Earnings Transcript for DELHY - Q2 Fiscal Year 2024

Operator: Ladies and gentlemen, welcome to the Delivery Hero Q2 2024 Trading update conference call. I am George, the Chorus Call operator. I would like to remind you that all participants will be listen-only mode and the conference is being recorded. The presentation will be followed by Q&A session. [Operator Instructions] At this time, it’s my pleasure to hand over to Christoph Bast, Head of Investor Relations. Please go ahead.

Christoph Bast: Hello and welcome everyone. Thank you very much for joining our Q2 2024 earnings call. We would like to remind you that this call is being webcast and the replay will be available later today on our website. With me today, we have Niklas Ostberg, CEO; and Marie-Anne Popp, Interim CFO of Delivery Hero, who will take us through the most relevant aspects, Q2 performance and also the half-year financial statements. After that, we look forward to answering your questions. And now, let me hand it over to you, Niklas.

Niklas Ostberg: Thanks, Christoph. Hey, everyone, and thanks for listening in. Today, I’d like to start off by sharing my gratitude towards the full Delivery Hero team. Last six months, many of us, including myself, have been working incredibly hard. And as you can remember, we had a great Q1 where we outgrew our comparison in almost every market. But as we highlighted in our last trading update, we had a significant drop in category share in Korea at the end of Q1, starting Q2. This led us to not only accelerate our plans in Korea, but also compensate for the impact by finding growth and cost levers in other places. We came together and delivered incredibly well on this. So, a big thanks, everyone, for this enormous effort. We ended the quarter with growth levels not seen since COVID time in 2022. And we did this while growing EBITDA and cash flows rapidly. I’d also like to thank Marie-Anne for stepping into the Interim CFO role. You have pushed efficiencies as our first priority. It’s not been easy, but I have appreciated the challenge and I’m sure many of the actions we are taking will make us even stronger. So, thank you for that. Moving to some highlights for Q2. So, despite this tough start to the quarter, we delivered 7% year-on-year growth in constant currency GMV. We ended the quarter on a strong note, achieving a 10% increase in GMV in June. The positive momentum was driven by healthy order growth, which has been in the double digits across our markets outside of Asia, where GMV has grown in aggregate by 23% year-on-year this quarter. This is ahead of all public peers and it shows the strength of our team and our product. Total segment revenues continue to significantly outgrow GMV with a 20% year-on-year increase in the quarter driven by multiple levers, including higher commissions around delivery, Dmarts, AdTech, as well as services and subscription fees. I’m also very pleased to say that we not only delivered solid topline growth, but that the majority of our footprint saw improved profitability over the last six months, leading to a strong year-on-year uplift in adjusted EBITDA of €231 million. I’d like to single out that in June, Glovo achieved positive adjusted EBITDA, including group cost, for the first time. The team is on fire and we’re outgrowing our competitors big time. We expect Glovo to continue improving its adjusted EBITDA in the coming quarters. Due to the strong revenue growth in combination with the strict focus on profitability, we concluded H1 with an adjusted EBITDA of €240 million, resulting in a positive operating cash flow of €103 million and the breakeven on free cash flow level. Our liquidity position remains strong, and at the end of H1, we had €1.8 billion in cash and achievement. You’ve likely seen our recent corporate news. We are preparing an IPO of Talabat in Q4. Our team is working diligently to make this happen, which will help us strengthen our local relationships and position Talabat for a long-term success in the MENA region. Last but not least, I’m sure you have seen our announcement regarding a potential listing in Talabat. I think that was already mentioned now. And but also to share here is, of course, Talabat is an incredibly strong business and has a very impressive track record of combining highly attractive growth with industry-leading margins. We believe it is in our best interest of Talabat to pursue a minority listing as a logical next step and position Talabat for the long-term success in partnership with strong regional investment -- investors. This announcement is not the subject of the matter of today’s call. Please understand that we cannot make detailed comments or answers to the question today. The Delivery Hero will publish further information as part of the IPO process at the later stage. However, in line with best practice, we have prepared a case study that highlights the financial performance of Talabat’s business. Now on to the next slide. So, both GMV and revenue continue their positive development as we generate double-digit order growth in most of our segments. We continue to grow the business while delivering substantial profit and cash flow improvements. If you take a look at Slide 5, you can get a very good understanding of where our growth is coming from. During the quarter, four out of five segments were generating strong double-digit revenue growth in constant currency and excluding hyperinflation accounting, with MENA even growing above 30%. Now, let me hand over to Marie-Anne, who will then give a deep dive into the financials, starting on the next slide. Marie-Anne?

Marie-Anne Popp: Thank you, Niklas, and also warm welcome from my side. It’s a pleasure to be speaking to you today and to have the opportunity to explain our business performance in more detail. So, let’s get started and quickly dive into the European segment, which continues to perform very well. GMV and revenue grew 19% and 22% year-over-year, respectively, on a constant currency basis driven by double-digit order growth. This growth has been significantly above that of our European peers. We’re consistently advancing on our path to profitability with adjusted EBITDA close to breakeven in Q2 and global actually reaching positive adjusted EBITDA in June. Our latest projections confirm our plans to achieve a positive adjusted EBITDA in H2 2024. So, moving on to MENA on the next slide. In MENA, we continue to see strong momentum with an outstanding topline development. GMV and revenue grew 28% and 31% year-over-year in Q2, respectively, both in constant currency and excluding the impact from hyperinflation in Turkey. Our sustained double-digit growth can be attributed to our relentless focus on enhancing our value proposition through product offerings like Dmarts, grocery, subscription, loyalty programs, kitchen operations, credit cards and more. And the diligent work of our teams has allowed us to maintain or even expand our leadership position across all the markets in the region. For instance, in Turkey, we’re focused on improving affordability through vendor-funded deals and a strong loyalty program, as well as improving the customer experience by expanding choice through the addition of new local shops to the platform. This has resulted in a meaningful uplift in order frequency, and we also gained back market share. I’m also happy to share that we managed to successfully turn around the business from a profitability point of view with drastic improvement in adjusted EBITDA. Now, on to Asia on the next slide. As you know, the GMV development in South Korea was impacted by the promotional campaign of our main competitor, which intensified with the launch of free delivery in late March. This led to an instant negative impact on our category position and order growth in April. We responded quickly and stabilized momentum, finishing the quarter at a much stronger position than how it began. At the same time, we saw positive developments in the rest of Asia, with our operations returning to GMV growth quarter-over-quarter. Over the last couple of months, the team has made a lot of progress to become more competitive in Korea. We’ve done a lot of changes to the UX and UI, improved logistics tools and became even more attractive in terms of customer experience. We also changed our pricing plan and made the business stronger and economically more sustainable. Looking at profitability, Asia suggested EBITDA-to-GMV margin, temporarily declined by 10 basis points year-over-year to 1.3% in H1 2024, as we have expanded own delivery and marketing in South Korea. Conversely, margins in APAC improved by 110 basis points year-over-year during the same period. Now, moving to the Americas region on the next slide. Americas performed well in the quarter, with GMV and revenues growing by 14% and 13% year-over-year, respectively, on constant currency and excluding the hyperinflation adjustments for Argentina. Overall, we’re very happy with the performance of the business. We achieved double-digit order growth across most countries, while Argentina remained flat due to the macro situation, which we do expect to improve as the year progresses. Excluding Argentina, the rest of America has grew orders by 20% year-over-year. We continue to develop the ecosystem and customer experience in Latin America. For example, local shops account for 20% of all orders in the region, among the highest in the group. We’re also making significant progress on profitability. The segment reached adjusted EBITDA breakeven in June, which was driven by healthy topline growth, gross profit margin expansion and operational efficiencies. We expect a positive adjusted EBITDA contribution for the second half of the year. On to Integrated Verticals on the next slide. Our Integrated Vertical segment generated strong GMV and revenue growth of 24% and 25% year-over-year, primarily driven by robust volume growth, with stores now averaging over 500 daily orders per store. So, in 2021, we shared that our stores would peak gross profit breakeven when we reached 500 daily orders per store. It actually turned out that we were able to hit positive gross profit earlier than that. As demand increased, the gross profit margin nearly doubled quarter-over-quarter to four%. We anticipate substantial further margin expansion in H2 2024, which will lead to significant adjusted EBITDA improvement for the entire segment. Now, on to the gross profit margin on the next slide. The gross profit margin of the Platform business remains stable at 7.6% in the quarter, with further margin expansion expected in H2 2024. MENA and Americas led the group in terms of gross profit margin and are close to 10%. On group level, gross profit margin expanded 20 basis points quarter-over-quarter to 7.8% in Q2 2024, driven by positive Dmart contribution, which is not included here in this graph. In addition, our AdTech business continues to excel. In Q2, our non-commission-based revenues or for short, NCR, amounted to 2.4% of group GMV and are expected to further increase from here until we reach a long-term target of 3% to 5%. Now, let’s go ahead to Slide 14. As we’ve published today our Q2 trading updates and also our half year figures, I would like to take this opportunity to present the key figures for the half year 2024 based on IFRS. Total segment revenue grew 19% year-over-year to €6 billion in H1 2024 and continued to outpace the GMV development. And then, as a result of the strong revenue growth and strict cost control, adjusted EBITDA improved to €240 million. Also, operating cash was significantly improved by €280 million and turned positive. I will come back to our non-IFRS free cash flow in a minute, but before that, let’s have a look at the reconciliation of adjusted EBITDA to net results on the next slide. Starting on the left side of the slide was the adjusted EBITDA of €240 million. Management adjustments total €293 million, of which €226 million relate to the provisions for European antitrust matters, which we announced in July. It also includes one-off expenses for corporate transactions, financing measures, earn-outs, and restructuring in connection with headcount reductions. In addition, there are lease payments, which are in alignment with IFRS 16 and are below adjusted EBITDA. There are then the interest payments for our bonds and term loans, as well as taxes, which should be self-explanatory. Adding all cash relevant items together and excluding the exceptional antitrust provision, we arrive at cash relevant expenses of €360 million. Please understand that we’re not providing guidance on the future development of management adjustments today, but I believe it is fair to assume that these adjustments should decline materially over time as the company matures. Also, interest expenses should decline as we deleverage the balance sheet with future cash generation. On the right-hand side, you can see all the cost items that are not cash relevant. Share-based compensation and D&A are self-explanatory, while others mainly relate to unrealized FX losses. One quick remark on share-based compensation. Unlike in the past, we have recruited fewer employees and at the same time reduced our workforce. We also made some adjustments to the LTIP program that have reduced the front-loaded effect on expense recognition. Hence, we now expect share-based compensation to amount between €210 million and €270 million in 2024. Now, let’s review the cash development over the last six months on the next slide. We finished 2023 with cash and cash equivalents of around €1.7 billion. Our adjusted EBITDA continued to ramp up and reach €240 million, as already discussed. CapEx then amounted to €134 million or 0.6% of GMV and H1, and we expect the ratio to remain stable at 0.6% for the entire year. Since most of the investments associated with Dmarts, office expansion, et cetera, are now behind us, we expect this ratio to drop to 0.3% in the longer term, which should clearly improve our cash conversion. Leasing payments and cash outflow for tax payments amounted to 0.3% and 0.5% of GMV and H1, respectively, both aligned to our guidance. Working capital was positive and amounted to €96 million. This positive development is expected to be partially offset in H2 and fully in line with our 2024 guidance of a small inflow. In terms of others, we had a cash inflow of €175 million, which includes the upsizing of the term loans, Uber’s investment in Delivery Hero, the divestment of minority stakes and also the outflow related to convertible repayments, earn-outs and FX effects. Putting it all together, we finished H1 with cash and cash equivalents of around €1.8 billion. Now let’s move to the next slide where you can see how this matches to our maturity profile. As you can see, we have a very balanced debt maturity profile with an average debt maturity of 4.3 years at an average interest rate of around 4.3%, including both the convertibles and the term loans. We reached free cash flow breakeven in H1 2024 and are fully on track to deliver a positive free cash flow in 2024 and substantial cash flows in the following years. Hence, we’re very confident that we can address all upcoming maturities with our substantial cash flow generation over the next few years. We have even started to redeem convertible bonds through open market repurchases in the amount of €88 million during Q2 and we plan to continue to do additional buybacks in the second half of the year. Let me now finish with a quick overview of our free cash flow reconciliation on the next slide. As a reminder, our free cash flow is calculated as cash flow from operations, less CapEx and payment of lease liabilities. It excludes interest income and expenses and change in working capital excludes receivables from payment service providers and restaurant liabilities. These numbers are based on management accounts thus they might differ from some of the IFRS numbers we presented in previous slides. As you can see, we generated a free cash flow uplift of more than €300 million year-over-year and broke even already in H1. We also expect further free cash flow generation in the second half of the year, despite the fact that the positive working capital effect from H1 will turn into a cash outflow in H2, which is completely in line with our full year guidance of a small inflow. Let me now hand back to Niklas, who will take you through our case studies, starting on Slide 21.

Niklas Ostberg: Thanks, Marie-Anne. Last month, we announced a few changes to our business in South Korea and I’d like to touch on the key points today to add clarity to our strategy. We focused on enhancing the customer experience and improving the platform monetization. We intend to drive more affordability while maintaining strong economics going forward. On the customer experience side, we worked on improving the UX and UI. We made the platform more intuitive for users and improved the visibility of choice. We also introduced an attractive subscription program, which offers free deliveries in addition to access to attractive benefits from food delivery, quick commerce shops and other partners. We plan to start charging subscription fees in September, while in parallel increasing benefits. This allows us to better retain customers, incentivize frequency and reward loyalty. We will also start generating revenues that can be further deployed into the business. Additionally, we have done a lot of work on improving our logistics, with own delivery ramping up quickly during the quarter and now accounting for more than 40% of orders in the country. We also updated our pricing methodology, increased our commission fees at the same time as we lowered our delivery fees, which are now in line with industry standards in South Korea. These actions will strengthen the financial sustainability of Baemin and enable us to intensify efforts in a comparative environment. Now let’s jump to the next slide, where I’ll give you an update on Korea’s market development. The graph on this slide shows order development in South Korea based on 28 days rolling average. As you are aware, we are or we were gaining share against our main comparators until mid-2023, when one of our comparators started offering 10% off. The competition further intensified over the past few months when our main comparator launched free delivery and heavily invested into cross-selling, which affected us and led to a decrease in orders until early May. We responded effectively, leading to a strong 14% rebound from the lowest point in May through the last data point in August. We did this while improving our long-term economics. Now we will go to the next slide, where we can also see this from a year-on-year perspective on orders again. So here the data compares the 28 days rolling average from the past few months to the same period in 2023. This is illustrating the year-on-year trends. So as you can see, we have a clear drop in year-on-year performance in March. With the actions taken, we quickly recovered and are now on a very strong trajectory. Going forward, we expect a slight drop in year-on-year in September as we start charting for subscription, but expect our recent changes in customer experience, improved value proposition for our subscribers, as well as improved delivery experience to contribute to the current positive order development. So now let’s move ahead to a small case study in Talabat. So as mentioned earlier, we are working to list Talabat in Q4. There will be a lot of material coming out of Talabat in the next 10 days in connection with our early loop meetings. But before that, we are limited to what we can share and say on this topic. So now moving to the Talabat case study. And as you know, Talabat is the leading on-demand delivery platform in the Middle East. It has a very strong multi-vertical offering combining food delivery, Dmarts and local shops, and it has the clear category leadership in all eight countries within MENA. The business achieved GMV of more than €5 billion in 2023 and very attractive GMV growth of more than 20%, substantially more than 20% in the first half of this year. Talabat is extremely profitable with an adjusted EBITDA margin of more than 6% and it’s a strong cash generator with cash conversion of more than 85%. Now to Slide 27, where I’ll quickly comment on our profitability path. This slide was presented last quarter and is a continuation of our profitability push, which we started at the end of 2021 already. We executed our profitable growth strategy, emphasizing profitability, cash generation and disciplined capital allocation over the past years. This has taken us from a negative annualized group adjusted EBITDA in Q4 2022 to an abstracted or to an expected positive €1.2 billion in annualized adjusted EBITDA by Q4 2024. I will not deep dive into our outline ambition for the year as it was already shared last quarter and we are fully on track to reach our targets. Moving forward, we will continue enhancing our operations with adjusted EBITDA gradually moving towards our 5% to 8% long-term margin range. Now I’ll turn it back to Marie-Anne, who will take us through the full year guidance on the next slide.

Marie-Anne Popp: Thank you, Niklas. So, we reiterate our full year 2024 guidance that GMV will grow between 7% to 9% year-over-year and that total segment revenues will grow even faster and reach 18% to 21% year-over-year. Both the growth rates for GMV and revenue are in constant currency and exclude the effects from hyperinflation accounting. We currently expect FX headwinds to be around 3% for the year. In addition, our gross profit margin will continue to expand further, which results in an adjusted EBITDA guidance range of €725 million to €775 million, including the extra investments in South Korea. The positive development on adjusted EBITDA level should then ultimately translate into a positive free cash flow for the full year. And to be clear, we will continue to focus on delivering a highly profitable and cash generative business going forward. We now look forward to taking your questions. Christoph, over to you.

Christoph Bast: Thank you. Before we start the Q&A, I would like to ask you to limit your questions to one per analyst. This way we can ensure that every analyst has the opportunity to ask a question. Operator, please go ahead.

Operator: [Operator Instructions] Our first question comes from Joe Barnet-Lamb with UBS. Please go ahead.

Joe Barnet-Lamb: Excellent. Thank you. Thank you very much. Hi, Niklas, and welcome, Marie-Anne. I’m going to kick off with one on Glovo, if that’s okay. There was a press article released a couple of weeks ago referring to a court case won by Glovo in Spain. There’s a quote in the article stating that the court determined workers weren’t false self-employed and that the ruling would save you more than €10 million. Can you give us some more details on that ruling and update us more broadly on the legal progress in Spain? And also, I assume that that case fell into Q3. So would that impact your contingent liability line? Thank you.

Niklas Ostberg: Maybe I start and then, Marie-Anne, if you have more to add, please go ahead. So, of course, it’s very positive that we are winning cases and I think the same went for Uber. I think we also want cases when it comes to freelance model. But then again, it’s always in our interest and intention to find a solution that suits all stakeholders. Ideally, this solution is also not determined in courtrooms, but agreed between parties. If we come to the legal proceedings in Spain, so as I mentioned, we did win, but it’s in a first instance court. And it was for both Uber in one region and Glovo in another region. The court came to the conclusion that riders can be freelancers based on the respective operating model. The decisions are of importance for the industry as they validate that the freelance status is technically possible if platforms effectively unlock all flexibility available in platform work. The case is in regards to our slot model, but it still refers back to the Supreme Court decision. And since the slot model, we have further improved the autonomy of the riders in our flex model. So again, I’m very happy that the court sees it the same way as we do, that you can operate a freelance model. You just have to make sure that they have autonomy. But again, having said that, we still like to find a solution to all stakeholders and I hope that we find a solution that we are all happy with. We don’t want to continue on a litigation path. So we will look to find solutions. In regards to, yeah, winning the case, of course, this could potentially impact our provisions. We cannot comment on that now. It’s also, again, it’s the first instance, and I’m sure this is going to be challenged in the second and third instance. So, therefore, until we have clarity, we decided not to make an impact. I think on the probably more positive is that, we have historically provisioned or put in continual liability that infers us to sanctions. In order for it to be sanctions and the large amount of the provisions and the continual liabilities are related to sanctions, it needs to be intentional and fraudulent. We are operating a model that is not allowed, but now it’s clear that even court systems see this as a possibility of being freelance. So I think that is a very positive sign for us. But again, we want everyone to be happy. We are willing to see what we can do and find solutions and I hope that we can have such a solution soon.

Joe Barnet-Lamb: Excellent. Thank you very much.

Niklas Ostberg: Thank you.

Operator: Our next question comes from Andrew Ross at Barclays. Please go ahead.

Andrew Ross: Great. Good afternoon, everyone. I wanted to ask about Korea and recent changes versus a couple of subject here. You just talked through the reaction from the industry and regulators to the pricing changes that have been made recently. And then can you give us some color as to how material the club is as a percentage of orders they may not run rate rates right now? And finally, can you give us a sense about how you’re thinking about Korea you regard from here? Obviously, you’ve been spending to kind of regain share recently. How do you think about that in 2025? A lot of moving parts, a bit of color would be helpful? Thank you.

Niklas Ostberg: Sure. Can you repeat the second part, the percentage of orders?

Andrew Ross: Yes. What percentage of orders for payment [ph] are made by club members right now?

Niklas Ostberg: Right. So I think as a large player in the market, there’s, of course, always a discussion and making sure they operate compliantly in a good fashion. I think overall, that’s been positive discussions. Of course, when you make a change that both has positive impact and commission reductions for a lot of restaurants, especially very small restaurants. But of course, you also made a commission uplift on delivery and for some restaurants and also they had to pay more. And of course, any change you do when you are at large scale will always be scrutinized and will always be a discussion on those. I think overall, I know we are very positive with the response and I think we have been happy with the discussion and also that continues to happen. But, yeah, we continue to operate in collaboration with all stakeholders to make sure that we drive the industry forward in a good way. So that is progressing very well, I would say. In terms of percent of orders from subscribers, we don’t disclose that yet. But I think we aim to have something like 4 million or 5 million subscribers by the end of the year or early next year. So that would be a significant portion of the orders that we are aiming for. I would say already now we have a large subscriber base, but we don’t disclose numbers at this point in time. I think overall, the changes that we did made us way more competitive. You can also see it in the growth direction that we had since we did the changes and these are not just a few changes around own delivery, subscription or revamping UI and price changes. We have been focused on every small piece on the customer journey. The improvements to the growth is great, but we are now also done sustainably. So therefore now we make more money per order and in particular as we move forward. So this should be very positive to our EBITDA development. But even more important, it’s going to be positive for our growth and for the wider ecosystem. So we are very excited. And I think there are still changes that are still to be made, and I would say, I’m more confident about Korea and the growth prospects that we have than I’ve been for the last couple of years. So I’m very excited. And there is really so much growth potential in that market. We really have so much growth potential for us, but also for Coupang and Yogiyo, there’s a lot more growth to come for all of us.

Andrew Ross: Thank you, Niklas. That’s helpful.

Niklas Ostberg: Thanks.

Operator: Our next question comes from Marcus Diebel at JPM. Please go ahead.

Marcus Diebel: Yeah. Hi, everyone. Maybe also a question on another large market, Saudi Arabia. From what you disclosed for Talabat, it seems that the hunger station continues to outperform in the market very strongly. Could you maybe tell us a little bit more what you’ve seen in the last few weeks either from this competitor and also new competitors that came into the market? What are the latest trends in that market? That would be quite interesting. Thank you.

Niklas Ostberg: I think the trends are very positive. But maybe you alluded to new entrants. So maybe just quickly cover that topic a little bit. So, can everyone hear me? I’m hearing that my...

Marcus Diebel: Yeah. I can hear you.

Niklas Ostberg: Can everyone hear me well? Okay. Perfect. So, I -- when it comes to -- going back to Hong Kong, because you often get referenced there, like Metro and then [inaudible]. I can completely understand that it looks scary when someone quickly gains 35% share in a city. But I think investors are a little bit missing the point here. So there are three reasons that I want to highlight there. And that is, first of all, Hong Kong is a tiny city for us. And when you operate an early stage in mature markets, it’s very easy to gain volumes, because there’s a more -- there is a lot of volume to be taken. Secondly, it hasn’t impacted our good customers. They still remain very loyal. And thirdly, we have seen this many, many times before. If someone is willing to lose, I don’t know, say €5, €6, €7 per order, it would be shocking if they wouldn’t grow orders. We had the exact same case in Turkey, but it was even worse, I would say. This was mainly competing with another Chinese player, Alibaba. Comparators, Alibaba and another competitor called Getir, spent endless discounts over three years, four years, and our category share dropped to 35% on order share. Now we are, again, we’re recovering that and we are now clearly the largest platform again, with record growth and we are much larger than we were when the comparators ended. I think we are 70% to 80% larger now in D&D terms than we were before they started to attack. And the same we had in Latin markets, another Chinese competitor came in and they had a 50% share of downloads and traffic and now they are below 5% share in that market. So late entrance has proven to be a pretty bad return and discount stride has proven to be a terrible stride for long-term success. And this is also why you have players like Uber, DoorDash, Deliveroo and other players with international experience. We don’t launch markets anymore. Returns are simply negative and it rather helps the market leader long-term because as soon as discounts stop, the customers that were lost are coming back. So that’s why we see in those markets that there is a ramp up in growth as soon as the comparators end discounts. So we just have to be patient in that regard. Now if you come to Saudi, because that was your question really, it’s of course a very different place than Hong Kong. It has many more cities, first of all, but it’s also very different in terms of culture and many specificities on that market. We had a great quarter, as you mentioned. We keep or kept outgrowing our comparators or our main comparator on both topline and bottomline. We also remain very focused on building amazing multi-vertical service. We have put extra effort into affordability and also given a new entrance. This means things like meals for one, neighborhood orderings, item discounts, better pickup, improved subscription, on-time guarantees, incentive system, et cetera. So in my view, we have a very strong offering here that I don’t think any new entrance would even be close to offering. And we always have to offer a strong offering as we’ve always been faced with strong comparators and we always managed to drive growth and profitability despite having strong competition in every market. We’ve been competing everywhere against very tough comparators like Uber, DoorDash, Deliveroo and others. So this is not changing. And again, the vast majority of customers are loyal to a service and for them, a voucher won’t change that. And for those customers which are not loyal and are willing to jump to another platform because it’s cheaper, they will one day also come back. So easy come, easy go or easy go, maybe easy coming back. So we feel generally very strong here. So I hope that helped.

Marcus Diebel: Yeah. Thank you.

Niklas Ostberg: Thanks, Marcus.

Operator: Our next question comes from Giles Thorne at Jefferies. Please go ahead.

Giles Thorne: Thank you. It was a question on your operating models that was related to the, it’s always been very decentralized, but there have been a handful of pretty well-debated, pretty well-publicized strategic missteps, obviously, most notably in Korea, and some operational changes in response. And I’m thinking here now for the new management tier of Foodora, Yemeksepeti and Foodpanda. This is all suggesting that your philosophy is to move to a slightly more centralized oversight of local operations. Is that a fair reading, Niklas? So what’s that going to bring you that you didn’t have before? And put more bluntly, are we going to see an end of the type of late-to-market product development and consumer experience that we’ve seen in Korea? We’re going to see that type of thing end? Thanks.

Niklas Ostberg: Great. Thanks, Giles. So, yeah, we have big believers in our operating model. And the operating model is often confused because we have local branches often confused with -- that we are not operating a centralized tech stack. But the reality is that the majority of our tech is on building a global tech stack, logistics, vendors, payment, incentive systems, all the AI work we do and so on. So we built a very strong central backbone and if you look at the central team, it’s 85% tech, and if you look at my time, I spent 85% of my time on tech and product and how we built a leading operating system. And I think we do have historically been competing incredibly well against all our competitors. So I’m a big believer in this, having a strong central, but also giving a lot of autonomy to those local teams to execute and that makes them very competitive. I think when it comes to Korea, I think, we now tend to feel like, oh, they didn’t operate well, and they lost and dropped the ball. I really don’t think that is a fair assessment, to be honest. I think the Korean team has done a tremendous job. They were gaining share during the whole 2021, 2022. Coupang was almost dying. Yogiyo was also in the top. And then -- but then, of course, in mid-2023, someone gives 10% off on all orders. It’s going to impact. I think still, I would say that the team did a tremendous job here. They managed to continue to drive profitability and they didn’t lose much market share, despite someone spending hundreds of millions, cross-selling among 21 million users, 40 million WoW subscribers and despite that, they didn’t lose that much percent share and Coupang is still a very small player in Korea overall. So I think they’ve done a great, great job. Now coming to March, of course, that was a clear drop in share. We didn’t expect that, that there’s a change to free delivery. But again, we saw here that the comeback has been equally strong, and yes, it’s true that we spent a lot of time there. But in the end, the local team has done a brutal job here and maybe they needed a wake-up call, and together, we have been even jammed even closer. So I think we are much closer now also when it comes to technology and I think that really helps them. But I would definitely not describe it as being the Korean team didn’t execute. And look at the number three player in market or other players in the market. I think we have been standing up pretty well. But I do think that now we’re even stronger in that market. In terms of Foodora and Foodpanda, I think, those -- combining those two teams makes them stronger and I think we are very optimistic about that. But that is rather simplifying. That’s something slightly different here. Just making sure that there’s one team, one platform rather than two teams, one platform. That makes it easier for us to operate the technology stack and so on, and product, but also learnings and reduce some inefficiencies and so on. So I think this has also proven to be a good move and we had also our first quarterly sequential growth for quite some time. We have seen year-on-year also improving over the last two months. So I think overall, I think, we’ve been happy. But I think we are not changing our operating model. The operating model is based on the cornerstone technology tech stack and us also being very involved in markets. But of course, when you operate a global model, there will always be some market that needs to be prioritized and focused on. Yeah, correct. The last few months, I spent hundreds of hours on Korea, and of course, many people in the media have done that too. But these things will always come to play, so.

Giles Thorne: Thanks.

Niklas Ostberg: … a big change in model.

Giles Thorne: Thank you. Just by way of follow-up, a couple of comments on changing leadership, changing management in Korea would be useful. I guess, specifically, why the change and what are your plans for changing management in Korea? Thank you.

Niklas Ostberg: I can’t really comment on that. I prefer not to comment on that. But I think you made a comment that we did lose share and I think we had to make some drastic changes that wouldn’t have been possible before in the position we would have been in before. So, if someone said we should have done this earlier, it would just not have been possible. There were no other occasion that we could have done this earlier, given the market situation and also the development. We were gaining share in January, February. There was also no big need for it. So, but of course, this forced us to act fast and I think we did. And when you have to act fast and make big changes, it’s very important that your team is 100% behind this. So we had to go and ask the team, are you 100% behind the changes you want to do, driving more customer centricity, doing changes for operating more sustainably and enabling more affordability, and I think the team were a little bit hesitant at the start, I have to say. But I think we have come extremely close together and I think we’re all very happy with the moves that are done. And I think we all feel like we’re in a way better position for competing now than we were before. So I think the team is very, very strong, but maybe they needed also a little bit of a pusher.

Giles Thorne: That’s great. Thanks, Niklas.

Operator: The next question comes from Luke Holbrook at Morgan Stanley. Please go ahead.

Luke Holbrook: Good afternoon. My question is actually on Taiwan. I’m just wondering if you could outline where we are in the regulatory approval process, perhaps, any key dates that we should be looking for, just any context in terms of how that’s progressing? Thank you.

Niklas Ostberg: And there’s not much more we can say here. When we announced the transaction, we started or mentioned that we expect to receive antitrust approval on H2 2025. Right now, we are closely collaborating with the authorities. That means that we are answering a lot of questions, providing data, but we are not leading discussions with authorities. But this is rather happening on the Uber side. That collaboration works well and I think Uber is pushing forward, but that’s for them to answer. We did the contract, as mentioned before, we did the contract such that Uber has a very, very strong incentive to make this happen. So, I think, yeah, they will do whatever it takes to get this done. Yeah, they have a lot of incentives to get it done.

Luke Holbrook: Understood. Thank you.

Niklas Ostberg: Thanks.

Operator: The next question comes from Christopher Johnen at HSBC. Please go ahead.

Christopher Johnen: Yes. Thanks also for taking my question. Mine is on AdTech, obviously, an incredibly important revenue stream with respect to the margin profile of the group. I think last time you still in Q4 suggested that you’re on track to sort of see significant growth here. I think the official target between 2024 and 2025 is the sort of €2 billion run rate. Is there an update on where you stand here? I’ve seen the number on the slide, I think it was 2.3% at the moment, but how do you still feel about this €2 billion figure and the path to that by the end of 2025? Thanks.

Niklas Ostberg: Yeah. So, the development is very strong. So, if you look -- if I take the dividing it here between global Korea and the rest of the world, we see if you start with the rest of the world, which is the majority part here, it’s growing very nicely. It’s on a very strong AdTech stack. We improve relevance and improve the ads to make it better for users, customers and that is also then helping us to drive value to both customers as well as restaurants and also to us. So, we see that we’re moving towards the 3% to 5%. In most places, I think we’re within this range. But it global, as you know, we are moving their tech stack completely to deliver here a tech stack when it comes to core backbone and that includes AdTech. And global is still going to remain on the front end side and user side is still going to be built in Barcelona by the global team. But if you look at the other key components such as logistics and AdTech and vendor and so on, that is in full move. We have already started moving logistics country-by-country now on a weekly basis and more and more to that stack, and I think that’s going to be very helpful both for delivery times, as well as for gross profit and EBITDA. When it comes to AdTech, that will take a little bit longer until it’s on the tech stack. It will be sometime in H1 next year since we have a little bit higher priority on a few other topics. So, that also means that the development on the global side is a little bit slower. They’re more operating on the 1.5% or so. But I think when we come into H1 next year, we will see this coming up, I think, substantially, especially in the second half of the year. And then Korea, same here. We’re also making a lot of improvements with the change that we did now over the last couple of months. We also did a big, big improvement on that. So, they are actually operating on the Delivery Hero tech stack on the click-to-call -- sorry, CPC, cost-per-click and that is doing really well. And over the last three months, there has been a material improvement. So, I think I feel pretty good about Korea. We’re also going to ramp up very fast on that. So, I think we should be in a good place.

Christopher Johnen: Great. That’s very helpful. Thanks a lot.

Niklas Ostberg: Thanks.

Operator: Our last question comes from Silvia Cuneo at Deutsche Bank. Please go ahead.

Silvia Cuneo: Good afternoon, everyone. Thanks for taking my question. I would like to get a little bit more context on the decision to potentially list Talabat separately. Just linking to some of the comments made earlier in terms of certain areas of the business, including Foodora and Foodpanda being currently rationalized from a cost perspective, emerging management teams. I think, actually, you appointed the COO of Talabat to run these combined assets. So, trying to understand how the decision to separate Talabat fits in all these contexts. So, what can you tell us to help think about this? And related to that, can you confirm that this will just be Talabat and not other operations that you have in those countries like InstaShop? Thank you.

Niklas Ostberg: All right. So, there will be no change to Talabat. Talabat is still leveraging our tech stack to a very large extent. It should operate all our 60 or so services that we have. So, they are very good at leveraging on a global tech stack. But they’re also very good at building local front-end component user topics. That’s generally how a tech stack is built. They have full autonomy and have a very strong tech team also building on that side. But the IPO will not change anything there. It will still be similar to any other platform. It’s just a difference that there’s a percent of the shares held by someone else. The same was the case for Hungerstation a couple of years ago. We only owned 60%-something of that. But that doesn’t really change much there. There is a strong service agreement between the companies that enables Talabat to be extremely profitable because it can operate on a much leaner cost base because they’re working with our central tech stack, as well as our global performance team. So, no changes there.

Silvia Cuneo: Okay. Thank you.

Niklas Ostberg: Thank you very much. I realize here -- this was the last question. I realized that most question was for me. I would have been happy to have Marie-Anne here if there are more questions.

Operator: We have a follow-up question from Christopher Johnen. Please go ahead.

Niklas Ostberg: Hopefully, not in Marie-Anne’s area.

Christopher Johnen: Yeah. I wanted to ask about the potential credit business. That seems to fall within CFO responsibility, I guess. So, discussion about loans to restaurants, maybe buy-now-pay-later. These sort of articles for hiring here are a little bit vague. So, can we just, yeah, pick your brain on what the intention is, any sort of timeline, impact, happy taker of anything? Thank you.

Marie-Anne Popp: Okay. I will -- hi. I’ll comment a bit and then I’ll let Niklas -- you can add as well if you’d like. I think overall, it’s a business that we do or we consider in some of the regions. So, something that’s more of a regional initiative and depends very much on the local, I’d say, circumstances, whether it’s a business that makes sense in that particular country, not even region by country typically and what the -- I’d say the regulatory framework is around that as well, how easy or difficult it is for a non-financial service provider to be in that business. So, it’s definitely something that is on the radar, something we’re working on. It is not something that is at a level where it’s a very meaningful driver yet, but certainly one of the future ideas that are being worked on. It’s something that we -- certainly, it’s a topic for our LatAm business and then also for MENA in particular. I don’t know, Niklas, if you’d like to add anything else on that.

Niklas Ostberg: No. Not really. Yes. You’re right. There are different parts of the business that we do in different places. So, in LatAm, we -- I won’t agree on the product line, but we are, as Marie-Anne said, in LatAm and MENA, we are also doing some parts in Taiwan and Korea that is very successful. So, nothing to add to what Marie-Anne said.

Christopher Johnen: Great. Thank you.

Niklas Ostberg: And I think that was it, I assume. Then I’d like to thank everyone for listening in. And again, thanks for the team. I know the last few months have been a little bit of a -- yeah, a lot of work, but I think it’s been very positive. So, thank you, everyone, for your hard work.

Marie-Anne Popp: Thanks, everyone.

Operator: Thanks. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Good-bye.