Delivery Hero SE

XETRA:DHER

Earnings Call Transcript 2019-Q4

[Operator]

Dear, ladies and gentlemen, welcome to the conference call of Delivery Hero. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Niklas Östberg, who will lead you through this conference. Please go ahead, sir.

[L. Niklas Östberg, Co]

Thank you, and good morning, everyone, and welcome to our Q4 2019 trading update. So with the risk of being repetitive, we had another great year with a fantastic ending. Our growth accelerated throughout the year, and as a result, in Q4, order and revenue growth reached its highest level since IPO. This has outperformed growth expectations for the 11th consecutive quarter, with orders growing by almost 100% year-on-year in the fourth quarter on the back of our main focus on customer experience. So let's go to our vision. And as always, before going through the numbers, I'd like to recap what we're building, and that is in -- always deliver an amazing experience, fast, easy and to your door. I believe our focus on this is the core reason why we have been outperforming our peers and why we see increased frequency and loyalty to our service, but also why I believe we attract and retain the best talents. As we look to expand scale and leadership, we remain focused on implementing this vision. With this in mind, we are accelerating investments outside of our core food delivery business to increase customer loyalty to our service and leverage our platform of customers, merchants and riders. Before getting started, I'd like to have a quick recap on our strategic partnership with Woowa Brothers, which we signed on 13th of December 2019. Woowa is the leading and the largest online food delivery platform in South Korea, and the transaction is reinforcing our global leadership and strengthening our position in Asia. We are very excited about this partnership. And I also now like to point out that the numbers in this presentation do not include Woowa Brothers. Moving to the next slide. Full year 2019, we managed to globally deliver 666 million orders, resulting in order growth of 80% year-on-year for the full year, with a significant acceleration in the fourth quarter, which ended close to 100%. Gross merchandise value in Q4 2019 was up 70% on a constant currency basis to EUR 2.3 billion, slightly higher on a reported basis. Including Woowa, we achieved approximately 66% GMV growth on a constant currency basis and slightly faster on a reported basis. And I think we did approximately EUR 4.2 billion or EUR 4.3 billion in size. So a big size and very high order growth. Revenue continued to grow rapidly, with 117% for the fourth quarter on a constant currency basis to EUR 1.46 billion. With that, we reached the ambition guidance we set out earlier this year. Then looking at the quarterly basis. Here, you can clearly see the acceleration in growth since in Q3 2018 when we opportunistically decided to significantly increase investments into new customer acquisitions and customer experience. This quarter alone, we added 35 million incremental orders and 300 million in GMV. When you compare our order growth and organic order growth on a like-for-like adjusted basis, we grew 99% in the fourth quarter. And with that, we significantly outpaced our peers. And our belief is that is the result of investment into customer experience over the last couple of years, which are now paying off. Reported pro forma order growth from our listed peers has been around 19%. We have seen also a ride-hailing company with similar growth, but several times more loss-making. And with Woowa, approximately the same size, so several times more loss-making. And I think this shows the efficiency of our growth and the advantage of being a focused platform. Then moving on to our long-term priorities we set at IPO. First, starting with growth, which is the key priority. We continued to deliver on our key IPO promise and deliver long-term sustainable growth. At IPO, we promised 40% or above 40% in the short to mid-term. And as shown, we are currently growing orders by almost 100% on order basis and revenue by 117%. The strong acceleration in recent quarter is following successful new acquisitions and improved cohort behavior, with 96% of orders coming from returning customers. So even if we spend up a lot, the significant part of our business, 96% of it, is actually a returning customer, and that's why we keep on investing to building that base. In the long term, growing market size and improving order frequencies should drive sustainable growth above previous guidance level of 30% communicated at IPO. And with Woowa's unique regional insights, we will be able to significantly execute on the growth opportunity across Asia. On leadership, we continue to successfully invest in leadership and currently winning all markets in every region or, I would say, in all regions against every competitor in the markets we operate. So there might be a couple of markets where we're not yet. But overall, in all regions, we are gaining market shares against our competitors, all of them. In Q4, we increased our leadership across 35 markets and expanded our footprint to 3 additional countries in our Asia segment, with Laos, Myanmar and Cambodia. Today, we operate 44 countries, and we will keep pushing our service to leadership country-by-country over the next few years. The transaction with Woowa, again, reinforces our position in Asia. And we are committed to invest in the Korean ecosystem and allow Woowa to expand its leadership position there and across the region. On the technology and product side, we will continue to invest in tech and product leadership. We are making great progress to become a third generation on-demand platform. We consider ourselves pioneers in the delivery space by delivering over 32 million orders per month. In Q4, we have reached approximately 44% own-delivery share. We are currently also delivering in 450 cities, in which we are delivering multiple times as many orders our competitors combined in our leadership countries. Delivery will also support Woowa's expansion in new verticals, where we'll share our global best practice, innovate together and, in the end, create benefits for all shareholders with more choice, better service and more advanced technology. And then on the profitability point, we continue to target long-term EBITDA margin of 5% to 8% of GMV. But we have no urgency to get there. And we are fine if some markets are lower or loss-making for years to support achieving our first 3 pillars. As previously stated, post transaction, 74% of delivery at GMV was coming from markets with profitability. So we keep on investing significantly in the large Asian markets, which is not yet profitable. Now to Slide 9 and our Q4 business update. The acceleration in growth has been driven by improvements made over the last years. And first point being that we reached a milestone of 500,000 contracted restaurants globally. And here, I believe our hybrid business model allows for the greatest restaurant quantity and pricing. Having the ability to add leading global brands as well as local independent restaurants make us the favorite with customers. The number of active restaurants in our platform in Q4 grew by 92% year-on-year, and we hit the milestone of 500 active restaurants, as mentioned. And we did that in January 2020. And this makes us then the biggest platform with the widest selection among the listed peers outside of China. Then regional platforms supported by Global Services. In Q4, we made good progress with migrating further platforms on to our 7 core platforms. More than 96% of our GMV now generated on our central tech stack, serving 7 regional platforms for local fast adoption. We keep growing our tech teams fast and effectively, with approximately half the team working on our global platform tech stack and the other half working on local adaptations. We are very happy with this setup and believe it combines the best of scale and fast local execution to local needs. The focus on talent and innovation led to a successful launch of 2 exciting product features, one here being Panda Pay, which is a proprietary payment solution in Asia to encourage more frequent customers' behavior; and launch of the second feature, which was the Pandamart, a dark stores concept in Asia similar to the concept we introduced in MENA in 2019. And then last, becoming a leading instant delivery app, we continued to accelerate the rollout of new verticals with promising initial results. In Q2 -- or Q4, we rolled out new verticals to another 11 countries, now having multi-vertical offering in the majority of our countries. And growth has been very strong, and we are now processing more than 1 million orders per month. Then moving on to delivery, giving you an update here. Our own-delivery orders are now at 44% of orders overall in Q4. This has increased from 25% in the beginning of 2019. We expect this proportion to grow to 55% to 60% of orders by the end of 2020, but only to moderately increase after that. The increase in 2020 is mainly driven by market mix but also rollout into new cities and areas. We are now offering own-delivery services, as mentioned, into 450 cities globally. And as you are aware, the marketplace is offered in thousands of cities. Operational improvements led to global reduction in delivery time to 28 minutes on average, while having reduced the cost per order. Scale has been a significant contributor to these operational improvements. Then on profit contribution in own-delivery. Own-delivery remains gross profit-positive for the group, after having had a few quarters with reduced levels driven by lower minimum order value and significant free delivery campaigns, which we pushed in many markets to make it more affordable, which was one of our key initiatives in -- end of 2018. We have kept these aggressive levels but managed to improve gross profitability for own-delivery since Q2 2019. We expect to continue improving this for both own-delivery and marketplace during 2020. The improved profit contribution is also valid for both mature markets, that being MENA and in Europe, and early-stage markets, such as APAC. And here, we are particularly happy with the improvements that we see in the last quarter. Our investment into logistics efficiency is a clear comparative advantage in our belief, and profit contribution in more mature markets are even exceeding those in the marketplace. Now I would like to hand over to Emmanuel for a financial deep dive. Go ahead.

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

Well, thank you, Niklas. Good morning, ladies and gentlemen, and welcome to our trading update for the last quarter of 2019. The company is continuing on its strong growth trajectory. In the fourth quarter 2019, we accelerated the group orders with a growth of 99% year-on-year, and group revenues with a growth of over 117% year-on-year on a constant currency basis. Recently reported figures of publicly listed peers, average pro forma orders growth of 19% year-on-year with slowing trend. Our reported growth rates are the results of our tremendous efforts, but also our aim to invest into what we see as the essence of our success, and that is our vision to provide an amazing takeaway experience. What excites me even more as a CFO of the company is that we start to see our scale reach by Delivery Hero is now also becoming a game changer for unit economics. And heading into 2020, we are in a comfortable position to continue at high-growth rates while making positive and also improving unit economics on every single orders executed. I'm convinced that this competitive advantage, backed with our comfortable financial position, will enable us to take over leadership in markets where competitors are running unhealthy unit economics. But now let's start with our group financials. And please, before digging into the numbers, please note that the strategic partnership with Woowa is not reflected in any of the figures until closing of the transaction, which is expected for H2 2020. Our group orders increased by 99% in Q4 '19 to EUR 216 million. And if adjusted by all the investments and acquisitions done during the year, the group will have grown by 93% year-on-year on a like-for-like basis. In the fourth quarter alone, we are at 43 million orders versus the previous quarter due to investments, but as well as operational improvements implemented in the past months. The improved restaurant selection, also our expansion of delivery services and the expansion or rapid expansion to new areas, have driven growth properly beyond our expectations. Average order value decreased by 14% due to the decrease in minimum order value. However, our GMV improved to EUR 2.3 billion in Q4 2019, the first time over EUR 2 billion in the history of Delivery Hero, and this is representing a growth of over 70% year-on-year on constant currency basis. The revenues continue to grow at an outstanding pace, with year-on-year growth of over 117% on a constant currency basis to EUR 493 million. Again, and similarly to previous quarters, our revenue on a group level has been impacted by the application of the so-called IAS 29, which is the hyperinflation accounting for Argentinian operation. Moreover, own-delivery orders increased by 44 -- to 44% of total orders in Q4 '19 driven by an increased customer demand and also our city expansion across markets. And this growth is supported by positive unit economics on group level and also improving unit economics for own-delivery orders across all segments. The preliminary EBITDA margin is expected to be negative at minus 29.6% for the full year '19 or circa minus 6% as a percentage of our GMV. We have announced during our last trading updates for Q3 that we would continue to invest outside the food delivery business in MENA into dark stores and also virtual kitchens, with a net adjusted EBITDA impact of negative EUR 20 million circa for '19. And we have successfully deployed these investments and expand the numbers of new verticals. But we see a disproportion increase over time. I will speak about this in more detail in a second. But now let's look at the performance of the 4 operating principle, and I'd like to start with the biggest one, MENA. The strong order growth in MENA continues as 87 million orders were generated in last quarter 2019, which represents a growth of 53% year-on-year, while we also operate a positive and increase in profitability -- a positive profitability. GMV grew by 54% year-on-year in Q4 to $991 million on constant currency basis, with 57% growth even higher on reported currency basis. The revenue shows strong progression, with year-on-year growth at 93% in Q4 on constant currency at EUR 215 million. Our own-delivery business ramped up in a very accelerating pace and reached now 31% of total orders compared to 19% of total orders in the last quarter in '18. The increase in own-delivery capacities, capabilities and, in particular, exciting as we have great change to -- we had the great changes of 2 technology and operations in the year. And this in particular, in H1 '19 at Hungerstation. And as we improve our algorithm with every order that we fulfill, we are improving the unit economies rapidly, which are not far from exceeding those in our marketplace orders. Again, this is our clear aim, to achieve positive and improving economics for our own-delivery business across all segments as we achieve higher scale and density. Our MENA platform business is performing well and should generate positive adjusted EBITDA for -- of EUR 65 million, including group costs for the full year, of which approximately EUR 75 million was generated in the second half of '19. These numbers are still audited as we speak. Outside of the platform business, the MENA segment successfully invest into dark stores and virtual restaurants, and we will refer to it after as integrated verticals with a net adjusted EBITDA impact of negative EUR 20 million for 2019. With that, Delivery Hero expanded its dark stores footprint from 1 to 5 markets, and virtual restaurants from 20 to over 100 restaurants in Q4 2019. In MENA, at the end of the year, we operated today 51 dark stores across Turkey, Kuwait, KSA, UAE and Qatar. And we deployed those investments to further strengthening our product offering, but we also believe that we can build a highly profitable business by leveraging our existing user base at a minimum acquisition cost as well as our platform and logistics network. And the fact that we have a full ownership over the entire supply chain allows us to also be in full control of pricing and margins as well as optimal warehouse management. So we have seen some initial exciting results with more mature stores as we speak now. At the moment, a circa 2% of total revenues are now generated by the so-called Integrated Verticals business, and we plan to further grow this business in 2020. I'd now like to move to the next segment, in Asia. Asia has continued to be a focus area of growth for us in Q4 '19. And as we mentioned in our previous calls, we clearly see the impact of previous investments to improve the city coverage, but also the customer experience through faster and more reliable delivery and, finally, also the greater choice of restaurant selection. And consequently, we see a record in our high order acceleration to 261% in Q4 compared to the previous quarter. This is more than 5x the year-on-year growth that we achieved in Q4 '18. And this growth is mainly driven by early-stage markets in APAC as we see growth of more than 20x year-on-year in some markets. But we still foresee enormous potential and exceptional growth to continue to accelerate further in 2020 and, therefore, we will continue to invest in the coming quarters. In addition, the strategic partnership with Woowa is expected to help further expand delivery orders and Woowa's footprint in Asia. Asia's GMV increased essentially by 126% on constant currency to 888 -- EUR 808 million. Revenues reached EUR 179 million for Q4 '19, growing at 206% compared to last quarter '18 and this is on adjusted constant currency basis. The strong revenue growth was mainly due to the increase of own-delivery orders, and we are further accelerating the rollout of own-delivery by leveraging our logistic platforms to improve the customer experience and decrease the delivery times. In Q4, own-delivery orders accounted for a remarkable 64% of total orders compared to 28% of total orders in Q4 '18. And similar to MENA and beside Asia's food delivery business, Asia successfully invested in dark stores and virtual restaurants to provide customers with a greater choice, and with the first dark stores launched in Singapore and Taiwan in December '19. So again here, very strong results from Asia. And now I'd like to move to the next one, the next segment, Europe. Our European segment shows consistently strong growth compared to our peers. In Europe, we generated 24 million orders in Q4 '19. This is a growth of 40% year-on-year compared to Q4 '18. So in other words, we are outgrowing, by far, European publicly listed competitors. We just did -- for example, growing orders by just 10% year-on-year in Q4, and also Takeaway pro forma growth being -- by 20% in Q4 '19. And this growth, we achieved while at the same time, we have breakeven adjusted EBITDA basis, including our food cost during Q4, and we expect to continue on this path and remain breakeven business in 2020. The Europe GMV grew by -- at 46% to EUR 308 million, while our revenue grew by 58% year-on-year on constant currency to EUR 52 million. The own-delivery orders are now, at the end of the year, at 16% of total orders. And now finally, Americas. Americas generated 17 million orders in Q4, which represents a year-on-year growth of 70% compared to the same period in 2018, and this despite some political and economical critical weeks in some leading countries, such as Argentina and Chile as well as Bolivia at the end of the year. The 70% year-on-year growth is a significant acceleration from previous quarters. And still, we continue to operate in a very early-stage market and expect this growth acceleration to continue. GMV in Americas grew by 33% on reporting currency, and our constant currency GMV growth has been 36%, amounting to EUR 165 million. The revenues grew by 86% on constant currency basis and amounted EUR 37 million, boosted by the investment in our own-delivery capacities as well as the rollout of multi-verticals offering, including groceries and other on-demand items. Own-delivery orders are now at 55% of total orders. And FX headwinds for the region are impacting our reported results in euro significantly for this segment, for the revenues as well as the GMV for Americas have been impacted by what I call -- what I said before, the implication of the IAS 29. This hyperinflation accounting for our Argentinian operation that came for the first time into action in September '18. The impact of this, considering Argentina as a hyperinflationary country, was positive by EUR 2.6 million in Q4 '19 regarding revenues and positive by EUR 14.5 million in terms of GMV for Q4. So now let's turn over to an introduction of our new segment structure. As I mentioned before, Delivery Hero successfully invests in and continue to roll out the new verticals offerings, such as dark stores or virtual kitchen in Q4. And the rollout has encouraged us during Q4 to reevaluate the reporting structure for the future. The new business models differ from a traditional platform business. So -- because as a platform business, we will describe activities where Delivery Hero is acting as an agent operating on commission basis. For the activities where we're operating as a principal, i.e., where we are in full ownership of, for example, virtual restaurants or dark stores, we will refer to other Integrated Verticals in the future. And from the reporting standpoint, we have, therefore, decided to introduce a fifth segment, which we now refer as Integrated Verticals. The name might change in some months, but this is as we refer today. So -- though this business is still small, but -- only make up for a small proportion of overall business, but we expect it to grow over time as we scale operations. And hence, we will regroup these operations for all regions in which Delivery Hero act as a principal under this new segment in the future called Integrated Verticals, in addition to our 4 existing platform segments. This change should be applicable starting January 2020. Now I'd like to give you some insight concerning our cash position. On Slide 19, we highlight the cash position pre and post the Woowa transaction expected to close in the second half of this year 2020. We ended the year '19 with a net cash and liquidity asset position of roughly EUR 800 million, excluding cash from the restaurants. And in January, we successfully raised circa EUR 2.3 billion from the convertible bonds and also equity offering. This obviously allows us flexibility to invest in general corporate business purposes and also potentially in M&A activities. Now let's move to the next slide in our equity value bridge. In terms of impact of the transaction on our equity valuation, it is helpful to look at the enterprise to equity value bridge in more detail. So if you start with our enterprise value, you would then add the cash and equity assets, first, in February of EUR 1.4 billion, as I just described, and also add the latest portfolio valuation of other minority investments, around EUR 700 million, of which Rappi and Glovo are the largest. And this resulted in an increase of EUR 2.1 billion of the equity value compared to the enterprise value. And now I'd like to move to the guidance 2020. As discussed before, we are on track to achieve a preliminary EBITDA margin of minus 29.6% for the full year '19. And in terms of segments, I am pleased that Europe, as a segment, has broke-even on adjusted EBITDA basis, including group costs in the December '19. While the MENA platform business is expected to generate EUR 65 million positive adjusted EBITDA full year, including group cost, means around EUR 75 million generated for the second half of the year. Outside of the food delivery business are Integrated Verticals. The MENA segment successfully invests into dark stores and virtual restaurants, with a net adjusted EBITDA impact of negative EUR 20 million in Q4 '19. In terms of 2020, we expect to achieve full year 2020 revenues in the range between EUR 2.4 billion to EUR 2.6 billion, with an adjusted EBITDA guidance for the group of between negative 14% and negative 18% of revenue. This guidance is excluding additional investments of up to EUR 200 million that we might use for -- to extend our leadership in selected markets. We are confident that this year, 2020, will be crucial for consolidation and, therefore, we are even more pleased having the flexibility to act opportunistically. While on the group level, we continue to invest. The direction is clear for us. The EBITDA margin from here is clearly improving as we grow in scale and can deliver on improving contribution margin. And further we have proven to deliver a path to profitability for 2 of our segments, Europe and MENA. Europe expected to remain breakeven in 2020, and the MENA platform business is expected to double adjusted EBITDA in absolute terms this year. So now, ladies and gentlemen, I'd like to hand over to Niklas to wrap up. Niklas?

[L. Niklas Östberg, Co]

Thanks, Emmanuel. So to wrap up, I would like to highlight the most important points again. We continue to have growing scale with an average of 72 million orders in Q4, significantly outgrowing our competitors. We also have increased our leadership positions, with now leading in 35 out of 44 markets. Our technology remains the best-in-class, and we'll continue to roll out our third-generation platform, including groceries, dark stores, virtual restaurants with multi-vertical capabilities in now 29 countries worldwide. Our core strength and investment returns are demonstrated by our 117% revenue growth for Q4. And with scale and improved operations comes also better utilizations, as evidenced by the delivery times that are now lower than 28 minutes, and for our dark stores closer to 12 to 13 minutes in the first markets where we launched. Lastly, we continue to expand restaurant coverage for better quantity, quality and choice, with now more than 500,000 restaurants on our platform globally. And with that, I'd like to thank you for your tremendous support and trust in us. All in all, I think this was a fantastic year, and I'm very proud of what the team has achieved until today and what comes ahead. Now we'll open up for questions.

[Operator]

[Operator Instructions] The first question we received is from Miriam Adisa from Morgan Stanley.

[Miriam Anuoluwapo Adisa, Equity Analyst]

I have 3. Firstly, on the improvement in gross profit you saw in Q4. Could you give us a bit more color on what's driving that improvement? Is it simply just improvement in drop densities? Or have you started to reintroduce delivery fees in any market or introduced minimum order value? And then secondly, on discounts, I believe the guidance was 13% to 14% of revenue. Did it fall in that range? And what should we expect for this year? And then finally, on the Integrated Verticals. Can you just remind us about how the economics of that model works and what we should expect the contribution to the group to be over time in terms of revenue and profitability? And if you have a better sense now of what the CapEx and working capital impact will be?

[L. Niklas Östberg, Co]

Okay. Thank you, Miriam. As -- I'll cover the first 2 questions and then Emmanuel will take the one on Integrated Verticals. So the improvement in gross profit is not driven by MOB or delivery fee but a rather high drop density. As you remember, we scaled up our delivery with 100%. And as you do that, you will have some inefficiencies. You also start rolling out to new cities and in the very early stage of those rollouts in those new cities, you have usually a very bad unit economics because the drop density is not enough. You overstaff for having the experience and so on. So as we start maturing a little bit here, you also see an improvement in gross profitability. And generally, we invest a lot of effort, time, engineering power over 5 years to improve our logistic capabilities. And I think that is also the result of that improvement and really started paying off. Then when it comes to the discount. So we had approximately 11% of orders were vouchers, approximately 16% of revenues for Q4, our voucher orders have been flat, around 14.5, 14.4, so roughly flat. But we have seen a clear reduction in November and December. So while we were peaking at almost 20% at times, we are now significantly lower toward the end of the year. I also like to make a comment around the orders being vouchers. So in the beginning of the year, there was EUR 3.5 on average voucher value that was in Q1 2019. And in Q4 2019, it was EUR 1.8 voucher value. So therefore, you see that the order that have been vouchers, did increase over the year, dropped towards the end of the year. The voucher value in the beginning of the year was significantly higher and significantly lower towards the end of the year. And I think if you look at Q4, we were approximately 3.5% of GMV, 3% to 3.5% of GMV was vouchers. So still a very small proportion in vouchers, but we see this continuously dropping over time. Now Emmanuel for the verticals.

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

Yes, for the new verticals. So basically, the new verticals are -- the unique economics or the economics are coming from the gross profit we can generate per product. As you know, we have like up to 2,500 SKUs. And as we scale the business, we will be able to increase or to improve this gross profit margin per product. In terms of Capex, because you asked for Capex, the CapEx required for setting up a store are not large at as such. And also, we are -- more and more, we are negotiating with our suppliers for them to participate to these investments as we're getting more and more size in the markets where we started the business. So overall, I think the economics are attractive. Also in terms of frequencies. I mean we see that the customers that are ordering on a food platform, we manage to convert them well for the dark stores, for example, at no CAC, which is very attractive in terms of economical results. And we see that the frequency under -- on the dark stores also driving frequency on the food platform. So overall, we're looking at improving economics since we started. And this is a very attractive vertical for us in the future.

[Miriam Anuoluwapo Adisa, Equity Analyst]

And then just on the CapEx and working capital impact?

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

Yes. So the CapEx per store, I mean, I can -- I think it's fair to say that the CapEx, and that really depends on the region, but maximum will be around [ EUR 205 ] per store. As I said, I mean, the suppliers are participating for these investments more and more because the working capital because -- so they will participate to the CapEx because, obviously, they see the attractivity of this business for them. In terms of working capital, at the beginning, you could assume that when we start this kind of business in a country, the working capital will be positive because, first, you don't have the negotiation power. Having said that, after some months, as we improve the attraction of this business, we manage to negotiate with suppliers better terms in terms of payment, which then push their working capital to become negative as we've seen also for the food business. So hence, the customer is paying for the order straight, and us paying suppliers later on.

[Operator]

The next question we received is from Hubert Jeaneau from UBS.

[Hubert Jeaneau, Director and Research Analyst]

I have 3 as well, please. The first one is, any color that you could give, please, on the investment for 2020 in terms of of the breakdown? Maybe -- but by segment, to understand whether it's going mainly towards Asia, LatAm and all the new verticals. The second question is on delivery in MENA, I noticed that in Q4, it's declined as a percentage of order. And so I was wondering if it was just a one-off or if we had reached somewhat of an inflection point here. And last question is on the incremental EUR 200 million to understand once again where do you see the most opportunities there? Is it Latam or is it the rest of APAC?

[L. Niklas Östberg, Co]

Thanks. I'll cover the first question, while Emmanuel get the information on the MENA delivery topic there. And then I go back to you on the spend. So the -- as you see, the MENA is incrementally profitable. It doesn't mean that we don't keep on investing, we invest very aggressively. And we could, of course, make significantly more profitability in the MENA region, but we have decided that this is a region where we believe in the long term, and we want to grow profitability slowly. So taking a portion of the profit contribution and reinvesting that and a proportion of the profit contribution back to long-term -- long-term profitability. Europe, we decided that we'll keep on driving it on breakeven for this year, where we reached breakeven, we feel like there are more opportunities to invest, but we'll keep it at breakeven levels. And then that means that Asia and Latin America will continue to receive significantly funding for -- keep on growing at hundreds of percent in the APAC region as seen. And we still think there is an enormous potential here. If you take the APAC alone, we're operating 840 million people market. And therefore, we see that we can deploy more capital effectively. Maybe I can cover the last point before Emmanuel goes to do delivery. So the EUR 200 million spend, that is still to be seen where and if we invest here. We remain opportunistically here when we see opportunities, but also where we see a need to double down to gain leadership and respond to any weakness of our competitors. So here, we keep that at our flexibility to potentially deploy this amount of money. Emmanuel, do you want to cover the own delivery? That it drops MENA because I cannot remember that happened?

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

Yes, I mean, there's a slight drop indeed compared to Q3. But I think really, Hubert, this is much more to be seen as a one-off, because we're going to deploy it or increase on delivery in 2020 and continue to invest here. I don't have a critical or any clear point on this, this is much more a one-off that I would say for the MENA.

[Hubert Jeaneau, Director and Research Analyst]

And one-off meaning there is some market mix effects mainly that can drive this?

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

Yes, this is one marketplace, there's no such thing to be outgrowing the [ OD ].

[Operator]

The next question received is from John King of Bank of America.

[John Peter King, Research Analyst]

Congrats on the successful end of the year. I just wanted to ask a little bit around the transaction with Woowa. And really, I guess the guidance is struck on the basis that, that deal will complete and I realize that you're very, very confident that's the case. I'm just wondering, do you have a contingency plan if it were not to be approved? Particularly around what you would do with the capital you've raised? Would you anticipate that being redeployed or returned to shareholders? And maybe any comments around what the competitor for you might do. So just around the contingency plans of that deal.

[L. Niklas Östberg, Co]

Thanks, John. So we remain very, very confident on this, and therefore, we -- there is no plan there. We are very confident this will close. And I think we keep very a good dialogue with the regulators and see no reason why that view would have changed. So I cannot answer that.

[Operator]

The next one is from Joe Barnet-Lamb of Crédit Suisse.

[Joseph Barnet-Lamb]

First one, just delving into MENA in 2020 and the profit target there in a little bit more detail. Obviously, you did EUR 75 million in H2 '19, yet you're guiding for only EUR 130 million in 2020 despite the fact that logistics ramp up per store. I know you said that's seasonal, but it didn't rise in Q4, and it excludes dark kitchen. So just wondering if you can give us any more color on [Technical Difficulty]

[Operator]

Hello Mr. Lamb, are you on mute now?So I will just be going to the next question, it's from Andrew Ross of Barclays.

[Andrew Geoffrey Ross, Research Analyst]

A couple for me. I guess first one is kind of what you're baking in, in terms of investment spend for dark stores and dark kitchens in 2020. Obviously, there was EUR 20 million of investment in MENA in Q4 '19. Could you just give a sense about how much you're thinking for MENA? And then, I guess, across the whole footprint for 2020? Second question is just in terms of how you're setting the guidance. So just to be clear, if you make a shift from the principal to the agent business, it sounds like you're booking the gross revenues for dark stores and the dark kitchens. So on that basis, does it make sense to be guiding on revenues? Or should we be guiding on orders? And I guess, what are you baking in, in terms of your guidance in terms of an acceleration in growth for the extra investment that's going in for 2020? And then third question is on Uber in Korea and the Middle East. Have you seen anything that's changed there since that transaction has gone through? What are you kind of factoring into your thinking in terms of anything that might change?

[L. Niklas Östberg, Co]

Thank you, Andrew. So...

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

I can start with the new verticals, if you want, Niklas, and the impact of EBITDA for Q4. So the EUR 20 million impact was mainly in MENA. We've done this, as we said before, with investments, we started in MENA region in April 2019. So the vast majority of the EUR 20 million is impacting in MENA. In -- we used also the knowledge and the investments that we've done in this region for launching our dark stores in APAC late in the year. But mainly the EUR 20 million are obviously concerning MENA and not APAC. Going forward, I think the investments for next year in terms of dark stores, we want to invest in LatAm. We want to invest in APAC. And also in MENA, continue to invest. Less in Europe. And in terms of Capex, looking at the -- what we're going to invest this year, I think I'm looking right now at the numbers. But if I remember, we are planning to have like more than 400 new stores across the group for 2020, which will be roughly investments in total of EUR 35 million.

[Andrew Geoffrey Ross, Research Analyst]

Sure. Just to follow up there. That's 400 new dark stores? Or is that 400 kitchens and stores combined, just to be clear?

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

Only stores. Only stores.

[Andrew Geoffrey Ross, Research Analyst]

Only stores. And how many kitchens?

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

I mean...

[L. Niklas Östberg, Co]

On that one, we -- not that we don't guide so much because it's something that is early stage, it's something where we also had to build more conviction before we want to roll out very aggressively. So here, this will be significantly less investments until we see that we really get it to work 100% the way we want it to work, with a payback period, which is what you should expect, for more of a restaurant principal kind of business. So therefore, this would probably be a lower amount until we really have a commission there. Also on the dark stores, we have to take it step-by-step, not overstretching ourselves, but at the same time, moving fast. And we have to find that right balance. So therefore, this could, of course, move. This is our best guess at the moment. And what Emmanuel just said.

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

On the Uber...

[Andrew Geoffrey Ross, Research Analyst]

So sorry to interrupt you. Are you able to give us an EBITDA burn number then for 2020, but it's consistent with our 400 dark stores? So we can just get a sense of how much of the investment is due to dark stores on a P&L level?

[L. Niklas Östberg, Co]

So we don't want to give a detailed guidance there. But of course, when you set up a store, it takes 6 to 9 months until you can turn that profitable. And economics sometimes a little bit faster, maybe in regions where we have strong logistic capabilities already. But in the time period, you might speak about 100,000, something in that range. So yes, something in that range, maybe a little bit more. But that's the order of magnitude. I think also when it comes to your revenue point with the guidance, we still think this will be fairly small proportion of our business. It takes time to build up a certain size and scale here. But we will have to evaluate how we set guidance then in the future, if this becomes a larger proportion of our business. And as you correctly said, it's a principal business, which has high revenue but also high cost...

[Andrew Geoffrey Ross, Research Analyst]

And then my last question is just on Uber in Korea.

[L. Niklas Östberg, Co]

Yes. We don't see -- haven't seen really a change. We have seen Uber being a little bit more aggressive, I think, in general, spending more money. And also, as you saw in their earnings calls, where they spent EUR 460 million, excluding EUR 600 million of overhead costs. So you've seen that they have been spending a lot, but we haven't seen any impact on market shares. I think we are gaining market shares in all markets where we operate, unless they are very small, and therefore, the percentage matters less. But in absolute numbers, we're definitely growing faster.

[Operator]

The next one is again from Joe Barnet-Lamb from Crédit Suisse.

[Joseph Barnet-Lamb]

Excellent. Hopefully, you can hear me this time. The first question was just delving into MENA in a little bit more detail. So you did EUR 75 million of profit in H2, but you're guiding to EUR 130 million next year. I know you touched on sort of ongoing investment in a previous answer. But can you give a little bit more detail on where you're spending that in the Middle East? Because there must be substantial ramp up in the cost base, and to only get profits to that point. Question 2 is, all your guidance is obviously pre-Korea. And therefore, can you can you sort of let us know whether the FY '20 guidance is assuming no adjustment to current sort of Korean losses or couponing levels? Or is there any sort of ramp down in couponing built into that? And then thirdly, I mean, you've given revenue contribution expectations from incremental investment previously. You haven't done that today. Do you expect similar returns compared to historic investment cycles?

[L. Niklas Östberg, Co]

Perfect. So I can cover that, and maybe later on, Emmanuel. So on the MENA profit, yes, correct. We do continue to invest. We are ramping up also technology local there. We are investing in 1 or 2 markets where we still have very early stage, such as Egypt, which is not profitable. And then also, there is some effects of Ramadan, which is in the first half of the year versus second half being slightly better generally in the MENA region. Additionally, we have to keep in mind that we are migrating Carriage's platform into Talabat. In these migrations, you will always have some costs associated to making sure that you don't lose any customer. That means you have to reincentivize some customers to stay loyal to your platform. So that's why you will have a slight impact of that tech migration on either order growth or on profitability. But of course, long-term or midterm even, there's a clear benefit. We see Talabat having the better cohorts, Talabat have a better use of frequency, and therefore, we would expect that at least in the midterm, you should see higher growth coming because of this transition. But short term, it could have effect on growth and EBITDA there. Then on Korea, we do not foresee any changes in our business. We keep operating as normal. Having said that, we are shifting a little bit our investment approach because you cannot voucher things for too long, it becomes -- the customers get very used to it. And also then, actually, in some cases, reduces their frequency because they wait for the next opportunity of getting a voucher. Therefore, we rather find other ways of driving order growth and investing in those initiatives. So you shouldn't expect any change in operation or generate profitability because of the transaction. If now vouchers or other investments are more or less -- I cannot give guidance on that. Then in terms of investment returns. We have seen slightly higher investment returns than we thought in the past. Therefore, with at least, we would go to EUR 200 million investment with our return thresholds and so on, you would expect somewhere along the line of EUR 100 million recurring revenue coming, potentially even EUR 120 million recurring revenue from that up to that EUR 200 million investment. That's approximately where you would expect that to result in.

[Operator]

The next question received is from Silvia Cuneo from Deutsche Bank.

[Silvia Cuneo, Research Analyst]

I guess just one left, mostly on consolidation in 2020. Emmanuel mentioned that 2020 would be crucial to consolidation, so that you want to maintain flexibility to be able to participate. So just wondering if there is anything more you can say as to what countries you think are most in need of consolidation now that Korea is underway? And if not countries, maybe if you could comment on the business models you're most interested on still, on the food delivery or more on the multi-vertical side.

[L. Niklas Östberg, Co]

Perfect. Yes. So we don't go into specifics, but I think it's fair to say that the main part of consolidation, the core part of consolidation has has happened for us. There are no markets where we have to consolidate or we are in need to acquire, that is not there. Having said that, there's always there's always benefit in potential consolidation. And we will keep on being active there, but there is no need for us to consolidate. I -- we are -- remain more focused on the food delivery consolidation. We see that we can leverage our platform ourselves, and the scale and size could very quickly grow multi-vertical and other areas. So we have no need of acquiring non and pay a premium for that, but rather build ourselves, we find that cheaper. So mainly in the pure food delivery proportion. Yes.

[Operator]

The next question received is from Carole Madjo of Exane.

[Carole Gladys Madjo, Research Analyst]

Two questions for me. First of all, could you give us an update on the competitive environment in Asia and LatAm? I think you talked about some players being a bit more rationale within Asia in the past, is it still the case? And second question, I think you committed to invest EUR 300 million in Woowa in South Korea. So I guess, that is not included in the current guidance. But can you remind me if this is going to be a mix of CapEx and Opex?

[L. Niklas Östberg, Co]

Okay. So yes, we have seen in the past or I think, in 2019, in particular, first half, maybe in Q3, some irrational behavior. We think some are still -- is irrational there. When companies are losing several hundred millions per quarter, I know it's clearly something that is irrational there. However, we're kind of happy to see that. Because we know that no one can maintain a rational behavior. Every company needs to drive to profitability at some point in time. If that is in 1 year, in 2 years or in 5 years, but every company will have to go there. And therefore, we see it as very positive that this irrational behavior is there because we know it's going to end. We would be more worried if the players are aggressive, but at the same time, managed to manage the bottom line. That will be a long-term sustainable threat, but that's not been the case. And we have also seen that this irrational behavior has maybe been reduced, while losses seems to still be there in many of these players in Asia and in Latin America. So we believe there is less of a threat today than there has been in the past. So that's on the positive. In terms of the -- our -- now I have to think. In terms -- what was the second question?

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

About the EUR 300 million spend in Woowa.

[L. Niklas Östberg, Co]

Yes. So this is where we're allocated to Woowa, as the transaction has been closing to invest in the APAC region and potential expansion there. We expand the business to new areas, potentially new markets as well as in the Korean -- the delivery ecosystem. There is still to be seen how and how much of that we'll allocate, depending on opportunities. But we are definitely going to keep on being aggressive, building out the ecosystem and keep on innovating in the Korean market as well as helping them expanding outside. And this will be both CapEx and OpEx.

[Operator]

The last question received is from Giles Thorne of Jefferies.

[Giles Thorne]

I just had 2 questions. The first question was on the dark store concept. And if I look at how things evolved in a particular market, in Singapore, you had a pilot running in Q4 with a certain number of SKUs, and that obviously proved to be very successful because, as you say, Pandamart has now been launched with twice as many SKUs as was in the pilot. But it also emerged during that pilot, you've got Panda now, which is your own dark store concept. So there's 2 things that come to my mind are: why did you choose to go with an incremental dark store concept in Singapore? And then how do you reconcile any conflict of interest with your merchant partners, who are suddenly going from putting their inventory on your platform to actually competing with you? So just any color on how you manage that conflict of interest. And then the second thing, I don't suppose it's that material nowadays, but there is a noticeable rationalization of brands across the portfolio. foodora is coming through as the main brand in [ Scandian ]. You mentioned earlier Talabat, -- sorry, Carriage is going to disappear underneath Talabat. So it would be interesting to know why that's happening at that point and is there any kind of material simplifications for your marketing efficiency?

[L. Niklas Östberg, Co]

Yes. So on the first one, dark store, yes, we are very happy with the pilots. We also elaborate the move in different directions. So we have less inventory, more inventory, more SKUs or less, and optimize more for convenience and time and fast delivery or having the choice. And that's a constant. We're still in the process of finding that right level. So -- but overall, we're very happy. In terms of conflict of interest, we haven't seen that properly. And we -- it is true that we offer another choice, but it is often a very differentiated choice versus a [ customer ] , where they have significantly more SKUS, but delivery also then taking significantly longer, while we have way more warehouses often so that we can be much faster to the customers, smaller, lower SKUs and, therefore, a complete different proposition. So we haven't felt that conflict of interest right now, and we maintain a very good relationship with those groceries brand. And on the rationalization, yes, we've been -- I wouldn't exaggerate the benefit of brand rationalization because in most cases, we have already been operating on 1 main brand over the last 2 or so years. And now we're moving the smaller brand, which has received less investment over the last couple of years, and moving that in under 1 brand. There is, of course, some efficiencies there, which is also relevant, in particular, in smaller countries where it's difficult to maintain being a niche player, and we are seeing it very hard to have good cohorts when you are significantly smaller. So yes, there would be some effect, but I wouldn't exaggerate the effect too much. And thank you, everyone, for dialing in and listening in and being supporting to -- or be shareholder in Delivery Hero. I think it's fantastic times. We had an amazing year, and I believe we will have an amazing 2020 as well. Things are really going our way. So thank you, everyone, for the strong support. Thank you.

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

Thank you.

[Operator]

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