Hellofresh Se Ord

Good morning everyone. Thanks for making the time on short notice and your interest in learning more about our Q4 results as well as the strategy and outlook for 2025. Our mission is and always has been to change the way people eat forever. For the first eight years, we pursued our mission exclusively through our activities in pioneering, scaling, and winning in the large market for home cooking with our to date still largest and most profitable business line, Meerkits. But food consumption comes in many different shapes and forms, among them many that do not rely on home cooking. And so over the last four years, we've successfully established a market leader in the ready to eat meals product group, scaling our brands by about 20X over this time period, while achieving EBITDA profitability and massively improving our underlying unit economics. In addition, we've also made good progress in further diversifying our TAM and revenues with our still early stage forays into pet food, premium butchery services, and most recently into health supplements. While these are still comparably small, we're excited about these markets and the growth opportunities they offer to develop HelloFresh into a much more diversified digital native FMCG company over the next decade. Right now, we're in the middle of a transition phase that started last summer and that we flagged back then for the first time. After two years of profit erosion, we've started to pursue a strategy to deliberately prioritize profits over volume growth. In line with that strategy, for 2025, we are primarily focused on two major objectives. First, to deliver against the efficiency program that successfully started in H2 2024. and to create a step change in our customer offering for both meal kits and RTE to eventually return to growth in meal kits at superior margins and underlying cash flow generation. You will see us pursuing an ambitious roadmap to elevate the customer experience very meaningfully with investments into menu choice, better value for customers, and improved service levels probably the biggest step change for customers we have ever made. The TAM a business operates in is always determined by its current offering. And if we want to grow beyond our current TAM, we need to change our product materially and find ways to meet customer expectations beyond our current core product, both to reach new customers and to retain a much higher share of customers for longer. Executing on our efficiency program is equally critical for short-term profitability and to create the underlying cash flows and profit pool to invest for long-term success. The short-term focus on EBIT and free cash flow will allow us to invest in a much improved customer offering, expanding our term, and eventually return to growth. In 2025 specifically, We will turn around EBIT and EBITDA performance by improving our unit economics as well as our customer level success metrics and return to best in class profitability and cash flow generation. This gives us the funds to invest in meaningfully improving the customer experience and eventually start scaling again with a then much improved product at better unit economics. Successful execution of our efficiency program will make any future growth more profitable. It also allows us to make these investments entirely self-financed through the strong underlying cash generation in our business. Our efficiency program itself touches several areas of the business, which in aggregate should allow us to create a stronger financial profile with double-digit EBITDA margins in meal kits in the short term. We are confident in the success of the program, given the early results we have observed in the second half of 2024, when we started taking the medicine. Specifically, we have initiated higher ROI threshold on our marketing spend, choosing deliberately to win over fewer, but ultimately much more profitable customers, and nurture existing customer relationships better. On the direct cost side, we have seen productivity improvements across our sites and see more and more of our new DCs hit their productivity targets reliably week in, week out. We've also scaled back our CapEx levels to what we feel is more in line with the long-term targets we have in mind. and in addition are in the process of rightsizing our network to align with the future demand outlook. On the G&A side, we have simplified leadership structures, merged different regional teams, and achieved headcount efficiencies. Taken together, these measures will improve unit costs, lower our fixed cost burden, and have already led to a strong margin trajectory in the second half 2024. with more to come over the course of 2025 and 2026. At the same time, this will free up the funds to drive our ambitious customer experience roadmap. Let's now turn the attention to our Q4 and full year results. And let me quickly start by sharing some of the highlights of our recent quarter. We started to see some great early results from our efficiency reset. that we communicated last summer and which touches several areas of the business. There's a lot more to come and ultimately work its way through the P&L, but all major work streams have been kicked off and are in execution mode. Revenue growth for 2025 came in at 0.9% in constant currency, with strong growth for RTE making up for the decline in meerkats. We've seen continued strong progress around fixing our contribution margin, driven by the fifth consecutive quarter in which we improved our productivity metrics. Equally important, we took the medicine and implemented a major change in marketing strategy to target higher ROI thresholds, which led to marketing coming down both in absolute and relative terms in H2 2024, very significantly for meal kits. This has led to strong EBITDA for both Meerkits and RTE. Full-year EBITDA margin for Meerkits reached 9.8%, very close to our 10% mid-term goal that we communicated last year. RTE had 1.6% EBITDA margin, somewhat held back by high costs during the first half of 2024 when we were in full ramp-up mode for the new facility. Q4 results show these trends even better. We achieved a near-record EBITDA margin for meal kits at over 14% EBITDA margin, and RTE came in at over 5% EBITDA margin. That is a year-on-year increase of three points in meal kits and 10 points in RTE, respectively. This has also resulted in free cash flow per diluted share of 42 cents, largely in line with what we achieved last year, but significantly up for the second half of 2024 versus the second half for 2023. Finally, we have completed our 150 million share buyback program and launched a new buyback program of 75 million recently. Fully diluted share count is now actually down over a five-year time frame, still excluding the new share buyback program. We delivered 140 million orders in 2024. That's down about 4% from 2023 as we focus on higher value customers over volume growth. This focus has been more material in Q4 when the implementation of our marketing strategy change kicked in and led to a decline in orders of about 7%. The decline in Q4 was more pronounced in North America, which was 10% down, than international, which was 5% down. Encouragingly, this was exclusively due to fewer new customers. Following the change in marketing strategy, existing customers continue to show very robust ordering patterns. The positive year-on-year revenue growth was majorly driven by the increase in AOV over that period, offsetting the weaker order numbers. Both full-year and Q4 AOV were up by almost 5%. Geographically, the US, North America specifically, saw higher AOV increase with about 6% year on year, given the presence of a higher AOV RTE share in the mix. International increased its AOV by about 3% year on year. Both segments benefited from lower discounts and a higher take rate in our HelloFresh and Factor marketplaces, North America, in addition to the higher-priced RTE meals, lifting AOV higher than international, where RTE is still a small share of the overall order mix. Taken together, revenue growth for full year 2024 came in at 0.9% in constant currency. In Q4 specifically, revenue declined by 3% group wide, with North America posting a decline of 4% and international of 1% year over year, as we saw better opportunities to bank efficiencies than to invest in new customer acquisition against a seasonally weak quarter. By product group, Meerkats saw negative revenue growth of 9% in 2024, while RTE still grew over 40% for the full year 2024. We expect the Q4 trends to largely continue into Q1 as our efficiency program continues and rests on decreasing marketing spend, chasing higher ROI thresholds, and prioritizing profitability over volume growth. For RTE specifically, we aim to find the right growth formula that allows us to predictably and sustainably grow both top line and bottom line for many years to come. There were lots of lessons learned in meal kits that we aim to avoid in RTE. So the focus in RTE is to sustainably build our brand, continue to improve the customer offering, and focus on diversifying our channel strategy so that we can achieve predictable and sustainable multi-year growth. With that, I'll hand over to Christian to comment on the cost side of the business.

Thanks Dominik. Let me start as usual with the development of our contribution margin. We are on track with the consistent expansion of our contribution margin every quarter. In Q4, with a contribution margin of 27%, we have effectively caught up with the level achieved in the prior year. Key drivers for the sequential margin expansion are, number one, continued direct labor productivity in North American ready-to-eat, and then secondly, continued increase in direct labor productivity in North American meal kits. This is partly offset by overall Medicaid volume deleverage and an initial margin drag in international from continued fulfillment center ramp up in Germany and the UK, as I've flagged a few times to you previously. For 2025, we are on track to continue to expand our contribution margin by another 100 basis points. Key levers for that are further direct labor productivity improvements, and secondly, a more streamlined fulfillment center network. To that latter point, we have in 2024 taken non-cash one-off asset impairment charges of 182 million euros, of which 133 million circa landed in Q4. The related site closures have partly already been executed in 2024. The rest will largely be actioned in 2025. Let me now turn to the development of our marketing expenses. Our marketing expenses in Q4 are down meaningfully year on year, both on a relative and absolute basis. as I previewed to you already on our Q3 earnings call. In Q4, we have decreased our marketing spend by a substantial 310 basis points of revenue versus last year. Now, this is a consequence of the strategy articulated earlier by Dominic and as we've already described on our last two earnings calls. Namely, we apply strong ROI discipline to our marketing spend which means we acquire fewer, but on average, higher value new customers. By product group, you should expect a similar trend in 2025 as you've seen in 2024, i.e. in meal kits, Absolute euro spent on marketing as well as a percentage of revenue will again be down year-on-year in 2025. In ready-to-eat, absolute and relative marketing spend will be up year-on-year as we continue to build out the brand, scale our customer base, and further drive internationalization of this product group. On the next page, I would like to illustrate to you the meaningful extent of marketing savings with actions in meal kits over the last three quarters. Now, this is also important to understand the near-term growth differential between our two segments. In both geographic segments, we have reduced marketing spend for meal kits very meaningfully over the last quarters. However, our cuts are more pronounced in North American meal kits. Here we have started earlier, already in Q1 2024, and implemented even more severe cuts each quarter since, with year-on-year reductions in Q4 2024 amounting to 35%. Drivers for this are in our North America segment. We are allocating significant marketing spend to the growth of our Factor brand and its customer base. And international contains some earlier stage markets where we can allocate growth spend at very attractive ROI, France being the most important case for that. Let's now have a look at our adjusted EBITDA. We have executed on what we promised to you before, i.e. we maintained our marketing discipline in Q4, we further improved our direct labor efficiency in our production, and we started to implement overhead efficiency measures. As a result, full year 2024 EBITDA is at the very upper end of guidance and above consensus with 399 million euros. Q4 adjusted EBITDA of 164 million is up meaningfully year-on-year across all operating segments and all product groups. North America adjusted EBITDA is up 55%. International adjusted EBITDA is up 16%, which means group adjusted EBITDA is up 45%, with an EBITDA margin of 9.1% in Q4. The MiKit product group delivered an adjusted EBITDA that is up 9% and achieved a margin of 14% in Q4. Ready to Eat adjusted EBITDA has turned from negative 16 million in Q4 2023 to positive 26 million in Q4 2024. Our strong adjusted EBITDA uplift has also translated into a strong adjusted EBIT increase in the same quarter. We almost doubled our adjusted EBIT in Q4 year on year to 95 million, taking the fully adjusted EBIT to 136 million. Quickly diving into our two product categories and starting with meal kits. We have achieved a higher year-on-year adjusted EBIT margin for the full year 2024 with 6.6%. In Q4, we further accelerated our year-on-year adjusted EBIT margin expansion, achieving an adjusted EBIT margin of north of 10%, but also increasing absolute adjusted EBIT in this product group. This is primarily driven by a focus on marketing ROI, but also direct labor productivity improvements in North America have helped to stabilize contribution margin. Let's now talk about the ready-to-eat product group. Ready-to-eat for the full year is break-even from adjusted EBIT perspective, with Q4 being the second quarter in a row better than the prior year period. The significant 10 percentage points year-on-year margin improvement achieved in Q4 represents the biggest driver of our year-on-year profitability improvement for the group. Meaningful improvement in direct labor productivity versus last year is here the key driver, where marketing expenses for ready-to-eat remain elevated, given our investment into a brand, our rapid customer acquisition, and our internationalization. Let's now have a look at free cash flow. For the full year 2024, free cash flow is broadly stable to the prior year with 73 million. We achieved this despite adjusted EBITDA being down by almost 50 million year-on-year and despite cash outflow from working capital towards the end of the year. Key driver to get there has been our tight capex discipline, where we further tightened our spend to $166 million for the full year. This is a level we plan to maintain in 2025 before bringing it down further to below $150 million in 2026. I would now like to move to our 2025 full year guidance. We are entirely focused on executing well on our ongoing efficiency program, whilst investing meaningfully into our product. With our CMD in 10 days, I actually want to spend some time walking you through the key building blocks of our efficiency program and the resulting targeted savings. Implication of our efficiency program is that we are accepting a temporary period of negative top line growth to fundamentally reset our margin and free cash flow profile beyond what is currently expected by consensus estimates. Now this is important also after having seen some of the notes that came out overnight. We can sustainably lift earnings and free cash flow upwards for years to come. also at a lower revenue level. In fact, it's natural that revenue will be temporarily down during that period where we're focusing on implementing those efficiency measures. Now for 2025, this means concretely we are targeting a decrease in constant currency revenue by 3% to 8% for the full year. We expect Q1 to sit around the wide end of this range. We expect our meal kit product group to see constant currency revenue decrease by more than 10% negatively annually, where growth in Q1 is expected to be around mid-teens negative. We expect our ready-to-eat product group to grow by a low to mid-teens percentage for the full year, where we expect Q1 to be at slightly below 10%. Driven by the implementation of our efficiency measures, we are targeting to expand contribution margin by circa 100 basis points in 2025 and reduce relative marketing spend indicatively by 50 to 100 basis points. This, together with the implementation of overhead-related efficiency measures, allows us to target adjusted EBITs before impairment of 200 to 250 million for 2025. a circa 65% increase to 2024 at the midpoint. This also implies a meaningful increase to our adjusted EBITDA outlook to 450 to 500 million in 2025. This increase in adjusted EBIT combination with a broadly stable interest expense and at most flat tax payments, and the broadly flat capex number 2025 should also enable us to achieve a meaningful increase in free cash flow this year. To achieve the midpoint of this outlook, we on average need to be every quarter around about 15 to 20 million better in terms of adjusted EBIT and adjusted EBITDA in the same period last year. For Q1 2025, we should be on track for that. Now on this page here, I would like to illustrate further the significant increase in profitability and cash flow targeted by us. We are targeting for 2025 an increase in adjusted EBITDA of circa 12 to 25%, which by itself is higher than current capital market expectations. This should disproportionately boost adjusted EBIT growth to circa 45 to 80% this year and allow us to more than double free cash flow per diluted share from currently 42 cents. We are convinced the long-term adjusted EBIT growth and free cash flow per diluted share growth drives our value for our shareholders. The disciplined execution of our efficiency program, our much high capital discipline introduced since 2024, and the fact that we will not grow diluted number of shares from the county, circa 171 million level, should enable us to grow both adjusted EBIT and free cash flow per diluted share meaningfully for the years to come, well beyond 2025. With that, we look forward to your questions.

And the first question comes from Sven Sauer, Kepler Shriver. Please go ahead with your question.