Delivery Hero SE (GRAB) Earnings Call Transcript

Good evening, everyone, in Europe, and good afternoon, everyone, in the U.S. Thank you for joining this call on quite short notice. For obvious reasons, we weren't able to give you a longer heads-up for this. But given the news we have put out a short while ago, we wanted to at least give you the opportunity to have some context around this from Niklas and Emmanuel, and offer a chance for you to ask questions. We trust that you have all received both the top notification and also the short slide deck that we prepared. If not, you can find both on the IR section, and you are, of course, also welcome to get in touch later on if you have any more additional questions that we might not be able to take in the call because we have something like 30 minutes or so only. But now and without further ado, let me hand the call over to you, Niklas.

Thank you, Daniel, and hey, everyone. Hope you are doing well. I don't want to take too much of your time today, but mainly just making sure that we answer any questions you may have around ad-hoc in regards to KFTC written approval and the accounting implication of our share price appreciation since the end of 2019. To begin with, we have received a written decision of the KFTC on the transaction with Woowa yesterday. And it confirms what has been published by the KFTC as a summary of the decision on December 28 already. We have the conditional clearance to close the transaction with Woowa on the condition that we dispose our Delivery Hero Korea within 6 months. As mentioned before, we are free to find any appropriate buyer for our great asset in Korea, and we will now put in every effort to make sure to find the best possible buyer. I'm most happy to confirm that aside from the behavioral remedies applicable to the operations of Yogiyo, which was already published on December 28, there are no further remedies that come with the conditional approval. Therefore, while we continue to be unhappy with having to let go of Yogiyo, we are extremely excited about the potential to see -- we see together with Woowa in the Korean market as well as rest of Asia. We are very eager to start as early as possible, and the objective is for the close of the transaction during March. Hence, in a very short while from now, we start to collaborate with a great Woowa management team in shaping the future of food delivery and quick commerce in the Asian market. At the same time, and of course, also the reason for this call, we will very likely have to do an impairment on the goodwill that is generated as part of the transaction. Before Emmanuel go or will give you a short run through the framework, let me emphasize that this is only due to the fact that the share price of Delivery Hero has increased by 171% compared to the 20 days volume-weighted average price that was the basis for the agreement we stroke with Woowa in December 2019. The operative business of Woowa has continued to develop strongly and accelerated towards the year-end of 2020, and this is partially driven by increased COVID concerns. With that, let me hand over to Emmanuel before we'll be available for your questions. Emmanuel, please?

Yes. Thank you, Niklas. Good evening or good afternoon also from my side. As Niklas said, I'm happy to explain the context of the potential impairment. So I'm sure you're all familiar with the deal terms of this transaction, but let me give you a quick reminder on Chart #2. So the valuation we set at the time of signing, value of Woowa at EUR 3.6 billion on a cash and debt-free basis, which was equating to about 0.6x or the expected '19 -- 2019 GMV. It was agreed to pay around EUR 1.7 billion in cash and about EUR 1.9 billion in delivery of shares. And based on the 20 days volume-weighted average price at the time, which stood at EUR 47.47. This equated to a fixed number of around 40 million shares. Now let me mention here that many of the owners of Woowa would have liked to receive an even larger proportion of the purchase price in shares and not in cash, but we have been able to limit the share component at the stated level. And Niklas has already presented the current status of the transaction, so I can basically skip this here. The next chart shows the very strong development of our share price since the end of 2019. It was not only the significant intraday jump that our share did after we communicated the transaction but also the further strong increase during 2020 and especially in the last weeks of the year. So we are -- I think that many of you are very happy with this strong support from the market -- of the market and the value that you're seeing in Delivery Hero already today. But at the same time, this is simply on the back of the higher share price and the corresponding increase in the value of the consideration what is going to be transferred to the sellers of Woowa that we will likely face the necessity to do an impairment upon closing of the transaction. Now let's move to the Chart #4. So using today's closing share price or yesterday's share price, sorry, of EUR 128.65 for the share component that is part of the purchase price and having the EUR 1.7 billion in cash, the value of the total consideration amounts to around EUR 6.8 billion. And given the requirement of [indiscernible] and in line with the valuation process the auditors have to apply, this lead to an impairment of up to EUR 1.4 billion. The reason that we cannot give you a final number is that whether we like it or not, the ultimate number will depend on the final share price on the Delivery Hero shares on the day of closing. So to make this clear, this is no average share price to be applied. We will just have to use the closing price on that very specific day. I know that, again, most of you will, of course, know this, but as number of shares to be issued is fixed, the impairment, obviously, doesn't change the dilution effect on our shareholders at all. And also, this is, of course, no cash effect associated to the impairment or with impairment. So as Niklas mentioned already, the underlying business remains strong, and the outlook for the Woowa business has even improved compared to the basic of our transaction in December 2019. So we are really looking forward to joining force with Woowa to make sure of the tremendous -- to make use of the tremendous opportunities that we had -- that we have ahead of us. And now before we go into Q&A, let me use this opportunity to mention 1 aspect regarding the trading update of Q4 of last year, 2020, that we are going to publish next week Wednesday. As the Woowa transaction will not be closed by then, we will not be able to integrate the Woowa budget for 2021 into our already -- to ours already by next Wednesday. And this is simply for the fact that we won't be able to give guidance for 2021 next week. And as we will also not do a conference call for the Q4 trading update. But rather, at a later point, in late March or early April, when we will be in a position to discuss our outlook for this year. So we're already looking forward to this. And as we are super optimistic for 2021, that will be another very successful year for Delivery Hero. But for now, Niklas and myself, happy to be available for any questions you might have. Thank you very much.

[Operator Instructions] And the first question is from the line of Andrew Gwynn of Exane BNP Paribas.

Two questions. So firstly, could you just share some of the assumptions that you sort of used to justify the book value? Maybe not in the exact assumptions, but more the kind of framework. I think many people would still be of the view that you paid quite a low price? And connected to that, are you able to share any of the kind of latest financials for Woowa? I don't know if we still got a GMV figure in mind or loosely, I think consensus is probably looking for -- well, perhaps you can tell me where you think consensus is for Woowa?

Do you want to answer, Emmanuel?

Yes. So for the first part of the question, we are using a classic DCF approach that you will be required to do according to IFRS 13. So business plan that Woowa provided and then also after the classic DCF calculation, I agree with you that the purchase price, I think, is very attractive. Unfortunately, if I may say so, our share price did so well over the last year since we announced it to the market that the component -- the share price component gain on value -- gain on price. And looking at the DCF calculation and the total amount that we will pay according to the -- including the share price, is driving this impairment that I mentioned before. I think it's very important to keep in mind that this impairment doesn't have any impact on -- I prefer to repeat this, doesn't have any impact on the dilution of the shareholder structure nor have any kind of cash flow impact. This is really an IFRS treatment, which is completely linked to the share price evolution. And I may add here, if you look at the graphs, let's assume for a second that we will have been -- we will get a KFTC approval faster and closing the transaction earlier like June 20 -- 2020, then such an impairment will probably not happen. So this is really clearly linked to the share price evolution that we have seen. And today, I'm not able to -- I'm not able and also not allowed to give any kind of details on Woowa numbers yet, as I mentioned before, nor can we incorporate this in the 2021 budget number. So I'm sorry, we will have to wait a little bit. But as Niklas and myself, we said before, the business has done very well also in the last quarter of 2020.

Sorry, just to clarify on the comment on guidance, you're not even able to comment on the range of numbers that are in the market? Is that correct?

That's correct. Right now, not allowed to give any kind of comment on that.

Maybe I should add that we did share our approximate numbers in Q3 trading update on what the combined business would be. I think some people have and [ back-calculated ] what does it mean for Woowa? I think you can assume that those numbers are pretty spot on. And those indications also indicated that the business has continued to do really well. And with the current market environment, COVID and all of that, things have not gone worse, but business has done significantly better than we expected, in fact, than when we acquired the business. Of course, the price that we set, what Emmanuel said, the price that we set internally and also discussed was above what we paid, of course. But it -- and we have, of course, not adjusted for the fact that the whole market has understood that food delivery is a great space. And therefore, we have this impact from our share price. And I think in general, the market multiples have come up. But of course, that doesn't affect the Woowa value, that is not what it is being used necessarily.

The next question is from Andrew Ross of Barclays.

First one is just a follow-up on that point. I think you said in Q3 that we were growing kind of mid-60s. So just to be clear about your language, you're saying that it's growing more than mid-60s in Q4? And if there's any way you can quantify that even directionally, is it a bit more of the mid-60s or a lot more, that would help. And then the second question is to come back on the process of finding a buyer for Yogiyo, you said there were no restrictions around that. But maybe you can give us a bit more color in terms of how that's going to work? And I guess if you had a scenario where one party, let's say, bid 2x more than another party, can you really turn down the high bid if you don't want to sell to them? It would be helpful just to understand how that type of situation might play out.

Right. So I cannot give a lot of details. I think the assumed growth has a good assumption or a good -- based on the call that we have. I mean we should also keep in mind that Korea has not been as impacted from COVID restrictions as, for example, Europe, where our growth has [indiscernible] and the same with U.S. where growth has been massively impacted by COVID. If you look at Asia, COVID has been massive, pretty well, and there has not been the same type of lockdowns and so on as we have seen here. It's also not -- it's probably been -- and this overall, I think, has been a good year. But I think it's more that the business -- online business has done really well, but with a slight tailwind from COVID. That slight tailwind might have been slightly more towards the end of the year. But therefore, I would assume also in your position that has been slightly, maybe continued improvement throughout the year. So I wouldn't expect any material -- from -- a material deviation from where we stand. But it has not been worse, but rather slightly better throughout the year. I hope that helps. And the second question, did I miss the second question there?

Yes, it was a buyer process. You wanted to -- I mean I can cover that. So Andrew, I mean, as we discussed, I think, like in Q3, we don't have any kind of restrictions in terms of who -- or the profile of the buyer. I mean it's like it doesn't -- I mean like no limitation in terms of geographic, whatsoever, nor do we have to take the highest bid, if you wish. So from my understanding so far, no limitations. We will have to do a fair process that we'll get to start shortly. But in terms of limitations, restrictions, we're not aware of any.

And of course, we have to look at all aspects, not only price, there might be other dimensions and things that we have to take into account, deal certainty of buyers in the process and so on. So we will evaluate all those aspects. And based on that, we will decide who we think is the best buyer to take further into the process.