Hellofresh SE
XETRA:HFG
Hellofresh SE
XETRA:HFG
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Dear ladies and gentlemen, welcome to the Conference Call of HelloFresh SE. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.
[Operator Instructions]
May I now hand you over to Dominik Richter, who will lead you to this conference? Please go ahead.
Good morning, ladies and gentlemen. Welcome back to our Q4 2021 and our full year 2021 results presentation. Reflecting on what we have achieved over the past two years, two years in which we've been in a constant state of emergency and urgency, I couldn't help but feel proud when I was going through the materials yesterday and prepared some of the remarks for today.
If you look back just one year ago, as we were entering 2021, and what back then we actually anticipated for 2021, we basically set out and started the year 2021, and wanted to grow by 20% to 25% over a baseline of back then €3.75 billion in 2020 revenue. So that meant we expected to deliver about €4.7 billion in top line revenue for 2021, and we had prepared the company to deliver that, which would have been the highest and biggest absolute growth number that we've ever done in the company's history.
Now, looking back at 2021, we overachieved this with an additional €1.3 billion in revenues. Back in the beginning of 2021, we also guided to margins at around 10% at the midpoint, i.e. of the €4.7 billion in revenue we were expecting to generate around €470 million in EBITDA. We've also overachieved that and actually came in with about €528 million in EBITDA and profitability. So, if you look at these two things together, how well we equipped at the beginning of 2021 and what did we deliver over the course of 2021, we actually traded 40% higher absolute growth against 1 point or 1.5 points of margin, which was mostly down to lower productivity over the course of the year. So, €1.3 billion more revenue and €50 million more adjusted EBITDA than what we had guided towards at the beginning of 2021.
Now, we could only achieve that, because we've really significantly invested not only in building out our employee base and created more than 5,000 jobs on top of the 5,000 jobs that we already created in 2020, we've also significantly built out our fulfillment center infrastructure, actually much, much faster than what we had anticipated in the beginning of 2021. And hence, we've now have 50% more capacity than what we had at the beginning of 2021. So, 50% more capacity than what we had built in 9.5 years, in the first 9.5 years of the company's existence.
So, overall, I think it's been a year with very high urgency, with lots of challenges, but it's definitely been amazing to see how all of our colleagues have stepped up and really managed through this without missing an operational beat in a period when a lot of other e-commerce companies were actually struggling quite a bit to maintain the growth rates that they had seen in peak COVID 2020 year.
So, with that, let me reflect and let's come to our full year 2021 highlights. Firstly, we managed to deliver close to 1 billion meals during the year 2021, only 10 years after we started the business from a blank sheet of paper. Millions of customers throughout the world have found great value in our meals as they scored very highly in taste, healthiness, and variety. And we've also been able to significantly increase the relative affordability of our meals for our customer base. That's why we continue to see very, very strong order rates with our customer base.
Secondly, we grew revenues by 62% to €6 billion overall. These growth rates, I think, are extremely impressive on a standalone basis, but even more so when compared to basically all other e-commerce business globally. Most e-commerce businesses globally have been struggling coming out of Q3 and Q4 and the second half of the year to keep their growth rates intact in a post-COVID environment. And I do think that these numbers really stand out when compared to all other e-commerce companies globally and are a great testament to both the strong repeat purchase business model that we have, as well as to the operation excellence that allowed us to scale much faster than even we ourselves had anticipated in the beginning of 2021.
Thirdly, our adjusted EBITDA amounted to €528 million. That's even an increase over the 2020 adjusted EBITDA number, despite returning to a much more normalized operating environment in the second half of the year, with higher costs for new customers, lower temporary productivity, and also some temporary or transitory inflation in the second half of the year that we couldn't have planned for at the beginning of 2021. So, we achieved – we overachieved our own guidance by about €50 million in adjusted EBITDA, and we traded €1.3 billion of higher revenue for about 1.5 points of margin, I think a very good trade that we would do any time again.
Moreover, we also invested significantly into creating the platform for additional growth by ramping up our technology teams, by increasing our fulfillment footprint by 50%, and by doing another M&A deal. Still, we managed to finance all of this out of our operating free cash flow and, on top of that, even built out our cash position further. So, in more detail, we not only invested heavily into our core business, but we also launched three new geographies with Italy, Japan, and Norway, which are obviously all cash consuming at the beginning.
We've also made a big push into the ready-to-eat segment, and we scaled Factor very significantly in the US, plus acquired Youfoodz in Australia. The two brands now together comprise our ready-to-eat segment and that ready-to-eat segment, I'm very bullish, can become a $1 billion business line in itself in the not-too-distant future, even before combining it with our meal kit customer base. All-in-all, so additional head count, much higher fulfillment center footprint, M&A, scaling ready-to-eat, plus launching into new geographies, we still increased our cash position, because we were able to finance all of that from the free cash flow that we generate, which amounted to about €827 million at the end of 2021.
Now, let's look at the fourth quarter in more detail. Let's start with the customer numbers for Q4. We increased our overall customer numbers year-on-year to about 7.22 million households who ordered with us in Q4. That's an increase of about 37% year-over-year. And again, Q4 2020 was peak COVID, where most of the world was in lockdown. This can be broken down into about 35% higher customer numbers in the US and about 38% higher customer numbers in international. If you look at the year over two-year numbers, so comparing it to Q4 2019, then you can see that our customer numbers over two years have actually grown by 143%.
Let's look at the order rates, which have remained very strong in Q4 and significantly ahead of pre-pandemic levels. Now, compared to the fourth quarter of 2020, it's declined by about 2%, but it's still up over 14% compared to Q4 2019 numbers. Again, I think in Q4 2021, we faced a significantly more opened up world than in Q4 2020, and we've still been able to actually increase the frequency at which our customers buy, compared to 2019 very, very significantly, in our view, evidence for the fact that we have significantly improved our value proposition to customers and our service level to customers, which have allowed us to achieve those order rates, which two years ago were unthinkable.
If we now come to our average order values, we can firstly see that in Q4, we have increased that by over 2% in constant currency, 6% in euro-denominated. But I want to focus on constant currency to about €53.4 per order. If you look at the full-year number, that's again up about 2.4% in constant currency. And both the effects in Q4, as well as for the full-year number, has been driven mostly by the addition of meals per order that our customers actually take from us as we have expanded the menu and the assortment quite significantly. Our customers are more likely to add more meals to the basket that they actually do.
This was mostly seen in the US, where we have actually seen the US segment as a key driver of that AOV increase and within the US segment, the fact that customers take more meals per order as we have increased our overall assortment. Again, if you look at the year over two-year number, AOV is up by about 10% in constant currency and 10%, I think, again, a strong testament to the fact how we've built out our menu, how we've improved customer and value proposition, so that customers are now more likely to take more meals from us than what they did two years ago.
So, if you look at the customer numbers, the strong order rates and the AOV increases that we've seen, very strong underlying fundamentals that have allowed us to continue our strong revenue growth, both in Q4 as well as for the full year 2021. In Q4, we saw about 37% constant currency growth, from €1.1 billion in Q4 to almost €1.6 billion in revenue. So, the highest-ever revenue quarter that we've had in the company, a 37% increase year-over-year.
If we look at the full year numbers, we've seen constant currency growth by about 62%, from €3.75 billion to about €6 billion. So, much higher than originally anticipated at the beginning of the year. And if you look at the Q4 number again, the 37% during a period when most other e-commerce companies showed single-digit growth, I think is a very strong testament to the strong operational performance and the strong improvement in customer value proposition that we have driven during those last two years.
The company, if you look at the year over two-year numbers, is now – has grown by over 200% over a two-year period, which means we have tripled the revenue base in less than two years, which comparing us again to all other e-commerce companies out there, big and small, is something that not a lot can show. And I do think that both the US and international have contributed very significantly towards. They're always shifting a little bit back and forth wherever we see better return on our incremental marketing investments. But I think both segments have had a very strong 2021, which also meant that we, as a group, have been able to triple revenue over a two-year period.
With that, I would like to hand over to Christian, who's going to lead us through our contribution margin developments, profitability, and the outlook for 2022.
Okay. Super. Thank you, Dominik. So, let's start, as usual, with our contribution margin here. Our contribution margin for both Q4 and the full year 2021 was at around 25%, in line with our previous guidance. Now, let's recap some of the drivers of our contribution margin. In 2021, we've grown more than 60%, as Dominik had just taken us through, instead of the 20% to 25%, which we had originally planned. As a result, we have to invest meaningfully into the ramping up of new capacity, which operates initially at a lower productivity than our established price.
In addition, we are experiencing certain ingredient cost inflation and have raised the production wages in Q4, all, as discussed previously. Also, same as we've done in the past, we are ramping up new markets and verticals, which significantly adds to our long-term growth potential. Now, all of this together has temporarily compressed our contribution margin in 2021. We are confident, however, that from H2 2022 onwards, we show a year-over-year expansion of our contribution margin again.
Next, let's have a look at our marketing expenses. We are very pleased with the ongoing strong ROI of our marketing activities. We have achieved our very attractive 37% constant currency revenue growth in Q4, whilst maintaining marketing as percentage of revenue below 14%, i.e. we kept it at a level that's not far off where it was in Q4 2020, which was still heavily COVID impacted and capacity constraints, i.e. with much less business as usual marketing activity than what we've done in Q4 of 2021.
Now, to put this into perspective, it's also useful to look at our relative marketing spend over longer periods of time. And what you can see on this page is that we have successfully brought down our marketing spend from the high-20s in 2018, in the low-20s in 2019, to roundabout 14% to 15% in 2021.
By the way, what you can also see on this page is the seasonal distribution of our marketing spend. In normal years, when we are not impacted by COVID-induced capacity constraints, we disproportionately invest into customer growth, and therefore, marketing in Q1, which we've done so in 2018 and in 2019.
Okay. With that, let's have a look at our EBITDA. We generated €131 million EBITDA in Q4, which means, we ended the year in total with €528 million EBITDA, an increase over the €505 million delivered in the previous year.
This represents a solid margin of 8.8% for the year, despite all the growth investments we're currently undertaking and some temporary cost inflation. Our US segment generated €310 million of EBITDA, our international segment with €298 million of EBITDA, just shy of €300 million. In our international segment, this includes our recently acquired ready-to-eat business Youfoodz in Australia, which contributed a €3 million EBITDA loss to international results in both Q4 as well as for the full year. Our holding, which primarily comprises all of our central functions and especially our technology activities contributed a negative €80 million of EBITDA for the full year.
Now, before turning to our outlook, I would like to review with you our cash flow generation in 2021. We've not only have best preserved our revenue growth momentum coming out of COVID of all e-commerce companies, we've not only maintained a margin profile that is best-in-class in the e-commerce sector, we are also one of very few e-commerce companies who've generated positive free cash flow while investing strongly into our business. We have increased our cash position throughout the year to €827 million, despite investing more than €250 million into fixed assets and software, and despite decline in Youfoodz in Australia for €74 million.
Our strong cash flow profile and our healthy, largely unlevered balance sheet allow us to one, continue driving growth investments into our business and create thereby long-term value, but also secondly to take advantage opportunistically of temporary share price dislocation, as we did in Q1 this year with €125 million share buyback.
Okay. Let's now come to our 2022 outlook. I would like to reconfirm the 2022 outlook provided at our Capital Markets Day in December last year. We are targeting for this year a constant-currency revenue growth of 20% to 26%, and an absolute EBITDA of €500 million to €580 million.
We have started the year strongly, ending a significant number of new customers across most geographies and brands. We, therefore, indicatively expect for Q1 2022 more than €8 million of active customers, i.e. adding circa €1 million in the quarter, with similarly strong contribution from each segment. Constant currency revenue growth in Q1 at the upper end of our expectations for the full year, despite a very tough benchmark. And in line with the strong active customer growth, seasonally higher marketing expenses, and price incentives.
On top of that, certain inflationary pressure on ingredient pricing and ramp-up expenses in our facilities, including namely the opening and ramping-up of our Phoenix, Arizona fulfillment center. All of that as previously discussed at our Capital Markets Day.
Which all taken together corresponds indicatively to an EBITDA margin Q1 of circa 3% to 3.5% and in Q2, given the seasonal normalization of marketing expenses, we are expecting an EBITDA margin to increase to above 7% again.
So, with that, we would like to pause and look forward to your questions.
Ladies and gentlemen, we will now begin our question-and-answer session.
[Operator Instructions]
And the first question is from Fabienne Caron, Kepler. Your line is now open. Please go ahead.
Yes. Good morning, everyone. Two questions from my side. The first one in term of consumer behavior, do you see a consumer trading down maybe, for example, in the US, with EveryPlate performing better at the beginning of the year, or maybe do you see a change in pattern concerning the order weight or the order values? It would be my first question.
And the second question would be, can you give us the sales growth in the US ex-Factor, please? Thank you.
Hi, Fabienne. Let me take the first question you asked. I think consumer behavior, looking at all the trends that I shared in my part of the presentation, so, AOV, so the number of meals that customers take from us, but also how often they order are, in Q1, very, very strong.
So, we do not see any real slowdown in order rates or in the frequency or in the number of meals that our customers take; actually, quite the opposite. As we build out our proposition, we continue to see very strong numbers here. And our – from our established customer base, we actually see a lot of positive indications that the way that we have started to invest in, so more meals, HelloFresh Market, better delivery options et cetera all contributes to very positive underlying customer fundamentals and very positive consumer behavior. We don't see any changes. We just see sort of like further progression of what we have started out to do.
And, Fabienne, on your second question, impact of Factor on our US constant currency sales growth, that's around about 15% for the full year. However, what you need to keep in mind is that we are in the fortunate position, other than all of our other competitors, that we are active across many markets across a number of brands, i.e. we channel dynamically our marketing spend and invest to the brands where we see them the most attractive ROI on that marketing spend.
So, given that Factor is doing very well for us, we took advantage of that and channeled our spend into that direction. In a world where we would not have Factor, we obviously would have deployed that quite high ROI in our other markets or brands equally. So, Factor itself has contributed well and has developed very well now since being part of our HelloFresh family by more than tripling since we took that business on. But also, if we would not have had it, we would have basically put that money to work as well at very high ROI.
Okay. Makes sense. Just a quick follow-up, if I may. In your guidance, you confirmed your guidance. But if I remember in December, you didn't expect to pass on inflation, and you were guiding for a decline in gross margin by 150-basis-point. But it look as if so far this year, you're passing inflation for old and new customers, but you keep your guidance. Can you bit give us some details? Don't you expect inflation, passing inflation to have a more positive impact on your guidance this year?
Not from where we stand right now. So, it's true that we tweaked the pricing a little bit in some of our geographies. But if you look at it on a group level that's more in the tune of – roundabout 2% or thereabouts, so meaningfully lower than the food price inflation we see in all markets. So, if anything, we're further expanding the relative attractiveness of our pricing.
Okay. Thank you very much.
The next question is from Emily Johnson, Barclays. Your line is now open. Please go ahead.
Hi. It's Emily here. And so, three questions for me, if I may. The first one is just on the US revenue growth in Q4 from what we have in our model active customers were just a touch lower than expected, but AOV growth was higher. I guess, you've touched on what Q1 numbers are doing, but how comfortable are you with that shape overall? And how many – sort of why were the US active customers suddenly flat quarter-on-quarter in Q4? Was it linked to capacity issues or the way in which you were channeling your marketing? Any color there would be helpful.
And secondly, on 2022 EBITDA guidance, is there a level of food inflation where you have to rethink that or are you comfortable that you're able to broadly pass that on to a comfortable enough degree to consumers?
And then just linked to that, thirdly, can you talk a bit about those box price increases that you started putting through? You mentioned that on a group level, that's about 2% on AOV, but have you seen any impact on churn rates, for example? And how far would you go with that strategy? Thank you.
Okay. Super. Thanks, Emily. Let me start with your first two questions on US sales tests in Q4. Very much in line with our expectations, frankly. And so, what we certainly saw was a return to normal seasonality across our businesses, including the US, i.e. as we approached Christmas, basically a slowdown in our order volumes, but that's frankly we have baked fully in. Otherwise, we wouldn't have ended up at the top end of our revenue guidance. So, other than seasonality, nothing out of the ordinary or more sinister.
On your second question, is there certain food price level where it gets tougher for us to hit guidance? Probably. I think it would be – it's too speculative right now to say. If we are in that scenario, what do we decide with our price tests are showing us, whether we should pass some of that on to our customers or whether we bite the bullet and probably, I think, that's – that would be just too speculative.
Looking at your third question, with regards to the impact that we see from box price increases, I would say, at the moment, it's fairly limited and it does feel like we have a good ability to pass on slightly higher prices to our consumers, because we very much believe what's important is the relative affordability versus all other alternatives. So, for example, if you look at the US market, I think food inflation was at about 6%; most recently in the Eurozone, it was over 4%, I think, almost 5%. So, all of the price increases that we've done have been very modestly and have been way less than the overall inflation.
And so, as long as it is actually significantly below inflation numbers, it actually makes our product more attractive than what it has been one year ago or two years ago versus all the different alternatives. What we usually try to monitor very closely is when we inform customers, our customers, canceling on an elevated pace, we haven't really seen that, our customers ordering less.
I think if you look at our Q4 numbers and also what we expect for Q1, we don't think that there is, sort of, like a big impact on that. And then obviously, those two things together basically make us quite confident that the price increases to the degree that we've done so far have been very healthy and we've been able to do those because they have been way less than overall inflation and still making our products more attractive than what it was 6 months ago, 12 months ago or 2 years ago.
Thank you.
The next question is from Sebastian Patulea, Jefferies. Your line is now open. Please go ahead.
Good morning again, and thank you very much for your presentation. Firstly, do you have enough capacity to not have bottlenecks in Q1, given your typical Q1 marketing investments and tied as many users as you want or do you believe that you'll still be – you'll still have bottlenecks for capacity?
Second question is given your direct producer model, are you guys getting cost increases that are in line with the headline CPI that we're seeing or the price increases you're receiving on your side are actually below the headline CPI? Are meal kits a good hedge against inflation in the meal kit business model?
Thirdly, Factor75 is growing at about 3.5 times year-on-year, but it's capacity constrained. You've just launched your new fulfillment center in the US, and I believe that adds just about 20% to 25% capacity to Factor75, which means that Factor this year could probably grow around that mark. To get more demand that you can service is a good problem to have. But when should we expect more capacity here, please, and is it going to be a material add-on?
And, lastly, competitors such as Marley Spoon and Blue Apron, they have started to offer ready-to-heat meals to their customers as well. Did you see any impact on the demand for your ready-to-heat business? And thank you very much.
Great. Thanks, Sebastian. Let me hit on your first question. So, we have enough capacity. So, in principle, yes, is there one or the other markets where we are still somewhat constrained before new capacity is coming on stream during H2. But by and large, the overcapacity situation, especially as it regards to our US segment, which speaks for more than 50% of our revenues, as you know, is much more normalized than when we were in the same place a year ago.
Now, on your second question, do we – does our ingredient pricing move largely in line with overall food price inflation? The answer is roughly yes with, let's say,
[indiscernible]
(00:34:21) one on certain ingredients, we basically have strategic longer-term buying contracts with our suppliers, which then protect us, at least, in certain instances, for a certain period of time. This is something that has helped us for some part of H2 last year, for example. And then secondly, as you know, in terms of our menu planning, we have a certain level of flexibility. So, in case we see only certain ingredient categories spike meaningfully versus the overall level, we could basically decide to use that flexibility and not necessarily run recipes that rely on those ingredients in the frequency that as we would have done otherwise.
Let me comment on your question on Factor and capacity. So, we're operating pretty close at the moment to our capacity limits in our Factor facilities. There are some things which we're now doing temporarily to slightly increase that capacity. And then, we have a new very large facility coming online, probably in the back-to-school season to Q4. So, we hope we can make it for back-to-school season or latest, Q4, by which point we should be unconstrained in terms of capacity.
But as Christian has alluded to before, the fact that we've been growing Factor has mostly been due to the fact that we've seen very good ROI on our marketing expense, because the market is very, very early, and not a lot of strong competitors in that market. We do see a lot of other great ROI opportunities with very fast payback in some of our other brands as well. So, it's not a major area of concern for us, but certainly we will continue to grow the business quite significantly this year, and with a lot more capacity going into Q4.
Which also brings me to your second question, the ready-to-eat segments. As you have rightly alluded to, Blue Apron, Marley Spoon, a couple of others, dedicate some of their slots to ready-to-eat meals. This is something that we do within our HelloFresh core brand with the HelloFresh Market that we've launched, where you can buy some ready-to-eat meals. But we do think it's a very different proposition to what we actually do with Factor.
So, when you look at some of those competitors, but also if you look at our own HelloFresh Market, what you tend to see is that you have a limited range of ready-to-eat meals that are rotating, whereas at Factor, we have at the moment 30 meals on the menu, which rotates quite often. Those 30 meals, we actually plan to expand further.
And so, I think the value proposition of those type of meals is just very, very different in a stand-alone products than what you can offer when you dedicate a couple of slots in your overall menu
[indiscernible]
(00:37:34) because you can actually talk to very different consumer, a consumer that only consumes ready-to-eat, for example.
And so, if you look at our competitive situation, both in the meal kit business as well as in the ready-to-eat segments, we've been able to increase market share quite dramatically. So, Factor is by now by units and by revenue, the largest ready-to-eat brands in the US already. So, I think we've been very competitive in that segment and also for our meal kit brands, I think the fact that we've invested in our HelloFresh market and hence, customers can also buy ready-to-eat meals as add-ons on top of the meal kits that they buy, this increased attractiveness of our proposition has also meant that we've been able to further gain market share in the second half of 2021 as well.
Thank you.
The next question is from Victoria Petrova, Credit Suisse. Your line is now open. Please go ahead.
Good morning. Thank you for presentation. Congratulations on the results. I have several questions left. First is on quarterly trends. Within your guidance, which you have just kept between €500 million and €580 million EBITDA, in terms of profitability, could you help us to look at the quarterly performance? I understand first quarter is likely to be the lowest profitability quarter. And Christian just mentioned that from the second half 2022 contribution margins should start to recover, could you maybe provide us sort of your expectation on quarterly relative trends in terms of profitability, keeping in mind seasonality and also one-offs of 2022?
Second question is around cost surprises since Capital Markets Day. Are there any cost lines which now you're looking from two months of 2022 were unexpected on the positive or probably most likely negative side?
And the third question is on the first quarter trends. Who is your new customer, if there is any? Could you talk about reactivations versus sort of completely newcomers? What is driving that? Do you have any changes in customer value proposition already in the first quarter? And obviously, you already mentioned the reaction – sort of churn reaction on price increases, but maybe anything around that as well would be extremely helpful. Thank you.
Victoria, it's Christian. Thanks for all those questions. Well, let me tackle the first two. And obviously, as always, as it regards to future shape, they're – it's all indicative of what we're discussing and things may turn out differently. But in terms of the quarterly profitability developments of Q1, certainly given the strong growth and the massive addition of new customers that we are bringing in, in Q1, you should assume elevated marketing expenses, as I alluded to earlier.
And then on the contribution margin side, the factors that we discussed earlier on the call, i.e. are somewhat compressed EBITDA margin of 3% to 3.5%. Now, Q2 that we're expecting to normalize, especially on the marketing expense side and we are planning for an indicative EBITDA margin north of 7% in Q2.
And then when you look at H2 then, give us the normal seasonality in Q3, somewhat offset on the contribution margin side already through some of the productivity increases that we are pushing through now with respect to some of the fulfillment centers we've launched towards the back end of last year. And also for the Phoenix fulfillment center, which we launched in Q1 this year and the smaller Factor site that we put in place. So, all in, basically you should expect a contribution margin like-for-like expansion then from Q3 onwards already. And in Q4, effectively a similar benign marketing expense environment as you've seen from us this year and therefore a reasonably healthy EBITDA margin.
Victoria, does that answer your question?
Absolutely. Thank you.
Super. And then maybe just as an add-on for your second question on did we see any meaningful cost surprises which were meaningfully different to what we expected when we spoke in December? The answer is no.
I also have to disappoint you with regard to your third question. I think the trends in customer composition are not anything very different to what we've seen before. So, typically in Q1, always a lot of customers that re-engage as sort of like the days are shorter and it's darker that spend a lot of time at home and continue to cook at home and very often take up HelloFresh as a routine again in January and February and ongoing. But this is very much expected seasonal behavior, while we also basically see that lot of new customers are coming to the service, our referral programs et cetera. So, customers advertising on behalf of us to their friends. And these things in January are always very, very strong, and we benefit from this or have benefited from this with a strong start to the year this year as well.
Thank you very much.
And the next question is from Nizla Naizer, Deutsche Bank. Your line is now open. Please go ahead.
Great and thank you. Three questions from my end. The first is on the US order value growth. I mean, 10% is extremely strong. Could you give us a bit more color as to what's driving that? Were the HelloFresh Market elements also adding to the growth in order value or was Factor also a contributing factor there? Just some color there would be great.
Secondly, there was some concerns around capacity constraints in markets like Germany in Q4. Just wanted to understand, has that been eased? What were the reasons for it? And is Germany also one of your faster growing sort of international markets? Some color there would be great.
Lastly, on the Q1 margin, so 3% to 3.5%, how much of that has been impacted by the new capacity additions? If you were to say is it a 2-percentage-point impact or so that's purely from this capacity additions? Giving us some context there would be great. Thank you.
And, Nizla, it's Christian. So, on the US average order value growth, the biggest driver here is really, as Dominik had alluded to in the presentation earlier, is really the size of the deliveries, either number of meals per deliveries which we managed to bring up further and then the next layer down – and so this is definitely the biggest driver here. Next layer down would then be things like higher take-up of our surcharge offerings and some contribution of HelloFresh Market, but really in that order, as I just articulated it here.
With regards to capacity constraints, I would say we have largely debottlenecks capacity in most of our geographies. What we did see is that in Europe, labor availability going into January was pretty tough, as, sort of, like – things like mandatory vaccinations et cetera mandates were rolled out in some countries for some jobs et cetera. And the labor pool actually shrank quite a bit. So, we had to fight against that.
So, it was less about the size of the facility than the availability of our labor pool. But I do think that overall, we've managed through this fairly well. And so, outside of a couple of smaller geographies or a couple of percentage points throttling here and there, I think on a group level, we're actually mostly unconstrained now in terms of capacity as we go throughout the year.
And as we then add more capacity, we should also move towards the end of the year, more down towards the, sort of, like 60%, 70% capacity utilization overall. So, while we haven't seen capacity constraints per se in Q1, we're still operating at very high levels. So, it's still, sort of, like 90%-plus, which is too high, for example, to double down on automation or to drive big productivity improvement projects if you're operating at these high levels. It's just very, very hard to drive those meaningful programs through. So, those should actually be coming in H2 when we have built out more capacity and are not only not constrained, but can focus on productivity as a result.
And Nizla on your third point, to isolate the impact of the launch of new capacity and capacity ramp-up on contribution margin in Q1, ballpark, that's roundabout 1.5 points and that would take together both the ramp-up of our new facility in Phoenix, Arizona, for example. But then also the fact that as we expect that, which then has materialized, a quite meaningful and decent growth profile in Q1 that's going into the Q1 we need to upfront always there, so to speak, of fulfillment centers so that we've got enough colleagues to then be able to cope with that step change in the volume.
Understood. Thank you.
The next question is from Andrew Gwynn, BNP Paribas Exane. Your line is now open. Please go ahead.
Hi, there. Good morning. Two quick questions. So, firstly, just on customer count. Well, first actually, could you just repeat what you said for Q1 just to make sure I got the right numbers? And if that was versus Q4 or year-on-year? So that's the first question.
Second question, is similar sort of topic, really. But just thinking about growth in Q2, obviously you've given us the margin comment, but Q2 features quite a challenging revenue base. So, should we expect maybe revenue below – revenue growth rate below the guidance range for the full year? So that's, sort of, part one and two of question one.
And the second one, I mean, obviously, a lot of the questions here have come up around pricing power. It sounds like your stance is a very deliberate decision to lean into opportunity if you don't want to pass through inflation, if it's going to impact the top line. But do you see a situation where actually, you sort of, willingly forego EBITDA guidance if it means that you could really cement top line and deliver significantly over the guidance you've given. Thank you.
Okay. Super. Andrew, it's Christian, let me tackle your first two, so just to make sure there's no misunderstanding on what I said earlier about Q1 customers. So, we're targeting for Q1 2022 to increase our active quarterly customers to north of 8 million, i.e. on a sequential basis versus the 7.2 million, where we've ended last year, to at roundabout 1 million to our active customers. And right now, based on current trading, we expect that net addition to be similar across our two segments, US and international.
Now, with respect to Q2 top line growth, you're right that the benchmark is even tougher there in Q2. Therefore, it may well be that we are somewhat at the lower-end or even maybe a touch below where the full year guidance is. But again, all of that is baked into our full year guidance. And then going into H2, the relative benchmark is then a touch
[ph]
less half (00:51:10) as well.
On pricing, I think we're quite comfortable with the balance that we strike right now. So, having, I think, of the whole peer group in e-commerce, the highest growth rates with still the highest profitability throughout the universe of what we are actually tracking, I think that's a really good balance. And so, I think with the price, with the modest price increases, that still promotes better relative affordability to our customers than what we've seen before, I do think we feel quite comfortable around that, and we see no reason to deviate from that.
I think it's very strong top line momentum, which makes us sort of like a multiyear compounder, very clearly on track to hit the €10 billion by 2025 at the latest. And then, also on the margin side, I think will allow us to generate meaningful operating free cash flow that we can then invest in either further building up our infrastructure for additional growth or actually making some capital allocation decisions like we did in the beginning of 2022 with the share buyback.
Okay. That's all very clear. I suppose a very simple question is why is the margin so important to, obviously the other growth businesses we listen to? They don't really talk about even the prospect of short-term strong margins. So, is there a point where you just say, you know what, EBITDA margins become quite a long way down the list and it's just massive more growth opportunity here than we appreciate?
So, we operate a very physical business, right, a very physical supply chain, so there is a limit as to how fast we can actually grow, especially after the two years where we have tripled our revenue base. We need to catch up on a lot of things. And so, I do feel that a lot of the investments that we did, we did that already at the expense of EBITDA margin, right? So, if you – like I said in my very initial remarks at the call, we overachieved our initial guidance with about €1.3 billion in revenue. We still generated €50 million more in absolute EBITDA, but that was obviously kind of like at the expense of about 1.5 points in EBITDA margin. And I think that's the right tradeoff. But given that we've sort of like traded that off already and given what we guided to throughout for the remainder of the year, I think we do feel very comfortable that at that level, we can do both, generate sort of like strong operating free cash flow, and this is actually what we're most concerned with. And secondly, show very healthy top line growth.
Okay. Fantastic. Thank you very much. Have a good day.
The next question is from Miriam Josiah, Morgan Stanley. Your line is now open. Please go ahead.
Great. Morning, everyone. Three left for me. Firstly, if you could just give a bit of color on the international markets, particularly the initial traction that you're seeing in Italy and Japan. Then secondly, I believe you're reconfirming the CapEx guidance of €450 million to €550 million. If you could just confirm that. And if so, how should we think about the phasing of that throughout the year? And then finally, I think you plan to add quite a significant number to the head count this year in your tech teams. If you could just talk a bit about the progress that you're making there. Thanks.
Yeah. Let me tackle one or two of those questions. In terms of traction in new markets, so the first one that we launched in 2021 was Norway. I think Norway obviously is very similar to the very successful markets that we have in Sweden and in Denmark. And so, I think this is a market with already quite high consideration for meal kits. And so, we've seen a very strong start in the Nordics, and it's becoming sort of like a – you know, one of three very strong markets that we have in our Nordics cluster. So, this is going very well.
Italy, we only launched them at the beginning of the fourth quarter. I think a market where meal kits are not prevalent, where there's no other competitors that have done marketing and drummed the beats for meal kits over the last couple of years. So, this is a market where we see positive indications, but which will take like slightly longer to ramp-up than a market like Norway, for example, where meal kit consideration and awareness was already very, very high.
And then, finally, in Japan, I do think that, given we only, I think, shipped the first box in the first week of December, it's still very early days. And at the moment, we're working on product market fit, which means we're testing lot of the different recipes, delivery options, how do we actually speak to customers, what is it that we need to change in our digital experience. So, it's still very much exploratory stage. But again, given that this is a market where we have had no experience operating in before, it's also very much according to plan. But all three, obviously compared to the more long-standing HelloFresh markets, are markets that consume cash at this point in time, but which we think are very early on in their adoption S curves. And so, kind of like fast-forward two, three, four years, I think all three of them can become very meaningful contributors to our overall growth momentum.
On technology, maybe I'll cover that one as well. We've made a number of senior hires among them and we have a new CTO, Valeri Liborski, who actually joined us from Amazon, was the most senior Amazon engineering person on the ground in Europe and has had, I think, a strong start at the company here. We've managed to further ramp-up the teams but with a big focus on quality and on seniority. And so, I would say, it's going very well, very intentional about how we're building up those teams, so that it can support all of the other functions and building better software solutions, because we very much do believe that one of the reasons why we've been able to grow much faster than the rest of e-commerce is that the scalability and reliability that we bring into our systems through better software and automation is something that really sets us apart.
And then, Miriam, if I may, on your CapEx question, sort of two parts. One, do we reconfirm the guidance given at the Capital Markets Day, the €450 million to €550 million? The answer is yes. And then in terms of distribution by quarter, you should assume that Q2 and Q3 have a somewhat higher share of that planned CapEx spend. Having said that, there's certainly room that things may shift a little bit left or right, depending a little bit on the exact speed of the build-out when some prepayments become due and so forth. Yeah, but ballpark Q2 and Q3 are somewhat higher share of that than Q1 and Q4.
Great. Thank you.
And the next question is from Clément Genelot, Bryan, Garnier. Your line is now open. Please go ahead.
Good morning. Two questions on my side. Rather first one is on price increases. In the CMD in December, you mentioned, if I'm right, 150 basis points impact from a food administration on 2022 gross margin. Is it still the case with maybe 1% to 2% price increases you mentioned in some regions?
And my other question is on the COVID-related sick leave in your facilities that you faced such issues in Q4, and you have to, let's say, anticipate similar effect in Q1, which could affect the contribution margin. Thanks.
Hey. It's Christian here. On your first question on the price increase – on the ingredient price inflation and impact on our contribution margin, that's right. As we said on a net basis, we assume roundabout 150 basis points of impact for 2022, a 100 to 150 basis points impact and this is still unchanged, so no change to what we discussed in December.
And then, sorry, on your second question, do you mind to repeat that just to make sure that we get it correctly?
Yes. Sure. Did you face any absenteeism in Q4 related to the COVID sickness, because other players mentioned it, and that was especially the case in the UK and the Nordics?
Got it. Yeah. Yeah. So, the answer to a certain level, yes. So, we had certain elevated sickness level where COVID basically played a role in a number of our markets.
[indiscernible]
(01:01:15) in Q1?
Q1, much less the case so.
Okay. Understood. Thanks.
And this concludes today's Q&A session. I hand back to the speakers for closing remarks.
Thank you very much for your participation in our full year 2021 results presentation. I hope we could shed some light in how we've seen 2021 play out. Obviously, very differently from what we had anticipated at the start of the year. I think, overall, as a company, we're a much, much stronger organization than we were just a mere 12 months ago. We're also three times the size of the business than we were just 24 months ago. And so, overall, we're quite excited about what the rest of 2022 brings, and we look forward to welcoming you back when we report on our Q1 numbers in the not-too-distant future. Thank you and have a great day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.