Delivery Hero SE

XETRA:DHER

Earnings Call Analysis

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Delivery Hero's Q4 2021 Trading Update Conference Call. [Operator Instructions]I would now like to turn the conference over to Christoph Bast, Head of Investor Relations. Please go ahead.

[Christoph Bast, Head of Investor Relations]

Hello, and good afternoon, everyone.We hope you are well, and thank you very much for joining today's conference call as part of our Q4 trading update. We trust you have all received the press release and the presentation, which we published this morning. As always, all documents are available on our website. And we would like to remind you that this call is being webcast. A replay of the audio webcast will be available later today on our website. Niklas Oestberg, our CEO; and Emmanuel Thomassin, our CFO, will now summarize the most relevant aspects of our Q4 '21 performance and provide an outlook for 2022. After that, we are looking forward to answering your questions.And now let me hand over to you, Niklas.

[L. Niklas Oestberg, Co]

Thanks, Christoph, and hi, everyone. Thanks for joining the call.We believe that we had a very good quarter, and we're very happy with the progress in 2022. We have kept executing on our vision. As a result, we have, by far, the largest multi-vertical delivery offering compared to any large-scale European or American peer.And moving to our next slide. During the last 4.5 years, Delivery has grown at an incredible pace, far exceeding our guidance given in 2017, as we IPO-ed. Back then, we generated EUR 3 billion in GMV, and now we comfortably guide towards EUR 44 billion to EUR 45 billion. That gives us an opportunity to reflect and set out a new long-term target.So firstly, growth has always been our first priority and will remain so in the future. More than average organic GMV growth of circa 60%. We think that we can tick the box both for the 70% short term as well as the third long-term target that we set out. Growth is also going to be #1 priority in the future. We aim to achieve a GMV of EUR 200 million to EUR 350 billion by 2030. So far, they have performed well to our growth guidances and expect this will also be the case going forward. The difference between the upper and the lower end of the growth guidance is circa 10% per year, but makes a difference of EUR 7.5 billion to EUR 12 billion in yearly EBITDA in 8 years' time. And this is exactly why growth is our #1 priority.We generally believe we will outgrow global peers by at least 10% to 15% per year. And the reason for this being that we operate a more multi-vertical offering. We have a larger TAM potential. Many markets at earlier stage, GDP growth in emerging markets expected to be higher. And we also believe there is a stronger regional tech and execution setup. We made a commitment that we would invest for clear leadership, and that's the second pillar. We were around 70% to 80% back in 2017. We have managed to push this leadership to 90% of GMV, and this includes global. Our new ambition is to become the #1 in every single country we operate.We committed to double down on building tech and product leadership. And we were also the first to really transform our business to own delivery. We are fastest to build our dark stores, multi-vertical offering, kitchens to mention only the largest areas, but there are so many other areas where we have innovated. We will keep fighting to be the leader and committing to be the #1 preferred delivery app in every single country we operate in.Last not least, we believe we are vert set up for good EBITDA margin compared to our peers, as we operate more leading positions, less key account dependencies and more scale. We plan to generate an adjusted EBITDA to GMV margin of 5% to 8% in our existing business. We will gradually reach these levels as we further gain scale, combined with a gradual increase in our contribution margin. Based on this, we would comfortably reach long-term earnings power of at least EUR 10 billion in today's business lines.Moving to the next slide. And here is just a quick reminder, before we dive into the numbers, the following numbers are presented on a pro forma basis as in the previous trading updates. That means we exclude activities of Delivery Hero Korea for the full year and include Woowa for the full entire year. On the next slide, you see some high-level numbers and performance against the guidance. We dive deeper into this on the following slides.And then starting with the highlights here on Slide 7, first of all, Q4 marked another quarter of strong revenue growth, 66% to EUR 1.9 billion. We had this growth on the back of increased profit contribution in most markets and a reduction of small orders or less valuable orders. We accelerated our Dmart rollout with 213 store openings in Q4, following 174 in Q3 and 84 in Q2, so a significant acceleration in rollout of our stores. At the end of the year, we operate close to 1,100 Dmarts.We finished the year by acquiring a majority stake in Glovo. It is a fantastic company with a strong foothold in many large emerging markets. The main footprint is emerging markets. It's Eastern Europe, it is Africa as a significant portion of today's as well as the future business. And we believe there are many synergies between the companies, and it further builds on our long-term growth target.Last but not least, we have received a B rating for our participation in the carbon disclosure project. This rate is the third best grading you can achieve, and it outperforms the global average. At Delivery, we are fully aware of the importance of ESG. We know that we are just at the beginning, but I can assure you that we will continue our efforts to develop Delivery Hero into sustainable company, and to further improve our disclosure on ESG. As such, you will find a lot of additional information in our nonfinancial report section of our upcoming annual report.Moving to Slide 8. Very happy with the development towards the end of Q4. We managed to grow GMV quarter-on-quarter after an exceptional Q3. But the key here is that we managed to do it on the back of reduced lockdowns in Asia and a clear push for improved economics to build strong foundation to grow on. We had to fight hard this quarter, but ended up above our guidance this quarter. Not surprisingly, revenue did well in Q4. We reached a new record high of EUR 1.9 billion in total segment revenues, resulting in revenue growth of 66%. However, due to the cut in low-value orders, we posted a slightly softer order growth of 27% to 775 million orders in Q4.With this, let me hand over to Emmanuel for a deeper dive into the financials for the fourth quarter.

[Emmanuel Thomassin]

Thank you, Niklas, and good afternoon, everyone, also from my side.As we already commented on the positive group performance, I propose to jump straight to the segment deep dive. So let's now have a look -- a closer look at the Asia platform business on Slide 10. Despite headwinds from the COVID reopening and natural disasters in the Philippines and Malaysia, which are 2 of the largest markets in the region, excluding South Korea, we generated strong GMV growth of 40% year-on-year to more than EUR 6.5 billion. Due to our active basket size management and fewer free delivery campaigns, we not only overcompensated softer order growth, but even pushed the contribution margin to a new whole-time high.Korea showed a very satisfying performance and generated over 100 million orders again in December. Our market share relative to our main competitors dropped totally by 1% or 2% at the launch of peak and aggressive promotion campaigns in November until early December. But went back, this market share went back to normal as soon as they start. And also an additional push in our Baemin 1 services during Q4, results in own delivery share over 13% in December for operations in South Korea. So in addition, we had already announced that we will invest business in Japan in Q1 2022 to pursue more attractive growth opportunities elsewhere.Now let's have a look at MENA on Slide 11. The segment generated decent order growth of 33% year-on-year in Q4. And furthermore, we had the strong progress in our own delivery rollout. GMV grew by 39% at constant currency and the higher own delivery share contributed to the strong revenue increase of 63% at constant currency. Besides the pure numbers, we are also operational success story. In August, we announced the acquisition of Marketyo, they're an online shop platform for local stores in Turkey, and we are very happy with the integration and the value of this platform adds to our ecosystem there. This really help us to in scaling our quick business in Turkey.Turning to Europe on Slide 12. Despite the reopening here also and gradual easing of COVID restrictions across many European countries, we generated a healthy GMV growth of 34% during this quarter. Furthermore, the own delivery business showed a strong performance and generate high order growth of 69% year-on-year. These numbers are on like-for-like basis, meaning that this is adjusted for the investments of the Balkan countries, including Romania, where the closing took place in December.Now moving to the Americas segment. Our optimization of unit economics also came here to play due to fewer free delivery campaign and also reduced motoring campaigns. The average order value increased around EUR3 year-on-year. And as a result, the mute order development of 14% year-on-year in Q4, which was also impacted by the migration of the former Glovo countries in Q1 2021. However, this was significantly overcompensated by 54% GMV growth and even higher revenue growth of 68%. In addition, the gross profit, the order achieved a new record high and Americas now has the highest contribution margin before vouchers within their delivery of Woowa.So now let's turn to Slide 14 and have a closer look at our integrated vertical segment. In Q4, we again accelerated the number of new stores, a Niklas mentioned, to 213 compared to 174 stores in Q3 and 84 in Q2. So this brings us to a total number of 1,074 Dmarts at the end of September. And to make this clear and really understand the speed, we are talking about 2 new Dmarts every day in Q4. A successful rollout results in order growth of 96% year-on-year in Q4. And due to the constantly increasing product assortment, the average of order value rose by 19% year-on-year to EUR12.5, and the GMV grew by 133% year-on-year on constant currency. So the 1,100 stores we operate today, make us the largest global player in the industry as per own estimate.Moving to the next slide. In addition to the strong top line growth that we've seen, we will also improve our contribution margin. And you can see here, Delivery will reach a new record high in the contribution margin of own delivery in Q4. For 2022, we all just expect this positive trend to continue. And something that makes us particularly proud is the strong development in Asia and Americas, where we have already started to cut low-value orders in Q3 and note the economical benefit. Both segments have achieved a new whole time high for the contribution margin.Due to the size and the high gross profit margin in this segment, we were even able to compensate for the temporary margin decline in Europe with the launch of Germany and the rollout of own delivery service in Greece had an impact. Excluding these 2 countries, the contribution margin was more than 2 percent point higher. As you know, we have not integrated Woowa's contribution margin here. However, we saw a margin drop in Q4 as we scale our logistics offering, while maintaining the promotion pricing in South Korea. Noncommission revenue on a group level also continued to grow to 1.9% of GMV in Q4 compared to 1.7% in Q3. And this trend accelerated during the quarter and reached over 2% in December. All these numbers are, by the way, excluding Woowa. As a reminder, the graph also do not include noncommission revenue or what we call NCR.Now on Slide 16, you can see that the contribution margin in the own delivery business stand at a record high in Q4, also after voucher costs, and we expect this to improve further this year. The positive development is also driven by the constant improvement of our largest segment, Asia, which now operates on a positive contribution profit, nor also after vouchers. And furthermore, we have continued to reduce the level of vouchering. In Q4, vouchers as a percentage of total segment revenue stood at 10.6% -- to 10.6%, which is a decrease of about 4 percent points compared to Q4 last year. And on a full year basis, the level of vouchers declined to 11.4%, and this is also below last year level of 11.8%, and therefore, in line with our guidance.On Slide 17, we provide an overview of our large investment portfolio in the global food delivery space. As you know, we are quite active when it comes to M&A. It has been proven in the past that we can significantly scale and improve the business that we acquire. In addition, we also take minority stakes in industry peers to improve our network, extend our know-how or explore ways to collaborate or even drive consolidation. And we see a lot of long-term value in this. Even in short term, our investments have realistically generate very attractive returns. One example is Rappi. We invest in the company to find the team through several funding realms.And in Q4 2021 and early this year, we decided to reduce our stake because we saw more interesting opportunities elsewhere. And we generate a very good multiple on this investment. Looking at the total value of the portfolio, it's untestable that it has declined from EUR 2.5 billion to EUR 2.1 billion in the last quarter. And this is primarily due to the fact that we have reduced our stake in Rappi, with proceeds of the amount of circa $250 million in January. In addition, the risk in stock market has weighed on the valuation of our public assets, obviously.Allow me to make a short comment on Glovo. As the closing of the transaction is still subject to regulatory approvals, we include a minority stake or circa 44% on a non-diluted basis here in the investment portfolio. As a reminder, we signed an agreement in December 2021 to acquire an additional stake of 39.4% on top of the previous in stake.Now on Slide 18, we present an overview of our cash flow results. We started the second half of the year with EUR 1.7 billion cash, and we end the year of 2021 with a cash position of EUR 2.2 billion. Besides the negative adjusted EBITDA, the main drivers for this development were the placement of the convertible bonds with a volume of EUR 1.2 billion. In addition, our CapEx was around EUR 200 million or 1.1% of GMV. And in the long term, we expect this ratio to fall to below 1% of GMV. Furthermore, we had a small positive cash inflow from M&A transactions as we received the proceeds for the sales of Yogiyo and the Balkan countries. In addition, we also received a cash flow inflow from USD 250 million of the partial sale of our Rappi stake in Q1 2022. And this come on top of the EUR 2.2 billion that you see here, we had at the end of the fiscal year 2021. So against the background and in combination with our investment portfolio, which we could convert into cash, if necessary, we feel well equipped in terms of liquidity.And with that, let me hand back to Niklas. Niklas?

[L. Niklas Oestberg, Co]

Thanks, Emmanuel. Now let's have a look at our guidance for 2022. And on a small note, these figures are excluding Glovo as we do not yet control this asset. For 2022, we expect to generate GMV of between EUR 44 billion and EUR 45 billion. Total segment revenue should amount to between EUR 9.5 billion to EUR 10.5 billion, and our adjusted EBITDA margin is expected to come in at minus 1.0 to minus 1.2% of GMV, out of which integrated verticals expect negative EUR 525 million to EUR 550 million adjusted EBITDA. At the same time, we expect our platform business to be breakeven for the full year. To clarify, when we talk about platform, we mean 4 regional segments and not then excluding integrated verticals. So the 4 regional segments and including group cost, I should add there.If you now take a look at the graph on the right-hand side of the slide, you can see that the platform business and these numbers, excluding Germany and Japan to make it comparable. In reality, the step-up is better than what it looks here, but excluding Germany and Japan to make it comparable. And as you can see, we slowly but gradually improve our margin with around 1% per year. For 2022, we expect a margin improvement of the platform business of at least 1 percentage point. We could obviously improve margins with more than 1 percent point per year, but it would risk us not fulfilling our long-term commitment with growth as #1 priority.Let me also share some details around our 4 platform segments. For Asia, we expect adjusted EBITDA breakeven in 2022 on a full year basis and the profitability to significantly improve in the second half of the year compared to the first half as we move to standard pricing in our own delivery in Korea. In Americas, we expect to mature -- expect the mature markets to be moving towards profitability, while we keep investing in the markets we acquired and launched in 2021. All in all, adjusted EBITDA in 2022 should improve margin. In MENA, we plan to generate a moderate adjusted EBITDA increase as we accelerate our growth investments in Egypt, Iraq and Turkey. Europe should at be around EBITDA breakeven in 2022 on a full year basis, excluding Glovo.Let me then give you some quick remarks on the next slide on Glovo. As already stated during our Glovo Flash Update in January, we expect the platform business, including Glovo to generate a positive adjusted EBITDA of between EUR 0 million and EUR 100 million in Q4 2022. In general, we have agreed with Glovo management team that 2022 should be a significant investment year for Glovo to gain meaningful size and extend its leadership. We have proven good economics in the past, but we find it too early to optimize for profitability at this stage. Based on this, we expect a negative EBITDA of close to EUR 330 million. We expect to generate GMV of EUR 4 billion to EUR 4.3 billion, excluding a meaningful M&A transaction that we decided not to close. We expect Glovo to be included in our Europe and integrated verticals segment once the transaction has been closed.We will also share with you further details on the group guidance, including Glovo after the closing of the transaction, which is expected to occur in the second quarter. We also expect there will be clear synergies as we can start working together in the second half of the year. One final remark here, as of January 31, over 95% of all Glovo's nonoperative shareholders decided to opt in for Delivery Hero shares instead of cash settlement. We take this as a sign that most shareholders believe in the long term of this partnership. Upon closing, expected to be Q2, subject to receiving regulatory approvals, Delivery Hero's stake in Glovo will amount to approximately 95% of non-diluted basis. Potential cash settlement will amount to a single-digit million amount.Last slide. Here again, the summary of why we still believe or are big believers in Delivery Hero. But I think for now, we will move to Q&A. Thank you, everyone.

[Operator]

[Operator Instructions] And the first question is from the line of Jo Barnet-Lamb from Crédit Suisse.

[Joseph Barnet-Lamb]

So my first question is, I mean, the market is clearly punishing nonprofit tech at present. And at the same time, you're choosing to materially ramp up investment in Glovo and continuing to invest in integrated verticals. I guess as a result of the value creation you think you can get in those businesses. But could you elaborate a little bit on how you weigh those 2 things up? And a related second question, Emmanuel gave us some color with regards to balance sheet. Could you talk a little bit more about balance sheet and the funding of that investment? You obviously have out of the money convertible bonds that start coming due in January '24 or as you mentioned liquid investments in your liquidity bridge. Should you not be at strike, you'll still need to repay or refinance that debt? So can you talk about how you view debt markets at present? And then my final question, with the shares where they are, it's clearly significant uncertainty on the path to profitability, you've guided on 2030 to give us some help. But can you help at all on 2023? Are you willing to say that 2023 will be breakeven or better? Thank you.

[L. Niklas Oestberg, Co]

Thank you. So we feel obliged to do what's best for the business. And of course, we had a discussion to what extent we should be tailored to the market what the market wants, and we clearly came to conclusion that we should not. We should do what we think is the best for the business. And we think the best for the business is to ramp up investments as long as in quick commerce, in particular, and Dmarts, in particular as long as private market players have a significant funding. And we think that will remain this year. And that's why we decided that we have to making sure that we have the firepower to fight back, if we get into tougher competition. So far, we are not really overlapping, but we still want to make ourselves ready and having the firepower to stand up and fight when it need to be.And the same with Glovo. I don't know we had a lot of back and forth in terms of who is the leader who is not a leader. We believe that we are a leader in many of the markets, but we're not a leader in all markets, and we have given a commitment to shareholders, and we have stated that clear. We are going to be #1 in every market. And therefore, we decided as to early for Glovo to try to start moving towards profitability. Even if they have proven that in the past that it can be profitable during COVID time, but we decided now is the time to double down and making sure that we're clear leader also in markets where we are not yet there. So that will happen.In terms of the balance sheet, of course, we keep an eye on that. We have a good balance sheet now. But as we mentioned, we have convertibles in 2024. We think it's a little bit too early to -- and of course, we are cash always think about cash and cash flow as in general, and that's why we have also assets like Rappi and potentially other stakes that we are going to sell for that cash flow point of view. But we think it's too early to kind of optimize for that now, and we think it's better to build size and scale and build the basis for such that we can and fit in a better position in 2023 or already in 2022 second half. So we have more flexibility and optionality when it comes to 2024.And I think we have a lot of turn to advantages. And I think more importantly is that we're going to hit our guidance, what we say now that we're actually beating it, and now we've proven to investors that we are sticking to our plans. We are overseeing our plans or we are hitting them. And then I think we have plenty of time to rebuild the trust that seems to have been a little bit broken today for some reason.2023, I'm not willing to give any guidance. I understand that would be very helpful for the stock, if I did. But I know we are -- that's not what we want to operate. We want to operate that for the business. And me now giving 2023 guidance would corner us, and it would also give our comparators room or take advantage of. And I think that is, in general, also why we're given the guidance we are. We want to be in a position that we are not in the corner in any way, but we can invest in the best possible way. And at some point in time, we will also give 2023 guidance. We have no urgency to do that now to tailor to the market.

[Operator]

The next question is from the line of Marcus Diebel from J. P. Morgan.

[Marcus Diebel, Research Analyst]

Thanks, Niklas, for these comments. There's obviously a lot of focus on potential refinancing. I mean, if you assume the current guidance of about EUR 850 million roughly negative for the group, that's at least where I end up EUR 800 million to EUR 850 million. If you include CapEx, if we include also some cash outflows and the one-offs, you very quickly get to like EUR 600 million, EUR 700 million end of '22. I mean with the CBs being due, just if you can -- I think it would be helpful at least you can help us to understand what would be potential ways to repay the ones at least due in February? I think that would be very helpful. So if you can elaborate a little bit on this, that would be great?Related to this, I think more importantly, I think just out of the box, just on some technical, what would actually happen if one of your majority shareholders goes above the 30% threshold on the bonds? Because it seems that the control is actually fixed. And then bondholders could go to any majority shareholder who that might be. I think it would be interesting if you can talk about the dynamics there in a little bit more detail? And then thirdly, maybe on Asia, obviously, a bit of a slowdown. You gave some expressions about the disasters in there, but given that you're overexposed clearly to the bigger cities, if you can just tell us a bit more on what you see on the ground in terms of competition? And related to this, we just noticed that the revenues per dark store went down. Is it just a ramp-up versus Q3 or what is behind it? Thank you.

[L. Niklas Oestberg, Co]

What was the last one? What country or what region did you refer to?

[Marcus Diebel, Research Analyst]

Asia, the segment Asia, yes.

[L. Niklas Oestberg, Co]

I may start with the first one and a bit technicality to your financing. Obviously, Marcus, we're looking at the old optionality here that we can access. One of those is a straight investment that we could consider that we are looking at. Here, I'm thinking about bonds, for example, we do also have like disposal of assets or noncore assets and all the optionality. So you can be reassured that the company and we, as a management, are looking at this, as you say, convert in 2024 that is out of the money. So we're looking at all optionality available to the market, of which Fs one of the options. And that will be one solution to refinance. But I said disposal of core assets or noncore assets would be another optionality. And there are many more, but this is the main thing I would like to refer.

[Marcus Diebel, Research Analyst]

But just to understand the bondholders would have the right if one of the majority shareholders goes above 30% would have the right to approach them directly, that's correct, right?

[L. Niklas Oestberg, Co]

I don't think we're in a position to comment on the second part with the 30% threshold, but on the first one, also, again, want to iterate where we sit on good cash, and we sit on pretty liquid assets as well. In both 3 -- at least 3 companies, soon 4 companies being public and one company that we sold EUR 250 million easily during January.But I think what is more important is that we're going to drive our business and drive also profitability in our business and platform business this year, but it's -- and you can expect that the profitability of the platform business will only increase. That also will give a lot of possibility for covering the convertible with debt if we want at least a bond or some other instrument. So I think we have plenty of opportunities as long as we drive our platform business to profitability.I think we have endless optionality there. So more important that will drive a good business. Then -- but I think you're right. We are not going to do an equity thing, and there is absolutely no need for it either. Then on Asia, yes, I think you mentioned integrated vertical, but you just answer the other point, do you want to do that Emmanuel? Otherwise, I can say -- let's speak about.

[Emmanuel Thomassin]

Yes, happy to do that. I mean, like we -- as we mentioned that we had some natural disasters in Philippines and Malaysia, that's in fact obviously impacted the growth orders that you've seen, also like the reopening of and the easing of restriction of COVID had an impact on Q4. I mean said that, as mentioned, I mean, like we had like October, November reduction of the orders that in Korea, for example, we end up with over 100 million orders in December. So I think the factors, the all factors combined had the development in Q4, natural disasters and yes, easing of their COVID restriction.

[L. Niklas Oestberg, Co]

Yes, and I think also, overall, we had an incredible Q3. And that was also probably also partially or was partly driven by some COVID lockdowns, especially in Taiwan. So therefore, the fact that we kept the business at this level and also keep in mind, we significantly improve our contribution margin. We cut all low-value orders, which also hits us on orders, but also hits us on GMV. A little bit less on GMV, but nevertheless, if you lose some orders, then you also lose on GMV. So the fact that the business did so well, I'm personally very happy, especially with the December numbers in Asia.

[Emmanuel Thomassin]

Okay. And as you said -- what you said, like the cleaning up, as we call it, like on the order side, as Niklas mentioned, there's a very good impact on the margin, as you could see in Asia. So I think both combined are a very good quarter despite the fact that this is softer on the orders has mixed.

[L. Niklas Oestberg, Co]

Sorry for doing a little bit late, I just want to make sure that also is clear so that there is no misunderstanding later on than the financials. We improved margins significantly, as I said, in APAC. In Korea, and I mentioned this a couple of times before, we are on promotional pricing, and we pushed OD a lot. So therefore, we've worsened our gross profit in Korea quite substantially over the last couple of quarters as we grew OD orders. Additionally, since we have used our sales team to drive our OD business and sign up OD business also means that we haven't signed up the marketplace business on more listings. And currently, the business is still based on listing business that you have to sign them up on more listings. And of course, the more orders you have, the more listings you can sell. But if you don't have your sales team selling the listing, that also means that our revenue in the marketplace has been more flat than what the GMV value has grown very fast, but we haven't kind of followed through with the sale activity. That also means that the margins in the marketplace has come down.On the positive side now, we have communicated our pricing change and has been very passively received, and we are moving beyond the promotional pricing and that's why we also have such a big tailwind in the second half of this year. First half is still a little bit impacted by negative economics and OD because of promotional pricing. But yes, I think that is a big driver also for our second half being, we believe, very strong.

[Marcus Diebel, Research Analyst]

Okay. Thanks a lot for the comments particularly, Emmanuel. Thank you.

[Operator]

The next question is from the line of Andrew Ross from Barclays.

[Andrew Geoffrey Ross, Research Analyst]

I've got two. The first one is following up on the fees liquidity. Can you just give us a clear guidance about what you expect for CapEx in '22 and also the other moving parts around tax and interest, so we can get a sense of what the free cash flow burn is actually going to be this year? And then the second question is to come back to Glovo and the minus EUR 330 million. Can you just give us a sense as to what that number was in '21, i.e., how much you're spending incrementally? And maybe some more color in terms of where you're spending it? And I guess as part of that, should we be worried by what's going on in Spain after the change in employment law last year? Thank you.

[L. Niklas Oestberg, Co]

Thanks. Emmanuel, do you want to cover the first two?

[Emmanuel Thomassin]

Yes. Let me -- like our CapEx -- so the CapEx level that we are looking at for 2022, 2023 is around 1% of GMV. This is what or below. So this is the target and this is the KPI that we're using internally. So that should be at this level. And we were close to this, as you heard today, like 1.1% of GMV in 2021. So 1% of GMV is the KPIs on CapEx that we've foreseen for CapEx. The second was about -- the second question, sorry?

[Andrew Geoffrey Ross, Research Analyst]

It was about Glovo and giving us a sense as to how much incremental investment there was in '22 against '21?

[Emmanuel Thomassin]

Yes, I can cover that. I thought the tax was a separate question. But on the Glovo -- yes, so we are significantly scaling up this year. I don't know we -- on Glovo pushed also last year, but there is a clear decision to up spend in 2022 now. I don't have the number for 2021, but significantly less. We think it's the right thing to do. And I think you mentioned Spain. And Spain has done tremendously well. And in our view, it's not that we are equal size or not even that we are double the size. We think that we are 3, 4x the size of closest comparator, and we have expanded that leadership quite substantially. And we believe that we have a very good setup. And yes, we have no concerns when it comes to Spain in terms of influence of the setup of riders and had no reason to feel like there would be any problem there either.But Spain, let's also be clear, a lot of people think that Spain is Glovo on a global -- Spain is going to be a small market. It's already today a small market within that group. The big part is going to be this and Eastern Europe, Balkan doing tremendously well in Poland, Morocco, certain part of Africa, I think the business is so much larger. We didn't buy this business for Spain. We bought it for the emerging markets, and Spain was a bonus. And we think Spain is fantastic for Glovo, but it's just a small part of it.

[Andrew Geoffrey Ross, Research Analyst]

If I could just follow up on that free cash flow question as well. Could you just give us a sense for leases, exceptional items and tax as well, please, Emmanuel, so the bridge for the cash flow in '22?

[Emmanuel Thomassin]

I don't have it in front of me. I will have to prepare this.

[Andrew Geoffrey Ross, Research Analyst]

Okay.

[L. Niklas Oestberg, Co]

We follow up with you, Andrew. Thanks a lot.

[Andrew Geoffrey Ross, Research Analyst]

Yes, that'd be great. Cheers.

[Operator]

The next question is from the line of Rob Joyce from Goldman Sachs.

[Robert Joyce, Equity Analyst]

So first one, just sorry to go back to, but integrated verticals and Glovo, I think you've got, what, 15% of next year's GMV accounting for around EUR 800 million of EBITDA losses. Can you just be a bit more precise on what you're actually spending in integrated verticals and where the investment is going in Glovo, just so people understand that? And then secondly, in terms of the 5% to 8% EBITDA margins, I mean I think you mentioned integrated verticals, you're spending there, partly due to private players. Do you need to see private funding dry up to get to that 5% to 8% EBITDA margin? Or can you help us bridge the gap between today's margins and that 5% to 8% guidance, please?

[L. Niklas Oestberg, Co]

Yes, absolutely. Yes. So on the integrated, so one is, of course, to build out coverage. And as Emmanuel mentioned, in Q3 and in particular so in Q4, we scaled the number of stores substantially faster than we've done ever before. And we do that to build that coverage and have a head start. But of course, when you build a new location, it takes some time to drive the demand. And you need a significant amount of demand in order to have a store profitable. So we usually think that we need to get the kind of 500 orders in store in order to be in a realistic position to make breakeven, but I really want to go to 1,000 orders per store. But it will take some time to get to the 500, especially since the launch, the latest launches are not in the most -- it's kind of the second priority areas. The first store there was already happening before. But we have so much demand that we think that even in those kind of second tier areas that we're going to go to the 500 to 1,000 orders per store, but of course, it's going to scale there gradually.As you scale gradually or actually that we run, you want to grow not gradually, slowly to those levels in those areas because you burn every month that you are not at the scale. You have store managers and you have pickers and you might have higher wastage and you have real estate and so on. So therefore, you want to grow the numbers order in that store fairly fast, which also means that you will have to do some sort of visibility for customers that you can see it, that they can try it out, there might be some free delivery, there might be some other things to get the balls rolling. And of course, that is the big cost. So that's why the cost is quite substantial or probably more than even thought in the beginning to be honest, to making sure that we drive there in store. Having said that, we see that in a lot of places we are getting there. So we are definitely getting there, and we like what we see. We like the customer behavior. We like the margins that we can generate. But of course, it has not spread to all stores and all markets.

[Robert Joyce, Equity Analyst]

Maybe the most profitable stores, have you got 50 stores that are making very good money or something we can put some context around what the stores get?

[L. Niklas Oestberg, Co]

So we do have stores -- I don't have a number, 50 stores, 100 stores, but we do have markets and areas where we are even profitable so that we can get the stores to profitability. But then the other point is that you want to drive also a certain scale and with scale, you have a little bit more leverage in your procurement capabilities and so on. So we still haven't really pushed that enough. And the other one is that you have way more possibility to add tech revenue. I think our competitor in US is already referring to $2 per order in ad revenue. They hope to go to $2.75 per ad revenue. It's maybe in the higher end, but it's kind of in the order of magnitude of where we think that we can drive the ad revenue as a percentage of basket, if you assume a third year or so basket. So there is more potential for ad revenue than there is in the restaurant space. But of course, we haven't even built that tool. So we have 0% ad revenues. So we're basically missing our 5% to 8% ad revenue per order.So there are so many levers there that we have to pull, and we haven't had the time to fully build and sell this product. So that's why we haven't moved our unit economics to the place where we want to be long term, but we can clearly see that we're going to get there. And we can get there now by having more delivery season other things, but then also hurting our growth and we need a little bit of growth in order to also have the store profitability or store ordering and building extra distribution centers, et cetera, et cetera. So there are so many levers and so many things that we have to pull, and that simply takes time. But we still decided that what we see, we like and that's why we go for coverage, even if you're not at the place where now, in a perfect scenario, if there would be no competition, we'll probably build that coverage later. But now we have decided we have to build out there as yes, making sure that we are first and that there is no one who can challenge us in a very attractive space. So that's why we think it makes sense.On the Glovo side, yes, most of it is for the food. There was the quick commercial versus dark stores, but it's -- most of the spending is still in the food space. They have unit economics which are better than ours in Europe, but it's still not at the level where we think that we can get it with our logistics and our -- we have a lot of synergies and value there. So we could easily move -- I don't want to say a percent, but let's assume for the case being that if they would make 5% in gross profit, we could easily add another 3%, 4%, 5% by efficiencies. But that we cannot count on because we are not working together yet. So we -- and then of course, there's marketing, there is city launches and so on. And it's the same as Delivery Hero, it's only 3 years earlier. Same as Delivery Hero platform business a couple of years ago.And then to the 5% to 8% margin, so the question was how -- can you rephrase that question, please?

[Robert Joyce, Equity Analyst]

Yes. So I was just saying, is that contingent on private funding dry or can you help us bridge the gap between minus 2% and plus 5%?

[L. Niklas Oestberg, Co]

Yes. So I think at the current state, with the current size, which I think is still small, and we can argue it's EUR 44 billion, EUR 45 billion small but it's small compared to what we believe it can be. And if you're -- that size, I think it's -- you could get to 5% to 8% margin then as well, but then you might lose market share and you lose long-term margins.So therefore, it's not sustainable to go to that level in a comparative market with the subscale that we still consider that we have. There are markets where we have strong competition, where we have players like Wolt, where we have players like Deliveroo, where we have players like at players like Coupang, where we think that we can probably get to this level, even if they go very hard on us because we have the scale in those markets. Yes, those handful of markets, which actually have a scale.If you take Korea, we did 2 orders per capita per month or 2 orders per month per capita. We have the same 2 orders per capita per month in a couple of other markets. And in those markets, we have enough scale that we can get to 5% to 8% even if we have a strong comparator. And in some of those markets, we are also there, not in Korea because under on pricing but in other markets.

[Robert Joyce, Equity Analyst]

So it's simply scale, it's a function of scale from here?

[L. Niklas Oestberg, Co]

It's -- yes, I would say, scale, yes. But of course, let's say, we have scale, but there is a 3-play market will all having equal share. Then of course, it will always be a hunt who can win. And so even if all 3 plays with a scale, maybe will come to the 5% to 8%. But that's why I think we are much better positioned than anyone to generate good EBITDA margin because we are in a comparative place in a much better place than any of our global peers. We are leading in more markets and we have a multiple to #2 that is larger in more markets than anyone else. I think if anyone can get to the 5% or 8%, I think it should be us. We operate in markets, which I think are unit economics more attractive. And right now, the best unit economics we have is in Asia. APAC to Southeast Asia, if you see ahead and Latin America is getting there as well. So -- and yes, so if anyone can get there, it should probably be us. And I think everyone will get there, but…

[Operator]

The next question is from the line of Sreedhar Mahamkali from UBS.

[Sreedhar Mahamkali]

Three questions then, if I can quickly, please, go through. First one, in terms of Asia, helpful guidance on sort of platform business there. But could you perhaps break it into Korea and Southeast Asia, please? I think you've already alluded to Korea probably going backwards perhaps in Q4. At 9 months, you talked about Korea being EUR 165 million EBITDA. But assuming that's gone back in Q4, should that grow meaningfully into 2022? And if that does then, obviously, the implication is for Southeast Asia to be up very significantly in terms of losses going into breakeven. So what's driving rest of Southeast Asia losses lower?And second, maybe just building on Rob's questions there in terms of IV. A lot of good color, but I think clearly, we're all worried about path to profitability here. And if we are competing with private players who clearly, I don't know where we are in that cycle of public market multiple compression really drying up private funding or not, but this could be a very long drawn battle from a shareholder perspective. Can you give us a sense of how you see what this investment to path to profitability? Clearly, I think earlier on, you were talking about Q1 losses quick commerce being peak. Is that still your -- is that so how you feel? So that's the second one on quick commerce.But even if you're unable to maybe just the third one in that case is you talked about Q4 guidance of EUR 0 million to EUR 100 million EBITDA, including Glovo. I think investors would really appreciate if you could actually give a full group EBITDA guidance for Q4 that way, while you're not committing to a 2023 EBITDA, we can at least have a sense of what the direction of travel will look like into 2023 EBITDA to sort of paint our own picture, if you like? Those are the three.

[L. Niklas Oestberg, Co]

Sure. Good questions. Thanks for those. Yes, so correct on Korea, we increased our OD share. It grew, and we are, as I said, negative economics there. So -- and we had at least in November, beginning of December, one comparator -- or actually both comparators doing a little bit promotional. And we are competitive. We don't want to give them the space. So we spend up a little bit too, which is -- the net outcome is that I think we gained market share during that period, at least when you look at the weekly basis, credit card data in January. So you're correct that profitability, you should expect will have gone down there in Korea. In APAC, I would say that we are in a good path on the profitability side. And you would expect that continuing as we move improved unit economics, and we keep on scaling. So I think you would expect that, that would be more or less gradual increase quarter-on-quarter, but you haven't -- it could always be a quarter better or worse, and -- but generally, it's a good direction there.Maybe I missed the question a little bit, you can follow up later. Then the path to profitability and competitors and the funding cycle, our experience is that you can be the new kid on the block for a couple of years, and you can sell sizes that you're going to grow 10x the next year and 2 and everything is going to be amazing. You can do that a couple of times. And if you get a lot of money, you can even fulfill some of those top lines. But at some point, the larger you get, the harder it's going to just increase the spending to keep the growth.So growth will come down. And as they all lose a lot of money that there will also be then a question how sustainable and people start asking questions why would they invest here when I can invest in companies like Delivery Hero. So in our experience, and this is not the first factor, we have seen it with also the second-generation logistic companies that came, and we have seen it in other spaces there too. There's 2, 3 years, I think maybe it's 1 more year, maybe it's 2 more years, but it's not an infinite funding as a private company there. And as long as we do, we want to keep up.The good part is also that we started to reason that if you take the food as an example, use the profit contribution that we generate, then we reinvest that and that's taking what we do to a large extent, private players, even if they can burn hundreds of millions than we spend billions of euros in investments into marketing and scale and efficiencies because we have that efficiency. So at some point, you get the size that doesn't marry someone spends EUR 1 billion in a certain vertical because you actually have profit contribution of billions that you counter and you have the size and the customer and awareness already. So I think at some point, it doesn't really matter. We have seen that in many cases as well that it increases the awareness, but not necessarily anything else.However, we are not at that place in many occasions. And we have seen take the example of Turkey, some are coming in with a grocery offering, came before us. We get started on that grocery offering 3, 4 years later. And they have not been able to catch up the same for their food business. They have spent 50% off. But even if they spend 50% off on the food business for in November, December, there's still -- on a gross basis, half our size on a net after voucher, it's 4x smaller probably. So it just shows that it's very tough. And there is still a market where we're still very mature, and we probably could have done a better job as well, to be honest. But -- so I don't think that private companies are in funding. That is not an endless problem. It might be a problem in a vertical in a certain time, but that is -- the larger delivery is getting, the less and less problem that gets. And in 2, 3 years, I don't think it will matter.And then group Q4, so we said there will be including Glovo, the platform business will be between EUR 0 million and EUR 100 million. We have also said that our quick commerce business and Dmart business is at peak loss Q4, Q1, a significant investment. And that will gradually slowly the was to people go down. Then, of course, there might be a few other investments that we do outside of that quick commerce base that we are evaluating. But in order of magnitude, it is still small in relative to Delivery Hero terms.But if I exclude that for a moment, then you would expect that, let's say, I would divide EUR 500 million with 4, then EUR 125 million. And I said that gradually decline a little bit over the year. If I go to the maximum, it's like EUR 120 million. And then as said, we do profit on the food side EUR 0 million and EUR 100 million. So I think that should hopefully give a kind of a feeling of where we will stand in 2023. Again, we don't want to guide to 2023 because we don't know what's happening. We don't know the market, we don't know the environment, and we don't know if there will be new opportunities coming as well. So we want to keep that flexibility as well.

[Sreedhar Mahamkali]

Got it. Maybe just a super short follow-up. Is there anything you're seeing in terms of metrics, order per store or mature market contribution in the IV segment that gives you confidence that into 2023 the IV losses could be substantially better, I mean, by the growth magnitude of hundreds of millions of euros or is that too talk to?

[L. Niklas Oestberg, Co]

Yes. So generally -- and I'm sorry that I tried to explain, but I just want to be helpful to everyone here because I understand it's -- yes, some questions here. So generally, what we see is that when you scale a business with negative economics, the losses will increase as you scale and obviously. And if -- once you get to profit during the economics, it should change fairly fast, but it's going to be a larger and larger losses until you get to that point. Now with the quick commerce and the Dmarts, it's not going to be the case this year because we are growing that business, but we are significantly improving the economics. So we have countered the fact that economics with improvement in economics. The growth and improvement economics is kind of netting itself out such that we don't increase the losses from the current basis Q4, Q1, but actually marginally gradually go down.The question is when are we going to reach gross profit neutral? It will not be this year, will also not be end of the year, and I don't dare to say when it is, but we are going to be profitable in many places, but not on a group basis on contribution margin, but we are going to be there for 2023, I'm pretty sure. And once we get to that level, then we would also expect that the losses would drastically go down because every incremental order will be contributing. So that is probably 2023 when that -- at some point in '23, it will drastically decline, but not in '22.And then also coming back to the initial point, we are in a challenging market. And we have a lot of liquidity. But someone said, in 2024, we have converts. And even if we have a lot of capital, and we have a lot of liquid assets and so on, we need to be in a position where we can pay back those converts. And if you want to have cheap financing in terms of debt than others, and of course, we need to show a clear profit path as well and especially important for 2023. So if the market is as dire or is getting worse than where it is now, then even more important, we're going to drive that profitability in 2023 because it's going to increase our ability to take on debt to refinance the conversion in a cheaper way or in the most cheap and effective way. I think the 2024 was a fairly small one, but we're still going to -- and this also convert for '25 as well, 2025 and '27.And next question? Thank you.

[Operator]

Next question is from the line of Adrien de Saint Hilaire from Bank of America.

[Adrien de Saint Hilaire, VP & Head of Media Research]

Niklas and Emmanuel, the first one is during the call that you made around Glovo a couple of months ago, actually last month, I was under the impression that you were talking about GMV growth in the low 30s and your guidance today is about 25% growth. So has anything changed in the market? Or is that your, I'd say, your conservatism? That's the first question. And then second question is, you make a lot of comments in your presentation about contribution margin. I'm struggling to understand why the contribution margin is improving and meeting all them where's actually EBITDA keeps on deteriorating or maybe not improving as fast as we would expect?

[L. Niklas Oestberg, Co]

Yes. Great. Thanks. Yes, I don't think anything's changed. On the contrary, I think January has been very good. It was the best month in our history, more on a GMV basis. So nothing has changed here. Maybe -- and we want to be sure that we are not setting ourselves up for failure or in any way, we want to make sure that we have the trust as we have in the past, we deliver on what we say -- so I don't know -- there's nothing that's changed, but we want to make it sure that we don't set the guidance that this is putting us into trouble, putting it this way, especially because of the challenging environment. And we want to keep building the trust, do not guide too high.On the contribution margin to EBITDA, yes, so that -- I think that's very right. And again, now coming back a little bit to Korea, Korea is 50% of our business on our GMV. Actually, it's a little bit more than 50% of our GMV. So of course, if we improve APAC, we improve Latin America, EMEA, Europe was actually a slight decline, but -- and MENA is already good. So even if we improve all of those places, if in Korea, move on promotional pricing and OD, and we're reducing our contribution margin there with 1%, 1.5% or so that anything we did on the other is being balanced out. So that the net effect is that the contribution margin, I don't have it in front of me, contribution margin on an aggregate basis may not have improved if we include Korea. And maybe Emmanuel can confirm or disprove that you might have.

[Emmanuel Thomassin]

No, I can confirm.

[L. Niklas Oestberg, Co]

So that's the thing. The contribution margin for group has not increased. It actually declined, but it's a one-off effect of promotional pricing in Korea, and that is -- pricing has been communicated and the change is happening. So once that is ordered, you would expect that the contribution margin for the group will go up and, therefore, the EBITDA will go down or improve.

[Adrien de Saint Hilaire, VP & Head of Media Research]

Super. If I can just ask one tiny follow-up is in that EUR 44 billion to EUR 45 billion and that growth that you expect, what is the sort of growth differential that you expect between integrated verticals and the platform business, if any?

[L. Niklas Oestberg, Co]

Yes. And we don't guide -- but it would obviously grow faster, but it's only the -- yes, I don't want to give an additional guidance here. I don't want to be wrong on anything. So I don't want to throw something out here either or my internal thinking and beliefs here. So I need some more time on it as well. But it's growing really well, especially the last couple of months, I would say. And it's going to grow faster. But it's also a long-term game, I don't know people are not changing the behavior overnight and ordering their groceries on on-demand basis from one moment to another. I think building this vertical is going to take 10, 20 years.And I think that's also -- and it takes tens of years for people to start ordering food. Food existed back in delivery existed back in the '90s. Grocery delivery has much shorter and especially this quick commerce type of grocery. So it's going to take a long time. It's going to grow faster than our food and compounding effect is going to be enormous. And it comes back to my initial point, and we believe that we're going to grow faster than the peers or the industry with 10%, 15% per year. That means over 8 years, we are double the size. The same, if you look at quick commerce, maybe that will grow even more faster and over 4 years, you might have been doubled versus the food, but I don't want to give a number there.So anyone, last?

[Operator]

So the next question is from the line of Miriam Josiah from Morgan Stanley.

[Miriam Josiah]

Two for me. Just another one, firstly, on the operational leverage this time specifically for MENA. So I guess that's a region where we haven't seen as much operational leverage come through as we might have thought by now. And I think you mentioned Turkey is one of the reasons for that. And I guess historically, that was quite a strong market. So do you think that the cost of maintaining #1 positions is increasing generally? Or do you think that's more specific execution issues in Turkey? And I guess, generally, how should we think about just the trajectory of operational leverage in the markets where you already have that leading position? Is it just a question of increasing the gap to the #2? So just any color on how you think about that would be helpful?And then secondly, just around sort of macro concerns around inflation, how concerned are you around consumer demand in a higher inflationary environment, particularly on the grocery business? And then also on the cost side, are you seeing that inflation come through in rider costs? And are you passing that through at all? And are there any other buckets of cost inflation to be concerned about, like headcount, et cetera?

[L. Niklas Oestberg, Co]

Yes. Great. So I think the operational leverage is coming through. But we also said in the past, we want to move very slowly. We -- this is not a sprint, we don't want to build this business quick and get reaching go home. I want to build this business for 100 years. And I have no rush in improving our economics and driving profitability. I'm not a seller, I'm -- so -- and we do this gradually slowly. And I think there are -- if you take MENA, there are still markets like Egypt, Iraq, which are still very new that we invest in, but you also mentioned Turkey.I think I don't think that, as I said, that I think there are more the exception to the rule where we maybe have, I would say, been a little bit challenged from behind, where had a stable position. I think one was 4 years ago, 4, 5 years ago in Colombia with Rappi coming with a multi-vertical offering, we were not fast enough to build multi-vertical. I think -- and we learned from that mistake and as they expanded into Argentina and other places, we already had a multi-vertical offer even before they came and managed to kind of turn that market to be significantly larger and same one was in Kuwait, we thought logistics is maybe not so important. That was a mistake and a company called Carriage managed to get 20% or so of the market, and we ended up acquiring it because we needed that capability.And I would say in Turkey, I think we were not fast enough in realizing the grocery warehouse model fast enough. We were a few years behind and have a little bit disrupted us by coming into that warehouse model and then expanding a little bit in the food. But even there, I would say, again, they're doing 50% promotion and still, we are growing very nicely in Turkey on the food side. And we also believe that once someone is taking off, and if we lost any customers, we'll be those who are very price sensitive and the moment they turn down the promotion, and we do a promotion, all their customer is going to come to us. So we just have to wait and attack when the moment is right. So I don't think too much concern there.But there are very few reasons why one should be able to lose some market position. I think we have gained market position or even one market from nothing and -- but exactly because we had a customer experience that was better, we did something differently. The same with Glovo, I mentioned on the other call Glovo has been phenomenal at coming from nowhere, gears and years after in places and still manage because they are so focused on product. So again, if you have a good product, good execution, good product offering, there is no -- we don't see a reason -- we don't have to counter and spend because someone does vouchers. We can still drive gradual business to the 5% to 8%. And it doesn't matter if comparators there or not. We just hate to making sure that the product is not having any gaps.So I think even in MENA, you will see that coming through very gradually that EBITDA margins in those places which are profitable. But there are 3 investments area right now or 2 investments -- yes, 2 now. Inflation, why because, we have operated with inflation many times before. This is not the first time we've been operating in Argentina. We have been operating in Turkey over many years have had inflation and hyperinflation. We have had many other markets with inflation. We don't see that as a big risk for our business.Food prices go up, and we take a commission on those food prices. We don't see that people stop consuming because they have less spending power. People still order food. They might not go to expensive restaurants and drink a glass of wine, but they order in. And we still -- very few people will order every day or even every week, so even under lower buying power, they do consume. And otherwise, the business like the one we have in Bangladesh and Pakistan wouldn't work if purchasing power is -- would eliminate food delivery. Rider cost, we haven't seen that. And one issue we had is in Turkey, rather the increase rider cost, but inflation has been so high. I think -- yes, but that is probably an exception that maybe we could have managed that better. In general, we don't think inflation is a big problem from that point of view.Thank you very much for listening in. I'd like to reiterate that we are moving our business to EBITDA positive for the full year this year. And this is a massive milestone. We have lost over many, many years, 11 years and large amounts, and we are moving that platform business has been highly loss-making, and people have said that we can never get profitable. We are now proving it that this is positive EBITDA for the full year and even profitable, including Glovo in the fourth quarter so a good business. We have also doubled down in quick commerce, and we are big believers in this. And I think we have also the firepower to win in our markets. We have made sure that we have the tools to respond, if need be. And I think this is some massive opportunity, we strongly believe in. And I thank everyone who still believe in us, and we will continue to work day and night to deliver on those expectations.So thank you, everyone. That's it.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.