Delivery Hero SE (GRAB) Earnings Call Transcript

Ladies and Gentlemen thank you for standing by. Welcome and thank you for joining Delivery Hero's Q4 2022 Trading Update Conference Call. [Operator Instructions] I would now like to turn the conference over to Christoph Bast, Head of Investor Relations. Please go ahead.

Hello, and welcome, everyone. We hope you all well, and thank you very much for joining our Q4 2022 earnings call. We trust you have all received the presentation and the press release we published this morning. All documents are also available on our website. We would like to remind you that this call is being webcast and a replay of the audio webcast will be available later today on our website. With me today we have Niklas Oestberg, CEO; and Emmanuel Thomassin, CFO of Delivery Hero, who will take us through the most relevant aspects of our Q4 performance. And after that, we look forward to answering your question. And now let me hand over to you, Niklas.

Thanks, Christoph, and hey, everyone. Thanks for dialing in. Before jumping into our Q4 numbers, I'd like to go back to early 2022. So we had just an enormous growth year on the back of COVID lockdown. Despite this, we ended the last quarter of 2021 with over EUR 300 million of negative adjusted EBITDA on a like-to-like basis. As the market changed, we quickly had to change gear. Now a year later, I'm happy to say that we ended 2022 very, very close to breakeven. Equally important, we achieved this while at the same time gaining market share in almost all our countries, especially on a GMV weighted basis. This is also visible looking at the European, MENA and LATAM segment. Asia had a little bit lower growth, but I like to remind everyone here that Q4 2021 and also Q1 2022 had strong pandemic boost in some of our largest markets. An example of this is Korea, where there were restaurants restriction as late as April 2022. We also achieved this enormous profitability shift while still investing big time into quick commerce, something we are very happy about now as we can see this slowly moving into a very positive direction. So even if today's presentation is a bit shorter than last time and no past profitability section, I can assure you we progressed very, very well on these metrics too. We now run rate above EUR 1 billion EBITDA in our profitable markets. The loss making markets are on path to half its EBITDA margin. And more and more Dmart stores are now profitable. We will come back on these topics during the year. It's just that it's a bit repetitive if we will do it every quarter. But I promise you we will come back to these topics sometime during this year. With this, let's jump into the Slide 3. So here you can see part of the story that I just told you. In Q4, we achieved GMV growth of 9% and total segment revenue growth of 21% year-on-year, and this despite further headwinds from COVID reopening, substantial negative hyperinflation adjustments in Argentina, market environment and huge improvement in profitability. On a constant currency basis, GMV increased 1.3% quarter-on-quarter and total segment revenue was up 3.5% quarter-on-quarter, very similar to last year. When it comes to profitability, we always said that we can easily dial up this or dial down without much impact to growth. I hope 2022 proves this. We still have a significant possibility to keep dialing up EBITDA quickly if we see the need to do so. However, we'd like to make sure that we don't move too fast such that it impacts market leadership, product development, customer experience, and in general, long-term shareholder value. We still believe we are in very early days of our development. Now let's look closer into the highlights for the quarter. As already mentioned, healthy topline growth despite significant headwind. And here, again, keep in mind, we are now 3x larger than the pre-pandemic. So growing on the back of the pandemic boost is challenging. Our AdTech business had a run rate of more than EUR 750 million in Q4, and this is well on track to reach our midterm target of over EUR 2 billion. As mentioned, 3 percentage points improvement, now minus 0.3% EBITDA to GMV margin in Q4 2022. Our integrated verticals also performed better than expected with adjusted EBITDA losses excluding Glovo of EUR 345 million for the full year, which is far below the guidance range of EUR 380 million to EUR 400 million. And last but not least, we close the year with a robust cash position of EUR 2.4 billion. On top, we still have undrawn revolver credit facility of EUR 425 million that allows for additional flexibility. And now handing over to Emmanuel to review our performance in 2022 compared to the guidance, and run us through the numbers on the next slides.

What a fantastic lesson. Good afternoon, everyone. We delivered on our full year 2022 guidance, especially in terms of profitability. As you can see, we achieved an adjustment EBITDA margin of minus 1.4%, including Glovo on the pro forma basis, and therefore, reached the upper end of our guidance. This represented an adjusted EBITDA improvement of more than EUR 300 million in the second half of the year, and this was driven by our platform businesses excluding Glovo, which achieved a positive adjusted EBITDA of EUR 36 million for the full year. Including Glovo, the platform business reached a positive adjusted EBITDA of EUR 56 million in Q4. In addition, our integrated vertical business, excluding Glovo consumed much of less EBITDA than previously expected. Glovo came in slightly below the guidance, but the business has made very good progress during the year and we expect a material reduction in adjusted EBITDA losses in 2023. On GMV and revenues, we fell slightly below the guidance. This was mainly driven by lower fixed rates in Asia and mainly in Korea as the won lost 6% to euro between early November and end of December, as well as by some adjustments that we had to make regarding the hyperinflation accounting in Argentina. On a constant currency basis, the GMV has grown by 1.3% quarter-on-quarter to EUR 11.6 billion in Q4, bringing the GMV for the full year to EUR 44.9 billion, which is perfectly in line with our guidance again on constant currency basis. So now let's look at the segment numbers, starting with Asia on the next slide. GMV in Asia grew by 2% and segment revenue grew by 10% year-on-year in Q4 2022 despite COVID reopening effects across the region. Korea grew GMV year-on-year with low single digits in Q4. On a constant currency basis, Asia generates mostly controlled growth Q-on-Q -- quarter-on-quarter. We continued to improve our competitive situation against our peers in South Korea, and on top, we improved our adjusted EBITDA in the rest of Southeast Asia. The changes we made to our operation during 2022 will allow us to scale this market more efficiently going forward and in particular 2023. All in all, the segments are profitable in the second half of 2022 and generates an adjusted EBITDA margin of 1% despite moderate topline developments and reinvestments in some markets. Now let's move to MENA on the on the next slide. Mena continues to develop very well with GMV growing at 27% and segment revenue growing 35% year-on-year in Q4. On a constant currency basis, we see growth in Q4 even accelerating versus the previous quarters. But we need to improve our customer experience fast and we believe we today have significantly better services than our competitors. And this is also visible in our strengthened position in Saudi Arabia, while Talabat keeps doing incredibly well across all countries in the region. And despite investing in certain markets, adjusted EBITDA more than doubled in H2 versus H1 with an adjusted EBITDA to GMV margin of 2% in H2. So now on to Europe on the next slide. GMV in Europe grew by 18% year-on-year in Q4 despite some inflationary pressure across the region, with basket growth and also seasonal uptick in Q4 2022. While growing our business fast, we continue to drive profitability through both cost and revenue initiatives such as our AdTech business now generating 2.7% of GMV for the segment, excluding Glovo. iFood are -- have resulted in positive adjusted EBITDA during the second half of the year, here again excluding Glovo. And now I'd like to move through the American segment on the next slide. Americas are heavily -- or was heavily influenced by the hyperinflation accounting in Argentina during this quarter. According to the accounting standards, IAS 29, hyperinflation accounting is conducted monthly and year to date numbers are restated to express current purchasing power at the reporting date. And as there was negative impact from currency devaluation that overcompensated the positive impact of the decline of the CPI during this quarter, the numbers from Q1 '22 onwards had to be respectively adjusted to reflect this, with the full impact being booked in Q4 and more predominantly in December. So we have presented both the GMV and segment revenue graphs, including and excluding hyperinflation accounting impacts for better clarity on this topic. And while you will see quite some fluctuation between the quarters, the impact on full year GMV was less than 1% of segment GMV. And the impact on the adjusted EBITDA was neutral. If we exclude the hyperinflation accounting, the GMV grew by 40% year-on-year in Q4, driven by healthy customer demand, growing basket size, and new services such as our subscription in Argentina, which has now been fully rolled out to the entire country. Besides the strong top line development, the segment also delivers on respect to profitability. As a result, the adjusted EBITDA margin has improved from minus 6.5% in the first half of the year to minus 3.9% in H2, including group cost allocation. So now on to the integrated vertical segment on the next slide. The integrated vertical generated robust GMV growth of 45% year-on-year in Q4 despite optimizing our global footprint concerning the Dmart and clearly focusing on unit economics, which has resulted in a gross margin improvement of 15 percent points excluding Glovo. In addition, we have started to roll out new AdTech products for quick commerce and signed our first advertising contract with a global FMCG company in December. And now on to the contribution margin on the next slide. We expand our fully loaded contribution margin, including vouchers and discount through the year, increasing the margin from below 4% in Q1 to close 6% by Q4 2022. During the quarter, Americas reached a new record high as we improved the unit economics mainly through better UTR, or utilization rate, and rideability. We also continue decreasing our vouchers intensity, and including Glovo, we are now at 1.9% of GMV. This is 0.1 percent point better than last quarter and we expect to continue decreasing it during 2023. Also good to highlight the development of our AdTech revenue. We now do 2.6% of GMV, excluding Woowa and Glovo. Including Glovo and Woowa, which we launched less than a year ago, we are at 1.7% of GMV already. This means that in Q4, we are generating an NCR run rate of more than EUR 750 million and are on track to generate over EUR 2 billion by 2024/2025. Now let's look at the -- at our liquidity bridge on the next slide. So the key driver for cash development in H2 was the adjusted EBITDA loss of only EUR 0.1 billion, and furthermore, we optimized also our CapEx both in food delivery as also for Dmart business. We invest only the equivalent of 0.5% of GMV or roughly EUR 140 million. Also working capital resulted in an inflow in H2, whereas interest, tax and leasing payments resulted in an outflow. In addition, we saw a larger negative impact from FX, bringing the entire bucket to somewhat -- or below EUR 300 million. And if you take only working capital interest, leasing and tax into account, the numbers will have been obviously less negative. In addition, we generated some cash from the investments in our minority stakes and other M&A-related transactions and bought back a tranche of our 2024 convertible bond. By the result, we finished 2022 with a strong cash balance of EUR 2.4 billion, even slightly ahead of some market expectations. And in addition, we have an undrawn RCF, as Niklas mentioned, of EUR 425 million. And our portfolio of minority investments is currently evaluated at more than EUR 500 million. So all in all, we have ample liquidity to fund the business and turn cash flow positive during H2 2023. Now Niklas will take us through the outlook for this year, for 2023, starting on Slide 14. Niklas?

Thanks, Emmanuel. So before I turn to the guidance, we want to just highlight very quickly that the markets that we operate in, we are currently inside of the markets. 90% of our GMV is generated for countries where we are clear leaders. This is important. Our portfolio composition is a clear structural advantage, and most markets benefit from both economical and demographic growth tailwinds for decades ahead. So looking at 2024 on a global macro level, GDP growth of our top 15 markets, which together in percent is roughly 80% of our GMV, is expected to be much stronger than in many other regions. And this positive trend is also expected to continue in '24 and onwards. If we then go to the next slide, we have our guidance. Against the backdrop or the -- sorry. Against the background, we confirm the 2023 guidance we published in November during the Q3 trading update. We will continue to balance growth and profitability and expect a positive adjusted EBITDA to GMV margin on a group level of more than 0.5% for the full year with more than 1% margin for the second half of the year. We are also committed to breakeven on a cash flow basis during the second half of 2023. Further guidance on GMV and total segment revenue was followed with the publication of our annual report in April. Since we faced some high COVID comps in Korea in Q1 2023 and in APAC during the first half of the year, we would like to await the development during the first months before communicating specific top line targets. Irrespective of this, I would like to repeat that the -- already -- of what we already said last year. We decide how much we invest, and therefore, we have a very high control of the EBITDA. As a reminder, in H2 2022, there was little sequential GMV growth, and we still achieved an adjusted EBITDA uplift of more than EUR 300 million compared to H1 despite reinvestments in several markets. Now Emmanuel will take you through our, I think, EBITDA and cash flow guidance.

Yes, correct. Thanks, Niklas. So this overview on Slide 16 was first introduced in the beginning of 2022 and illustrates how we expect to reach our long-term adjusted EBITDA margin target of 5% to 8% of GMV. So the gross profit margin reached over 6% in 2022 on a pro forma basis, including Glovo, and we expect it to continuously increase over the coming years to between 10% and 13%. And we will reach this through a mix effect of increasing AOVs, high-margin advertising revenues, service fees, order stacking, et cetera, and improving profitability of our Dmarts. At the same time, we will work towards enhancing our marketing efficiency and improving our operating leverage, which should result in a adjusted EBITDA margin of above 0.5% in 2023 and 5% to 8% in the long term. Some of our best-in-class markets are already generating an adjusted EBITDA margin between 5% to 7%. So we are sure our long-term target is achievable as markets scale. So we now introduce our long-term expectations for free cash flow. We forecast a long-term free cash flow of 3% to 6% of GMV, which means of a highly attractive long-term cash conversion. And now looking at the lines between adjusted EBITDA and free cash flow, first of all, I'd like to start with CapEx. So the CapEx in 2023 is expected to remain flat at 0.6% of GMV as we are expanding some of the local office in several countries. From 2024 onwards, CapEx to GMV should improve to around 0.3% for the long term. Working capital has resulted in a small cash inflow in 2022, as I mentioned before. And the food delivery, in general, is a cash accretive business, while Dmarts consumes working capital. But as Dmarts scale and we are able to achieve better terms, this business could achieve a negative working capital, too. However, we prefer to take here a prudent approach and therefore, expect rather little cash inflow from working capital going forward. Lease payments will continue to grow going forward, but at a slower rate than GMV, which means that we will see a reduction from today, 0.3% in 2022 to around 0.2% in the long term. And I'm glad to say that tax will have a higher negative impact going forward as our profitable markets become even more profitable and as we convert on profitable markets to profitability. Tax as a percentage of GMV should grow to between 0.9% to 1.9% in the long term with a long-term cash tax rate of 25%. So last but not least, we also like to give you an update on share-based compensation. In 2022, it represents around 0.8% of GMV, so well below the average of our industry. And we also believe that this figure is going to be the upper limit of the long term -- in the long-term development. And now on to the Q&A, and I'll pass it to Christoph.

Thanks, Emmanuel. Before we start with the Q&A, a quick reminder from my side. As we would like to give every analyst the opportunity to ask his question, I will kindly ask you to limit your questions to one only. And with that, operator, please go ahead.

[Operator Instructions] The first question is from the line of Joseph Barnet-Lamb with Credit Suisse.

When we look at GMV and revenue delivery versus consensus expectations, I think one area of relative weakness was Asia. Given the commentary around low single-digit growth in Korea, which I think is likely better than some expected, it sort of draws attention to the non-Korea Asia segment. Can you talk to growth in non-Korea Asia? Have you maybe reined in investment in some of the countries where profitability is more distant? Any color you can give there would be great.

Yes. So I think also the other part of Asia had a little bit of coming back from COVID rebalancing. On top of that, we have been actively working on profitability. So there is significantly better profitability and gross profit in that region. That means that now we're in a position where we actually have a very healthy gross profit. I don't have the exact percentage here on top of my head, but it's an order of magnitude of 8% or so percent, 8%, maybe 8.5%. So that means very healthy gross profit, which means that we can invest more and grow nicely without spending more money. So I think overall, I'm very pleased to see that APAC market. I think 2022 was a little bit of a transition year, where we had to make a little bit this painful trade-off between growth and profitability. And that has happened. So I think from this point, I think we do pretty well. I think also a little bit the growth is partially -- and it was a sequential growth in Asia. But unfortunately due to FX, there was not a sequential growth if you look at a euro currency basis. But if you look at constant currency basis, there was a sequential growth there. So yes. And overall, we are pretty happy about it. But yes, it's -- looking at the enormous potential we have there, it's obviously very low. But also keeping in mind that we grew 10x, I don't know, prior to this year. And some of that might have been a little bit unhealthy or a little bit boosted by money. But I think we're in a good position now.

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

Just another one on the growth. So I appreciate you giving top line guidance. But could you just give a bit of color on some of the dynamics around growth that you're seeing at the moment, just the interplay between macro, the COVID comps, the impact on the profitability levers? Because I guess in respect to Asia and Korea, we've had a few quarters to measure the impact of reopening. So just wondering if there's anything that you're seeing at the moment that indicates the slowdown in Q1 might be a bit more sort of worse than what you would imply from just the normalization of trends? Anything you can share that would be helpful.

Yes. No, overall, we are pretty happy, especially with Korea, I would say. I don't know if you just remember, Q4 was a big COVID time. There were a lot of restrictions for Q1 and a lot of restrictions. There were max number of people, sometimes with 2 people could go out to restaurants, sometimes 4 people were allowed to go to restaurants, sometimes there was a restriction after 7:00 or 9:00 or 10:00 you were not allowed to go to restaurants. So we have a lot of restaurant restriction that, of course, boosted our business dramatically in Korea during Q4 and in Q1. So the fact that we're still growing on the back of that at this scale, I think, is enormous strength. So that's obviously there. I think Southeast Asia I commented on before. If you look at Middle East, incredibly strong. I think we have, by far, the best product. possibly globally, if you look at Talabat I think there's no product in the world that is comparative with Talabat today. I think Hungerstation is close to be there too. I think there are significant-- like there are probably 3, 4 years ahead of our comparators when we look at a product point of view. And you also see that now in market share. We make more money while still gaining market share, both in Saudi as well as in most of Middle East. Then I think growth is doing pretty well there. Turkey is a little bit of a slightly different story, given that -- and we are growing now. So luckily, we are back into decent growth, but at least on a GMV basis, but it's a little bit more challenging market, I would say. If you look at Europe, you've seen we had somewhere around 20%. I think that stands pretty well compared to our peers. So I think, overall, we are pretty pleased with growth there. And if you then look at Latin America, same there, of course, there were some accounting things now that make the reporting numbers a little bit odd. Sometimes the hyperinflation is in our favor, sometimes it's against us. If you look on a non-accounting basis but in reality, we're growing 40% there, which I think is also above our peers there. So I think, overall, both if you look at region as well as in the countries, we definitely outgrow our competitors in almost every country with a couple of maybe exceptions. And dynamics going forward well, I think we should expect that Q1 will be a little bit lighter in Korea, given March, in particular, will be a little bit weaker given that we have probably 10% extra boost in March because of restrictions. So that will be one point. Other than that, I don't know how much impact the whole market environment inflation, yes, possible or maybe not, and our economy looks a little bit stronger than before. But I think we are fairly immune to be honest. I also don't think that our growth is substantially hindered by profitability. But of course, we moved our profitability more than EUR 300 million per quarter -- so of course, it must have had some effect. Otherwise, we would have done it before, but I don't think it's super material. I think the biggest impact is probably the back to COVID slowed down a little bit. I hope that when we get into Q2 and even more so the second half of 2023. I hope that we can be on a more normalized growth level, yes.

The next question is from the line of Giles Thorne with Jefferies.

My question is on advertising. So the FMCG advertising platform was launched in October last year, and even then, it was only in 9 countries. So is it fair to assume the $750 million run rate must largely, if not completely, be restaurant advertising? And as an extension of that, given FMCG advertising budgets are generally far larger than restaurants. And today, the contribution is close to nil, but the platform is built and contracts with FMCG companies are being signed, doesn't this collectively point towards you comfortably beating your EUR 2 billion revenue by FY '24-'25.

Thanks, yes, I'm equally optimistic as you are here. I also don't want to celebrate too early. I know it's already ambitious target to be there. I don't think anyone believed us when we said it a couple of quarters ago that we would already be in EUR 750 million in our run rate. But I agree that FMCG is doing incredibly well, and it's going to be much larger than the advertisement space that we have for restaurants. We already see now a proportion of GMV. It's already potentially beating the restaurant side already, even if they've only been up in a very short time. So I think, yes, there will be significantly larger percentage of advertisement revenue to GMV on the Dmart side and a quick commerce side than on the restaurant side. But you're also correct that it's fairly small as a grand scheme of thing because Dmart and integrated vertical is a small part of our business. So therefore, it will not have a dramatic impact on our overall today. So right now, the majority of that EUR 750 million is still in our restaurant space. And yes, I think we will produce good with the guidance that we gave, and we feel pretty comfortable that we get there. And yes, if you get there earlier, even better, but I'm not changing guidance today. I think we'd rather celebrate when we get there.

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

Good afternoon, everyone. Sorry to come back to short-term trading, but I was hoping just to press you a bit harder on what you're seeing in January. You've clearly flagged tough comps, but I'm still trying to get a sense of the magnitude of the headwinds. So anything you can share on how we think about January and the Q1 growth would be helpful.

Yes, I'd like to be a little bit cautious here, but I would say most of our business will continue as normal, more or less. Yes, maybe there is -- maybe 1% or 2% or a little bit more weakness in the macroeconomic environment but overall, we feel pretty good. But then as I said, Korea, there is likely a big part of the quarter was 10-plus percent impact from those lockdowns, some months probably more than 10%, some months a little bit less. But let's say this at least a 10% impact additionally on Korea in that quarter, mainly coming in March. So then, of course, we can make the average from there. But I'm a little bit destine to give too much guidance. It's a difficult environment due to reopening macroeconomics, profitability, we are also slowly, yes, I think we are slowly rebalancing to a more baseline growth. But yes, we have a strong conviction, but we feel a little bit early to kind of give you a proper guidance now. I would also say that we are a little bit uncomfortable to give guidance now as we're also valuating different opportunities to accelerate our path to profitability. So given all that, we think that we'd rather wait until April to give a more proper guidance then.

The next question is from the line of Chris Johnen with HSBC.

Another one for Niklas. I'd like to get a bit of an update on M&A and potential footprint changes, if possible, please. I mean, do you generally see this as a theme for '23? I mean, I guess you probably heard [indiscernible] was not convinced of the lots of deals in Europe this year. Yes, I'd just like to pick your brain. I wonder what your take is. I think a lot of the markets are ripe for consolidation and Europe in particular. But I mean, open question really not just related to Europe here is to see what your take is on M&A and the footprint changes in '23?

I think there's going to be more activities in 2023. I think, in some cases, it might be a rebalancing of expectations. And we have now been a little -- on a lower value for soon over a year. We start getting used to maybe new multiples in some cases. That should make it a little bit cheaper for us to maybe do something. At the same time, we feel like we are, in many cases, in a very strong position given our leadership position in almost every market. And I think from that point, we will also be disciplined. I think when it comes to the potential sell opportunities, we -- there has been a lot of interest from multiple parties in various markets, and that continues to be the case. I think it's also very helpful with input from the questions from investors on this topic. The value this has put, and taking that into account. But at the same time, we are in a situation where we don't have to sell or trade anything. We are, of course, very fortunate to be in that situation, but to have a portfolio where this is possible. But again, we are in a position where we don't have to do anything. Yes. And yes, as I said, having an option also means that I have an obligation to ensure that any deals we do are the right ones for the long-term holders, especially when you consider how underpenetrated some of our markets generally are. Our business plan for 2023 and beyond us and not assume any asset sales and if anything, yes, our budget gave us room to invest more in 2023 in certain markets where we aren't clear leaders. So from our point of view, I think we are in a very fortunate option where we can choose to buy if we see opportunities, and we are not forced to sell in any place, if we don't feel like there are good opportunities.

The next question is from the line of Jurgen Kolb with Kepler Cheuvreux.

A question on the adjusted EBITDA line. In H1, you obviously had quite a bit of one-offs aside of the SPC. So I was wondering if you could give us an indication how the -- if there are any significant one-offs in the second half that we could be aware of or should be aware of?

Yes. Maybe I can answer that one, but can you repeat on H1? What was the -- you mentioned before?

Well, according to at least my numbers here, in H1, you had the SPCs of about EUR 150 million -- other one-offs, obviously, including the goodwill impairment losses, but I was wondering if there is anything in the second half that we should be aware of?

So at this point of time, I mean, we are still in the audit phase. So -- but in these certain numbers that we present for H2, we don't see any kind of major one-off at this point of time.

The next question is from the line of William Woods with Bernstein.

My question is on the contribution margin evolution. Obviously, on Slide 11, you showed that increasing throughout 2022, but it looks like it flattens off in Q4, and Europe takes a dip. I suppose, how comfortable are you with the levers into H2 '23 that you can continue to expand that? And where do you see the biggest room to expand that contribution margin further?

Yes. Shall I cover it Emmanuel, should I start, you add?

Yes, I can continue. Okay.

Yes, I think -- yes, for Q4, maybe Emmanuel, there were a few smaller things that may have kept it a little bit lower than what we would have expected ourselves. I think as we go into the new year, that I'm still fairly optimistic that we will continue to drive that upwards. You never know one quarter to another, it could be one-off event. It could be something that happens so -- or there will be -- I don’t know you have Ramadan and other things. But overall, you will see this going upwards. I would say, yes, I would say the largest lever for upward improvement is probably on the stacking side that needs if we look long term, I think we could probably improve our margins with up to 5% by doing better stacking with more volume. So I think there's significant opportunities there. Then of course, that might be counterbalanced with any increase that we want to pay for riders or anything that will be on the opposite. We then still have also, I think, some efficiencies in our system that can still be improved beside the [indiscernible], could also be smarter pricing to making sure that we can, yes, price according to willingness and ability to deliver. That's probably a few percent already there, 2%, 3% maybe over the long term. Those are probably the largest. And then there is a lot of small things like payment costs. And we can probably cut EUR 0.05, EUR 0.06, EUR 0.07, maybe EUR 0.10 there. We can probably -- over the years, there are so many small things that we can also improve. And probably adding up all of it, a couple of percent. Then we always have the last option, which is just pricing higher that you say instead of -- and if you order for EUR 20 and maybe we add another 1% of that, I mean they will pay EUR 0.20 more than that all adds 1% to our EBITDA bottom line with that EUR 0.20 that we were charged on that EUR 20 order. So that is the last option that you simply charge a little bit more a service fee or something else. But that is not generally the path we are taking. We first want to work on the efficiencies we think that will alone take us to 10% to 13%. If we don't get there, then last resort is probably pricing. Anything to add Emmanuel?

I mean like this is in line with what we also when you talk about levers in the future, and this is also like exactly what Niklas said, focusing on revenue line, but also on efficiency in the cost line. And sometimes, you might also like have quarters where we decide to maybe like be less focused on optimizing the right payment, but just like to add the right payment, we'd just like to offer -- to make an offer into the market. So there's also like one way to look at it. But in general, we see the contribution margin continue to grow and to optimize it both on the revenue side but also on the cost side. There's still a lot of levers also in terms of efficiency. And that's why we believe that this gross margin will continue -- contribution margin continues to grow in the future.

One thing that was really mentioned -- and we do almost 2% of the bulk shares and funding -- a little bit less, but still a significant portion. But we also see that restaurants are very willing to do these funded, that they want to fund and they want to give discounts because they want to have new customers. They want return customer and they want to be loyalty. So I think there's also some efficiencies there. I think also our subscription program, in some cases, we are able to make more money per order while increasing efficiency -- increasing number of orders per customer. So of course, on a per customer basis, you always make more money on the subscriber base, but actually making more GMV per subscriber -- per order from a subscriber base. So yes, I have absolutely no concern that we will not get to the 10% to 13% of the long term. As I said, the last resources have used had 1% or 2% on pricing, but I don't think that is needed.

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

Actually, Niklas, really one super quick follow-up on Korea and then a question. The follow-up is you referred to -- you should see normalized growth in Korea beyond Q1. What do you see as the medium-term potential for GMV growth in Korea? That's the follow-up. And then the question is, in terms of your EBITDA guidance, which you are reiterating for 2023, what are you assuming, please, in terms of integrated verticals?

So on the normalized growth, it's -- the reason why it's a little bit hard to answer. If you were to ask the pre-pandemic, I would have been able to give a very good answer based on cohorts, frequency, acquisition growth. And the COVID came and this distracted all of that. That means acquisitions went up a lot, like a lot, frequency went up and even changed the balance of the portfolio -- sorry, basket sizes also changed during that time. Then over time, being in and out of COVID and now we have a little bit of inflation in there, which makes it very hard to know where is the normalized level now. We can assume, let's go back to 2019 and use those model and then use that for predicting the future growth traction but that is, of course, assuming an assumption that we grew 3x, and we still have the same kind of growth dynamic afterwards, which is still a big assumption and that's something that we'll have to see now when we kind of completely get out of it. We're doing the cohorts normalize, we're doing the frequency, what's the acquisition level, it went up a lot and it went down a lot because it was kind of removed all demand from future acquisitions into 1 year, 1 or 2 years. So now at some point, we also normalized acquisition rates. So therefore, I'm a little bit hesitant to give you a number there. I think the potential even in a place like Korea is multiple larger than we are today. How long it will take there is probably the harder question. Is it more like a yes, it's probably somewhere between 5% and 15%, hopefully, it's double-digit, but somewhere between there. I would hope, I don't dare to narrow it down too much more in a place like Korea. But if you look at it, even Korea and really and frequency is only 8 times a month. And if you look at good customers in many markets, the frequency is more like 25, 30 times a month from customers that have been customers for a long time. And it will probably go higher, if I look at myself and many customers, we see that, that frequency go higher than 30 times a month because you order coffee, you order lunch, you order breakfast, you order your Dmarts, it becomes a little bit -- yes, I think we are still early in that phase. I'd say we are early in the acquisition phase. The number of customers we have is still a lot of people haven't tried. And every year, there is a new cohort of customers growing up and getting to the Asian economic route again. So and we are adding new verticals, we're adding new use cases, dine-in, pickup, et cetera. So yes, I'm sorry for not being able to give you a more concrete number here, but we can definitely grow a couple of times still in Korea.

So I think on Dmart, I think it's fair to say that if you look at the trajectory during 2022, we really materially improved the profitability of the Dmart and this will continue in 2023. We expect there to generate a positive gross profit during H2 2023, and this will be continued in 2024. During this year, as you know, starting middle of the year, we've been reassessing our footprint. We evaluate the development of each local store. And the most majority of the stores are still, let's say, immature because we opened up less than 2 years ago. We see the traction of this business, and we also see the rationalization of the competition to a degree that we have in many -- we've seen in many markets that we have a nice tailwind. So I think we are building on the foundation for steady and predictable GMV because customers are more and more reliant with e-commerce or on the Dmart business or every daily needs so basically, we think we would become visible in our adjusted EBITDA next year compared to this year. And as you know, this year, as we announced today, we finished with our integrated verticals at finance EUR 345 million adjusted EBITDA. We expect this to improve significant to the next year.

And the footprint remains more or less what is today? Do you see substantially reduced or increasing footprint again?