Hellofresh Se Ord

Good morning. Welcome all to our Q3 earnings presentation. Today I'd like to share the financial results for the most recent quarter, provide some details of some of the underlying drivers we observed, and present also an outlook for the rest of the year. To start with, this month also marks the 12th birthday of HelloFresh, and I'd like to briefly reflect on where we are today and how we think about the long-term future of the business. Our mission is to change the way people eat forever. That's a mission that we have articulated in 2011 and which has stayed the same since. To achieve that mission, we focus on pioneering innovative solutions across a range of business lines, from meal kits for home cooking to ready meals and a number of projects in incubation stages, such as pet foods. That's closely aligned to our vision to build the world's leading food solutions group. If we look at home cooking, it's a category that has been around for hundreds of years and will most likely continue to be the most popular way to eat dinner for the next hundred years. More than 50% of dinners in our target markets are cooked and consumed at home, a figure that's incredibly sticky throughout economic cycles. It took us about seven years from idea to scaling meal kits to over 1 billion annual revenue run rate by 2018, and another year to turn meal kits profitable globally. Since then, we have more than five Xs our top line, and grown profitability even more than that. Going forward, we see a lot of potential to grow meal kits further through continued product innovation in our most mature markets and bringing currently under-penetrated markets closer to the levels we see in those mature markets. At the moment, only about 1% of home-cooked meals are actually cooked with meal kits in our target audiences, and we see no reason why it should stay at that 1% level. We have more recently disrupted another food category successfully in the US, the direct to consumer ready meals. It took us seven years to grow meal kits into a billion dollar business line, and only about three years to scale factor from 100 million revenue run rate to over a billion annual revenue run rate. We also achieved profitability over that time period. With international expansion to Europe starting now, strong penetration upside left in the US, and the full innovation pipeline for 2024, we are bullish that we can repeat a similar growth curve like the one we saw in meal kits, over the subsequent years post-2018, the time it took us to a similar level that we see today in ready meals. Twelve years after starting from a blank sheet of paper and an idea, we have now established two highly profitable billion-dollar business lines, both of which offer strong potential for many years of growth. Over the same period, we have also invested significant resources in building the full backbone for one of the largest direct-to-consumer groups in the world. We've made material investments into technology, into our fulfillment networks, into AI, into our own last-mile logistics, and into our marketing growth engine. And those have created strong moats for our two scale business lines, and give us an unfair advantage for entering new business lines compared to standalone players. In summary, we feel this provides us with a well-balanced and diversified portfolio of growth opportunities and sets us up for sustained long-term growth momentum. To take the long-term view, if we continue to execute well, 10 years from now, we expect both Meerkits and RTE to be much larger business lines than they are today. And we intend to successfully have executed on expansion into other billion-dollar business lines alongside them inside the HelloFresh group. That's why we're building relentlessly today on some of those capabilities and make investments into people, technology, and infrastructure to deliver on that long-term vision. Let's turn the attention back to our most recent quarter and share some of the highlights that we saw. First of all, we grew constant currency net revenue by 3.5% year-over-year to €1.8 billion, which marks a sequential re-acceleration compared to Q2 for both Group, the US or North America, and our international business. Q2 2023 will have been the trough of net revenue growth. Inside Q3, we saw stronger performance in September, with exit rates trending positively for both orders and revenue compared to August and July. Our constant currency revenue growth was primarily driven by a strong average order performance where we reached 64.2 euro per order. That's a 7.5 increase year over year, and the highest ever average order value we recorded. This resulted in an adjusted EBITDA of over 69 million euro, equivalent to a margin of about 3.8%. in line with last year's margin, but please note that absolute EBITDA saw a material drag from FX effects in the year-over-year view, something that's purely technical and does not have any operational impact. Like for like, we improved our EBITDA. We also continued to deliver free cash flow for both Q3 as well as the nine-month year-to-date figure. despite most recent investments to launch our RTE facility. Speaking of that, on the operational side, we successfully launched that facility in Arizona, essentially doubling our theoretical capacity. And now between September and the end of the year, we will continue to onboard labor, train them on our systems and mechanisms, and gradually, every week, increase the throughput in that facility. We aim to move past any volume constraints in RTE for a strong peak season in January at the latest and are working hard to bring as many ready meals as possible to North America. In addition, yesterday night, we announced a €150 million buyback program that we'll use to buy both shares and portions of our outstanding convertible bond back through the end of 2024. Let's have a look at the development of the number of meals we shipped in Q3. We delivered 237 million meals in the most recent quarter. That's down about 2.7% compared to the prior year period, but a sequential acceleration in year-over-year trend versus Q2. In Q2, meals were down about 6% year-over-year, which should have marked the low point in year-over-year meals growth or year-over-year meals shipped. We expect to see further improvement and the gradual closing of the year-over-year gap until the end of Q4. The improvement was driven by strong engagement and order patterns from existing customers, where customers added more meals to each order on average, given the expansion of our selection by about 25%. and a better customer experience as a result thereof. On a positive note, we saw continued strong development on average order value in Q3. AOV amounted to 64.2 Euro. That's a 7.5% increase in constant currency compared to Q3 2022. On the per segment level, we increased AOV in North America by 8.2% and by about 5.9% in international. The driver behind that were a number of factors, such as the rollover of incremental price increases we did in 2022 and the higher share of RT emails in the mix for North America. More importantly, though, we've benefited from advancing our customer proposition and from rolling out strategies such expanding our menu choice for consumers and scaling the assortment in our HelloFresh market, which led to higher uptake and higher AOV in return. Put together, the small decline in meals shipped was more than outweighed by the increase in AOV, and has allowed us to grow net revenue by about 3.5% in constant currency in Q3. This marks a re-acceleration of revenue growth for the group from the trough we have seen in Q2 and is on track to see a further year-over-year acceleration for every month in Q4. Both segments saw a similar trend in Q3 with U.S. re-accelerating to 4.3 year-over-year revenue growth and international continuing to return to positive year-over-year growth of about 2%. Please be aware that in Euro-reported currency, you see a broadly six percentage point gap to constant currency revenue, given the adverse development of FX rates compared to our Euro-reporting currency. Looking more closely, at the monthly year-over-year trends, we have seen a successful execution of our back-to-school period globally, allowing us to narrow the year-over-year gap even more in September compared to August, July, and June. With the ramp-up of our faster facility proceeding according to plan and adding more volume gradually every week, we expect to see active customers, orders, meals shipped, and revenue numbers gradually improve on the year-over-year gap between now and year-end further. To sum up, the tailwind from unlocked RTE capacity and most meal kit markets trending higher already or expecting to close the year-over-year gap until year-end will provide a good base to show good top-line momentum into 2024. On top of this, some of our current subscale business units will also start to contribute a little more meaningfully to NET's revenue development over the course of 2024. With that, I'll hand over to Christian to comment on the cost side of the business.

All right, let me start with the discussion of our procurement expenses. We again delivered a quarter of strong performance in our procurement expenses, which amounted to circa 35% of revenue. As you've seen from us consistently in the past, our AI-driven menu planning helps us to achieve consistently high customer satisfaction scores and recipe ratings while also hitting our target margins. From a geographic perspective, you see from us in Q3 an improvement in relative procurement expenses in our international segment, while our North America segment somewhat increased its procurement expenses. The latter is driven by a relative increase in our RTE volume, as reflected already during our last earnings call. Relative procurement expenses in our new kit brands in North America actually improved year-on-year, similar to what you've seen in our international segment. For Q4, you should expect a similar trend, i.e. somewhat higher procurement expenses in our North America segment, as we gradually ramp up our new Factor RTE production facility in Arizona. In addition, we have a strong pipeline of new products and experiments starting to come through in both segments, adding some basis points to our overall procurement expenses. Next, I would like to discuss the development of our fulfillment expenses. In line with the trend we have delivered over the last five quarters, we have again meaningfully decreased our fulfillment expenses year-on-year by 1.6 percentage points. Especially our North America segment continues to contribute significantly to this positive trend. We continue to reduce our relative fulfillment expenses by one, optimizing our fulfillment center footprint, Secondly, by driving our process standardization, and thirdly, by ramping up the use of technology and automation. In addition, we realized savings in other fulfillment areas, such as primarily shipping. This strong operational performance translates into a continued yearly expansion of our contribution margin by 1.1 percentage points to 25.6% in the third quarter. As you know, Q3 for us is always the most challenging quarter from a contribution margin perspective. due to low fixed cost leverage during the summer months, given peak holiday season, and high temperatures require more cooling and insulation of our boxes. Against this backdrop, we are satisfied with having delivered a fifth quarter in a row of meaningful year-on-year contribution margin expansion. I'm also happy to report that we are ahead of our contribution margin expansion target communicated at the beginning of the year. We had promised at our capital markets day that we would expand contribution margin for the full year by around about 100 basis points. In the first nine months, we have delivered a contribution margin expansion of 170 basis points and expecting for the full year to achieve a contribution margin of at least 27% versus 25.5% in 2022. Next, I would like to discuss the development of our marketing expenses in Q3. Q3 was a largely normal quarter for us from a seasonality perspective, i.e. seasonally lower revenue due to the summer holiday period, combined with an increase in marketing spend in September for the back-to-school period. This resulted in our marketing spend representing circa 19.5% of revenue in Q3, approximately 1.6 percentage points higher than last year. We continue to realize an attractive ROI on our marketing spend, which is at least in line with what we achieved last year. This is supported by increased AOV on our orders and higher margin compared to last year. With that, let's have a look at our EBITDA in Q3. We realized an EBITDA of 69 million in Q3, broadly in line with last year's level in absolute terms as well as from a margin perspective. We achieved this through normal seasonality in customer orders and marketing spend, combined with a solid contribution margin and a healthy retention and ordering behavior from existing customers. It's also worthwhile, and Dominic had alluded to that earlier already, to highlight that there is an 8 million drag from FX on our Q3 EBITDA compared to the same period last year. Primarily the US dollar and the Australian dollar have softened versus the Euro, which causes lower Euro reported amounts of profits realized in these regions during the period. Next, I would like to discuss our free cash flow development. As promised, 2023 marks the return to positive free cash flow. In the first nine months of this year, we have already generated a positive 45 million of free cash flow, circa 90 million more than over the same period last year. The long-term growth of our free cash flow per diluted share is from our perspective one of the most important drivers of value creation for our shareholders. Therefore, we will continue to be focused to drive the denominator of this ratio, i.e. free cash flow growth, but also we will continue to be disciplined to avoid the growth of the denominator, i.e. share count. And in this context, We have yesterday night announced the share buyback of up to 150 million, running until the end of 150 million euros, running until the end of 2024, of which we may also use smaller parts to buy back some of our extant convertible bond. Let me now conclude by reiterating our full year outlook for 2023, and this is unchanged to what we said in our earnings call the last time. We target a constant currency revenue growth of 2% to 8% for the full year. For the first nine months of this year, constant currency revenue growth stood at 2.5% and in Q3 at 3.5%. We expect a certain further reacceleration of top-line growth to the higher single digits throughout Q4. From EBITDA perspective, we continue to target a range of 470 to 540 million euros of EBITDA for the full year. And with that, we look forward to your questions.

Ladies and gentlemen, we will now begin the Q&A session. We kindly ask all participants to limit their questions to one per person. To raise a question, please press the nine and star on your telephone keypad. In case you wish to withdraw your question, press 9 and start a second time. One moment please for the first question. And the first question comes from . Please go ahead with your question.