term global strategic partnership with McDonald's in March of this year. And while we started from a low base at the beginning of this year, we exited the first half year with pooling in certain markets, representing already more than 20% of orders. We will continue to optimize and increase pooling rates throughout the second half of the year, and this represents a significant opportunity going forward.

Turning to Slide 16. We reiterate our guidance with a focus on improving profitability in 2022, GTV to grow by mid-single digit year-on-year in 2022, and 2022 adjusted EBITDA margin to be in the range of minus 0.5% to minus 0.7% GTV.

I will now hand over to Brent.

[Brent Wissink, CFO]

Thank you, Jitse, and good morning, everyone. As usual, we start with a slide where you see the reported IFRS and combined views for GTV revenue and adjusted EBITDA. The combined figures show the data with the Grubhub business included as from the 1st of January '21, and with Norway, Portugal and Romania figures excluding as of from 1st of January '22, given the insignificance thereof. Unless explicitly stated, all the figures in the financial section are presented on a combined basis. Please see the notes in the press release for further explanations.

Please turn to the next slide where we show the financial results for the first half year of '22. Our revenue increased mainly due to the higher average order values driven by higher food prices, target optimizations in consumer fees, and currency movements. In addition, we increased revenue from promoted placements due to technical product improvements. We made improvements in our delivery operations, which led to revenue less order fulfillment costs significantly improved. I will explain this in more detail on the next slide. The improvements in revenue less fulfillment cost helped adjusted EBITDA at the group level, improving by 29% to minus €134 million in the first half of 2022. Adjusted EBITDA as a percentage of GTV improved by 40 basis points to minus 0.9% in H1 '22.

Please move to the next slide where we highlight the improvement in our revenue less order fulfillment costs. This metric is a key competitive advantage for our business. By improving our unit economics, the company can achieve a net cash generating business in the coming years. In H1 '22, we generated over €1.1 billion of revenue less order fulfillment cost, a 20% increase compared with last year. The biggest driver for this improvement is the increase in profitability of our delivery operations across most markets. As mentioned by Jitse earlier, this is a key focus for further optimization and improvements for the remainder of '22 and into '23.

On the next slide, we focus on the contribution of the segments to the development of the H1 adjusted EBITDA compared with the same period last year. We delivered significant improvements in our profitability in North America, U.K. and Ireland and Southern Europe, Australia and New Zealand segment. The improved performance of these 3 segments offset slightly lower adjusted EBITDA contribution from Northern Europe, and higher head office expenses. I will provide more color on the individual segments later in my section. Nevertheless, the developments in the adjusted EBITDA clearly reflect our focus on the path to profitability. This was demonstrated by our most mature segments, Northern Europe remaining highly profitable, and both North America and U.K. and Ireland being adjusted EBITDA positive in Q2 '22.

Within these results, the second quarter saw sequential improvement in the adjusted EBITDA margin versus the first quarter of this year, and we are putting into action further steps to accelerate the margin improvement in the second half of '22. Among those actions are hiring freeze that we introduced in June '22, several strategic initiatives to further reduce delivery cost per order, and to generate operational efficiencies, including marketing optimization. In addition, we look at organizational efficiency, if necessary, and cost-cutting measures to optimize our headquarter costs.

Moving to the next slide where we show the bridge between the adjusted EBITDA and the loss before income tax. These figures are being provided on an IFRS basis. The main components of the bridge are the noncash items such as amortization of intangibles, depreciation of fixed assets, share-based payments, and the impairment of Grubhub goodwill following the acquisition of Grubhub last year, which you recall was paid by the issued JET equity to Grubhub stockholders. There has been a significant decline in the sector valuations. In addition, macroeconomic factors such as interest rates -- market interest rates and equity volatility, has put pressure on technical IFRS valuation metrics. Primarily as a result of these factors rather than the operational performance of Grubhub, we had to partially impair the carrying value of Grubub, resulting in a recognized impairment loss of almost €3 billion. As mentioned earlier, in July '22, Just Eat Takeaway and Amazon entered into a commercial agreement in the U.S., strengthening Grubhub's competitiveness in U.S. markets and representing a significant opportunity for growth.

Please follow me to the next slide which shows we ended H1 '22 with almost €890 million in cash and cash equivalents. We believe the company is efficiently financed to execute the part to profitability. Note also that we have no debt repayments due to the end of next year. We carefully forecast our cash flows, and are actively working on further strengthening our balance sheet and liquidity position, including potential sales assets and refinancing alternatives.

Next slide, please, where we show -- where we look at each segment in more detail. In H1 '22, our North American orders declined by 10% after the peak of the pandemic ordering last year. We believe the Amazon partnership and framing Grubhub's competitiveness, represent a significant opportunity for growth. We have also delivered substantial improvements in segment profitability despite lower volumes, reaching a positive adjusted EBITDA in Q2 this year. Fee caps continue to impact H1 this year. However, excluding the impact of fee caps, North America adjusted EBITDA would have been almost €70 million positive in H1 '22. Fee caps have, in the meantime, expired, or have been amended in most places, including San Francisco, most recently.

Turning to the next slide. You can see the performance of Northern Europe. We increased segment GTV year-on-year, maintaining the increase in order volume achieved in the last 2 years. I would like to call out Germany where orders have increased year-on-year. Northern Europe's adjusted EBITDA has slightly decreased year-on-year due to a higher courier cost and increased IT expense allocation. However, sequentially, segment adjusted EBITDA for H1 '22 improved compared with the second half of last year. The segment has a healthy -- the segment had a healthy and sector-leading adjusted EBITDA margin and profitability is set to increase in H2 of this year.

On Slide 28, we outline the performance of the U.K. and Ireland, following a period where we correct historical under-investments mainly in delivery network in '22. We focused on returning the business to profitability with the segments reaching positive adjusted EBITDA in the second quarter of this year.

Turning to the next slide, Southern Europe, Australia and New Zealand. This segment contains many of our less mature markets. However, we are making confident steps to focus our investments as these markets develop. This is reflected in the revenue growth of 8%, which is significantly higher than both orders and revenue growth. The segment's revenue less order fulfillment costs increased by over 200% year-on-year, driven by general improvement of unit economics in most of the segments, countries, and in particular, by significant improvement in Australia which now delivers positive revenue less order fulfillment costs.

Next slide, coverage head office costs, such as staff and project expenses for global support teams. I'd like to mention that global IT and product functions are not included in these head office costs, as these are being allocated to countries, and thereof included in the adjusted EBITDA of the segments. The head office cost base increased year-on-year mainly due to the investments in our head office workforce and supporting functions in the last year, to support the growth we then experienced In '22, these staff costs are annualized, which is the primary reason for our year-on-year head office cost increase. As already mentioned, we've initiated the headcount freeze reflecting the slowdown of growth in the business. And in the second half, we are looking for more efficiencies and opportunities to optimize head office overheads.

On the next slide, you can see the performance of iFood. iFood is an asset of significant value to our company. It is the clear market leader in a huge market, and has continued to deliver double-digit growth in '22, even against a strong comp in '21. iFood's online food delivery business is now profitable, whilst we support investments in high-potential grocery and meal voucher verticals. As we have indicated before, we are open to divest our iFood holding, should we receive an offer which reflects the fair value for this asset. And with that, I hand back to Jitse for conclusions of this presentation.

[Jitse Groen, CEO]

Thank you, Brent. I will continue with the conclusion of the presentation on Slide 32.

After a period of exceptional growth, Just Eat Takeaway.com is now 2x larger than it was pre -pandemic. We continue to focus on executing our strategy to build and operate highly profitable food delivery businesses. We made significant progress towards profitability in the first half of 2022, and our 3 largest segments, representing 90% of our GTV, were adjusted EBITDA positive in the second quarter of 2022. Good progress is being made in addressing the principal challenges in the United States, and the commercial agreement with Amazon represents a significant opportunity for growth. Already actioned improvements will deliver our full year 2022 adjusted EBITDA guidance, and further initiatives will be implemented over the second half of 2022. With nearly €900 million of cash and cash equivalents, we have sufficient cash to finance the profitability, and we are working on various options to strengthen the balance sheet. We expect to reach positive adjusted EBITDA in the full year of 2023, and our guidance remains unchanged. And then finally, we continue to actively explore the partial or full sale of Grubhub, and reiterate the intention to monetize our stake in that.

We are now moving to the question-and-answer session. And as a reminder, we will allow only 1 question from each of the analysts to make sure that everyone gets the opportunity to ask her or his question and to avoid [indiscernible] sessions.

And with that, operator, I would like to open the call for your questions.

[Operator]

[Operator Instructions] And our first question comes in from the line of Silvia Cuneo calling from Deutsche Bank.

We will then move on to the next question, which comes in from the line of William Woods calling from Bernstein.

[William Woods, Bernstein]

As a result of the stock being down 6% year-to-date and if you factor in kind of your medium to long-term guidance, the stock is trading at relatively low multiples, and you've got a number of levers to improve the performance. As a result, have you considered, or have you had any discussions about taking takeaway private -- potentially through private equity?

[Jitse Groen, CEO]

Well, I shouldn’t be surprised that we have a lot of discussions lately. We have entertained, of course, also discussions with private equity. That’s all I can say about this. But your question is whether we have immediate plans to take the company private? I need to answer that with no.

[Operator]

The next question comes in from the line of Miriam Adisa calling from Morgan Stanley.

[Miriam Adisa, Morgan Stanley]

Just on sort of current trading and what you're seeing at the moment. I guess what gives you confidence in the second half acceleration in GTV growth to meet your guidance? I mean clearly, the comps are easier, but the macro environment has deteriorated and is expected to get worse in most of your markets. So perhaps if you could give us some color on what you started to see in July as the comps eased? And then, also how you're thinking about the balance between sort of the impacts on consumer demand from the macro picture versus reopening and that impact on what you've seen so far over the last quarter?

[Jitse Groen, CEO]

I think generally, if you look at what we’ve seen in the second quarter, in particular, is that, that was the toughest comp, both just from a numbers perspective, but also from a mechanical perspective, in the sense that we’ve added record numbers of new customers last year, and that currently, we’re back to regular customer additions. And, of course, the net effect of that in the last quarter was negative. We do see, and we said that before, that we are expecting that to become easier for us end of July, beginning of August, and we do see encouraging signs there. So that’s as what we expected. If you’re asking us about the GTV target, you need to understand that there is still quite significant price increases that we see across the restaurant estates that we have. So ticket sizes are still increasing because of inflation. And then, on top of it, we have some pricing optimization. And of course, because – we said it before because our EBITDA target is back end loaded, we’ve done some price optimization in the second quarter that you would not be able to see in the half year results for the first half, but you will be able to see that in the second half. So that’s part of it as well. And then, of course, in the U.S., the Amazon deal does change the growth trajectory for Grubhub supporting also a higher GTV growth. And if you ask me about macroeconomical circumstances, now I’m not an economist, so that’s difficult for me to answer. I do know that in the last 22 years, we were not very much affected by any sort of crisis. And the reason for that is because in most countries, we’re playing a penetration game. Now obviously, penetration in a country like Holland is already 40%. But our target is to be much bigger than that. But in a country like Germany, the penetration is only 20%. And we do believe that the penetration – so basically getting more consumers on our platform far outweighs any sort of negative effect from a macroeconomical environment.

We do believe that delivery will grow less fast because pricing – and I’m not talking about only deliveries, I’m talking about food price. Food price for the delivery restaurants is typically higher than for marketplace. So, we do believe that delivery will be impacted by that. But we fortunately have the benefit of having a lot of marketplace restaurants as well. And as you’ve seen, we have underpinned the EBITDA target for the remainder of the year, and we have some additional levers to pull. So, we’re actually quite confident that will also make the EBITDA targets.

[Operator]

The next question comes in from the line of Marcus Diebel calling from JPM.

[Marcus Diebel, JP Morgan]

I have more technical question to Brent. Just on the CapEx. CapEx increased quite a lot in the first half. If you can just tell us a bit more, what the nature of that actually is. I assume nothing has changed between accounting CapEx and OpEx. But if you can just tell us what the nature of that is? And in light of that, also, the next payment, i.e., cash outflow for iFood, if you could tell us when and how much that is?

[Brent Wissink, CFO]

Well, with respect to the CapEx, it is certainly increased by the fact that Grubhub is currently in our figures right now, which was not the case last year. So that's the main contributor to the CapEx increase, as you've seen before. In addition, it's also because that's the same as what we said, was, we do the staff increase. We have increased our staff last year, including our tech and product staff and part of our product and tech developments are also being capitalized. So that's also part of the reason for an increase. What was the other question?

[Marcus Diebel, JP Morgan]

Yes, the iFood funding and the timing there.

[Brent Wissink, CFO]

Well, the iFood funding -- as we also stated in the press release, it was a subsequent event that after -- in July, we supported the company with an additional investment of €60 million.

[Marcus Diebel, JP Morgan]

Okay. So it's cap by also some IT costs on top in terms of the CapEx?

[Brent Wissink, CFO]

Yes.

[Operator]

The next question comes in from the line of Monique Pollard calling from Citi.

[Monique Pollard, Citi]

On everyone. As you mentioned, Jitse, the Amazon deal just changed the growth trajectory in the U.S. So just wondering if you were able to give any color on what you've seen there since that Prime partnership, whether it's number of new Grubhub subscribers, that you've seen in there was [press] reports of €2 million added in the first sort of 10 days, or anything on the trajectory of growth that you're seeing in that market would be really helpful.

[Jitse Groen, CEO]

Well, first, let me take you back to one of the issues in the U.S. Obviously, when we signed the transaction, we believed that we could use the EBITDA to invest in a rollout of delivery service, predominantly in the suburbs of the larger cities. That was the plan. That plan was no longer possible because of the fee caps that were instated, and some of them were, of course, temporary and others became permanent, and [we're] finding those, and we've talked about that during the presentation. Part of this issue has been addressed now by the Amazon deal because, obviously, the EBITDA was going to be used, for instance, marketing investments. This is, for us, a very economical way of expanding the user base. Then -- I cannot disclose these numbers because obviously, we're not the only party in this agreement. We have a good relationship with Amazon. And I think it's safe to say that both of our companies are quite excited about this cooperation, but that also doesn't allow me to disclose these figures. But it would surprise me a lot if you won't see anything, of course, over the course of the next year in terms of a better trajectory for this business. So, while it doesn't address all the issues that we face in the U.S., it does address a growth and market share issue. And to what extent that will be -- we're only 3 weeks in. So, it's early days, but it looks pretty good to us.

[Monique Pollard, Citi]

Sorry, can I just ask one quick follow-up to that point on the fee cap. The fee cap level -- obviously, the San Francisco impact comes in from 2023. So, what will be the fee cap impact going forward?

[Jitse Groen, CEO]

Well, look, we’re not – it’s not a large chunk of our orders in San Francisco. So, we’re much more dependent on the fee caps being lifted in New York. But obviously, it’s very encouraging to see that our work that we’re doing – and we’re not the only ones, it’s also on DoorDash and Uber are doing similar work – to explain to local authorities that the fee caps are not constitutional, then it is paying off for us. And therefore, we’re quite hopeful that the rest of the U.S. will see a similar trajectory. Now that’s not a promise, but it looks actually a lot better than how it looked last year.

[Operator]

Thank you very much. The next question comes in from the line of Giles Thorne from Jefferies.

[Giles Thorne, Jefferies]

I wanted to pick up on the language around the sale of assets in Brent's prepared comments. Is this just reference to iFood and Grubhub? Or do you plan to exit -- or consider the exit of more markets as you've done in Norway, Portugal and Romania? And if it is the latter, it would be useful to get your current thinking on your positions in Italy and France.

[Brent Wissink, CFO]

Well, for sure, it's referred to the 2 assets you mean. But as you have seen, we are continuously assessing the performance of individual countries, and just as a good capital allocator. We will look at it and decide how to move on with it. Well, you've seen the 3 examples in the first half. But we are continuously assessing performances in countries.

[Giles Thorne, Jefferies]

And just by way of follow-up, it would be useful to have some color on the restructuring that was just done in France, the logic and the impact?

[Jitse Groen, CEO]

Allow me to talk a little bit about France. So, we, of course, merged with Just Eat. And there were a couple of fantastic markets in Just Eat, as you know, U.K., Canada, a couple of really good market positions, also smaller countries such as Ireland. But there were also a couple of weaker countries in there, including France. So, France has never been a strong hold for Just Eat. And there were very few investments, for instance, also in delivery. Now in last year and the year before that, in that environment, we were able to turn around the trend in France and to make France a growth country again. That was, however, on the back of a pandemic. And I would like to claim all the success in the company, of course, but part of the success in the company was actually created by the pandemic and not only the investments, of course, that we made, or the changes that we made in the business.

Now, what happened in France, and this applies to the whole sector in France, it’s certainly not only on our business, is that, that market has actually shrunk. And I’m not talking about only our business, but I’m talking about the whole market. And it has shrunk significantly after the pandemic. So actually, a lot of the growth in France has been reversed. Now that’s very different in other markets such as Holland and Germany and the U.K., but in France, that is what happened. So that also means that we needed to reevaluate our plans in France and our investment level in France, because we no longer had the same growth trajectory. And this is what we have been doing. That also prompted for instance what you were referring to as reiterating from several cities in France for the logistical arm. And that’s again volume related. We just have too low volume in those cities. But you also need to be conscious that Just Eat France does have a large marketplace business that’s actually quite profitable. So, what we’re doing there is reducing costs and making sure that, that business becomes profitable again. I understand the question is, are you going to exit that business? I’m not going to exclude that. But obviously, if that’s going to be a profitable business, then that’s not a necessity.

[Operator]

The next question comes in from the line of Andrew Gwynn calling from BNP Paribas.

[Andrew Gwynn, BNP Paribas]

Just a question on the gig working. I mean I think in the past, you've spoken about that being a bit of a cost problem. Obviously, something you felt is right. It seems like maybe the commitment there is a bit more pragmatic, I suppose. It's nice to have, but in a time where capital is a little bit more constrained, it's not something you're as wedded to. Let me know if I've misread that.

[Jitse Groen, CEO]

No. You should look at us trying to adhere to all applicable local laws. And we just have a legal assessment that, in the countries in which we have employees, it's actually not legal to have free launches. And I know that our competitors choose to ignore that, but obviously, it sometimes leads to very high fines. It leads to competitors leaving countries, delivery in Spain being the obvious example. So it's not so much of a determination of we need to have employees in a certain market. It's just an assessment for ourselves, whether something is legal and whether we're not going to incur very high liabilities. Because you might not see those as an investor, but we are a very high fine spending for businesses that are competing with us in certain countries. And you can try to litigate against that. But at some point, you will have to pay those fines. So, it seems maybe cheap initially to not employ your staff, but it will be quite expensive in a number of countries. In some countries, it's a bit of a gray area, we might take a different action there, but we try to be very conservative in terms of breaking the law, as you would understand.

[Andrew Gwynn, BNP Paribas]

But specifically in the U.K., there's no suggestion that it's sort of a legal gig working. Obviously, it's been tested a few times. So, is there a commitment there all towards gig working? Or...?

[Jitse Groen, CEO]

In the U.K., actually, most of our logistical network is gig working. It’s not – I know people think it’s the employee-based model, but that’s the case in the city centers. And the city centers come with visibility for us. And the visibility is also worth quite something – especially in London, where, of course, we never were very large, and we managed to now be 1/3 of the London market. So actually, it’s not always just a legal issue. It might also have other reasons why we employ our staff in some [places].

[Operator]

The next question comes in from the line of Andrew Ross calling from Barclays.

[Andrew Ross, Barclays]

I wanted to follow up on Marcus's question about the CapEx and ask more broadly about cash. And the gross cash has reduced about €400 million in the first half. That's quite a bit of leakage in the free cash flow beyond the EBITDA. Can you just talk us through the moving parts of the cash flow when thinking through to the end of the year? I appreciate you've put money into iFood, but help us understand how much cash you may burn within the guidance? And when should we think about the group being free cash flow by [indiscernible]?

[Jitse Groen, CEO]

Yes. We can’t be very specific there. Obviously, what we have shown you is that we are making very good progress on the EBITDA, and of course, there’s a burn below EBITDA. We’re also doing some work on reducing that burn. But as we said, we’re in quite good shape there.

[Operator]

The next question comes in from the line of Clement Genelot calling from Brian Garnier.

[Clement Genelot, Brian Garnier]

So my question is on the other cash kind of in your [uncertain] sort of -- regarding lot of financing options. So what options are currently on board and which ones are clearly rolled out among the capital base on that bond, credit lines, asset disposals regarding iFood and Grubhub, or maybe even over Australia and Canada?

[Brent Wissink, CFO]

Well, there’s nothing ruled out. We are exploring various options. And we said that we’re going to explore the sale of assets, of which – Grubhub, might be iFood and maybe other assets if we think that is being – that we deem as necessary. But we’re also exploring alternative refinancing opportunities, and preferably not those which will dilute shareholders. They are certainly not on the first – on the – highest on the list. But I don’t think we should ignore or exclude any alternative, if possible. We have the obligation to explore everything, but we, of course, will do it in a way which is beneficial for all the stakeholders in our company – most beneficial for all the stakeholders in our company.

[Operator]

The next question comes in from the line of Adrien de Saint Hilaire calling from Bank of America.

[Adrien de Saint Hilaire, Bank of America]

So most of your peers have actually cut their GTV growth guidance for '22 and you have not. So, I'm just wondering why you haven't. Is that because actually the currencies have gone your way, so there's a bit of an underlying downgrade on a constant currency basis? Or is there something else?

[Jitse Groen, CEO]

Well, as you know, we’ve cut that target already earlier in the year. I’m not saying that we had such a crystal ball, but something that we already did before. And on top of it, I talked about it before. We do see ticket sizes increase, and that is, of course, a tailwind, and we do have a deal with Amazon in the U.S. that’s going to be helpful. And you should also understand that the comps for us were the most difficult in H1, and they will be easier in H2.

[Operator]

The next question comes in from the line of Georgios Pilakoutas calling from Numis.

[Georgios Pilakoutas, Numis]

Questions on the share-based compensation, which stepped up quite a bit in the first half. Can you talk a bit about what that was, kind of inventions in Grubhub, and also way -- a change in the way bonuses are rewarded to staff? And then can you perhaps give a bit of guidance that is -- this first half year, should we annualize that and going forward?

[Jitse Groen, CEO]

Well, most of it, as you’ve seen, it increased quite significantly over the last 2 years. The reason is certainly the Grubhub impact. The Grubhub impact represents more than 50% of what is currently in our P&L with respect to the full year. It’s more than that, since that is [doubled]. Those will be granted to individuals often based on when they’re being employed. So – but it’s hard to say where it will come out, but it will be increased in the second half of this year.

[Operator]

The next question comes from the line of Marc Hesselink calling from ING.

[Marc Hesselink, ING]

I would like to get a little bit better feel of the profitability of the U.S. for the second half. With what changed in the fee caps, and looking -- going into the second half of the year, and also the Amazon contract. Is it fair to assume that on the Amazon, you might lose a little bit on the -- on your gross margin, but because of operational leverage, you make it back, and then on EBITDA, it should be a positive impact? A bit on those moving parts, please?

[Jitse Groen, CEO]

Yes. So, regarding the fee caps, the changes now are in Canada, and the changes are in San Francisco, and San Francisco will only apply -- I think it was at 31st of January, so back of my mind. So that will be the change going forward on the fee caps. Then, if you look at the Amazon deal, what the Amazon deal does for us, it replaces a good chunk of our marketing. So, we have some efficiencies on the -- let's say, the marketing side following that agreement. And I think that's the -- that is why actually our expected EBITDA in the U.S. will be slightly higher as a consequence, not a direct link to it, as a consequence of that.

[Marc Hesselink, ING]

Okay. Can you say the run rate profitability of the U.S. is that already close to breakeven at the moment?

[Jitse Groen, CEO]

Well, it’s part of North America, right? So I mean, I’m not sure how close you are to – what part is what, but if the whole of North America is EBITDA positive, then I think you can connect the dots.

[Operator]

The next question comes in from the line of Rob Joyce calling from Goldman Sachs.

[Rob Joyce, Goldman Sachs]

You sort of touched on it so far, but I mean, just specifically, the sort of Southern Europe division now, I think it's been amongst, if not the lowest, order growth for the past 3 quarters. It accounts for pretty much all of your operational losses. Why are we so committed to this division, and probably particular reference to Australia, which I believe is the most loss-making out of that?

[Jitse Groen, CEO]

I think the question relates to the -- what happened during the pandemic, right? So, also related to my answer about France. Now, obviously, what happened in the pandemic is that, everything that we touched, worked, because we were in a pandemic. And even you could hold a good story about countries like Romania. Even that story would be a good story because you had very significant growth in Romania. And if that growth would have continued, we would not have closed Romania, but the growth did not continue. And I think you see that also in the -- in that segment. But you should not misinterpret the quality of the assets in the segments, because if you look at, for instance, Spain and Italy, those businesses are very well-run businesses, but we might have invested more money in there because they were growing faster than they are growing this year. And that applies to both marketing and for instance, investments in sales staff and -- et cetera. Obviously, if you have higher growth, you're going to invest in more people to get more restaurants online and that sort of thing.

It is going to be very difficult for all food delivery businesses on the planet to now suddenly go out of that growth mode and into EBITDA mode because, yes, you built your business. And also, if you look at increases in staff, most of those increases happened in H1 last year, right? And that's why your staff is now high. And of course, if then your orders go down slightly, everybody would tell you, hey, now your staff is too big. Yes, but we were in a situation which we were growing so far that we needed all that stuff. And that may be clearer in businesses that are smaller scale. Because the problem, for instance, in Italy, is not that it's a bad business, it's just that it doesn't have the scale yet that the Dutch business has in Holland relative to the size of the population. Apart from that, Italy is a fantastic business. It's mostly marketplace, a big chunk of logistics. But yes, we need to fine-tune basically all these businesses, and sometimes it takes a little bit of time for us to do that. We just discussed France. And that's a trajectory that we've set into motion basically last year August, and we're making good progress there. But it takes more time, obviously in those countries compared to businesses that are already so large that you would say, okay, yes, maybe we have a little bit of a too large sales department. But yes, relative to the EBITDA of Holland or Germany, doesn't really matter. But it does matter, of course, if you have some scale.

[Rob Joyce, Goldman Sachs]

But what about -- I mean Australia, which isn't really a marketplace business, 4 players in the market, arguably most of the cities quite penetrated, and still got quite a heavily loss-making business? What's the outlook for that?

[Jitse Groen, CEO]

Actually, we’re reducing the losses in Australia at a very high pace. And again, we need to – and I think also Brent alluded to that. If we don’t see a – because remember, we are about creating these large-scale profitable businesses. If you can’t get there, that will be a good reason for us to, for instance, a seller business. At the same time, it’s very difficult to now take the cost of running the business during a pandemic and compare that to the revenue of the business outside of a pandemic. And that's sort of what we now see happening, is, obviously, these are all delayed figures. The current state of the company is much better than what you see in the H1 figures because we’ve made all these changes, or at least part of these changes already. So, in hindsight, of course, if you ask us, should you have invested that money if you had known that the high growth would have ended in February 2022? Then we would have said, maybe we should have changed that trajectory. But we obviously did not know that, that would stop in February 2022.

[Operator]

The next question comes from the line of Wim Gille from ABN AMRO.

[Wim Gille, ABN AMRO]

I got a question for Brent actually. If we look at gross profit, it's up almost 20% year-over-year. So, you added about €187 million in gross profit year-over-year, which I think is a good achievement. But if we then look at how that ends up and filters into the profitability and the bottom line, our adjusted EBITDA on a like-for-like basis increased €55 million. So that means that the OpEx increased by about €132 million. I've identified about €13 million in overhead that -- or headquarter costs. But that leaves me still with €100 million in additional cost apples-to-apples. And can you break it down for me? Where did you invest that money? And also give us a bit of a cynic preview or where do you expect OpEx to end up based on the current guidance that you have in the second half, i.e., are we going to continue? Or are we going to see continuous increases in OpEx, or are we going to stay flat?

[Brent Wissink, CFO]

Well, first of all, I think it also comes a little bit back to what Jitse just said. What we have done the investments in staff, that we made last year, certainly also, for example, whether it's in logistics but also in headquarters, we're also in -- these are currently -- those weren't there last year and are we now carrying the full expense of that. So that is certainly a point of attention also going forward when we look at reshaping the business to the size of the number of whatever size we will end up. So that is certainly the reason why on an operational -- from economic point of view, talk about revenue less order fulfillment costs increased more rapidly because there we could use benefits of price increases, some operational efficiencies, which are, for example, to a less -- certainly to a lesser extent staff related, but below gross profit is certainly recarrying the cost of the hirings and investments that we made last year, and those were in logistics, might be partly customer [reserves], headquarter expenses to a certain extent, also marketing, but also there, we are in the process of making it more efficient. But that is certainly the reason for -- that we could not, let's say, show that improvement right now as opposed to what the improvement that you've seen in the revenue less order fulfillment costs. But it is expected that also there, you will see the improvements going forward.

[Wim Gille, ABN AMRO]

Okay. Let me rephrase the question then. How much did...

[Brent Wissink, CFO]

I won't provide you buckets with numbers.

[Jitse Groen, CEO]

In that case, taking into account the hiring freeze that you implemented, is it likely to be expected that OpEx will stay flattish in the second half of this year versus the first half of this year? Or should we continue to model ongoing increase in that?

[Brent Wissink, CFO]

I won't answer the question, but a lot of these -- those headcount freezes will certainly be reflected below gross profit. And gross profit -- sorry, order less fulfillment cost. I cannot say gross profit because that's –

[Wim Gille, ABN AMRO]

Unfortunately got to deal with it...

[Brent Wissink, CFO]

No. But those headcount freeze will certainly be reflected below the revenue less order fulfilment costs.

[Operator]

The next question comes in from the line of Jurgen Kolb calling from Kepler Cheuvreux.

[Jurgen Kolb, Kepler Cheuvreux]

Just a brief one on your current 2 participations, iFood and Grubhub. Jitse, maybe you could share with us the current negotiations, or if you have negotiations on maybe saying goodbye to these 2 assets, what the current status is in this respect?

[Jitse Groen, CEO]

I can only tell you that we have negotiations on both, but I’m not going to tell you what the status is.

[Operator]

The next question comes in from the line of Sarah Simon calling from Berenberg.

[Sarah Simon, Berenberg]

I just wanted to come back on the question that was asked earlier about share-based compensation. So, you made a shift in the second half of last year from cash-based bonus to share-based bonus. So, the cost is going to now move below the adjusted EBITDA line. I'm just wondering if you can give us any color on kind of how big the bonus would have been in cash last year in the first half, that wouldn't be there now because it's become stock?

[Brent Wissink, CFO]

Well, last year, the -- I have to -- just have to look it up. One sec. Well, if it would have been last year, the bonus that has been paid out in shares, was approximately €25 million. So that has shifted to below adjusted EBITDA. That was for the European operations and the drive -- the U.S. bonus was €33 million, but that was expensed. So that was included in the EBITDA expense.

[Sarah Simon, Berenberg]

So if we were kind of trying to do like-for-like on the same basis, you'd make the EBITDA from last year, the adjusted EBITDA of €33 million higher? Is that the right way to think about it?

[Jitse Groen, CEO]

Yes. That will be the mechanism. But maybe we can discuss also offline.

[Brent Wissink, CFO]

To provide – to take you through the details offline.

[Operator]

The next question comes in from the line of Sherri Malek calling from RBC Capital Markets.

[Sherri Malek, RBC Capital Markets]

I just wanted to follow up on the commentary -- helpful commentary earlier about essentially overinvesting during the pandemic. Perhaps that was just related to that segment. But I wanted to reconcile that with the comments you've made earlier during the presentation about how pandemic customers have been quite loyal and overall customer KPIs have been fairly resilient. So, what has actually been lower on the growth side? Or what KPI in particular has come in lower following the pandemic?

[Jitse Groen, CEO]

I think they're all higher, to be quite frank. All the order frequency return of customers, that's better. What you're seeing though is that we are now adding less new customers than the customers that we lose, because we added so many additional new customers last year. That's the mechanism. So, it's actually the case that most of these customers behave much better. But obviously, there's a difference between our operations in France, in a country in which we are weak, and places like Canada, U.K., Germany, Holland, Italy, Spain, Denmark, Ireland, all these places which were strong. Because in those places, actually, you see that also -- for instance, in the Northern European segment, the user behavior is much better than what it was before the pandemic, and therefore, that business is now strong. But if you listen to our commentary around the overinvestment, it is overinvestments relative to the current size. And the current size of the business is not the expected size for a number of the countries. And in some countries, that leads us to the conclusion, take Romania or Norway, that it doesn't fit the profile of our business anymore. And in other countries, it might be -- actually it does fit the profile of the business, but we've assumed a higher growth last year than what we actually got. And therefore, a couple of these numbers are not where they need to be, and we need to do some work on them. And that applies basically to the whole business, but it's more apparent in the, call it, South Europe, ANZ segment.

[Sherri Malek, RBC Capital Markets]

So is it fair to assume then that the customer acquisition coming out of pandemic is more normal levels, perhaps is a bit lower than what would have been anticipated?

[Jitse Groen, CEO]

The customer acquisition is back to the levels that we had before the pandemic, which is normal, but obviously, it’s lower than within the pandemic, because people are not in – locked up in their houses.

[Operator]

The final question comes in from the line of Michael Roeg calling from Degroof Petercam.

[Michael Roeg, Degroof Petercam]

It's actually more a clarification that I'm looking for. Brent made a comment about Northern Europe, about the EBITDA in Q2 and the outlook for the second half, and you compare them to some other periods. So, could you please repeat that?

[Brent Wissink, CFO]

Yes. Well, what I said is that the current -- the EBITDA in Northern Europe in the first half increased compared to the EBITDA in the second half of last year. That was the comment I made in my -- during the presentation.

[Michael Roeg, Degroof Petercam]

I thought you said something about the Q2 run rate being higher than -- and you expect it to improve further in the second half.

[Brent Wissink, CFO]

We will read the transcripts carefully, Michael. And if you have any questions remaining, you can reach out to us.

[Michael Roeg, Degroof Petercam]

Okay. Well, a question on Northern Europe, if I may. What was the impact from wage inflation in the first half of the year?

[Brent Wissink, CFO]

To be frank, it’s quite detailed. Happy to come back on that... But there is certainly a lag there as well. I mean, you can just look at the inflation numbers which we usually use as the basis for our wages. But you don’t increase the wages real time with the inflation numbers. So there’s typically a lag on it. So, I don’t think that there’s anything out of the ordinary from the previous years. And by the way, just coming back on your – on the first part of your question about, what I said about H2 of this year, I indeed said that in the Northern Europe, our profit is quite healthy, and we expect that to -- that paves the way to further increase in [Q2] this year also, in light of the measures as we've taken and efficiencies that we expect, and also presented.

[Operator]

Thank you. That was the final question in the queue. So, I shall hand the call back across to yourselves for any closing remarks.

[Jitse Groen, CEO]

Thank you, everybody. We’d like to round up this analyst and investor call by thanking you for participating and your questions. Should you have any additional questions or remarks, please reach out to our Investor Relations team. Thank you.