Delivery Hero SE

XETRA:DHER

Earnings Call Transcript 2020-Q2

[Operator]

Dear ladies and gentlemen, welcome to the conference call of Delivery Hero SE. At our customer's request, this conference will be recorded. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [Operator Instructions]May I now hand you over to Daniel Fard-Yazdani, Head of Investor Relations. Please go ahead.

[Daniel Fard-Yazdani]

Yes, thank you. Good morning, everyone, to our Q2 trading update, investor and analyst call of Delivery Hero. We trust you have all received the documents in the e-mail this morning. And of course, they are also available on our website.For the call, we will have, firstly, introductory remarks by Niklas, our Co-Founder and CEO; and then Emmanuel, our CFO, after which we will have time to take your questions.And with that, I would like to hand over to Niklas.

[L. Niklas Östberg, Co]

Thank you, Daniel, and good morning, everyone, and welcome to our Q2 trading update. We hope you're safe and healthy. So the second quarter of 2020 started off a bit rough, as you know, but ended above all of our expectations. It was a challenging environment, but the full global team did a heroic job, and I would like to thank you all for your dedication to our customers, restaurants and wider communities. So thank you, everyone.Before going into the business and financial update, let me reiterate our vision on Slide 2. This is really driving what we are striving for each day. So we aim to always deliver an amazing experience. This has been and will continue to be the core driver for our activities. We are innovating and developing the business further with the customers' needs in mind. This has also been the main driver for us when we started with logistics 6 years ago, same being the case when we looked into kitchen concept, POS, payments, supplier system, multi-vertical, Dmarts and many other things. We will keep pushing for improved delivery time, choice, cost and service until we deliver an amazing experience. We will do this while still making good economics. We will go a little bit more into details on that later.But first, let me reiterate and revisit our overall target on Slide 4, please. As many of you will remember, when we IPO-ed our business in 2017, we promised 40% growth in the short and the midterm. Looking back on our development since then, I think it's safe to say we delivered on that promise. Seeing where we stand today and the potential ahead of us, we are very confident that we will also deliver on our second growth target we set at the IPO which was to show a long-term growth of 30%. We are just today delivering another proof point for the strong growth potential we're seeing by increasing our revenue guidance for this year, and Emmanuel will talk a little bit more about this in a moment.Secondly, we go for leadership position in the markets we operate in. To achieve this, our third target is to build tech and product leadership for a third-generation on-demand platform. And finally, you know we are believers in driving profitability through scale and automation. We continue to target a long-term EBITDA margin of 5% to 8% of gross merchandise value. And the tremendous growth we are achieving shows that there is great potential for a company with our capabilities out there. And as long as we continue to find attractive growth opportunities, we will keep investing to strengthen our position in the countries we operate in. We do so, however, with the promise in mind to deliver also on the long-term profitability target.Slide 5 gives you an update where we stand regarding not only our global footprint but also strength of our position. We are considering ourselves to be rational allocators of capital. And if we are active in market, we do so in order to take a leadership position there. Today, in more than -- 9 out of 10 countries, we are the #1 player and also weighted by GMV, around 80% of the GMV is stemming from those #1 in the markets. This does not yet take Woowa Brothers into account.At IPO, I showed a similar graph with 7 markets highlighted as distant #2 in a competitive market with clear action to resolved. Happy to announce that we have now resolved all these 7 markets. In markets we are not yet leaders, we see a clear path to get there, and we'll keep pushing until we are. In some markets, it will take months; and in other places, many years, but eventually, we will be there. Overall, more rational behavior is kicking in to many of the markets we operate. If you see this trend persist, then also Delivery Hero will reduce its aggressive push slightly.We continue to be rational consolidators, and it is partially for that reason that we feel well equipped with the proceeds from the convertible bond issuance earlier this month. However, with the strength of our business, we would rather push a clear leadership organically and buying competitors out.We also selectively start organically in a handful of markets with clear fit to our geographic footprint. This was the case for the successful launch at Laos, Myanmar and Cambodia earlier this year and Japan in Q3. We have said earlier in the beginning of the year that we reserve the flexibility of additional investments of up to EUR 200 million for opportunities that we see. As competition has been a bit lighter than expected, we are reducing that now to EUR 150 million, including circa EUR 20 million to EUR 30 million towards launch in the Japanese market.Finally and, of course, quite importantly, I want to give an update on situation in Korea and the pending approval of our partnership with Woowa Brothers. Our confidence in getting the approval in the second half of 2020 is unchanged. The partnership with Woowa will reinforce our position in Asia. And we are committed to invest in the Korean ecosystem and making a tech hub for global services. Delivery will also support Woowa's expansion in new verticals and new markets. We will share global best practices, innovate together and create benefits for all stakeholders with more choice and service and more advanced technology.Emmanuel would comment on the financials in more details later on, but let me mention some highlights on Slide 6. Some of those numbers you will already know from the flash update we put out at the very beginning of the month as there was a huge interest on the market on how our business did in the second quarter dominated by COVID. As you have seen from the numbers, delivery did very well. In Q2, we delivered 281 million orders resulting in order growth of 95% year-on-year. This was despite an initial strong negative impact from COVID.We saw many good investment opportunities during the quarter. We have been doubling down on those, leading to sequential improvement in growth from month-to-month in both absolute terms and year-on-year growth. This improvement continued in July. And continuing at this pace, 2020 is set to be the first year in which we will total more than 1 billion orders on our platform. Gross merchandise value in Q2 was up 66% on a constant currency basis to EUR 2.8 billion and, together with Woowa, about EUR 5 billion GMV in Q2. Revenues continued to grow rapidly by 96% for the second quarter on a constant currency basis to EUR 612 million.Now moving on to our business update and starting with a recap on how we have engaged with our most important stakeholders during COVID-19. What the combination of these measures hopefully shows is that we consider ourselves to be part of an ecosystem and that we acknowledge our responsibility to be a trusted partner especially in more difficult times. We are confident that these investments have helped the ecosystem and would pay back over time.Slide 7 shows some of the examples how we manage to support local governments and communities. Here, it was not only about donating or delivering a huge number of meals and food to those who needed it but also by working together with governments more generally. Our customers also benefited from many of our app features to ensure their safety and wellbeing.On Slide 8 shows how we also care a lot for our riders who basically are our brand ambassador. In addition to many other initiatives, we have set up a EUR 3 million rider financial support program to help those riders who got infected and, for that reason, could not work. We have decided to prolong that program to at least October.The largest investments went into helping restaurants. In most markets, we've waived onboarding fees to allow restaurants to net off losses of them losing dine-in customers. Since restaurants have been operating below capacity, then by far the largest contribution we can make to help is not reducing fees but investing more in initiatives that can drive revenues and put the restaurants at higher capacity utilization. We have used a significant amount of the commission we collect to reinvest in free delivery and promotions. We have also been pushing pickup and other services to drive more revenue to our restaurants. The crisis is, of course, not over, but so far, results have been above expectations.On the next slide, you'll find a selection of what we have introduced or extended operationally. We have done many things to increase choice significantly, resulting in more than 630,000 restaurants present on our platform at the end of June. We made further advancements in order experience, personalization, just being one of them, while also further improving the speed of our delivery, which is obviously good for customer experience but also for our economics, resulting in value utilization of our driver fleet.In regards to quick commerce, we have already given an explanation during our last call, but listening to the numerous questions we received on this, I opted to come back on this topic again today. Slide 11 summarize the main characteristics of this type of commerce on the left-hand side. In short, quick commerce stretches to everything you want to have delivered more or less immediately to your doorstep. This can be anything from convenience items to groceries to items from local stores. On the right-hand side, you find the GMV that we are doing today in that business and the market potential we see from today's standpoint. This clearly shows that this is already today a very real business, but at the same time, there is still a long runway ahead of us.Might have been a bit confusing as we've been speaking about quick commerce and instantly afterwards about our offering, which is the Dmarts. So Slide 12 illustrates a bit better that there are 2 pillars of quick commerce. We are actually active in both of them. In third-party vendors, we act as an agent. We deliver the items from local vendors and get a commission on that. Orders, GMV and revenues are captured in the platform business. We are present in 37 markets with multi-vertical offering with more than 20,000 vendors across groceries, pharmacy, flowers, electronics and more.On the other hand, with our own Dmarts, we become the principal. Revenues from goods sold are reported in integrated verticals together with our still smaller kitchen business. At the end of June, we were present with around 150 Dmarts across 11 countries. Our ambition -- or our very ambitious target is to operate 400 Dmarts by the end of this year. We provide a customer-focused assortment of up to 3,000 products. These are mainly top-up grocery products and convenience items that cater to the more short-term needs and impulse purchases ordered both during the day and at night and, very importantly, those products we aim to deliver in less than 15 minutes from placement of the order until delivery. Both pillars combined show an order growth of 98% quarter-on-quarter to 10.5 million orders in Q2.So much for the concept of Dmarts. Slide 13 shows an overview of the ordering process, and you also get an idea of how a Dmart looks like from the inside. If you want more details, there is a link to a video at the bottom of this slide. Even when looking at this simplified process overview, you can certainly imagine many of the technology components that need to be in place for us to operate this efficiently, things such as data science or machine learning for routing optimization, dispatching technology, item selection, warehouse management and so on. The business also relies on large volume and a large delivery fleet.There have been a lot of questions in regards to how the economics work for this business model, and on the next slide, we show how it works on a high level. We only show an illustrative view on unit economics on a long-term steady-state comparison to own-delivery fleet business. To be clear, we are not yet there on our own-delivery food delivery business and also not for Dmart.For Dmarts, we are currently contribution margin negative overall as we are launching new stores very quickly. We have highlighted before that we aim to reach breakeven on a store basis after 9 to 12 months. Some of the revenue drivers will also rely on global scale, increased purchasing power, high volume in very dense areas. Dmart is a business I would never do if we didn't already have a huge scale from our food business or the logistics capabilities in place. One of the most important metrics for our Dmart is the front margin we make on the goods sold. And hence, very importantly, and different to the initial expectation that many investors have, we can expect to achieve a margin of slightly below 30%. There are cases of much lower margin but also mainly with higher -- much higher margin.As reflected in the remaining Dmart P&L, the very lean setup benefits from the fact that customers do not come in store, allowing store layout to be more efficient, with faster picking, better item selection, better warehouse management and more opportunity for dynamic pricing. Some Dmart stores are already profitable today without having pulled most of the additional levers that are shown on the right-hand side. Finally, from a cash flow point of view, given we are able to negotiate for favorable payment terms, which are longer than the turnover time for the products in store, we are also getting to a negative working capital to this part of our operations.And on that note, over to you, Emmanuel.

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

Well, thank you, Niklas. Good morning, everyone, also from my side, and welcome to the second trading update of 2020. It's a special update for us in many ways. While the first quarter 2020 was not only partly hit by COVID-19 and the resulting restrictions, the second quarter already started in that situation and then rather saw an easing of lockdown and curfews in many countries but not all. There was an understandable amount of interest from the capital market in how we did in this environment. And in wanting to provide an even more timely and transparent view, we therefore provided a flash update early July that you all have probably seen.We took it also as another positive sign of confidence on the market as we have also been able to place the 2 tranches of convertible bonds in the middle of July on attractive terms, raising EUR 1.5 billion of capital. We always have been in favor of acting from the position of strength. And with that placement, our financial position has become even more healthy and provide us with the necessary flexibility to react through opportunities when an attractive return presents themselves.I will comment on our cash position in a moment. But before that, let's start with our group financials. First, as a reminder, please note that the strategic partnership with Woowa is not reflected in any of the figures until closing of the transaction. And as Niklas just said, we expect regulatory approval from the KFTC in H2 2020.In Q2 2020, we saw a vast majority of governments globally easing the restrictions which were imposed to contain the spread of the COVID-19 pandemic. And as previously expected, business actively -- immediately picked up, and this is especially the case in MENA. And as a result, we are pleased to see that order growth kept increasing, reaching a 95% year-on-year growth in Q2 2020 after a 92% year-on-year growth in Q1. And this particularly shows the resilience of the business and that the strategic investments made in the past years have now really been paying out. The own-delivery orders increased to 62% of the total orders in Q2 driven by increased customer demand and also our city expansion across markets. The GMV reached almost EUR 2.8 billion in Q2 which translates into a 66% increase on constant currency basis. It grew by 58% year-on-year in Q1.The revenue are growing even a bit stronger than the prior quarter. It increased by 96% year-on-year on a constant currency basis to reach EUR 612 million in Q2 after having grown by 92% year-on-year in Q1, and the end of the quarter was significantly better than the beginning. So again, similar to previous quarter, our revenue on the group level had been impacted by the application of the IAS 29, the so-called hyperinflation accounting for Argentinian operation.The preliminary H1 adjusted EBITDA margin stands at minus 28.4% of revenues and minus 6.2% of GMV. All segments showed improvement in terms of adjusted EBITDA margin development year-on-year. And Asia and Americas segment show increased losses in absolute terms due to investments made in this region. MENA, despite the COVID-19 impact, improved its adjusted EBITDA, while Europe was slightly negative after group costs but profitable before. You will find more details in our full H1 2020 IFRS report on August 27.And in the light of the ongoing COVID situation, we have updated the detailed overview on the order development on the next slide. As you remember in our last trading update, and this is exactly 3 months ago at the end of April, on April 28, we've shown an order decline of 11% for the group compared to March 11 when COVID was declared as a pandemic -- a global pandemic. And if you compare this today, you see a market recovery with order numbers of the group now already up plus 24% compared to that day in March.On the segment level, the impact on Asia was very limited, while Americas had very fast recovery and been trading above its normal level. Both segments also benefit from the fast rollout of our new verticals. MENA, the segment that was hit hardest from the restriction, took longest to recover. Some markets are trading above previous levels, while the others, and in particular Kuwait, are still not fully out of curfews. Finally, Europe is up 12% now. Order growth slowed a bit in the last weeks with the first vacation period kicking in while year-on-year growth is still on the same elevated levels. Like for Americas, we expect this to fall back to more normal levels over time.So now let's move to -- to move on to discuss the performance of each segment shortly, and I would start with our biggest segment, Asia, on Slide 18. So Asia has continued to be a focus area of growth for us in Q2 2020. As mentioned in previous trading update, we clearly see the impact of previous imbursements to improve our city coverage, the customer experience through a faster and more reliable delivery as well as a greater restaurant selection. And as a consequence, we see the quarter record acceleration to 290% in Q2 2020 to 157 (sic) [ 157 million ] orders generated on the platforms. And we are still early stage in Asia. But as we are starting to reach significant size, we should expect the year-on-year growth numbers to decline from this exceptional level.Asia's GMV has increased substantially to -- by 166% on constant currency to EUR 1.3 billion. And our revenues, which are EUR 280 million for Q2, are growing by 234% compared to Q2 2019 on a constant currency basis. The stronger revenue growth compared to GMV was mainly due to the increase of own-delivery orders and now reaching 76% of total orders for the segment. We are further accelerating the rollout of own delivery by focusing on customer experience and decreasing delivery times.Now let's move to the next segment, in MENA. In Q2, 67 million orders were generated, representing a negative growth of 6% year-on-year for the reasons already discussed previously. And as a reminder, some countries have applied strong curfews that have not been yet fulfilled in some cases yet. Kuwait, an important country for Delivery Hero, entered in the second phase of the reopening plan only by June 30 with limited opening hours in Phase III today, now enabling us to deliver until 9 p.m. Since mid-March and until the end of Q2, the MENA segment was impacted by the COVID-related restriction. And circa 40 million orders were not generated due to the curfews in particular in Kuwait, Saudi Arabia and Turkey. And the residual total loss of EUR 45 million to EUR 55 million in gross profit was compensated with cost-saving measures such as marketing reduction, resulting in only EUR 30 million to EUR 35 million impact on our EBITDA until June 30, which is still well within the guidance that we gave of up to EUR 50 million impact that we gave in our last trading update in April.The GMV grew by 2% year-on-year in Q2 2020 to EUR 822 million on constant currency basis, and this is reflected in the year-on-year revenue growth of 1% on a constant currency to EUR 166 million. Own-delivery business keeps expanding, and the reach now which is 42% of total orders after 35% in Q1.The next slide is showing the development of our European operation. Our Europe segment reported stronger growth since IPO. It generated 31 million orders in Q2, a growth of 47% year-on-year despite a deeper decline and slow recovery in Southern Europe. Own-delivery orders are now at 26% of total orders. Europe GMV grew by 73% to EUR 420 million while revenue grew by 90% year-on-year on a constant currency basis to EUR 76 million.And now finally, Americas on Slide 21. Americas generated 27 million orders in Q2, which represents a year-on-year growth of 11 -- 111% compared to the same period in 2019 and this being the sixth consecutive quarter with accelerated growth orders. GMV grew by 85% to EUR 249 million. And revenue were up by 132% on constant currency basis and amounts to EUR 57 million. Own-delivery orders are now at 71% of total orders after 62% in the last quarter, Q1 2020. As mentioned before, the revenues as well as GMV for Americas have been impacted by the application of the IAS 29, the hyperinflation accounting for Argentinian operation. And this came into action, if you remember, since September 2018. And the impact of considering Argentina as a hyperinflation country was a negative of EUR 2.4 million in Q2 2020 regarding revenues and a negative EUR 10.7 million in terms of GMV.Finally, let's move to the Integrated Verticals segment on Slide 22. As a reminder, this segment captures the activities where our operating -- where we are operating as a principal, Niklas mentioned it before, and where we are in full ownership of Dmart and the kitchens we operate. And please note that Integrated Verticals orders and GMV are not doubly counted but represented in the regional platform business values, and therefore, these values are only a visual representation. The rapid expansion of our Dmart business contributed to a significant GMV growth of 109% over Q1 2020.Now let's move to and let's have a look at the development of our cash position on the next slide, Slide 23, please. So to give you a better overview, we are showing the cash position and the moving parts since the end of last year, 2019. We end the year 2019 with a net cash and liquidity asset position of EUR 800 million. And in H1 this year, we had a positive effect of -- in the amount of EUR 2.3 billion from the equity raise and the convertible bond offering in January. So taking into account the negative cash and liquid asset change of circa EUR 500 million in the first 6 months of the year, we stood at EUR 2.6 billion at the end of June. In July, as you know, we have placed another convertible bond with 2 tranche in total amount of EUR 1.5 billion, which brings our net cash and liquid assets position to EUR 4.1 billion, of which EUR 1.7 billion are earmarked for the cash component of the Woowa transaction. That position, as described before, is putting us in a strong position to make sure of attractive opportunity appears -- if attractive opportunities should rise.Now let's move through to the next slide and our guidance. On the back of our resilient and strong operating business performance for the first 6 months of this year, we are increasing our outlook for the full year 2020 revenues for the range of between EUR 2.4 to EUR 2.6 (sic) [ EUR 2.4 billion to EUR 2.6 billion ] to the new range of EUR 2.6 billion to EUR 2.8 billion. The outlook for the adjusted EBITDA remains unchanged. Here, we continue to expect an adjusted EBITDA margin of between minus 14% to minus 18% as a percentage of revenue.We have stated that this guidance is excluding additional investments of up to EUR 200 million that we intend to utilize to extend our leadership in selected markets where we operate. And so far, we have spent significantly less than half compared to our initial guidance. And consequently, we are changing these numbers downwards, and we are now reserving the flexibility to spend up to EUR 150 million including EUR 20 million to EUR 30 million for the announced launch in Japan. The COVID-19-related costs will be absorbed in our group guidance, including the negative impact up to EUR 50 million on adjusted EBITDA expected for the MENA platform business, as I mentioned before, due to the COVID-19 curfews.So while we're -- on group level, we continue to invest. For us, the direction is clear. The EBITDA margin from here is improving and as we grow in scale and can lever on improving contribution margin. And furthermore, we have proven to deliver a path to profitability for 2 of our platform segments, Europe and MENA. Europe is expected to reach breakeven in 2020, while the adjusted EBITDA of the MENA segment is expected to be higher in 2020 compared to 2019.So that was it from our side. And now we are looking forward to your questions. Thank you.

[Operator]

[Operator Instructions] And the first question is from Silvia Cuneo, Deutsche Bank.

[Silvia Cuneo, Research Analyst]

I have a couple of questions. The first one about Japan. So the launch of the new operations, I would say, is a surprise. I mean you had mentioned the plan to expand in Asia in partnership with Woowa Brothers, but the team is yet to join. So can you please share your thoughts about the market opportunity there, the current competitive landscape and why you have decided to invest now? And then second, the set of own delivery continued to grow rapidly, now at 62% of orders at the group level, of which 37% delivered in less than 20 minutes. Can you please talk about how we should expect these metrics to evolve in the medium term by segment and how the current group scale and average delivery time compare to what is needed to deliver the steady-state unit economics that you showed in Slide 14?

[L. Niklas Östberg, Co]

Sorry, I've been on mute. Silvia, starting off with the Japan launch, it's something that we don't exclude to do with Woowa, but we also don't want to wait. We're still waiting for the approval from KFTC, and we see that the Japan market is a big market, but we also see that Uber Eats is pushing very, very hard in that market, and we don't want to fall behind too much. It would be too hard to catch up then. So therefore, we decided that we'll launch Japan, and we also are supported to Woowa Brothers launch in Japan. And potentially, we could find then a good way of combining efforts in a later phase. Then I think the competitive market, you asked a little bit there. And Uber Eats is possibly a leader, but there are also Demae-can and Rakuten. But I think Uber Eats is the one who's clearly taking market share there and possibly already the largest.In terms of OD, so it has continued to grow while we have improved economics, making it faster, making it more affordable. The fact that we are faster is an indication of efficiency and the ability to deliver fast. But actually delivering faster is actually worsening our UTR. So if we want to optimize a high UTR, we would actually deliver slower. We would then also potentially batch orders. So delivery time and unit economics is not necessarily related. We think that we'll be able to decline both of them, and that's the focus we're having this year. And we will decline in all regions, both increase the UTR or the number of drops per hour but also decrease the delivery time. Exactly how much, I don't want to give out here, but it would be a further decline in delivery times.

[Silvia Cuneo, Research Analyst]

Okay. Maybe just, first, a follow-up to clarify the question on the unit economics. Just wondering if you could share some thoughts about how you are comparing right now at the group level at least for the own-delivery platform business when we look at the steady-state unit economics.

[L. Niklas Östberg, Co]

So maybe, Emmanuel, yes, please.

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

Yes, I mean like we show improvement in own-delivery unit economics also in the last quarter. This is true for the 3 segments, I mean, like Asia, Lat Am and Europe. I mentioned in my presentation the impact on the gross profit for MENA. So MENA was affected quite logically after what we saw, the 40 million orders having an impact of EUR 45 million to EUR 55 million on gross profit. So that's the only segment where we took a hit due to COVID clearly. While the other segments are improving their own profit, the OD unit economics quarter-after-quarter and year-after-year obviously. So on that, we're completely on track.

[L. Niklas Östberg, Co]

I should add that MENA is a big part of the unit economics. So therefore, on a group level, it did decline in Q2, but that is not because the 3 segment actually improved, it was only MENA that declined slightly, but it had an overall larger impact than the positive segment on the market. So we hope that we answered your question about MENA.

[Operator]

The next question is from Monique Pollard, Citi.

[Monique Pollard, Director]

A couple of questions from me, if I can. I'm just interested in this dynamic delivery pricing that you've now rolled out to 26 markets. Maybe you could talk a bit about what the impact has been and your plans for further rollout into other markets there. And then the second question was on your cash burn. So when I look at the slides from the 1Q and the 2Q on your cash position, it seems that the cash burn reduced from about EUR 300 million in the first quarter to EUR 200 million in the second quarter, and obviously, that's despite the increase in own delivery, the Dmart rollout that you had in 2Q, the losses in MENA. So just wanted to understand a bit better what has driven the reduction in the cash burn quarter-on-quarter.

[L. Niklas Östberg, Co]

I'll cover the first, and then Emmanuel covers the second. So we have seen a very good effect on the initiatives we've done on dynamic pricing. It's not only one thing that we're doing. We're doing a lot of things at the same time, also area scoping and so on. So the team has done a fantastic job. It's a large team. And this has now been rolled out in significant number of markets, and we will roll it out in all markets, most markets before end of the year. So that is happening. Emmanuel, on the second?

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

Yes. Thank you, Monique, for the question. So maybe to help to explain it, maybe I should give you more details on the bridge. So from the EUR 500 million that you see on the slide, the vast majority, circa EUR 300 million, is linked to the negative EBITDA that we are producing for the first 6 months. And there are other positions. So there are EUR 44 million linked to normalization, which basically this is usually due to transactions that we're doing. There are EUR 86 million linked to equity investments, and in here, this is -- we increased our stake in Glovo. That's the main part of it by far. And there is another EUR 79 million on CapEx, of which EUR 58 million is linked to our rent and our premises and so on and so forth.Due to this normalization and also equity, then it depends when you are having this kind of spending or cash-out. And that's the reason why you have this movement between the 2 quarters. It's not linked automatically to EBITDA, which is a large proportion of this EUR 500 million. But as I mentioned, there are also dispositions of equity investments and CapEx. And this is basically when our normalization -- and it will depend of the time where you take decision or the cash is going out for disposition. So that's the reason why you have these differences between 2 quarters.

[Monique Pollard, Director]

Understood. Understood. Can I just ask a follow-up from the first set of questions? When you said that if you reduce the delivery times, so you deliver faster, that worsens the UTR. Can you explain that?

[L. Niklas Östberg, Co]

Yes, sure. So I'll give you a simple example. If -- the delivery time is, of course, from the time you place your order until you receive the food. That doesn't mean that a delivery driver is engaged the full time here. The delivery guy is -- or the rider is only engaged from the time we tell him to go to the restaurant and go to the customer. So that means by waiting there, we can build up more volume and we can even pick someone who's more -- better located for taking that order. And we might also wait a little bit longer to give this rider -- let this rider go to the restaurant, making sure that the restaurant is done with the cooking because a big inefficiency for many of the delivery platforms is that they have to wait for the food while it's being cooked. So therefore, if you want to optimize your UTR, you wait longer than necessary to making sure that food is cooked, and you wait to allocate a rider until you have someone who's next door to that restaurant. But of course, that makes a very long delivery time. And we optimize for the reduce in delivery time, that means we have to work even harder on operations and restaurant compliance and take a little bit of sacrifice there. So that hopefully will explain.

[Monique Pollard, Director]

Yes. Yes, that makes sense.

[Operator]

The next question is from Marcus Diebel, JPMorgan.

[Marcus Diebel, Research Analyst]

Niklas, I have one question on these additional investments where you basically guided now for a lower number of EUR 150 million. Could you elaborate a little bit more, yes, why you concluded this is now the right number and why you kind of like don't see the previous returns anymore for new investments and you become a bit more, yes, let's call it, conservative here, which is clearly very helpful? So just a few comments on that would be helpful.Then the second question is also on Japan and the wider implications. I mean clearly in Japan, as you said, Uber Eats seems to be very strong. You decided to go. Is that also maybe a playbook now for other markets in Asia where you're not present? Obviously, Indonesia is a big market, but also it seems very well owned. Would that be something that you also would consider to basically tackle other players more in Asia than you've done in the past? And then again what would that mean for investments? It will be quite helpful if you can help us squaring that.

[L. Niklas Östberg, Co]

Thank you very much. Yes, so it is, of course, a positive and a negative news that we are not investing the full EUR 200 million. We always want to invest as much as we can at a good return. And we thought that we had a good plan in place and we get some additional room. We don't think that we are able to invest the full amount at the return we want to. So that's, of course, a negative. The positive is that, yes, we'll make a little bit less negative EBITDA. But overall, I think it's negative. But -- so part of this EUR 150 million investment, or EUR 200 million initially up to, was also to respond to competitive pressure that we can see in some markets. I think that competitive pressure has been a little bit less than expected, and that's why we also feel comfortable that up to EUR 150 million will be enough to keep on growing our market shares.When it comes to Japan, yes, Uber Eats has a strong position there, and they are building very fast, and it's a good company. But we have confidence from being -- competing to many players in many markets over the last year, and I think we have evolved a lot. And I think we have been gaining market shares in all markets, and we're confident that we can compete with anyone. We still like to avoid markets which are very late stage, very mature. I think in the case of Japan, we are behind with a couple of years but I think that we can catch up on. If we speak about markets like Indonesia, then we have 2 competitors fighting fiercely, and they are at a much later stage. So this then also speaks for not a market where we would necessarily want to go into.I think there's also that many competitive -- I mean 5 competitive environments that we want to be in at the same time. And right now, we -- it's a little bit less. So we feel like we can take on a market like Japan. But also keep in mind with Woowa Brothers, we also get into Vietnam. So I think with that, we feel really -- we think we'll have enough on the plate, and we will focus on those before going into any more large competitive markets for the time being.

[Operator]

[Operator Instructions] The next question is from Sarah Simon, Berenberg.

[Sarah Simon, Analyst]

So a couple from me. You've mentioned in an interview that you were talking to everybody and that you might consolidate Rappi and Glovo. And obviously, you just told us you've invested a bit more in Glovo. Can you comment on what might be going on there in terms of any conversations you're having or how likely such a thing could be? And the second one was on dark kitchens, you haven't really said much about that recently, and you've talked more about Dmart. Should we assume that Dmart's kind of on the front burner and dark kitchens are on the back? Or are you sort of busy doing those as well?

[L. Niklas Östberg, Co]

Thanks. We'll try to answer fast given the number of questions. So -- and we keep a constant dialogue, and we speak with Rappi and Glovo on a weekly basis, and we have a good dialogue. Of course, we're open to any opportunities. At this point in time, I don't think there's an opportunity. We -- so therefore, I would not expect that we are going to acquire or make an offer on this company at this point in time. When it comes to cloud kitchens, it's still a very tough area. And we told you from the start that we were cautiously trying things out, and we don't want to scale something until we really feel comfortable with it. I think we, over the last quarter, done some very good progress here. But I think this is not necessarily on the back burner but we feel pretty good about things that we have come up with and results that we start seeing. But the cost and the investments required for this is going to be less. There is also a difference in a cloud kitchen if you are the agent or not. And it could be that this will not even be -- this could be a lighter approach to it, which will not show up in Integrated Verticals but rather help restaurants and more as a service and as an agent. But -- yes, that's it.

[Operator]

And the next question is from Carole Madjo, Exane BNP Paribas.

[Carole Gladys Madjo, Research Analyst]

Two quick questions from me, please. First of all, in Asia, I think you mentioned that we should expect lower growth going forward. Is that correct? And if you can maybe come back on why that is the case and give us any additional color on the trends in H2 in the segment, in the continent. Second question, just quickly on quick commerce as well. I think the GMV has been mainly driven by third-party vendors for now. So how do you want to split between third-party vendors and Dmart to evolve in the future? How should we think about it? And lastly, on the same thing, you talked about other revenues in your P&L. Can you just maybe give us some detail on what that is in that segment?

[L. Niklas Östberg, Co]

Perfect. So Asia low growth -- so Asia keep on growing fantastically when you look at absolute numbers. But if you saw last Q3, Q3 last year, we started hitting fantastic growth. It was in Taiwan and many places. And of course, some of these markets grew with 3,000% in Q3. Keeping at 3,000% is simply impossible over time, so therefore, some other markets have been scaling faster and so on. But overall, we are comparing ourselves to much higher comps. So therefore, you can expect that sequential growth would be there. But on a year-on-year basis, you should expect that it will decline. It can simply not stay on 290% order growth forever. Having said that, I still think there will be very high growth, and the traction is still there, so we're very positive about it.When it comes to quick commerce, it's much easier to scale third party. And here, we can quickly get to 20,000 third-party vendors onto our platform in 37 markets. Dmart takes much longer because you need the real estate, you need the inventory, warehouse management and so on. And we have now 150 Dmarts globally. So it's 150 versus 20,000. We scale, of course, the Dmarts because it's a different value proposition. And we believe a lot in that, but it takes a little bit longer to scale. But we should expect that it will -- third party could still be the largest for a rather long time.When it comes to other revenue, so if you look at Dmart, and I assume you refer to that, I mean, you have extra -- if you look at the grocery stores, you have certain location in the store and suppliers have to pay for being in those locations. Similarly, you can do with an app. You have certain locations, the premium placement of certain products, there will also be sampling, that a lot of companies want the customers to try certain products. We can easily add sampling products to those items. So those are 2 specific examples of other revenue that you can drive in this business. Hope that helps.

[Operator]

And the next question is from Joe Barnet-Lamb, Crédit Suisse.

[Joseph Barnet-Lamb]

Firstly, you previously stated affordability has bottomed. I think it was in 2Q last year, from memory. Can you give a bit more detail on gross margin and the evolution of affordability and its impact on AOVs? And then secondly, given you're not investing the full EUR 200 million, does that tell us anything about spending intentions into next year? And I'm particularly thinking of the early stages of quick commerce. I imagine you could perhaps expand faster there, but maybe there's just a cap on how much you can do at any given time. That would be my 2 questions.

[L. Niklas Östberg, Co]

Perfect. So yes, there's less -- and it was a little bit extra affordability now, using COVID, in particular, new restaurants, we got so many new restaurants and merchants on our platform. And you want to give them orders quickly. They also needed orders quickly because of the pandemic. So therefore, we did some extra promotions. And we did some extra free delivery compared to what we normally would do. In general, and that has a slight effect on AOV, but overall, the AOV is not dropping. It's more fixed now than what we saw in the past. The difference is that we're growing in markets with slightly lower AOV. So we grow faster than markets like Thailand, Malaysia, Philippines, and so on with lower basket, so therefore our average is then declining. But the profit contribution from this type of market is not worse than anywhere else. So on a percentage basis, the profit contribution, they are very similar. If it's a EUR 7 basket or a EUR 30 basket, it's similar outcome in the end on a percentage basis.The spending for next year, I'll be a little bit careful here because we'll have to see what happen to the plan. Certain things are hard to scale cost-wise. So you mentioned Dmart as an example. We used a lot of efforts and time and people involved to scale those things. The other advantage is that we don't have to buy traffic. If we look at the food delivery business, we invested hundreds of millions in buying traffic. Now we get hundreds of millions of free traffic, which means that overall losses to these other verticals that we're building is significantly less going forward. But -- and we will keep investing in building leadership, but -- and I hope we find more investment opportunities, but we start coming to a point where we cannot increase those investment opportunities exponentially but rather marginally, if any.

[Operator]

And the next question is from Andrew Ross, Barclays.

[Andrew Geoffrey Ross, Research Analyst]

Great. So my first question is, within the kind of roughly minus EUR 320 million of EBITDA for the first half, could you just quantify how much of that is from a discretionary extra spend and how much of it is underlying? And then if I look into the second half guidance in terms of underlying EBITDA, I think it assumes a big step-up from kind of mid- to high-20s negative margin in the first half to, I don't know, maybe minus 10% in the second half, depending on what we're assuming for how much discretionary spend was in the first half. So it's a big move-up in the guidance in the second half. Could you just help us outline what's going to drive that and why you feel so confident it can be achieved?

[L. Niklas Östberg, Co]

Perfect. I can do the first, and you cover the second, Emmanuel. So it's hard to say where it's discretionary spend or not. And then compared to -- and we have a budget and then, of course, have some extra discretionary spending, if we saw opportunities in the competitive environment and so on. But of course, also the budget and our plans have a lot of discretionary spending. I think I said in the past, we could probably take out EUR 400 million, EUR 500 million of marketing spending and still grow the business fairly nicely. Of course, not with 95%, but it can still be a good -- typical good growth for our business, also with significantly low spending. We can probably also make easily a EUR 0.50 more profit contribution per order in our logistics business without hurting the business too much.But again, doing those 2 kind of initiatives will not make us win the market we're operating in, and it would also be a question on how much margins can we make in the long run as being the #2 player in the market. So it's hard to say what is actually discretionary spending, what is not. In order to grow with the pace and winning market leadership the way we do, everything is -- then we're required to spend the amount that we'll be spending, including the additional investments that we did. So sorry for not being able to give full detail there, but I think the business model is just strong with the cohorts that we could easily make a profit also at a group level at any point in time, but we choose to grow faster and win more customers because we have a high lifetime value of those customers.Emmanuel, to the second?

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

Yes, for the step-up, Andrew, that you mentioned from the first half to the second or the second from the first, I mean it's fair to remember that we have a seasonality in our business. And Q3 and especially Q4 are usually very strong quarters for us, stronger than the first ones. And second, we also reflect in this development the positive evolution that we've seen on unit economics but not only. So we are combining the seasonality that we usually see in the business anyway plus the effort and the evolution that we have. Having said that, this was also, like, taking into consideration COVID-19 so that we expect that now we go back to a more normal situation especially in MENA that impacted us in H1. So that's the reason behind this step-up, as you said.

[Operator]

So the last question is from Jürgen Kolb, Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

Two questions. First, on Japan again, assuming that it looks as if in Japan not a whole lot of restaurants have their own delivery fleet, would it be fair to assume that Japan will be almost exclusively your own-delivery business? And with that, in this respect, are you planning to enter Tokyo very much at the beginning? Or do you try to approach the main city via other areas? And secondly, on delivery overall, now in the second quarter, I guess, about 96% of your total order growth stemmed from own delivery. Could you picture a situation where actually the maintenance -- sorry, the marketplace business could actually decline in terms of orders? Or is that something that we've seen in Q2, mainly reflects maybe some COVID-19 impact or -- so on the marketplace business, how are you seeing that trend evolving going forward?

[L. Niklas Östberg, Co]

Thanks. So on the first question, we will launch own delivery. We think it's a superior user experience when we deliver. We do it fast, we do it more transparently, so we do think it is the better way. Marketplace has some other advantages and can be a little bit cheaper but because there's someone able to somehow making the economics differently than we do. But in the case of Japan, we will focus on own delivery and push that. I could not disclose where we enter and how we enter, but I'll let that to be a surprise for everyone, including our competitors.When it comes to the OD growth, the majority of the growth comes from OD, there's partially -- it's actually correct, but it's also because we are moving some vendors into OD, it's also that we add more other choice for customers. So before, they only have marketplace restaurants to choose from, now they have a lot of other restaurant to choose from, and some of them actually move over to those restaurants where we deliver faster. So overall, we have to see the business how it's growing combined, and then how we move between OD and marketplaces as separate. So it's not independent of each other. So driving OD faster will make growth of marketplace slower or even negative.Thank you. Well, I wish we had more time to answer questions but, unfortunately, we're out of time. I know you're all busy. Therefore, I'd like to thank all shareholders for your strong support and trust. We will work day and night to remain your trust and keep your trust. We think we are in a fantastic position to build an amazing company over the decade to come.And I also like to thank all global team members at Delivery Hero. You have shown an enormous amount of dedication to serve our customers, riders, restaurants and wider community and particularly in these challenging times, so thank you very much. Thank you, everyone.

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

Thank you. Bye for now.

[Daniel Fard-Yazdani]

And the Investor Relations team will be available for those questions that we couldn't take, so please feel free to reach out to us during the day. Thank you.

[Operator]

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