Earnings Transcript for JTKWY - Q4 Fiscal Year 2021

Operator: Good morning, ladies and gentlemen. Thank you for holding and welcome to the Just Eat Takeaway.com Full Year 2021 Results. [Operator Instructions] Now I would like to hand over the conference to Mr. Groen. Please go ahead, sir.

Jitse Groen: Thank you, operator. Good morning, everybody, and welcome to this analyst and investor conference call to discuss the full year 2021 results for Just Eat Takeaway.com. On our corporate website, you can download our press release and the slides for this analyst and investor conference call. I will start off today's presentation by taking you through the highlights of 2021, and I will share some additional background on the results of our investments in sustainable growth during the pandemic and how this has benefited our business. Brent Wissink, our CFO, will then talk you through the financial details of the results at the group level and for each of our operating segments individually. I will end the presentation with some concluding remarks, after which we will open the floor up for your questions. And my fellow Board member, Jörg Gerbig, is also here to answer your questions on specific topics. Regarding the question-and-answer session, I have a housekeeping announcement to make. As already shared with the analysts, we have amended the process for our Q&A session to make sure that everyone gets the opportunity to ask her or his question and to avoid marathon sessions. Therefore, we will allow one question from each of the analysts, after which the analysts will be moved to the end of the queue. And if we have sufficient time, you will get the opportunity to ask a second question once everybody has asked their top question. We do hope that this will improve the quality of our Q&A session and that this provides an equal and fair opportunity to each of the analysts. Now please follow me to Slide 4. We served nearly 100 million active consumers by the end of December, an increase of 9% year-on-year. Our percentage of returning active consumers increased further to 67%, while the number of orders per active consumer grew to 2.9x per month, mainly driven by our enhanced restaurant offering and investments in growth. This resulted in 1.1 billion orders, representing a GTV of more than €28 billion in 2021. We generated revenue of €5.3 billion, which is up 33% compared with 2020. Adjusted EBITDA on a combined basis for Just Eat Takeaway.com was minus €350 million in 2021, representing an adjusted EBITDA margin of minus 1.2% of GTV, reflecting our significant investment efforts. Brent will further elaborate on the financials in the financials section of this presentation. I'm now on Slide 5. 2021 was a year of strong growth driven by our investments during the pandemic. Our business has accelerated with growth drivers above prepandemic levels. As Brent will explain in detail, we issued 2 convertible bonds and secured a bank loan in 2021 totaling €1.4 billion. This has resulted in a strong cash balance of €1.3 billion at year-end 2021 to finance our operational cash flows and business plan. With regards to portfolio management, we intend to discontinue our operations in Norway and Portugal to concentrate on leadership positions and profit pools effective as of the 1st of April of this year. And I would like to take this opportunity to sincerely thank our talented and dedicated Norwegian and Portuguese teams who have worked tirelessly to build up our businesses in these countries. Then finally, to reduce complexity and costs, we confirm that the last trading day of our American Depository Shares on NASDAQ is expected to be the 11th of March, with trading on the OTC Markets via a sponsored Level 1 program expected to begin on 14th of March 2022. On Slide 6, we provide our orders with a split for each of our segments both excluding and including Grubhub. As you know, we only completed the Grubhub transaction in June last year, and as a consequence of that, the majority of our investments were focused on the legacy Just Eat businesses. Our investments resulted in order growth of approximately 100% during the pandemic that you saw in early 2020. Now if you'll follow me to the next slide, please. On the left side, you see our reported adjusted EBITDA for the combined businesses. We had peak losses in 2021, mainly driven by our investments in the historically underinvested legacy Just Eat businesses to reposition the business for online share gains. We've added a bar to show our January 2022 annualized run rate, which is minus €240 million and already within our 2022 guidance of an adjusted EBITDA margin of GTV of minus 0.6% to minus 0.8%. We are working hard to generate further profitability improvements throughout 2022 and beyond. To show the strong underlying profitability of the combined businesses, we also provide the adjusted EBITDA excluding the mandatory fee caps in the United States and Canada. Now at the end of 2021, many of these fee caps have expired, but they remain in place in major U.S. cities such as New York City and San Francisco. As communicated previously, we filed lawsuits against these cities last year and believe that permanent fee caps are illegal. In Canada, currently British Columbia is the only remaining province of size with a fee cap still in place. Excluding mandatory caps, our adjusted EBITDA for 2021 would have amounted to minus €158 million and the January 2022 annualized run rate would have been minus €59 million. Now moving to Slide 8. Profitability is in our DNA, and this is unique in us in our industry. In North America, as shared in the previous slide, our strong underlying profitability was impacted by government-imposed fee caps. Northern Europe was the most profitable segment in the industry with an adjusted EBITDA of €256 million in 2021. In the U.K. & Ireland, we doubled orders in the past 2 years, and we are now on a clear path to profitability. In Southern Europe and Australia and New Zealand, high investments in leading positions also doubled the segment in terms of orders during the pandemic with profitability improving going forward. On Slide 9, we focus on the growth drivers that have improved above prepandemic levels. From the left upper corner clockwise, you will see that our new consumer additions peaked during the pandemic and are now back at prepandemic levels. The order frequency of our active consumer base is much higher than before the pandemic, and consumers also come back more often than before the start of the pandemic. Then lastly, the average amount that the consumer spends on our platform per order is increasing driven by a number of factors. And I would like to emphasize that inflation is generally a positive development for our company as it is a driver for average order value, which, of course, is the basis of both the marketplace and the delivery commissions. Turning to Slide 10. We have already made great progress towards a profitable delivery business, and we have further levers to enhance this. The three main levers are revenue, improvements in delivery costs and overheads and OpEx. Revenue is driven by increasing average transaction values, optimizing consumer fees and driving new revenue streams. Improvements in delivery are mainly driven by scale and density as well as tech innovation. In our markets, we typically have the leading market position, which brings consumer density. This is important to increase the number of drops our couriers can make per hour and reduce cost per drop. Continuous enhancements in technology (inaudible), and we are implementing enhanced demand management, further optimized order pooling and efforts to reduce waiting times. Overheads and OpEx will be improved by automation and economies of scale. There is considerable operating leverage as we continue to increase volumes and revenues. Now on Slide 11, we repeat our portfolio management approach, which aims at focusing capital and management attention towards our highest potential markets for generating scale, leadership positions and profit pools as our industry rationalizes. As a result, we feel obliged to discontinue our operations in Norway and Portugal as of the 1st of April. This would remove approximately €10 million of adjusted EBITDA losses on an annual basis going forward with an immaterial impact on orders and revenue. And with that, I hand over to Brent for the CFO update.

Brent Wissink: Thank you, Jitse. On my first slide, I will reconcile the IFRS performance with our combined like-for-like figures. For transparency, the majority of this presentation will show figures on a combined basis, which includes Just Eat, Takeaway and Grubhub in full for all periods shown. Our '21 IFRS results vary from our combined figures as IFRS only includes the results of Grubhub as of the 15th of June 2021, which was the date of the acquisition. Please see the notes in the press release for the exact explanation. Please move to the next slide where we highlight development of drivers behind the growth of orders and revenue. As indicated before by Jitse, we continue to improve our key consumer metrics. Driven by our target investments, we ended '21 with an active consumer base of 99 million people, which is an increase of 8 million consumers compared to the prior year. Of these 99 million active consumers, 2/3 ordered more than once, a higher proportion than 2020. Finally, the average orders per consumer increased to nearly 3x a month. We are very pleased with these figures as they show a continued increase of our customer engagement despite headwinds from the lifting of COVID restrictions toward the end of 2021. As a result of these KPI improvements, you can see our strong order growth on the following slide. We added 270 million incremental orders in 2021. Delivery orders grew by almost 70% driven by investments in restaurant supply expansion and successful partnerships with global QSRs, as well as the price leadership strategy implemented across many Just Eat legacy markets in the first half in 2021. I would like to stress that our highly profitable marketplace business continues to grow, showing the competitive advantage that our hybrid model brings. Most of our orders are still marketplace orders, which provides us with a stable source of capital to reinvest into growth. Please move to the next slide, where we show the positive impact of the improved growth drivers on GDP and revenue. We published our full year GDP of €28.2 billion in our January Q4 trading update. Here, you can see that our revenue grew slightly faster despite the significant impact of government-imposed fee caps. On the next slide, you can see the trajectory of both our revenue and adjusted EBITDA. Revenue as a percentage of GTV increased in H2 2021 as we further optimize pricing. In the adjusted EBITDA, you can see that 2021 was an investment year. The key drivers will be explained further per segment but were primarily related to expanding our delivery operations, our restaurant network and investing in our brands. In 2022, we expect adjusted EBITDA to improve in both absolute terms as well as percentage of GTV. Moving to the next slide, we bridge between the adjusted EBITDA and the loss for the period. Please note that this is an IFRS view with Grubhub included from the date of the acquisition. As visible, a large part of the bridge is due to noncash items such as amortization of intangibles and share-based payments. Turning to the next slide where we explain our cash flow throughout 2021. As mentioned by Jitse, we secured the €300 million bilateral term loan in December last year. This was offered at attractive terms and provides additional headroom in our cash position. The majority of our operating net cash outflow is directly linked to our operational cost, debt, interest and capital expenditure, such as the internal tech development and offices. Following our convertible and debt raises this year, we are well funded for the future. Turning to the next slide, we have summarized the maturity profile of our debt and convertible instruments. This slide shows two things. First, we have nearly 2 years before the maturity of our term loan and first convertible. The majority of our remaining debt and convertibles is quite evenly spread over the next 6 years. Second, the larger amounts are maturing later, which aligns with our expected progress towards targeted adjusted EBITDA margin of 5% GDP. Considering these two facts, we are very comfortable with our current capital structure, which provides sufficient flexibility to reduce or refinance our debt through either operating cash flow generation or unlocking value in our balance sheet. Now I will review each segment in -- more in detail. Moving to our largest segment, North America, you can see we grow by 19% despite the headwind of the reopening of hospitality in the second half of 2021. When offices are back to full capacity, we will get a further bump in orders due to the fact that a large portion of Grubhub orders are business-to-business orders. Government-imposed fee caps had an impact of nearly €200 million, materially impacting the profitability of this segment. We are continuing to challenge the legality of the restrictions on price -- in prices to agreed prices. As a result of these factors, the segment adjusted EBITDA was minus €29 million in 2021. Now turning to the Northern Europe section. As we mentioned -- as mentioned by Jitse, this is the most profitable food delivery segment in the world, generating €256 million in adjusted EBITDA in 2021. This segment is at significant scale and continues to grow quickly. Despite the headwinds from the hospitality sector reopening, orders grew by 35%, and with increasing basket sizes, this translated into a GTV growth of 42% and a revenue growth of 43%. Moving to the U.K. and Ireland, which was our fastest-growing segment with material investments driving 52% order growth to almost 290 million orders in 2021. Investments were focused on price leadership, expanding the restaurant network as well as the successful sponsorship of Euro 2020. GTV grew by 42% on a constant currency basis, which is lower than the order growth due to a lower year-over-year basket sizes due to the increased mix of orders from QSRs and the effect of easing COVID virus restrictions, seeing AOV begin to trend closer to pre-COVID averages. Revenue grew by 57%, reaching over €1.2 billion. After this period of significant investments and restarting growth in the U.K., we will now focus our attention on turning our scale into sustainable profitability. Now on to our Southern Europe and ANZ segment. Again, order growth was strong with nearly 40%, led by an exceptional growth in Australia, where our delivery orders more than doubled. Revenue growth outpaced GTV growth by 10 percentage points. We invested heavily in these underpenetrated countries, many of which were historically underfunded, primarily by delivery expansion, sales and marketing. As we focus on profitability improvement, we will continue to carefully assess the trade-off between investments and long-term value in these markets. Next, we see the financial results of iFood, which are shown on 100% and constant currency basis. As Jitse said, also covered earlier, iFood is one of the strongest business in this sector, having a clear leadership position in Brazil, which is a large and attractive market for food delivery. iFood had another strong year in 2021, achieving 55% GTV growth on top of their stellar 2022 -- 2020. Adjusted EBITDA losses reflect the increased investment in grocery and fintech, where iFood has an opportunity to lead the large Brazilian market in these sectors. We recently participated in iFood's latest funding round to maintain our current shareholder holding but remain open to disposing our stake should we receive an offer which reflects the value of this asset. With this, I conclude my section and hand over to Jitse.

Jitse Groen: Thank you, Brent. Moving to the next slide of this presentation on Slide 28. Our strategy is and has always been to prioritize long-term growth over short-term profits. 2021 was an investment year to restore and expand our leadership positions, in particular in the legacy Just Eat markets. Our adjusted EBITDA losses peaked in the first half of 2021 and markedly improved throughout the second half of 2021. This year, we will start to see tangible benefits of these investments with adjusted EBITDA improving to a range of minus 0.6% to minus 0.8% of GTV while delivering GTV growth in the mid-teens. We reiterate the long-term goals of the group. Firstly, we expect to grow our annual GTV in 5 years by €30 billion, which is effectively more than doubling our current GTV. Secondly, we will achieve an adjusted EBITDA in excess of 5% of GTV in the long term. We are confident that we will reach this objective by executing the strategy, as outlined at the Capital Markets Day, focused on growing, sustainable profit growth. We are one of the very few online food delivery companies already achieving this in some of our markets and have a clear plan on how to get there for the company as a whole. On the next slide, we would like to draw your attention to the seasonality analysis for our GTV growth rates, which are subject to tough comps and are expected to increase in the second half of 2022 due to atypical seasonality in 2021 because of the pandemic. Like you'll probably recall, our order growth in the second half of 2021 were short of expectations exactly because of the lack of the usual seasonality in food delivery businesses, where we see the fourth quarter is typically the growth season driven by shorter days and colder weather. However, the first 2 quarters of 2021 were much stronger than we usually see. This results in challenging year-on-year comps in the first and second quarter of 2022, and we, therefore, anticipate our relative growth rates to pick up in the second half of the year. I will continue with the conclusion of this presentation on Slide 30. 2021 was an investment year, resulting in strong growth and a reinforcement of network effects. We peaked losses in the first half of the last year, and we'll increasingly focus on profitability going forward. Our business has accelerated with growth drivers above prepandemic levels, and we reiterate our 2022 and long-term guidance. We have a very strong cash base to finance our business plan, and our maturity profile on our debt aligns with our expected profitability improvements. We continue to be open to sell our stake in iFood, and we remain in discussion with several potential strategic partners to strengthen the U.S. position. And with that, operator, I would like to open the call for questions.

Operator: [Operator Instructions] The first question is from Mr. Andrew Ross, Barclays.

Andrew Ross: So my question is just around the U.S. and the several strategic partnerships that you're exploring. I'm just wondering if you can give us a bit more color on, a, the types of people you're talking to; b, the kind of types of partnerships we're talking about. Is it just strategic? Is it financial as well? And then any kind of time line on macros there?

Jitse Groen: Thanks for the question. Can't disclose too much, obviously. You'll understand that. We are talking to both strategics and private equity. It's difficult, of course, to give you a horizon on that because it depends on what people are offering.

Andrew Ross: But would you be willing to look at both a JV or selling a stake or something like that as well as purely a strategic benefit relationship?

Jitse Groen: We are looking at all options, and our most important requirement is to strengthen Grubhub as a business.

Operator: Your next question is from Mr. Joseph Barnet-Lamb, Crédit Suisse.

Joseph Barnet-Lamb: Excellent. Your run rate adjusted EBITDA in January is currently on track for your guidance. Does that imply that given improvements in scale through the year, you will in fact be able to hit guidance and invest more than you currently are? Can you just talk a little bit about your priorities and that trajectory?

Jitse Groen: That is essentially what we've always done. Obviously, we have a very profitable core of marketplace orders, and we are increasing the efficiency of our delivery network as well. So this is how we've always grown historically. Our people have referred to that as us using the Dutch profits in Germany and the German profits elsewhere, et cetera. But it's also important that, for instance, in the U.K., we have a very profitable underlying marketplace business that we invest in the U.K. itself. So yes, we can do both, but that's not different to how we've done business in the past. Now obviously, during a pandemic, we made use of the pandemic to grow faster, and essentially just we became larger and, of course, our KPIs are now better. So we invested more than I think what we would have been able to do without a pandemic. But this is the way we've always grown.

Operator: Your next question is from Mr. Giles Thorne, Jefferies.

Giles Thorne: I wanted to revisit the topic of subscriptions. For anyone watching you at the Capital Markets Day, they were obviously very big on cross-selling and then using Uber One to find that kind of behavior into something that's sustainable. And I'm guessing, judging by headlines today about pushing into another 80 cities in Germany and the push into Egypt, that they're pretty confident it will be effective. So Jitse, you've been very clear before you didn't think it was particularly a good idea for Europe. Has anything changed?

Jitse Groen: No, it's not that I haven't said it is not particularly a good idea for Europe. Look, if you look at our active user base, you've seen that, that is increasing quite significantly. It has increased quite a lot during the pandemic. That's not for most of the business using subscription, but our customers are very loyal and they have become more loyal during the pandemic. We also have loyalty programs, but they're not subscriptions in most countries. Regarding the entry of other players in markets in which you have a very large market leader, we've always said that, that is nonsensical. And of course, all the things that work for us in a country like Germany have not worked for us in smaller countries like Norway and Portugal. And I think this is important, right? We are a huge European food delivery leader, but we apparently struggle to become the market leader in smaller countries in Europe. So that also shows you that it's super complicated to get something like that done even if you have all the capital in the world to try to achieve that. Now regarding subscriptions, we haven't done an investigation. I'm not saying that we will not launch it. You should also not think about us not having it because we do have it in certain places. And in some places, we call it the loyalty program, but it is very similar to a subscription product.

Brent Wissink: Yes, maybe to add to that, obviously in the U.S., we have a subscription program with around 3 million subscribers and ordering quite a lot by now, making quite a high amount of the orders share by now. Like Jitse was alluding to, we have loyalty programs in almost all our markets with -- which consists mainly of collecting points and then redeeming these points. In the midterm, we're trying to align these programs to come up with one joint program across the board to make it more aligned, and that could include both sides of the things, loyalty points plus subscription.

Operator: Your next question is from Mr. Andrew Porteous, HSBC.

Andrew Porteous: I guess it's easy to see sort of how you progress in most parts of your business towards that sort of break-even level or enhanced profit. I guess one of the big areas where you're losing a lot is that Australia and New Zealand market. Can you give us some color about the progress there, what you're investing in? And give us some confidence about an improving trajectory there.

Jitse Groen: I think the question is fair. Obviously, we are in pretty good shape in countries like Germany, U.K., Holland, et cetera, et cetera. If you look at that segment, though, it's a bit of a mixed bag. We have a very sizable and pretty fast-growing Israeli segment, still growing quite fast actually. There's Poland in there. That's also a great business. Oh, sorry, Poland is in the other segment now. If you look at Italy and Spain, those businesses are excellent. The only difference with a country like Holland and Germany is that the penetration is lower. So that means that we are making quite some upfront investments to get to the same situation as we are in Germany and Holland. And this is, again, very similar to what we've seen in the past in countries like Germany because you will remember that between 2016 and 2019, we actually got quite some criticism on the investments in Germany because we were using the Dutch profits, as I just told you, to invest in Germany. So actually, that sort of investment profile is not something that is out of the ordinary in getting to such positions. I think it's important to understand that not every country and not every competitive surrounding allows you to get into that sort of position. So you really need to look at very carefully of how the countries are doing by themselves. Now obviously, we have announced leaving Norway and Portugal as a consequence of us looking very carefully at are we going to get the required result out of our investments. It was very clear that we were not getting those from Norway and Portugal. It is, for instance, very clear to us that we will get those results in Spain and Italy. That doesn't mean that those companies are not loss-making now. It does mean that they're loss making, but the trajectory to profit is very clear to us. And it's, again, very similar to what we've seen in the other markets in which we are making pricing progress. Does that answer your question?

Andrew Porteous: Yes.

Jitse Groen: Okay.

Operator: The next question is from Ms. Miriam Adisa, Morgan Stanley.

Miriam Adisa: Just one on the fee caps. If you could just give us a bit of an update on where you are today with the legal proceedings. And then also, could you share the revenue impact from fee caps in states where the cap has already been removed? Just to get a better sense of the impact from that this year.

Jitse Groen: I think the way we’re going about these fee caps, of course we felt the court cases, we are also talking to a lot of politicians, whether that’s city level or state level, to try to resolve it in another way than through the courts that would have our preference. Very difficult to give you a time line. It’s very unfortunate. We would have loved to have been €200 million more profitable than where we are today, obviously. But it is what it is. It depends very heavily where you are in the world or in the U.S. and Canada, to answer your second question. Our Canadian business, for instance, normalized, is actually very profitable. The fee caps in Canada were very closely tied to the state of emergency, so that’s a bit different from the situation in the U.S. And they have fallen away apart from British Columbia and I think Nova Scotia, but I think Nova Scotia is very irrelevant for us, but those two provinces. The impact of that is pretty significant because actually, you see the profitability go up quite rapidly when they fall away. And that’s, of course, because your costs are at the bottom half of your profile. And the benefits, of course, are with scale, our incremental orders would turn into profits. So it – that’s a question that’s difficult. It depends on the market. But obviously, it’s very good if those fee caps fall away.

Operator: Our next question is from Mr. Andrew Gwynn, BNP.

Andrew Gwynn : There's some suggestion, I think, coming into Q1 that we've seen some very, very soft trading, maybe even negative in a couple of markets. So within the guidance, which is the priority? Is it mid-teens growth or is it the EBITDA guidance?

Jitse Groen: It’s a good question. They’re both priorities. I think what’s important to understand is that we have very good control over EBITDA because we choose to invest, for instance, in the U.K. actually quite significant amounts of money to improve our position over there. The GTV growth, of course, you – is related to comps, and the comps are the comps. But still, it’s very important to us also to hit the GTV target. And I think it’s pretty early on in the year to make any sort of claim of where it’s going to end up with, but we have good visibility. And again, the inflation actually works in our favor.

Operator: The next question is from Mr. Rob Joyce, Goldman Sachs.

RobJoyce: So I appreciate your comments that you've got very good visibility on the trajectory of profitability across your businesses. When you look beyond '22, does this mean you can see yourselves being positive EBITDA in 2023 at a group level? And if not, then when?

Jitse Groen: Very good question, Rob. Not -- look, again, we fully control our profitability profile. And we can't really estimate whether our competitors are going to be more rational than, let's say, in the past couple of years. We would hope so, but we can't -- we don't know. And therefore, we're going to be quite prudent. If we need to invest a lot of money in the U.K., we will do so. If our competitors are going to be more rational, then we become more profitable. So I don't want to take a call in advance on the future. I think the most important thing for you guys to understand is that we have quite some buttons and levers that allow us to change the profitability profile of the business.

Rob Joyce: Okay, is there any sign of competitors becoming more rational?

Jitse Groen: Well, we have delivery Spain. That was rationale. To be quite frank, I don't see a lot of those movements. We do know, of course, that it's much more difficult to raise capital now than what it was in the past -- last couple of years. So it has to happen for the sector. I think that's pretty clear to -- at least to us. But again, we're not counting on it. We have full flexibility in terms of the investments that we need to make in our most important countries. And we'll have to see whether they're going to be more rationale. I think that's a question for other people, not for us.

Operator: Your next question is from Ms. Monique Pollard, Citi.

Monique Pollard: I just had a follow-up question on the fee caps because on that slide where you show your run rate of EBITDA losses of €240 million and show the different -- including and excluding the fee caps, the January run rate for the fee caps is still at €181 million versus the €192 million in 2021. So I'm just trying to understand that in the context -- if you said that most of the U.S. runs having come off apart from New York and San Francisco and the Canadian ones being off apart from British Columbia.

Jitse Groen: Yes, I can be very precise actually. Of course, New York is a huge chunk of the fee cap in the U.S. for us together with a couple of other cities. The Canadian fee cap actually was in place until January for most of the provinces because, of course, of the renewed – well, let’s call it, just how it’s called, Omicron, and have fallen off. So actually, that was the case in January. In February, those fee caps were gone from most of the country.

Operator: The next question is from Mr. Sreedhar Mahamkali, UBS.

Sreedhar Mahamkali: Maybe just on the U.K. Can you give us some insight into your plans with respect to the 3 logistics networks and how you're sort of migrating them to 1 or 2, the time lines? And what might be the impact on delivery cost per order? How should we think about that? If you could help us there, that would be so helpful.

Jitse Groen: Yes, I can take that. So currently, as you rightfully said, we have sort of three different models. We have the employed model with what we call Delco internally, and we have a third-party provider, mainly Stuart. So there's still ongoing contracts with Stuart, which we're mainly using in the larger cities. But also here, we aim to get some efficiency gains in that one. And obviously, there is a perspective to only run our systems at some point in time, and we are aiming for that one.

Jorg Gerbig: Also, on our network as such, there is, as Jitse alluded to earlier, a lot of operational gains we can make in the future, for example, by increasing our share of pooling or stacking of orders, for example, which in the past might have been also challenging with some restaurant partners, but we're also working on that one that we're actually able to be allowed to do pooling with all our restaurant partners. So that will increase efficiency of the network quite a bit. And also, scale, obviously, contributes a lot to it. So once we are increasing the scale predominantly in a city like London, for example, the network will get way more efficient, and we've proven that in the past as well with the rollout of major chains and huge growth. We have actually been able to decrease the costs of our logistical network on the Delco side by more than 10% over the last, let's call it, 18 months. So there is an effort, a third-party provider. There is still ongoing contracts which we have to honor. And after that, we will focus on our own systems mainly with a key for growth on the product model in the large cities. Also, we have the branding on the street. But there will be a mix of our internal models.

Sreedhar Mahamkali: Sorry, a quick follow-up. In terms of the ability to pool, what has changed? Is that with the largest sort of restaurant partners, McDonald's, et cetera? Or is that much smaller than that in terms of partners who are allowing you to pool?

Jitse Groen: There’s a couple of developments there. We’ve always pooled since basically 2016, but we’ve been quite restrictive on it because, of course, food gets cold. But if your network increases in density, you can do more pooling. You just have more movements in the same direction. And yes, we are working with partners such as McDonald’s also to make pooling possible on the McDonald’s network.

Operator: Your next question is from Mr. Marc Hesselink, ING.

Marc Hesselink: Can you talk about the directional trend of gross margins given the, I don't know, maybe the positive of increasing delivery fees but, on the other hand, the negative still of the mix of more delivery orders? What do you expect there?

Jitse Groen: Jörg?

Jorg Gerbig: I mean if you look at, let's say, for example, countries like Germany and the Netherlands, we were usually able to, even though we were increasing the share of delivery, to actually increase, and I'm now talking about EBITDA, the absolute amount of our EBITDA now -- in the past. Now there is obviously a continuously increased share of logistics, which we're also foreseeing going forward because most of the restaurants which we're adding to the platform will be logistical restaurants as compared to the current share of restaurants which we have on the platform. And also, you have the convenience bit, which will also mainly be on the logistical side. So there will be continuous pressure from that one. But we also -- like we said earlier, we will also achieve efficiency gains. So -- from the likes of pooling, optimization of the network and the algorithm. So we believe that in most countries, we will be able to actually increase the margin on that end because also, if you look at where there was in the past a huge deterioration, it was mainly driven by a fast rollout of larger chains. And by now, we actually do have most of the large chains or all of the large chains in most of our countries. So you wouldn't expect another, let's say, huge rollout like we had in the past. And like I've alluded to, in our more mature countries like Netherlands and Germany, we were able to continue to improve the business also on a profitability basis.

Marc Hesselink: Okay. So the year-over-year improvement in the margin as -- of EBITDA as a percent of GTV is not necessarily only the improvement in the gross margin, it's just one of the components?

Brent Wissink: It’s one of the components because, yes, it’s for sure that what you’ve seen in the – when you invest in logistics, when we – we’ve done that now quite heavily since the last 3 years – that has put some pressure on the gross margin. But what you see today is that we also – we’re going to benefit from the more dense network, economies of scale that we also see in logistical networks. So both logistical gross margin per order is increasing at the same time, and that’s what we – we also pointed to that, is the fact that we also have a significant share of orders. Actually, the majority is marketplace orders, which is certainly bringing a very healthy gross margin on top of it. So on a blended rate, we’ve seen a significant improvement. And of course – and so the EBITDA improvement that you are referring to will come from both gross margin improvement as well as economies of scale with respect to the fixed cost because our fixed cost, for example marketing, they already reached a sort of a ceiling which is not going to expect to increase significantly. But – so from that angle, it comes from both sides.

Operator: Our next question is from Ms. Silvia Cuneo, Deutsche Bank.

Silvia Cuneo: Can you please talk about the latest development in your grocery and convenience? We've seen many groceries and convenience around new partnerships with grocery as such in Germany, U.S. and the U.K. So the question is, what could be driving in terms of order completion in 2022 and perhaps the start of EBITDA investment?

Jitse Groen: So Silvia, I think and hope that's clear from the announcements that we made that you'll see that we're still building up the inventory. You should expect more announcements regarding grocery and convenience. I think the thing that we're trying to accomplish is that we run it at a profit. There might not be a profit now. For instance, the whole logistical network in the country is still loss making. But it's for us not -- there's no difference between a grocery convenience order and a food delivery order if we deliver it from a supermarket. Obviously, there's a difference if we build our own hubs, such as what we're doing in Canada, and we are taking a measured approach to it on a per-country basis. I think in places where we can't get to a grocery partnership, it's more likely for -- you'll see us build hubs. Doing that also will cause probably supermarkets then to also work with us on those hubs. But we're doing quite some things there. The intent of the exercise is still to make a profit on a just like -- we want to make a profit on all the delivery orders as well. You shouldn't think of this as something else than the expansion of our logistical network.

Jorg Gerbig: And to give some more color to it, yes, you might have seen that, for example, in the U.S., we launched a national partnership with 7-Eleven which are branded as Grubhub Goods stores and basically delivering from over 3,000 locations here. We also have a subscription partnership which we launched for Instacart in the U.S. Then if you talk about Canada, where we go very much into the dark store area, but we also have partnerships, we have over 1,700 convenience stores from partners. Like we launched basically 7 express lane stores so far with more than 30 by mid of the year. And we’re aiming this year to cover more than 70% of our active consumers with dark stores, our own dark stores, and that grows very well and it’s very well received in terms of orders per day per store. It’s above our expectations here. So like we’re making very good progress in North America on that segment. Then if you go to U.K. & Ireland, we’ve closed partnerships and announced them with Asda and Tesco One Stop. And then there will be coming up more things on that end. So also very good progress in the U.K. & Ireland. And also in Europe, we had several announcements most recently on – on the partnership side, as Jitse was alluding to in Europe, the focus is more on the partnership side because we think with our assets that we have and the assets then that partners bring in, we can actually scale up the business very fast because there’s a lot of partnership store we can deliver from very fast, and that’s our preferred model. But I also want to exclude that we are selectively going in with dark stores in Europe.

Operator: The next question is from Mr. Wim Gille, ABN.

Wim Gille: In the press release, you mentioned that the team is working hard to make 2022 a successful year for both the company as well as all the stakeholders, including shareholders. And obviously, you're acutely aware that they are pretty united and they, as you say, not only want improved profitability but also accelerated corporate action. At this point in time, all your peers are under pressure, severe pressure. And you basically own all the strategic pieces to make the puzzle better for all players in the industry. And that will basically allow you to do share buyback at very attractive levels, et cetera, et cetera. So the question is, have your discussions with your counterparts on corporate action increased in recent months? And at the right price, are you now more willing to follow up on divestments to unlock some of the parts in your business?

Jitse Groen: Thank you. Let me give you a democratic answer. We are, of course, aware of everything that you said. And we are, of course, aware of the additional scrutiny on the sector. The things that are interesting to us, of course, evolve around what we believe are going to be the successful businesses. Now we’ve spoken about that, those businesses that are very large as opposed to the size of the population and those businesses that have a good profitability profile. We understand, of course, all the concerns of the shareholders, and I think it's safe to say that we are taking those things very seriously and we’re looking at everything.

Operator: The next question is from Mr. William Woods, Bernstein.

William Woods: Just a quick question around your ancillary advertising revenues. It looks like it's tripled from 2021. How much of that is driven by including Grubhub in that disclosure? And I suppose what's your perspective on advertising going forward?

Jitse Groen: I would just say that it has a lot of attention on our side. We've had advertising for quite some time with a big team on it. But I think Jörg's probably a better place to give you those.

Jorg Gerbig: Yes, we’re having a lot of activities on that side. I mean it ranges from bidding yourself up in the ranking, which is probably automated with our partners, up to gift cards, for example. But we also – what we have as well is a stamp card program, which is a huge benefit for the consumers, and you have to see that in most areas, at least within the European operations. For example, in a country like Germany, more than 30% of our restaurant partners are allowing stamp cards. That basically means they are paying for a rebate to the consumer, and it creates loyalty with them. And that's something that competitors don't have. Basically through that stamp card program, you get 10% discount every time you order with our restaurant network ex U.S. More than 20% of our restaurant partners are offering these sort of stamp cards, which is a huge competitive advantage with the other ones who don’t have. So that commercial growth team is, on the one hand, generating additional revenue opportunities and, on the other hand, also trying to increase order frequency. Another area which we are focused on is with the partnerships on FMG – FMCG brands. So for example, we were most recently co-advertising together with Magnum, which is basically cooperating with us on the branding side and also trying to add together to actually, yes, increase, obviously, the revenues for their products but together with us. And that’s also an additional source of quite some income for us. We also see huge potential going forward in that area. And we also see us holding that business over the next couple of years for that part of the business.

Operator: Your next question is from Mr. [Nigel Famputo Campunenco].

Unidentified Analyst: I have a follow-up on a, yes, couple of previous questions about the combination of fee caps in the U.S. on the one hand and discussions you're having with potential partners, including private equity about Grub. So it seems to me that reaching this deal was not easy or even possible as long as the court has not provided clarity about the issue. So does it make sense to assume, if you say all options are on the table, you're talking more specifically about potential partnerships towards grocery deliveries? Or is it for the company as a whole still? And if so, could you provide some color on time lines, et cetera?

Jitse Groen: Yes, I don’t want to elaborate too much on it, but we are looking at everything that makes – that would make Grubhub a stronger business. And there’s quite a lot of U.S. players that can look through the fee caps because I think there’s broad agreement that they are probably not illegal. But yes, of course, if they would fall away tomorrow, then that will be beneficial because it’s just additional EBITDA.

Operator: The next question is from Mr. Georgios Pilakoutas, Numis.

Georgios Pilakoutas: Fee caps last year averaged €92 million. The run rate in January was €180 million. I think the run rate in the second half was more like €145 million. I'm just trying to get a sense for what's implied in your guidance for 2022.

Jitse Groen: The fee caps are fully observed in -- absorbed, sorry, in our guidance. So if they fall away, it's additional EBITDA.

Georgios Pilakoutas: But can you give us a sense on what that fee cap -- like is it €100 million in fee caps that you're assuming within your guidance? So therefore, if it's only €60 million, not €40 million drop-through, can you give us kind of a starting point?

Jitse Groen: Oh, we are assuming a continuation of the New York and San Francisco fee caps in the U.S. broadly. I'm sure there are some smaller ones, but they are not material. And we are assuming in Canada only -- was it British Columbia -- to continue for some time.

Georgios Pilakoutas: And just to clarify, that's more consistent with the second half fee cap run rate of more like €140 million?

Jitse Groen: I think that’s broadly right, yes.

Operator: The next question is from Mr. Clement Genelot, Bryan Garnier & Co.

Clement Genelot: On dark stores, your comments regarding there being a possibility of winning your own dark stores in Europe is interesting. Do you think ROI would be higher in gradually opening them on your own or whether in acquiring a small player in Europe we've already established this applied share on some dark stores and so on?

Jitse Groen: I think it’s unlikely that we would acquire any players. I think the level of losses that most of these players incur are just unpalatable for us. Obviously, the benefit of us delivering grocery/convenience is that we already have a very sizable delivery network basically everywhere where we operate. And therefore, a lot of the costs involved in the process, yes, we already have absorbed in our company. So it will not be smart for us to buy players even, of course – I mean, we’ve seen a couple of these things happen in the last half year. Even if it’s a fire sale of those assets, I think that the cost level is just too high for us to entertain.

Operator: During the time, I would like to give over to Mr. Groen.

Jitse Groen: All right. Thanks, everybody. We’d like to round up this analyst and investor call by thanking you again for participating and your questions. Should you have any additional questions or remarks, please reach out to our Investor Relations team. Thank you.