Delivery Hero SE

XETRA:DHER

Earnings Call Transcript 2018-Q1

[L. Niklas Östberg, Co]

Thank you, and good morning, everyone, and thanks for joining our Q1 earning results.So going through first part, I think, by now, it is pretty clear, our vision, so I won't go into detail here. But as you know, we want to create an amazing takeaway experience to give our customers enjoyable moments. We do that by having the most and best restaurants, the most convenient ordering experience and the fastest and best service.And this is something that is important for us and we will not compromise on this. What you'll also see is that this reflects in our numbers, and you can clearly see that in the exceptional growth that is coming from us delivering on this vision.In Q1, we delivered an 89 million orders. It was 1 million orders per day on average. And as you can see, despite our size, we then grew with 48% year-on-year on orders. We did EUR 1.2 billion in GMV in the first quarter and EUR 171 million in revenue.If you then move to our quarterly review or view, here as you can clearly see, it was a pretty exceptional quarter. And order growth was accelerated in absolute and in percentage terms, despite an increasing in size. GMV grew 52% on a constant currency basis and revenue with 61% on constant currency. Clearly then happy then as you can understand with the team's performance across the group. But also I like to highlight and to be fair here that it was very favorable weather. And in particular in Europe, we had some public holiday timings which were good, such as Easter being in March instead of April, so we should also be fair and honest here. It was a fantastic quarter but also with some tailwind to us.Then going to some updates for Q1. We continue to see expansion of delivery market as we improve our service. We have rolled out our logistics in MENA and Americas on plan. We also rolled out our rider shift planning tool with fantastic results, and saw a significant improvement in our rider management, and we also done a number of small but very value-accretive transactions in some of our markets.I will then hand over to Emmanuel to go a little bit more into the numbers.

[Emmanuel Thomassin, CFO & Member of the Management Board]

Yes. Thank you, Niklas, and good morning, ladies and gentlemen. Well, let's jump straight to our financial -- to financial results of the first quarter 2018.Delivery orders continue on the trajectory on high growth, with a great start in the year. And the numbers presented today exclude India for 2017, as we sold the operation at the end of last year, as you remember.In terms of orders, Niklas mentioned just before, we increased by 48% year-on-year for the first quarter, generating 89 million orders in a single one. Our GMV amount to EUR 1.2 billion in the first 3 months, a growth of 52% in constant currency basis and 38% in terms of reporting currency.The revenues grew by -- strongly by EUR 171 million, a year-on-year growth of 61% on constant currency and 47% on reported currency. So you can see that FX headwinds are impacting our results -- reported results as the euro continues to strengthen against our main currency as we already mentioned in the full year report 2 weeks ago.The take rate for the group is now at 14.8%, a record for a quarter. And although the performance that we see today are reflecting our investment decisions in own delivery entering new cities, but also investing in services, which drive the return of our customers. So for us, the combination of these investment in technology, new services and also sales is driving our growth in the first quarter. And we see our strategy confirmed by the results, and we continue to invest in the growth for the company.So now let's look at the performance of our 4 operating segments, and we start with Europe. So Europe generated 22 million orders in the first quarter. This is a growth of 30% compared to last year, while our GMV grew by 27% at EUR 348 million, slightly below order growth. However, if you exclude orders generated by small entities that we sold early 2017, such like Slovakia, Georgia, Kazakhstan and even Poland, the growth would have been even more significant with orders at plus 34%.Europe revenues grew by 25% in Q1 '18 and -- compared to the same period last year. The take rate in Europe at the end of the quarter is at 17%, and although the Europe segment is generating 34% -- or 34.5% of the group revenues in Q1 compared to 40% last year.I'll now like to move to the next segment, MENA. So here, clearly very strong order growth continued in MENA in the first quarter. The growth was at 60% in terms of order compared to '17. And MENA generated 41 million orders in one quarter compared to 26 million last year, 26 million in '17. The growth in orders is not fully reflected in our GMV due to the strength of the euro. The GMV grew by 52% in Q1 '18 compared to previous year, but the growth is much more impressive in constant currency, as you can see on the slides with 122% growth in constant currency, so compared to -- 77% of GMV and 122% in terms of revenue.Revenues are growing, as I said, even faster than orders by 92% to EUR 57 million in Q1 compared to EUR 30 million last year. And as I said, the constant currency basis, like revenues increased by 122% compared to last year, so very impressive. Although MENA now generates 33% of the group revenues by the end of the quarter versus the 25% in the first 3 months last year.Let's move to Asia. So Asia, we are very pleased with the evolution and the development there, and especially the growth in South Korea. In Asia, orders increased by 63% in the first quarter compared to the same period last year and generated now 18 million orders in this quarter.GMV grew by 40%, so slower than orders, due to the euro strength, obviously, but also our flexibility campaign in some of selective own-delivery markets.Revenue reached EUR 41 million for Q1 growing at 42% compared to Q1 '17, ahead of our GMV but slightly below order growth. However, on a constant currency basis, Asia revenue increased by 53% year-on-year and GMV 51%. The take rate of Asia is now at 15.6%, despite affordability measures in our own delivery, which were compensated by commission increase and order services. So in total, overall, Asia generate now 24% of the group revenues by the end of the first quarter.Now let's turn to the last segment, Americas. As mentioned in our 2 last reports, we still consider this segment in a very early stage, with a huge development potential. Our home-delivery activities have been deployed since Q2 '17, and we will continue to do so during this year. Americas generate 8 million orders in Q1, a year-on-year growth of 34%. GMV grew slower than orders by 21% amounting to EUR 96 million. But here, again, if you look at constant currency, our GMV growth would amount to 51% year-on-year. Revenues grew by 41% in the month, now EUR 14 million, due in partly by the investments that I mentioned earlier, like the home-delivery capacities. And yes, Americas is also facing the FX headwinds that I mentioned several times today already like the rest of the group. So that's -- if you look on constant currency, Americas revenue increased by 73% year-on-year in the first quarter.So now I hand over to Niklas for the guidance for 2018.

[L. Niklas Östberg, Co]

Thanks, Emmanuel. Yes, so based on a very good quarter, we are confident to reach revenue of EUR 740 million to EUR 770 million, despite FX headwind we mentioned in Q1, and also now excluding India. On -- our adjusted EBITDA margin will be between minus 8% to minus 5%.Then going to our IPO commitment, and -- again, we reiterate we are on track on all our commitments. And, in particular, then on our first priority being the long-term growth in our business.So with that, I like to open for questions.

[Operator]

[Operator Instructions] We will now take our first question from Andrea Ferraz from Morgan Stanley.

[Andrea Maria Ferraz Estrada, Equity Research Analyst]

I have two questions, please. The first one is on Europe. It's the first quarter where we actually see GMV growth being lower than order growth and revenue growth being lower than GMV growth. So can you please explain what's driving that? And then the second question is on Asia. It looks like there's been a slight pickup in growth relative to the last couple of quarters. Can you please give us a little bit of color as to what's driving that?

[L. Niklas Östberg, Co]

Thanks, Andrea. On the first one, Europe, it's 2 aspects, one is that there is a slight decrease in delivery proportion in Europe and also market mix effect. So some of the markets with lower take rate have grown a little bit faster to the more immature markets and so on. In terms of general commission, and take rate has not declined in any market, if I exclude any impact of delivery, but that is something that is constantly then being improved over time, although we haven't -- it hasn't been a big priority for most of the European markets over the last 12 months. But then, as I said, that slight drop there is a consequence of a slightly lower delivery and market mix effects. On Asia, growth pick up -- can you repeat there, what was...

[Andrea Maria Ferraz Estrada, Equity Research Analyst]

It's just that, it was a little bit faster than what we had seen in Q3 and Q4 last year. So I was just wondering if maybe it was just a deconsolidation of India or if there was maybe a reacceleration in Korea or something like that?

[L. Niklas Östberg, Co]

So we don't go into the exact detail, but in general we're happy. And I think there has been some acceleration in some markets or continued acceleration. Some of the smaller markets also doing very well and they reached larger size and therefore having larger impact. That deconsolidation of India also has a slight positive effect. So that is also a reason. But -- yes, it's a combination of Korea continue doing strongly and then some of the other APAC countries growing very fast at larger scale.

[Andrea Maria Ferraz Estrada, Equity Research Analyst]

And sorry, can I follow-up on your Europe question. Is it -- can I just confirm that it's about sort of other smaller markets seeing better growth rather than, say, Germany seeing a deceleration relative to recent quarters?

[L. Niklas Östberg, Co]

Correct. There's no -- absolutely no deacceleration so in Q1, but continue doing really strongly in Germany. But yes, some more smaller markets, some Eastern European markets are growing increasingly fast. Some Southern European countries growing very fast. And then -- yes, some of the more mature markets growing a little bit slower and they're having high take rate.

[Operator]

We will now take our next question from Rob Joyce from Goldman Sachs.

[Robert Joyce, Equity Analyst]

Just a couple from me. So the first one was just on the strategy in LatAm. Just interested to see what your thoughts there are, given you're sort of pulling back on investment in Brazil, but seem to be making several acquisitions and looking to expand across the rest of LatAm. So any comments on your strategy in that region will be great. Second one was just a follow up on Germany as well. Did you say that you actually saw an acceleration in growth quarter-on-quarter? And just because there's still a lot of investor questions about it, do you still consider yourselves to be the largest player by order numbers in Germany? I think Takeaway did 7.5 million orders in Q1.

[L. Niklas Östberg, Co]

So on LatAm, we are focused mainly on the Spanish-speaking part. And I think when we looked at Brazil, we've taken down investments and keeping it very sustainable. So we've taken down some of the top line and so on. So I think now we have come to a sustainable level from which we can build on. But of course, that change took a hit in last year in terms of growth, which then is also pulling back the whole region. But then in the other part we continue to invest, we do very well and we make sure that we keep the best service. And we feel very strongly about the development there. Then on Germany, so in terms of acceleration, what I said is that we've not seen any deacceleration and our business continued to being very strong. And I think in terms of size, we -- I think last year, we did publish our German numbers being EUR 90 million revenue versus EUR 58 million for our closest competitor. I think we announced last year, we have an acceleration in growth, about 24%, I think, in year-over-year, but it was a much lower growth in the beginning of the year and faster towards the end of the year. So a clear acceleration in growth in Germany during that year, being averaged at 24%. So I think on the revenue side we are in fairly -- we are doing EUR 90 million versus EUR 58 million. I think in terms of orders, we don't really comment, but -- yes, we did more than EUR 7.5 million.

[Robert Joyce, Equity Analyst]

In the first quarter?

[L. Niklas Östberg, Co]

Yes.

[Operator]

[Operator Instructions] You will now take the next question from Michael Goltsman from Citi.

[Michael Goltsman, Vice President]

One pretty simple question from me. You talked about the Easter effect in Europe supporting your Q1. What benefit do you expect to flow in from the World Cup coming in this quarter?

[L. Niklas Östberg, Co]

So it's very different by market actually. You have some markets stop ordering completely during World Cup. And then you have some markets that are ordering significantly more. So I think in the European segment, you will often have more ordering. I think in South American market, we saw in the past that actually it drops because everyone goes barbecuing. So it's a little bit different there. But those 2 regions being the ones having some effect of World Cup and little bit less effect of the others. I think, overall, it's -- I know, we have World Cup or European Championship almost every year, and there is -- the impact is there, but I wouldn't overexaggerate the impact of World Cup, in general, at least, not for group.

[Operator]

We will take now our next question from Giles Thorne from Jefferies.

[Giles Thorne, Equity Analyst]

I had a couple of questions, please. First one was on delivery. And it confirms the -- so the question of treatment of work is in the gig economies been vitalized in the past week with the landmark, Supreme Court ruling in California last week. Now, obviously, California isn't going to be a lead indicator for the rest of the world, but it does serve to highlight how the political environment is being led by case law in the courts at this point in time rather than governments, and governments are surely going to catch up on what their official view on gig economy treatment of work is going to be. So in that context, Takeaway is the only of the listed payer group who has taken a philosophical stance and all of their riders are employees. It'd be, therefore, interesting to get just your updated view on the tipping point, which a change in gig economy regulation would change your approach to delivery? And then my second question was much shorter, it's a point of clarification picking up on the disclosure on Monday of the change in voting rights for Lukasz Gadowski. Could you confirm that whether there was any sell down of shares behind this change in voting rights? And if there was, was he deemed a company inside prior to that sale?

[L. Niklas Östberg, Co]

Thanks, Giles. So the delivery side and workers' rights and on so on, I think we are taking a conservative view, and in many cases we are operating with employees versus freelancers of our competitors. So I think we've taken a clear view there. I personally think that what we are offering is very attractive for those who might do their studies or looking for a full-time job somewhere. And therefore, they can have this as a temporary work or additional work. And I am not -- I'm a little bit skeptical about this 9 to 5 thinking because that's not what our drivers want. So if you ask them, they want flexibility. Having said that, we still take a conservative approach and making sure we build our business around that and making sure that we build our unit economics on that. And if things are getting better, then and -- good for us. But in general, we take a conservative view and we also make sure that we treat our drivers very fairly and see that as, obviously, a comparative advantage that we have. Then coming to disclosure, maybe Emmanuel can cover that.

[Emmanuel Thomassin, CFO & Member of the Management Board]

Yes. So we're talking about 2.6 million shares that have been held in trust. And actually what happened is that we transferred to the economical beneficiaries, these shares. So really a small part of it have been sold, but the vast majority of the shares have been transferred to their economical beneficiaries. So no changes, massive changes.

[L. Niklas Östberg, Co]

I think in order of magnitude, I think out of 2.6 million, I think it was 300,000...

[Emmanuel Thomassin, CFO & Member of the Management Board]

300,000.

[L. Niklas Östberg, Co]

That was sold from the different business angels in those equities, so small portion.

[Operator]

[Operator Instructions] We will take our next question from Chris Grundberg from UBS.

[Chris Grundberg]

Couple of quick ones, if I may, both in MENA. Just wondered, obviously, about the disclosure around how Kuwait and Turkey performed in 2017? Just wonder if you can quantify or give some indication whether we're seeing similar kinds of growth rates as we go through 2018 for those 2 markets, specifically? And as a secondary question, just thinking about the maturity levels of, I guess, both Kuwaiti market and as to the Saudi market, can you give some indication and your perspective of where you think those 2 markets are in development relative, say, for instance, Turkey in the region or maybe a more mature markets like the Nordics? How many years of sustainable growth do you think those 2 markets have respectively?

[L. Niklas Östberg, Co]

Perfect. Yes, I think on growth and growth outlook for the MENA region and, in general, for segments, we don't disclose segment guidance, but we are obviously very bullish about that region and continue to expect very high growth, and in particular as we launched and push our own-delivery and logistic networks, which is doing really well. And we've also gone on a good unit economics towards the end of the year. When it comes to Saudi, Kuwait, Turkey penetration level of growth, it's hard to say. I don't know, they are all immature markets. They are all, I think, that IPO was between 10% and 15% in market penetration, if I remember correctly. And as we've been growing this business very fast since then, but also the markets have been growing really fast. I think that the percent of penetration is not significantly changed. And that is also what we see in many other markets. When we looked at Sweden and other places where we sell, the penetration is very high. We're getting -- I know we thought that we're getting to 30%, 40%, 50% penetration, and then suddenly the market is growing exceptionally fast, and we've probably even less penetration now than we have before or at least same as we're rather expanding the market than only doing an offline to online switch. So we realized all the time that the market is much larger than we think. And I think that also goes with places like Turkey. I know when we acquired a business there, it was growth in the low 30s and over time that has been lifted to close to 60%, really fantastic performance of that team. So therefore, it's hard to say. I think we can grow exceptionally fast for a long term. And I think, as a group, we aim to grow our business with above 30% in the very long term. And I think that's possible over the 10-year horizon to continue deliver very, very high-growth numbers as long as we deliver great service.

[Chris Grundberg]

That's really helpful. If I can have one other, just, follow-up. Just thinking about your perceptions and commentary previously about where you've got both marketplace business and 3-sided business and the synergies between them. Can you give any commentary on, I guess, how you're thinking has evolved on markets where you just have 3-sided businesses? Obviously, where Foodora operates and you don't have a marketplace, thinking specifically around, I guess, Canada, France and Australia. How has your thinking changed there, if at all. Do you think those are still viable markets for growing 3-sided platforms? Or would you ever consider a change of attack there?

[L. Niklas Östberg, Co]

I think, for us, we have taken a very strategic stance on which market we will fight and do whatever it takes to make sure that we're winning. And then there are markets where we more operate on economics and making sure we build a sustainable business even if it is #2 or #3 until the point that we either have a solution for winning that market or buy the competitor or selling to someone. So I think that is also in line with this. Either we have a way and a path for winning it even if it's just with own-delivery model or we will see what -- how we get to a point where we are actually winning all markets and that could also be through a transaction of some kind, and we wish to stay firm on that. But we also have endless of patience, given that most of our markets are in clear leadership, and I think [Audio Gap].

[Operator]

Ladies and gentlemen, this will conclude today's conference call. Thank you all for your participation today. You may now disconnect.