Delivery Hero SE (GRAB) Earnings Call Transcript

Dear, ladies and gentlemen, welcome to the conference call of Delivery Hero SE. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Daniel Fard-Yazdani. Please go ahead, sir.

Thank you and good afternoon, good evening or good morning, depending on where you are, here from Berlin. Thank you for joining on a arguably short notice for this call. You've all seen the news that went out a bit earlier, and I will keep this introduction very short before I hand over to Niklas. Just being mindful of the time here, we had to squeeze this call in obviously, so we are a little bit pressed for time later on for the Q&A. We'll maybe only have 10, 15 minutes. So therefore, apologies in advance. We are available also after the call, needless to say. And so the people who ask a question, can we please ask you to limit it to one? And we also ask for your understanding that we will try not to have follow-ups so that we get a couple of questions, at least. With that, I would like to hand over to Niklas, and Emmanuel, of course, is also on the call to answer questions later on. But with that, Niklas, to you.

Thank you, Daniel, and good afternoon, everyone. So given the recent news in Korea, we wanted to give you the chance to hear some context around this and outline the current situation. We can confirm, having received this called examiner's report from the Korea Fair Trade Commission, or KFTC, earlier this week with respect to -- in respect to the joint venture and strategic partnership with Woowa. In the examiner's report, the KFTC team proposes approval of the transaction. The proposal is on structural remedies as a condition for approval of the transaction. As such, they recommend that divestment of our sub -- Korean subsidiary, Delivery Hero Korea, also called Yogiyo. Delivery Hero does not support this proposal, divesting the company's ownership in one of its -- or one of our Korean assets will not benefit the local ecosystem. And it might -- we can deliver our position to elevate the customer experience for all our Korean users, restaurants and riders. The issuing of the confidential examiner's report is part of the overall process. It marks an interim step prior to hearing the final decision and approval of the KFTC Commission. There is yet no certainty whether KFTC will follow the examiner's suggestion to divest Yogiyo or request other remedies from Delivery Hero for the approval of our joint venture. We will submit our response to the recommendations presented by the KFTC team. KFTC commissioners will make their final decision following 1 or 2 hearings, in which both Delivery Hero and the KFTC team will present their respective positions before the KFTC. The timing and content of the KFTC decision is currently not determined, depending on whether 1 or 2 hearings will take place. It is possible that the final decision from KFTC will not be taken before year-end 2020, but delay the process by a couple of months. Again, the examiner's report is to be considered as a recommendation for the KFTC Commission to approve the transaction, subject to potential remedies prior to the first hearing. This is a recommendation and not a final decision by KFTC. If the KFTC Commission would request a sale of Yogiyo, and if we would approve such remedy, the impact on our revenue will be less than 10% prior to Woowa, significantly less if we include Woowa in this. But as I said, it's less than 10% prior to Woowa. The percentage is declining and it's a slow-growing business, but it's highly profitable and will, therefore, cost us some positive EBITDA contribution. But again, this assumes, one, we cannot influence KFTC Commission to change the remedy suggestion from the examiner's report, which we are confident we can; and two, that we would accept the proposed remedy. I would also like to point out that at no point did the company nor the management Board expect the outcome of the current recommendation of the examiner. We were extremely surprised by this report and the recommendations specified within it. We don't think it's in the best interest of the Korean ecosystem, in particular. We always give a realistic view on our expectations concerning the ongoing process. Having said that, this is a conditional approval. And while we are not pleased with the suggestion, we see it as a starting point for negotiation. On the negative side, again, we now expect the process to take 1 to 3 months longer. I would also like to comment on share trade that I did on November 6, disposing less than 10% of the direct shareholdings I owned at the time and significantly less than 5% of my overall position, which includes options. I made my decision to sell a small portion of my ownership on Thursday evening last week after an 18% rally 3 days prior Thursday as a result of the presidential election in U.S. Please note that the share trade took place well before the receipt of the examiner's support, which I was not aware of at any time of the sale. I hope you all know that I would never have conducted this disposal if we or I had expected the viewpoint of the examiner's report. The timing of share sell by a CEO is never good, but this was, of course, very unfortunate. And it puts me in a very uncomfortable and embarrassing position. I'd like to make clear, I'm still a huge believer in the company, and I maintained more than 95% of my shares and options in the company. Looking ahead, Delivery Hero will continue the discussions with KFTC and is convinced the outcome of the hearings will be to the company's satisfaction. Again, I'm a huge believer in the company and our growth. So with that, I will now open for a few questions.

[Operator Instructions] And the first question we received is from Giles Thorne of Jefferies.

I had 10 questions, but I'll ask one. I would love to ask the 10. But Niklas, hypothetically, if you had been offered a year ago or 18 months ago the opportunity to secure Woowa with 0 antitrust risk on reasonable terms, would you or would you not have wanted to do that? And I'm working on the premise that in network of those businesses, you always want to be the big guy, and this would have given you a path to being the big guy. So I appreciate what's on the table here is not what you planned or wanted or move towards, but it feels to me that the outcome is still incredibly good.

Well, so thank you...

I'll try to answer as you asked me specifically and Emmanuel can also answer. First, I'd like to make clear that we are still in negotiation with the KFTC or we are starting the negotiation. Until now, it has been -- the examiner's have done their report and now starts the negotiation. And they have made their position clear. And we will now make our position clear. And we think that we have very good arguments, very good grounds and negotiation just started. I would therefore not like to make it clear exactly where my position is. I think, in general, a process that takes 1 year is very bad for a company. If that is in Korea or U.K. or any other place, I think it's a very long time, and I think it's not great. So in that sense, an early or fast process approval would, of course, have been worth a lot. Now that has not happened. So now I also want this to be at a good outcome. And I will unfortunately have to pass a little bit to what we think is an acceptable, what we think is a good outcome. We have said what we think is a good outcome. And I've shared my view roughly that this is impacting us with less than 10%, if we would agree to this. And less -- and obviously much less than 10% after a Woowa deal. But it might be a slow-growing asset, Yogiyo, but it's a very profitable one. And therefore, it's, of course, very unfortunate if we would have sell this asset assuming that we would agree to this remedy. But I think a good part of it is, at least, it's now more in our control now prior to knowing the view of the Commissioner or -- to the examiner's report -- sorry, examiner's report. There was way more uncertainty, at least for me and Delivery Hero, even if we were very confident to get an approval that any doubt of that approval, I think, is not how it might have gone in my view. Now it's up to us if we decide if we agree to this remedy and how we can negotiate. The starting point is not clear.

So the implication of that final sentence, Niklas, is that, and again, I think you're not going to answer me, but would you accept this remedy?

I cannot answer that as it will also weaken my negotiation position. Now negotiation starts, we'll know at least from -- I know what the worst outcome could be. And I know what I want to -- the preferred outcome, what I think the right outcome to the Korean community should be. And we will try to negotiate it to get to what we think is the best resolution. But I cannot answer if we would accept this or not.

The next question we received is from Joseph Barnet-Lamb of Crédit Suisse.

I also will only go with one then. With regard to examiner's proposals, does their proposal stipulate or place any restrictions on who you can sell Yogiyo to? And in addition, does it propose any behavioral remedy such as commission caps?

So I may jump in here...

[ Would you like to answer, Emmanuel? ] Yes, please do so first. Yes, go ahead. Yes, please.

Okay. So in terms of restrictions, no clear restrictions in terms of behavior of remedies, correct?

[ As it turned out to ].

Yes. No, I mean, I think it's too early for us to comment. And so far, we're not aware of any restrictions, and I don't think they are, but this is too early to say. We will have the first hearing and hear them, have the details around the conditions if this measure should take place. Again, I think it's very important for us to make clear, this is a recommendation and this is not a decision. That's very important. So we will challenge this recommendation from the examiner in front of the Commission. But so far, we're not aware of any restrictions to whom to sell to. But again, we will make sure that this recommendation, that we will challenge this recommendation. And besides, what we mentioned today in terms of the recommendation to disinvest, we're not aware of further any kind of restrictions or remedies at all in terms of behavior remedies at this point of time. But having said that, we are preparing the first hearing. And the outcome of this hearing is not known yet, obviously. So it's -- that's the status quo today that we can share with you.

And the next question is from Monique Pollard of Citi.

I'll stick with one question, too, please. Following one about the sale of Yogiyo, what I'm interested in is, is there any stipulation in the document of the examiner's report as to what happens if you can't find a buyer for Yogiyo? So, say, you accept this remedy and you try and sell Yogiyo, that's not a buyout, what happens then?

So we cannot comment on all the details in the examiner's report. But I know there has been cases before in Korea, where there has been -- or one case at least, where there had been a structural remedy of sale of an asset. The company who wanted to sell could not get an agreeable price and they went back to the KFTC and got the -- and got approval for not selling the asset, as far as I'm aware. So I think that's the case that I have in mind, that there has been a case for KFTC and afterwards reversed their decision based on a nonacceptable outcome. Now, of course, every case is individual, and I cannot comment on our specific case. I can only refer back to what has been done in the past in this occasion.

Okay. Understood. Are you able to give who that case is related to?