Delivery Hero SE

XETRA:DHER

Earnings Call Transcript 2019-Q2

[Operator]

Dear ladies and gentlemen, welcome to the Q2 2019 Trading Update of Delivery Hero SE. At our customer's request this conference will be recorded. [Operator Instructions] May I now hand you over to Niklas Östberg, Co-founder and CEO, who will go through his conference. Please go ahead, sir.

[L. Niklas Östberg, Co]

Good morning, everyone, and welcome to our Q2 '19 trading update. So as you've already seen, this morning, we had a fantastic first half of the year. In Q2, we saw orders and revenue growth further accelerate to the highest level since our IPO. The businesses has outperformed our expectations for the second quarter as the number of new customers that ordered on our platform has accelerated significantly. And consequently we managed to beat consensus again for the ninth consecutive quarter, despite having just announced an increase of EUR 200 million to our full year '19 revenue guidance in June '19.Before I step into the numbers, I will recap our vision that is the bedrock of our success. We continue to be at very early stage of food delivery. We're seeing rapid changes in consumer behavior that continues to surprise us on that side. And as we look to expand scale and leadership, [ we ] remain focused on achieving our vision to always deliver an amazing experience, fast, easy and to your door. We see this as being core to win market shares in close to all our markets at the moment. We're excited to bring more food and more services to the 1.2 billion people that live in our current markets.So now to our Q2 highlights on the next slide. We had orders up 67% year-on-year to 144 million. Gross merchandise value, up 64% on a constant currency basis to EUR 1.7 billion. Revenue up 103% on a constant currency basis to EUR 315 million. And this is the fastest we have grown since becoming a listed company and is building the foundation for our expectation to grow near 100% year-on-year in revenues for the full year '19. If adjusted for all acquisitions and divestments, this year-on-year growth for Q2 would have been 63% so, hence only marginally lower to what we report here.Then moving on to Slide 5 and our continuous track record of growth, here you can clearly see the acceleration of growth since Q3 2018, when we decide to instrumentally invest in new customer acquisition. This quarter alone, we had a record 19 million incremental orders. This is even more impressive than compared to the previous year where we solely added 4 million orders quarter-on-quarter. This result highlights the early stage of our overall market opportunities that is presented to us over the next quarters, years and decades to come.Then moving on to our long-term priorities we said at our IPO. We continue to deliver on our key IPO promises of growth as the #1 priority followed by investment, leadership, and thirdly building tech and product leadership. So #1 priority remains growth. We aim for 40% or above 40% growth in the short to medium term. We are far exceeding this with 103% year-on-year growth in revenue and 67% year on year order growth this quarter and expect year-on-year growth for 2019 of near 100% on revenue with a continued long-term growth opportunity in a EUR 500 billion food service market.Secondly, we continue to invest in leadership. We [ have a ] leading position in 31 out of our 39 countries after divestments in Ecuador and Peru with more than 50 million orders per month in more than 4,000 cities. The same applies to our leadership position in own-delivery with over 16 million orders per month in circa 300 cities, up from 250 cities by the end of Q1 '19. We're delivering multiple times as many orders as our competitors combined in our leadership countries. Increased leadership development last 6 to 9 months points to our strong service offering.And then third and lastly, innovation is part of our DNA and we continue to invest in tech and product leadership to build a third-generation on-demand platform. In Q2 '19 alone, we migrated an additional 2 country operations to our global platform with a long-term target of 8 regional platforms. We further rolled out additional vertical capabilities to 2 more countries and are now live in 18 countries.The latest testing of circa -- sorry, 20 dark stores or online only grocery stores in MENA has shown promising results to help us build third-generation on-demand platform.Now on to next slide and our Q2 business update. As mentioned previously, we have seen significant acceleration of growth in Q2 '19 driven by improvements implemented over the last 18 months in the following categories. Expanding city coverage, expand the restaurant coverage, improve selection experience and speed through own-delivery. So the first one, we expanded our city coverage to untapped additional customers, better logistics capabilities and improved launch process allowed us to move into more new cities faster than ever before.The increased quality and quantity and choice through expanded restaurant coverage. Here, our hybrids business model allows us for the greatest restaurant quantity and pricing, and the ability to add leading global brands as well as local independent restaurants makes us a favorite with customers. The number of active customers in our platform grew in Q2 to 310,000 representing a 70% year-on-year growth rate with the ability to add more demanded restaurants to our platform.The selected rollout of second-generation cloud kitchens to now more than 10 markets or 10 countries provides [ selected ] capacity for high quality food at lower cost to the consumer. And then on the improved selection experience [ and ] speed with our own-delivery, we offer a better choice to our customer with expanded selection of popular restaurants. By being in charge of the entire supply chain that comes with own-delivery, we have greater control of the overall service and can guarantee a better customer experience. Better use registration rates of our delivery fleet allowed us to reduce delivery times by 19% year-on-year. Today, we are at around 30, but in central cities even faster.Lastly, the introduction of affordability measures reduced the cost to the consumer. All improvements led to improved core characteristics with more customers coming to the platform, staying with the platform and ordering more frequently than previously.Now on to Slide 8. Our confidence in our ability to increase our investments with high returns is partly based on all the successes here recently. To give you some more insight into how well these investments have been performing, I'll elaborate a little bit on examples where we have Asia and Americas segments, which were both a main focus in terms of investment allocation.So as you can see here from the 3 charts in the presentation, we managed to accelerate growth in new customers substantially, it's an approximately 166% year-over-year growth in new customer acquisitions. We did this while keeping CPAs close to flat following our acceleration investments in Q3 2018. And here also, keep in mind that this is total new customers including the [ free ] customers we get. So if delivery you only look at acquired customers both through total customers then it even looks better than this.So what I also like to emphasize is our [fact] in terms of investment spend. This effect is mainly driven by sustainable affordability and marketing spend. On top of that, we will also see the effects from our investments in sales and technology, but over a more long-term perspective.We can also look at the quality of customers. You would see that the customers we acquire today have been better than those acquired previously. The bottom graph indicates that the customers that we do acquire now actually show higher order frequencies, which improved by 52% year-on-year and therefore, high potential for lifetime value.The fact that we managed to invest successfully with great momentum indicate to us that there is a potential to increase investments, to grow our business at attractive returns and that's what we announced in -- approximately 1 month ago.On Slide 9, own-delivery has been another strategic focus for us at Delivery Hero having added 33 million own deliveries orders to the same quarter last year. This helps to improve the service and will support our growth going forward. We have now reach 30% of all orders being [ proposed ] via own logistics capabilities. [ That means ] that by connecting the highly demanded and popular restaurants with our consumers for a faster reliable service, we have been able to deliver a better customer experience and accelerate new customers to our platform at the level we have not seen before. At the same time, this improved customer experience has increased frequency at which they order on the platform.This capability to rapid scale own-delivery while still having a positive profit contribution has taken many years to build, operational know-how and a mass investment into our technology platform. My personal belief is that we have the best last mile logistic tech and operations globally.As we now grow in scale, we continue to improve our technology platform, operational know-how and as a result we continue to improve significantly our delivery network. So despite significant reduction of delivery fee and minimum order value, we generate positive profit contribution on our logistic orders, and this on a fully loaded basis.From this point, we have a lot of levers for the mid to long-term to gradually increase the profit contribution. Those being up-selling opportunities, especially through additional on-demand convenience items will allow us to increase the basket size beyond levels that we have seen today or are seeing today. In our best-in-class markets such as Turkey, we are now already seeing 20% high [GMV] due to this multi-vertical offering, and meaning through our own online only grocery stores.And there is a potential for commission rate increase in mature markets such as Sweden, we are already seeing commission rates of 30% plus, demonstrating ample growth opportunities to potentially increase in commission rates in the long term.Potential to increase other revenue per order through roll out of subscription models, dynamic pricing, [joker] features and premium placement. In our best-in-class markets such as Greece, we are already underwriting 5% of GMV with other revenue segments, while if we looked at our current market we're still far from those numbers. So big potential for upside here over the long term.Lastly, we expect delivery cost to decrease significantly going forward. We are confident that as our fleet efficiency further increases, we're going to be able to decrease delivery costs further. And as I previously elaborated on, in dense areas such as in Taiwan, we already observed UTR improvements of 50%.Already today, we managed to increase efficiency significantly. Utilization rates increased year-on-year by 23% for the group and in some dense markets by even 50% plus year-on-year. And this, of course, by leveraging our proprietary [ rise around restaurant] technology. The subsequent reduction of delivery time leads to high customer satisfaction which in turn is again beneficial for cohort characteristics driving growth for our underlying business.Delivering also multiple times as many orders as our competitors combined in our markets of operation as well as our ability to deliver profitability per order makes us a clear global leader in our own logistics where we operate.With that, I like to hand over to Emmanuel for a financial deep dive of the quarter.

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

Well, thank you, Niklas. Good afternoon, ladies and gentlemen. I welcome you to our Trading update for Q2 2019. Delivery orders continuing strong growth path following an exceeding performance on the first years half -- first half of 2019. And then our performance in the second quarter 2019 clearly expect us to [ finish it ] once more and we accelerated growth for group order growth to 67% year-on-year as well as revenue -- a group revenue to record growth of over 103% year-on-year on a constant currency basis. So we are very pleased with our operation performance and improvements and customer service over the last few months. And consequently, the impact this had on our strong growth this quarter.But now let's start with our group financials. The order increased by 67% year-on-year in Q2 2019 to 144 million. In the second quarter alone, we had 19 million orders versus the previous quarter, so due to the operational improvements implemented in the past month. And we improved also restaurants selection as well as expanded delivery services and the rapid expansion to new areas in all such markets has driven this -- growth beyond expectations.Our GMV amounts to [EUR 1.7 billion] in Q2. This is presenting a growth of 64% on currency basis. The revenues are growing after record sales as we [ begin year ] growth over [103% ]constant currency to EUR 315 million. The revenues are above -- are driven by strong growth rate in [unsearched] markets as mentioned earlier. And similarly to previous quarter, our revenues on a group level has been impacted by the application of the so called IAS 29 the inflation accounting for Argentinian operations. But general [ interaction ] for the first time in Q3 FY '18.Moreover, our own delivery orders are now at 30% of total orders for the group are driven by accelerating growth roll out of delivery mainly through city expansion and also increased customer demand in our early stage market.The take rate including delivery orders is now at 18.7% driven by the increase of own-delivery and also a subsequent and [ exerting ] effect on revenue growth as well as the growth in other revenue items such as premium placement and [other] subscription models. Excluding delivery, our take rate level at -- still at very low level at 12% with much potential to grow from here into levels that we've seen in more mature markets.While we are -- we will report [indiscernible] numbers, profit numbers -- half year reported on September 4, we expect the primary gross profit margin for H1 '19 close to 40% with financial gross revenues before the deduction of [this half]. And in terms of adjusted EBITDA, we expect to carry margins for H1 '19 by minus 30% for the group. And this is partially because we ramped up investments in Q '19 already.So now let's look at the performance of our 4 operating segments and I'd like to start with the biggest one, MENA. So the strong order growth in MENA is continuing and the segment generated 71 million orders in Q2 and this is representing a growth of 60% year-over-year. GMV grew by 70% in Q2 to EUR 814 million. Our own-delivery is now at 28% of the total orders in MENA. And as a result, the take rate increased to 20.2%. Moreover, we have further increased the delivery efficiency across MENA segment and an increased field size by 6% -- 6 million year-on-year. So as the results of own-delivery was -- we have seen an improved delivery efficiency with a lots of large orders as Niklas mentioned before. Consequently the increase of own-delivery percentage resulted in an impact of average basket prize [ with ] now being at EUR 11.52 and accelerating revenues with record growth rates of 141% in constant currency and to EUR 164 million. Moreover, we continue to roll out our additional verticals as well as testing several online own grocery stores in MENA, but the [ course was ] complete. And in terms of profitability on segment level, we expect MENA to remain #1. The MENA adjusted EBITDA for half year is expected to be slightly negative given some one-off impacts in H1, and this is related to our logistics infrastructure shift in HungerStation there will also be the integration of Zomato in [ May]. But don't expect that these discussed items will be carried forward for the second half of the year and we expect that the cost of [ integration ] will normalize in H2 2019. And a strong -- the strong underlying performance of the business will ensure to reach significant profit in the second half of this year.With the efficiency change maybe in the first 6 months '19, we expect a better than forecasted profitability for H2 leading our segment MENA to reach full year adjusted EBITDA of EUR 70 million despite the H1 one-off of HungerStation before.Let's now move to our next segment, Europe. Our Europe segment demonstrated strong acceleration in the second quarter of 2018 [indiscernible] population -- sorry, [indiscernible] markets in Stockholm and in Eastern Europe. Europe generated 21 million orders in Q2 at a growth of 42% year-on-year compared to the Q2 '18. But our GMV grew by 45% on constant currency basis. Revenues for the segment grew by 52% year-on-year on constant currency basis to EUR 41 million. And our own-delivery orders are now at 13% of the total orders. Due to the market mix effect that we've seen in the segments with higher growth coming from earlier stage market countries, we saw the average order value decrease slightly to EUR 12.07. Lastly for Europe, we remain on track to break even during H2 '19 with more than half of our GMV generated from countries with already strong positive EBITDA margins.So let's move to the next one, Asia. Asia has been clearly a focus of -- area of growth for us in Q2 '19. We can clearly see the impact of the previous investments due to our profitability campaigns, the increase of our restaurant coverage as well as the product improvement. And so also the expansion to new cities and zones, which are now fueling the order growth. And as a result of this, we have seen record order acceleration to 115% in Q2 '19 compared to the same period last year and generating more than 40 million orders. The GMV product segment increased essentially by 73% of constant currency of [ EUR 479 million ].GMV improved slightly at slower [ than orders ] due to affordability campaign. And also in some markets with a decrease for so called MOV or minimum order value. The revenue [ picture ] EUR 83 million for Q2 growing by 85% compared to Q2 '18, on adjusting constant currency basis. And this is in spite of [ the possibility ] and also lower price to our customers. The strong revenue growth is also due to the increase of own-delivery orders which all now stand at 38.8% of total orders for the segment.The average recorded interest in delivery orders for Asia increased to 17.3%, and this again despite the investments in the affordability campaign. And moreover, due to the successful adoption of affordability campaign, we are able to reduce the average basket size [ of ] now EUR 11.90.And finally, Americas. Americas generated 13 million orders in Q2 which represents a year-on-year growth of 44% compared to the same period of time in 2018. And this growth increased to 50% percent if you count the investments of Brazil. Order growth has been further fueled by significant reduction of delivery fee, which decreased by 6% year-on-year. Our GMV for Americas were 32% on reported currency and on constant currency, GMV grew -- growth has been 44%, amounting to EUR 143 million.Obviously, FX headwinds for the region are impacting our reporting results in Europe and particularly and first of all, we have some [indiscernible] growth rates [indiscernible], current speculation due to the [indiscernible] effects of the [ IAS 29 Argentina ] inflation that I mentioned earlier.Revenue grew by 80% and amount to EUR 26 million, boosted by investment in our own-delivery capacity, as well as the continued roll out of multi-vertical offerings including grocery and our other on-demand items. The revenues as well as GMV for Americas is impacted by the application of the IAS 29, the translating accounting for Argentina operation that came into our actions since Q3 '18. And this in fact considered Argentina as a hyperinflationary country was boosted by EUR 1.2 million in Q2 '19 regarding revenues and positive by EUR 7.5 million in terms of [ Q2 ] for the same quarter. Our own-delivery orders is -- are now at 37.6% of all orders for Americas.Now I hand over to Niklas for the guidance for 2019.

[L. Niklas Östberg, Co]

Thank you, Emmanuel. So now coming to the full year outlook. As outlined already in June '19, we have increased our revenue guidance between EUR 1.3 billion to EUR 1.4 billion. To give you some more explanation, we can look at the revenue bridge. You take the midpoint of revenue guidance range of between EUR 1.1 billion to EUR 1.2 billion as starting point. You then add EUR 194 million of core business and performance, and the investment, the better than expected investment results. Next, you add incremental returns from the investments that were announced in June '19 which is equal to EUR 20 million. And finally, we account for the negative FX impact in Q2 '19, which was about EUR 14 million. Taking all these factors into consideration we end up at an aggregated revenue guidance between EUR 1.3 billion and EUR 1.4 billion.As said, revenue guidance now at EUR 1.3 billion to EUR 1.4 billion. In terms of adjusted EBITDA guidance on the back of the additional investment announced in June '19, we are on track to reach our EBITDA or adjusted EBITDA guidance of between negative EUR 370 million and negative EUR 420 million. And as outlined previously, we will invest more in the second half of '19 than in the first half of 2019. And this is because it takes time to scale up our investment spend across our countries.In terms of profitability on a segment level, we expect MENA to remain the most profitable segment, as Emmanuel mentioned. MENA adjusted EBITDA is expected to be slightly negative in the first half of '19 given one-off impacts in relation to changes in logistic infrastructure in HungerStation and the integration of Zomato in UAE. And as Emmanuel also mentioned, we don't expect these cost items would be carried forward to second half '19, and that the profitability would normalize in H2 '19. The strong or the stronger than expected performance of the business, combined with also these [ strict ] changes and clear improvements we've seen, combined with Zomato integration will allow us to reach significant profit in H2 '19. And with that, our MENA segment is still expected to generate full year adjusted EBITDA of EUR 70 million for the year.Europe is expected to reach breakeven during H2 '19. A significant part of our markets are already producing significant EBITDA margin and we'll continue to do so. We are extremely pleased with the first half of '19 as we progress into the second half of the year. I'm very excited for the growth opportunities that lie ahead of us. And then yes, with that, I would like to thank you for your tremendous support. Our momentum is fantastic, and I'm extremely excited to be part of this amazing company to [ save ] the future of this industry which is in my view at the very early days.So now Emmanuel and myself will open up for questions.

[Operator]

[Operator Instructions] The first question is from Silvia Cuneo of Deutsche Bank.

[Silvia Cuneo, Research Analyst]

It's Silvia Cuneo from Deutsche Bank. My first question is on the multivertical. According to the presentation, you have now increased the number of countries where the service is available by 2. Can you please share some detail on which regions? And what is the first learnings as per the economics of multivertical. Sounds like an exciting new area and [ near interview will the [indiscernible] this ] morning. You said you aim to challenge Amazon here. Then second question related to that is about Rappi and Glovo. In how many countries do you overlap during multivertical? Also wondering if you contributed to the latest funding rounds, just wanted to understand what is the strategy going forward there. And finally, just on the MENA margin for the first half, can you please specify if that -- if there's more loss is driven by the Zomato acquisition as in the business was lossmaking or if maybe you are investing a bit more in the region?

[L. Niklas Östberg, Co]

Thank you, Silvia. So in regards to multivertical, we now offer it in almost all of Latin America and Middle East. Actually, we do offer to a lot of these countries. We also start offering in a few other markets. The learnings are many. We don't want to go into too much details there. We want to keep those learnings to ourselves, but I think that we gained some very good experience on how to manage this and also learn how our users respond to our offering and how to make these businesses work. And then on Rappi and Glovo, we have multivertical in all the markets where we operate. Where also Rappi and Glovo operates we have a similar product offering in those markets to them. In terms of fundings, we cannot comment on that question whether we would participate or not and how I think about that so, we cannot share more information there. Then on the MENA margins, so some of the one off integration effort [ is ] rather than taking on losses from Zomato. So more actually integration work that was happening than post acquisition which was I think in March. So some in Q2 then added to us. I think larger driver here is more the same logistic infrastructure. We have a significant number of orders and riders in Middle East. And here, we changed logistic infrastructure which meant that we had to incentivize drivers to go on a new app and work with a system. So this [ incentivation ] to get [ 100,000 ] drivers to a new system and getting them to use that system and move away from third-party rider was very expensive, but it's very quickly making the return on that investment because it's -- we see significantly the better economics now in the whole MENA region and as we operate our logistics ourselves. And that also means that we're -- we can be very positive about H2 as we see that we're working on the efficiencies there, yes. So that hopefully answers your questions.

[Silvia Cuneo, Research Analyst]

Yes, maybe just a follow-up on the multi-vertical earnings, just wondering are you able to [ stop ] orders at all between multi-vertical categories and food takeaway?

[L. Niklas Östberg, Co]

If we are able to -- say again?

[Silvia Cuneo, Research Analyst]

Like to stack more orders, like to combine orders.

[L. Niklas Östberg, Co]

Stack orders, yes. We do a fair amount of stacking of orders. At the same time we prioritize speed in favor of efficiencies. But as we're getting more volume with multi-vertical also generally through our business, we have more deliveries at smaller distances and therefore we can also optimize the stacking and [ batching ]. That has helped us as one driver to the improved efficiencies as we've seen over the year.

[Operator]

The next question is from Andrew Ross of Barclays.

[Andrew Geoffrey Ross, Research Analyst]

Just a couple for me. First one on career, I'm assuming that's going pretty well given the numbers you're reporting in Asia. Maybe you can give us an update on trends there and, I guess in particular, where you think the market share is in terms of total number of orders against the competitor, if you're seeing a response, et cetera? Second question on own delivery. I think, Niklas, you said that the contribution profit is positive for the group as a whole. Can you just give us an update by region as to how that breaks out? And then third one is around your thinking on investment for 2020. I understand it's still early and it's a fast-moving space. But given you're seeing clearly pretty good returns, how should we be thinking about your EBITDA in 2020?

[L. Niklas Östberg, Co]

Yes, so in regards to Korea, we're obviously very happy. We have been surprised by the growth and the development and user behavior there. So I think the team has done a tremendous job and we are very happy with the progress there. And I'm fairly certain that we grow our market share fairly fast at the moment and hope that we can continue doing so going forward. In terms of own delivery, it's positive as you mentioned. And despite that we actually took a significant [ approach ] towards affordability with reduced delivery fees, minimum order fees to the point where it's more or less [ none ] . And despite that we drive a positive profit contribution which I think is pretty impressive, but the teams have done a tremendous job in improving efficiencies. We still think there's a lot of room there. There is still significant upside to drive economics and that's what I hope we will do over the next years. But as we're now taking the approach to making it more affordable and now we're making it also gradually slowly even more profit contribution per order. In terms of regions, we do not disclose this at this point in time. But we're positive as a group, as I've said, [ those ] markets will be on a good profit contribution. In terms of 2020, we have not given any guidance there yet. But I think it's fair to assume that we have very good investment opportunities. This year we have great returns in how we invest and hopefully we'll continue to see good investment opportunities next year, which should drive growth quite significantly.

[Operator]

The next question is from Giles Thorne of Jefferies.

[Giles Thorne, Equity Analyst]

I have 3 questions, please. Just starting with the major feature of the first half which has been outperformance in customer acquisition, Niklas, you made the comment during your prepared remarks that the customer being acquired is generally higher quality with higher frequency. Our question is, is this higher frequency high enough to offset the slightly higher CPA? And can we therefore assume that, overall customer lifetime values in Asia and Americas are rising slightly? And secondly, the competitive landscape in Asia, Grab's acquisition of Uber in a number of Southeast Asia [ countries ] last year was obviously an overhang and it gave them increased scale in food, but we've now seen 2 funding rounds at Grab that have had their ambitions for use of proceeds dedicated towards the super app and not food. And there's also been some news that competition authorities are challenging the Grab acquisition of Uber in some countries. So all in all, it feels difficult for Grab or Grab's priorities are elsewhere, is that something you're seeing too? And finally, going back to the question of Canada, clearly, efforts in Canada to squash the gig economy labor model are growing, you decided to keep Canada as the only market where you operate a delivery without a traditional marketplace alongside with the pressure building on delivery costs and the presence of an obvious buyer or 2 obvious buyers in the market. Are conditions building that would make you revisit owning that asset?

[L. Niklas Östberg, Co]

Great. Thank you. So in terms of the outperformance of customer acquisition, as I said, at the higher frequency and flat CPA, we have been slightly declining if you look at paid acquisitions. Then of course, we also have to factor in a little bit of reduced basket and perhaps factoring that we took down a little bit in our profit contribution as we improve affordability, so that kind of also reduced the lifetime value in that sense. But as we see also a lot of possibility to increase those -- the delivery efficiency further, we would also hope that the lifetime value of those customers will be similar or higher than what we have today as customers continue to order for years and years. So as we run our models on lifetime value and CPA, we are very happy with the results. We think they will have a better return now than we have had before. Some mixed effect of the combination of basket frequency gross profit, but net-net, positive in terms of lifetime value the way we see it. In terms of Grab, yes they're a very strong competitor. Very good, spending a lot of money. I still think that we have a better service. We are faster delivering, we are having, I tend to believe, better operations and that is also then helping us that they spend and [ educate ] the market while we can reap some of the fruits there. But what you will see is as we keep up with the growth in those markets I think it's starts turning out to be more of a -- or some of the other competitors start falling out a little bit here. And it becomes a little bit more a [ 2-] player market in regards to the narrow definition of food delivery. And we have seen similar things in China, of course Meituan and Ele.me where we now start seeing Ele.me actually taking market share despite being a various -- not a super app, but rather a very focused delivery operation. And that's how we see it as well. We want to be very focused on what we do and I think that is a slight favor for us to be a focused app. We have seen it also in U.S. with DoorDash being the clear fastest-growing player there by being just very focused on what to do rather than trying to cover multiple areas, ride hailing, et cetera, et cetera. So therefore, I'm still very optimistic that we will generate very good growth in the very long term in the [ nation ] markets. As you say, in the 4 markets where we overlap with Grab, most of the markets we actually don't have any overlap with Grab, but in the 4 markets where we do operate and overlap, I think we have very promising [ thing ] here. In terms of Canada, yes, it's not a market where we're leaders. It's not part of our strategic set of countries. So that's correct. At the same time, it's a market with very good economics. It does have good business development, so we are also happy to be owner of that asset and continue to grow that asset to see if there are any strategic considerations in the long term. And we think it's fine to run it like we do now. But it's also not a market where we put a lot of money to overcome and win that market, at least not as of now. So we will keep our doors open there.

[Operator]

The next question is from John King, Bank of America Merrill Lynch.

[John Peter King, Research Analyst]

Congrats on the Q2 growth. I just wanted to dig into, first of all, on Asia, the average order value now, EUR 12. I guess we're seeing strong delivery order growth in that market. If you think about a 12 euro order for own delivery -- and I guess maybe as well with some of the delivery fees being reduced or not there anymore? It feels like that might be hard to get that kind of order to strong profitability. So maybe, you can explain the path there towards higher margins or perhaps I'm wrong? That's the first question.

[L. Niklas Östberg, Co]

Yes. So actually, we do not see that the basket -- actually, if we look at it market by market and high basket, low basket we do not see a larger correlation, that high basket market generates better profit contribution. We'd rather see almost opposite because wages and cost of labor is significantly lower in markets like Pakistan than what it would be in Sweden or in Germany where it's very difficult to make economics out of delivery. In those markets, it's actually been easier for us, so I think if you look at Asia market, the hardest markets to get profit contribution is probably markets like Singapore, where we've got high baskets versus the one with lower baskets actually having better profit contribution. So we haven't really seen that effect or that correlation.

[John Peter King, Research Analyst]

And just following up on, I think, comments you had at another point. I think you said in the fall you were somewhat skeptical about the profitability potential of pure play delivery players, I think around saying that. So I guess in that context, how do you see in the long term your own delivery business? Obviously, it's a non-GAAP breakeven or profitable. What do you see the purpose of delivery in the long term for? Is that truly going to be a business that generates a huge amount of profit? Or is it actually as much as you don't think [ emotes ] the competition and something that maybe can acquire your customers that go on toward the marketplace orders?

[L. Niklas Östberg, Co]

So what I've said in the past is that being a pure play logistic only has a lot of risk because you're very dependent on market dynamics and particularly if you operate in a few markets because it's more vulnerable to competition. So I am very happy that we have a significant portion of our business in the marketplace where we have more stable, solid, very countable revenue streams or profit contribution streams while there are more volatility in the logistics space. So therefore, I'm very happy that we have this hybrid to cover there. I think that there will be markets where there will be good profit contribution but it will be a bit less, therefore I am also very happy that we have a very wide scope and the scale that we do have, so both the scale as well as a little bit of diversity in the markets. So if there is strong competition in, let's say, Latin America, we can maintain that competition because we can make money in other places and vice versa. So being a local player is, of course, very risky when it comes to logistic play and I [ retain ] that view.

[Operator]

The next question is from Monique Pollard of Citi.

[Monique Pollard, Vice President]

Three questions for me, if I can, please. So the first is on the MENA EBITDA. Obviously, you maintained the guidance of EUR 70 million for the year. When I look at that on my 2H numbers, it seems to be suggesting somewhere in the [ range ] of the [ 60% ] EBITDA margin in that region. Is that a reasonable run rate to assume going forward? And the second question, I just had -- wanted to get an update from you on the sort of asset sale for what you do with Glovo in April. So you divested of your Domicilios businesses in Ecuador and Peru and that they had also closed down their Egyptian operation. But the Egyptian regulators had Foodora start operating in Egypt again. So just wanted an update on that and just whether you're seeing any increased regulatory scrutiny around potential consolidation? And then the final one, just on Slide 8 where you show your Asia and Americas cost per acquisition, you just say it was slightly elevated in the 2Q because of one-offs in June. I was just wondering if you could explain what those were.

[L. Niklas Östberg, Co]

Okay. The third one there, I'm not fully -- what you said, the elevated customer acquisition cost in June. Do you mean the elevated cost in general, elevated?

[Monique Pollard, Vice President]

No. It says on the slide that the cost per acquisitions, that Asian cost of acquisition in Q2, it says it was slightly elevated in Q2 driven by one-offs in June. I just didn't know what those were.

[L. Niklas Östberg, Co]

So maybe Emmanuel will cover that. So on the first one, so we still have very high EBITDA margin in some markets and that's also true for first and second quarter this year. However, when we look at MENA as a whole there are also a lot of markets where we invest heavily into. So that's why on an average basis, EBITDA margin is lower than the 60% that you referred to. But only individual markets we show exceptional margins due to our scale effect. So yes, the EUR 70 million [ is rather ] what we see. But given our size and the profit contribution for orders that we currently generate and based on the size and so on we believe they will be at to EUR 70 million or coming to EUR 70 million despite the one-off effects that we had in Q2. Then on the asset sale, we don't want to go into those details. We are obviously very careful of applying the local laws in all markets and jurisdictions and we continue to do that and be careful to operate. I don't think in general, there's more scrutiny, but of course, I think in general, the involvement might be more there but I do not necessarily see an increased scrutiny that will hinder certain consolidation [ in ] transactions. At least not in the markets where we operate or at least not a change in scrutiny, I should say. And then in the last one, may be Emmanuel, if you understood that question a little bit better, maybe you can cover that one?

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

Yes, I think -- I mean to come back to your question. So one-offs, I mentioned the one-off, it's how we call [ the first half ] for H1 FY '19, it was concerning the impact in MENA after the move from -- to our system, [ convert our system ] into macro. There have been some -- on this specific slide there were some one-offs in June, that's [ right of ] other campaigns, TV campaigns that we did in segments with some long term branding effect that we see and this is probably what Niklas mentioned while looking at the slide. So I hope I answered your question.

[L. Niklas Östberg, Co]

Right. Now what you referred to, it's a very marginal increase that we saw. That's correct, so [ minus that with ] some outdoor campaigns and some brand activities. that margin moved [ that ] up, correct.

[Operator]

The next question is from Rob Joyce of Goldman Sachs.

[Robert Joyce, Equity Analyst]

Three for me. So the first one is just on order frequencies. I wonder if you are able to update us on what are the sort of the highest frequencies you're seeing in any sort of country level market is now post these investments? Second one is just, be great if you can give us an update on the competitive dynamics in the MENA region, in your key markets there: Kuwait, Saudi Arabia, UAE and Turkey. What sort of multiple times bigger are you than your nearest competitor? Just pick the most competitive market, that will be great. And the third one, just to clarify, Niklas, did you say that you're now on a blended take rate of around 30% in Sweden already? And if so, what's the delivery percentage within that country?

[L. Niklas Östberg, Co]

Perfect. Yes, so we don't give any order frequency per market, but I believe we have some of the highest frequencies, at least if I compare to anything that we have seen. I believe that we have the highest frequency in some of our markets. So higher than any M&A transactions [ the course ] that they've done.

[Robert Joyce, Equity Analyst]

Niklas, but without saying a specific market, can you give an idea of what it is without naming the market? Are you above that sort of 5 to 6 per month you've shown in some slides in the past?

[L. Niklas Östberg, Co]

I would believe that we even surpassed that point, but more than that I cannot say. The comparative size thing, if you compare to the narrow view of how we compete with similar applications, then we would be significantly larger than in all of those markets, as I said. It's a multiple larger in those markets. Yes, in all the rest of the markets. I think the one where we probably compete the most is probably UAE. But here, we always speak about more or less 3 or 4 central areas, being BMT, Marine area and Business Bay, here we of course compete with Uber and Libero, where they focus very much on the ex-pat community. But if you look at the rest of UAE or rest of Dubai, I think we are a multiple larger than both of them combined. So UAE possibly the most comparable there. Then in terms of Sweden, this being more the commission rate for own delivery restaurants, of which we also have the certain delivery fees and take rates, could -- it will even be a little bit higher. We do have in our marketplace 18% take rate. So on a blended basis we will be lower than the 30% [ before we get out ].

[Operator]

The next question is from Miriam Adisa, Morgan Stanley.

[Miriam Anuoluwapo Adisa, Equity Analyst]

Three questions for me. Firstly, on own delivery, as you approach [ 40% ] by the end of this year and potentially 50%, at what point do you think you'll start to manage that number, given the growth you've driven by the lack of delivery fee and the minimum order value? Are you comfortable for the delivery to go above [ 50% ] ? And then my second question is on the take rate. You mentioned the increase in the revenues. Can you confirm how much of that is contributing to the take rate increase? And how would you think about the contribution of other revenues' take rate going forward? And then thirdly, just on industry consolidation, if you could just share any thoughts about what you think about the pace is of consolidation in the industry? And perhaps given in light of yesterday's [ need ] if you expect there to be any step change with that?

[L. Niklas Östberg, Co]

Yes. So I don't think that we'll manage or try to reduce the delivery proportion. We'd rather try to deliver the best experience for consumers and then making sure that we get economics on that. I think if you look on a global basis here, I think with the scale and the number of markets operating, we do expect there will be parity on profit contribution as a proportion of GMV or on order or actually [ bill as an order ] and GMV when it comes to our own logistics. And we see a large potential or lot of levers for this to happen as much as we look forward, certain basket size optimization, logistic efficiency, piggybacking on orders to increase the batching opportunity, better vendor compliance as we get larger and some more orders. Then we can work more actively with restaurants to make sure there is no waiting time. There are also mapping. We are now replacing Google for our own mapping so when it comes to time estimates and so on. So we are getting more efficient there because we have better estimates on timings than Google. So there are many things that will be -- where we can drive this and that's why we do believe that we will reach a parity on profit contribution on a global basis. Having said that, on a local basis in markets, that can be very different because it's very competitive dynamics there that can still change economics. And that I cannot vouch for, but because we are always making sure that we have a comparative offering, an affordable offering to our consumers, and therefore, we also have to make sure that we always stay competitive here. Then on the take rates, I think maybe Emmanuel should cover this, but overall that the decrease has been driven by logistics improvements and only a little bit by other revenues. But there's a lot of potential here, but Emmanuel, maybe you can.

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

Yes, absolutely. As you rightly say, all this is having a revenue increase in take rates, and I think with 10% with the [ OD ] and 12% without. We clearly see room for increasing in the future and I state this in the past, we think that we can increase the take rate and we see this quarter-to-quarter, month by month in all regions. But right now, we're focusing on gaining a better coverage on restaurants instead of pushing [ the take rates, starting to build ] the OG is driving partly the increase of the take rate.

[L. Niklas Östberg, Co]

Also, I'd like to add here that we do this in a very partnership approach so we are not the ones who just suddenly change the commission for restaurants and send a letter and so on. That's not how we operate. We make sure that we generate services and products that restaurants are willing to pay and increasingly want to pay for. So we like to generate value for every increase that we do and we always increase in a partnership way. We speak with the restaurant, see if they're fine with increasing, even though legally they might not be obliged to, but it's still -- we have a strong relationship with them and we want to keep that relationship, and that will also help us in the long term for driving take rate. Then on the industry consolidation, I'm not sure if we're faster or slower than in the past. Obviously, we have seen an announcement and we're following that development closely. But we don't feel see that it will impact our financial performance in any way. And we do not expect any consolidations to impact us. We try to keep our heads down, focus on building a great business.

[Operator]

The next question is from Jurgen Kolb, Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

Two questions left from my side please. First on Greece. Niklas, I think you mentioned that around 5% of your GMV in Greece are now stemming from other segments. In other regions it seems to be smaller. Maybe a quick word on -- if you had something you're also planning and you will see growing in the next years? And maybe a quick word on the profitability of these other segments compared to the underlying business in Greece. And the second one when it comes to MENA, you mentioned that there were some restructuring activities, switched to a new system. Is there anything we should expect also to happen in other regions in this respect? Any upgrade of systems or restructuring expenses that you're expecting or are seeing in maybe the coming year or so?

[L. Niklas Östberg, Co]

So Emmanuel, do you want to cover the first point there about the best practice in Greece, ability to execute really well in other services and how we see the rest?

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

Yes. So Greece is in the driving services at [ their ] base. And it's too early stage, to be quite honest to have some long-term judgments around what could be the maximum percentage and also on the profitability. This business is very attractive for us. I suppose due to the usage, obviously the delivery time that we manage to deliver to our customers and also by the fact that the customer acquisition is very interesting for us that we use as the [ .com ] database from a food delivery system. I think right now you going -- it's quite too early to comment on the unit economics. They are good but it's too early because we just started, and also which percentage of GMV can we cover that the other vertical is also very [ timely ] to any numbers. Right now, quite frankly at the group level, we're below 1% of the total orders generated. So yes, it is [ misleading ] as well. These other markets where we have some, but I think at the group level it's around 1% or below 1%. And you want me to comment on the second question?

[L. Niklas Östberg, Co]

Please. Yes.

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

Yes. On MENA, the upgrade of the systems. What I can tell you is that right now the group is on the [ whole ] logistics system. So with this movement that we did in MENA in H1, which was a great effort, every single country of the group is using the same logistics system. And we tied their -- the integration of platforms that make [ transactions ] before once we are -- we're doing also great progress here. There is no major systems implementation that we have seen besides the systems -- like if you [ use the Web ] or whatever. But the logistics systems is now 100% on own systems that we deployed in every single market right now.

[Operator]

The next question is from Hubert Jeaneau of UBS.

[Hubert Jeaneau, Director and Research Analyst]

Just a couple for me please. The first one is on the penetration in MENA and maybe thinking about your more mature markets in Kuwait and Turkey. Could you give us a sense of the restaurant inventory in terms of how much larger is the opportunity there? Or if you feel that you're getting closer to maturity in terms of penetration of the restaurant base? The second question is on gross margin. So you gave, I think earlier in the year, a 40% gross margin subguidance for H1. And just wondering between the efficiencies coming in and the further delivery rollouts, if you could give us a sense of when we could see an inflection point in margin, in gross margin?

[L. Niklas Östberg, Co]

Right. So you mentioned 2 markets there, with penetration in MENA and Kuwait, and obviously 2 very interesting markets. In terms of the restaurant coverage, I think we have a very, very strong coverage there. But we tend to get surprised with more restaurants starting as we drive more and more orders, more restaurants have the opportunity to build their business. So therefore, there is a constant strong increase in new restaurants starting businesses. So that's why we keep on adding restaurants because more restaurants are opening up. But the number of restaurants is not really the driving force, it's rather that we drive more users and frequency and that drives more restaurants rather than the other way around. I think most people thought that a market like Turkey was already fairly highly penetrated like 5 years ago and since then we probably tripled the business. Same with a market like Kuwait where we do more monthly orders than [ inhabitants of ] the market, and still we're growing at an incredibly fast pace. So we just tend to take those boundaries away or those caps that we think that is there and just keep on growing. And that we see in many other markets as well. We think that there is a few x to grow and then we grow a few x and realize that there are a more than a few x to grow. And that's why we believe there is a magnitude more orders that can be done in all our markets, including some of those that you mentioned. In terms of gross margin, I can only speak for logistics and marketplace separately because on the marketplace, of course, the gross margin is very stable, very calculable, very flat, not much happening in there. On the logistics sides, on delivery is a little bit more volatility there as you operate. And now, as I said, we took a big affordability offering and now we're -- in despite, we've actually been profitable which I think is amazing. And now we are at the very low point in that where we can start growing in our own efficiencies and evolve efficiencies and take rates and other means of -- faster than any affordability that we do. So therefore, I do think that we are at a little bit of an inflection point. I am not saying that it's going to be a fast inflection point, but I don't expect it to be any -- yes, I think we are -- it's hard to get it more affordable than what it is right now. But then of course on a combined level as we grow own delivery versus marketplace, that each effect can still make an impact where the gross margin will decline even if both parts of the businesses are improving and growing. That's what we hope to expect.

[Operator]

There are no further questions. So I would like to hand back to the speakers.

[L. Niklas Östberg, Co]

Thank you very much, everyone. I'm truly grateful for your support. I think it's an amazing company, and I'm proud to be part of this journey. And I think it's very early stage. And we can grow this business incredibly fast the next 10, 15, 20 years. And I hope that many of you are part of that story. So thanks, everyone.

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

Thanks very much and looking forward to the next trading update. Thank you very much.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.