Deliveroo plc (DROOF) Q4 2022 Earnings Call Transcript

Deliveroo plc (OTCPK:DROOF) Q4 2022 Results Earnings Conference Call March 16, 2023 5:00 AM ET

Company Participants

Will Shu - Founder and Chief Executive Officer

Scilla Grimble - Chief Financial Officer

David Hancock - Vice President, Investor Relations

Conference Call Participants

Andrew Ross - Barclays Capital

Andrew Gwynne - Exane BNP Paribas

Joseph Barnet-Lamb - Credit Suisse

William Woods - Bernstein Research

Christopher Johnen - HSBC

Luke Holbrook - Morgan Stanley

Georgios Pilakoutas - Numis Securities

Giles Thorne - Jefferies

Marcus Diebel - J.P. Morgan

Will Shu

Hello. Good morning, everyone. I'm Will. I'm the Founder and CEO of Deliveroo. Thank you for joining us today for this morning's presentation of our full-year 2022 results.

Before we get into the results though, I am very excited to say that we're joined by our new CFO, Scilla Grimble. She joined our business last month. We've mentioned her a few times. Really excited for her to partner with me on this journey. We also have our VP of Investor Relations, David Hancock, with us. He's been on the last few calls. And I want to take this opportunity to thank him for his contributions as interim CFO before Scilla joined us a month ago or so. So thank you very much, David.

And now let's get into what we're going to discuss today. So, what we're going to do is we're going to start with a brief overview of the year before we run through some of the progress we made in 2022, some of the details on the progress. Then Scilla will take you through the financial results in more detail, we'll set out our guidance for 2023. I'll come back for a quick summary, and then we will get into Q&A. So let's get started.

So, overall, I'm really proud of the team's performance in 2022. It was certainly intense. We had a really difficult, hard macroenvironment here in the UK and Europe. We've had high inflation. We've had a war in the Ukraine. We had political unease in the UK.

And then secondly, this is the first year out of COVID restrictions fully for almost all of our markets. And so, in that context, I think we've delivered a very good set of results. So a few key takeaways for me. One, we've made excellent progress in our path to profitability. We delivered positive adjusted EBITDA in the second half of 2022. Now, that's well ahead of schedule. We said we would do this in second half 2023 or first half 2024. So, well ahead of schedule. We're really, really proud of this.

And really, this is the result of great execution by the team on initiatives that we chatted about to all of you previously. So, for example, this is optimization of consumer feeds. This is efficiency gains in our rider network. This is better targeting of marketing spend. So I think we made a lot of progress on this in 2022. But we did this at the same time as we strengthened our consumer value proposition. And we've executed well on the hyperlocal strategy. The combination of both led to market share gains in key markets. And I'm going to deep dive into a few topics on the CVP and hyperlocal strategy. Hope you all will enjoy that.

And then, alongside the progress and profitability, we delivered a good year of growth. We had gross profit up 30%. We had revenue up 14%. We had GTV up 9% year-on-year or 7% in constant currency. I think this is a very good outcome, given the difficult consumer environment.

And then, on the balance sheet side, we ended with £1 billion of net cash. And today, we announced a further share buyback of £50 million. Scilla will touch on that in her section.

And then, finally, we've set out our guidance for 2023. We expect GTV to be low to mid-single digits in constant currency, with Q1 broadly flat and then growth improving throughout the year.

And from a profitability perspective, we expect adjusted EBITDA to continue to improve. We expect a range of £20 million to £50 million with a weighting towards the second half.

So let us now look at some of our progress throughout the year on the strategic and operational side. So, first, I want to start right by reminding all of you of our operating framework.

Ten years ago, I started this business in Chelsea in London. I guess that means it's our 10th year birthday, it's our 10th year anniversary of starting this business. So happy birthday, Deliveroo. But back to the analyst presentation.

So being in one neighborhood meant that everything was viewed through a hyperlocal lens. Ten years on, we're in 10 different markets, we're in thousands of different neighborhoods. But we still look at our business through a hyperlocal lens. That is how we run our business.

Because at the end of the day, network effects for this business are very, very strong on the neighborhood level. They're not that strong on the national level, or they're pretty weak, I'd say, and there's definitely almost no network effects internationally.

So what this means is our core strategy has been the same. We want to focus on neighborhoods first with the greatest profit pool potential. We want to win them neighborhood by neighborhood and then move on others. Our business after all is an aggregation of neighborhood markets.

Now what does this actually mean in practice? Well, it means we need to build the best consumer value proposition in neighborhoods that we operate in. And I'll come on to talk about CVP in the next slide. Having the best and most differentiated CVP in each neighborhood leads to more hyperlocal market share, which leads to more riders, leads to more consumers and merchants, and ultimately higher profitability than competitors in that area.

And this is due to, A, order density. That's going to benefit logistics costs. B, pricing power with consumers and merchants. That benefits revenues. And, C, more marketing efficiency which should benefit overheads.

And when it comes to profitability, these hyperlocal network effects are key to driving higher gross profit. In this business, profit pool potential is a function of local population density, not necessarily size of city, but density is important. Affluence is important. Merchant supply, so independent merchants supply is important. And also, our market share, how we're doing there.

So neighborhoods that are more affluent, have more independent merchants and are denser tend to have a higher profit pool potential. So, focusing on neighborhoods with the – focusing first on these neighborhoods that have the greatest profit pool potential is important. So that's the high level strategic framework.

We think about this business both with a hyperlocal approach and a focus on that hyperlocal CVP. And ultimately, that CVP will drive growth and will drive market share gains and eventually profitability.

And then what we've done on the right side of this page here, we've also listed out some of the more specific levers we've had to drive profitability with. And we set these out at our prelim results this time last year. So these are some of the specific levers we have to drive profitability. We set those out last year, and we made great progress on several of these levers in 2022. We'll come back to talk specifically about them in a few slides' time.

First, let me go into more detail on the CVP. As I said on the last slide, it's really the CVP of a neighborhood that actually matters. That's ultimately how we win these neighborhoods. But our business, as you can think about it, is obviously a collection of neighborhoods and this sort of roll up of – each neighborhood CVP rolls up to our overall CVP. So I'm going to sort of abstract a little bit and talk about at a macro level what we've done to improve the CVP.

And we're not going to go into every pillar of the CVP. Availability and brand lever are critical, but, ultimately, we'd be here all day if we went into details on all of them. So let me start with selection at first. We ended 2022 with 158,000 restaurant sites live on the platform. That's up 22% from the end of 2021. We launched McDonald's, we launched Caffè Nero in the UK. Internationally, we spent a lot of our efforts in 2021 signing up the big brands. So, 2022 was a year of bolstering our independent supply.

On the grocery side, we expanded selection to 18,000 partner sites live at the end of 2022. That's up 64% from the end of 2021. So we expanded our partnerships in the UK and Ireland with Waitrose, Sainsbury's, Co-op. We launched with Asda. Internationally, we continue to roll out with key partners such as Carrefour in France, Italy and Belgium, Casino and Picard in France, Esselunga in Italy, and PARKnSHOP in Hong Kong.

And also, we have continued to invest in a measured rollout of HOP and HOP-as-a-service sites. But it's really not just about this number of restaurants or grocers we have on the platform. We've worked really hard to filling in some selection gaps. So we've added a lot more vegan options in the app, we've made them easier to find, for instance.

Okay, the next pillar, consumer experience. Really, what I think about on this pillar is, how do we do on any given order? From the in-app experience, so how do we do on search, discovery, reorder, to the order tracking page, to the actual delivery, were we fast enough, were we accurate on the timings and the items? How was the packaging? And if something went wrong, did we fix it.

And so, one area we've made a lot of, I would say, transformational improvements is in grocery. And we're going to deep dive into some of those specific things that we've done to improve that offering for both grocers as well as consumers. So I won't go into too much of it here. But it is a huge part of our CVP. And it affects all five pillars here.

And so, when we started the grocery vertical three, four years ago, we launched with Co-op, 300 SKUs, we just basically use our restaurant interface to make that happen. So it was very clunky. There are a lot of operational problems. But three, four years on – actually, I'd say in the last 12 months, 12, 18 months, there's a complete step change as a result of both transformational work and incremental steps. And in aggregate, the consumer experience is just night and day from where we started. So we're really proud of that.

I also have in here transactional to emotional, and that is part of the consumer experience as well. And I've talked about wanting to take Deliveroo beyond the functional to really capture the passion and emotion of our consumers and merchants. I think we're really at the beginning here, but a couple of cool features we launched last year. We have longform customer reviews. We have some video content from merchants, and that's available in only certain neighborhoods.

Now, let me just talk about the reviews a lot. So, believe it or not, before Deliveroo, I used to be a giant Yelp fan. I was a Yelp Elite member. Yelp Elite 11 and 12, in fact. And I used to absolutely love leaving reviews and reading them in detail. And I think our new review features, it gives you rich details of what our users think about our different merchants. And I have used it to discover a lot of new places.

The video side is a bit less developed, I'd say. We're only live in a few neighborhoods. One of them happens to be where I live in London. But what we're doing here is effectively enabling merchants or FMCG partners to record short videos telling their story. So it can be about a dish or it can be about the history of the restaurant. And these are – they're sort of like a stories function in our app. And I think it's going to be pretty engaging for consumers.

Now, I'm also going to talk about service. Our service is part of this consumer experience box here. And it is a critical part of the consumer experience and something I care about personally a ton. And I think if done very, very well, it is absolutely a point of differentiation.

And I think the food delivery industry has not yet cracked the problem, how do we consistently deliver a great end-to-end delivery experience each time, and it is a very difficult problem to solve, given you've got a three sided marketplace and there's a bunch of operational complexity, but it's a giant opportunity and one we are going after in 2023 to make sure that we really, really up our game on the end-to-end delivery side.

And then, finally, in this page, we're going to talk about price value for a second. Value is going to have a different meaning for each consumer. It's our job to ensure that we're providing consumers access to our service at a variety of different price points. And this is even more important given what's going on with cost of living in many of our markets. So we're working actively with grocers to match and store prices. We're going to flag this in the app for consumers to see. And with restaurant partners, we're helping them tailor their menus to balance popularity and also mitigating cost inflation.

We've extended our Deliveroo Plus collaboration with Amazon in the UK. We've expanded to add France, Italy and the UAE. This is a continuation of what we did in the UK. We offer Prime customers free Deliveroo Plus subscriptions for one year. So they don't pay any delivery fee on orders above a minimum value. And I think take up on that's been very, very strong, as we've talked about before.

And then there's something else too. We're also helping consumers access rewards from their favorite restaurants. So, for example, if you order from selected restaurants for the third time, you get an £8 discount.

Okay, that takes us through consumer value prop. Now let's deep dive on grocery. Alright, let's deep dive on progress on grocery. So I mentioned that we've made major steps in improving our grocery offering in 2022.

Let's start with range. We initially launched this Co-op partnership with 300 SKUs. We quickly increased that to 2,000 to 3,000 in our regular offering. But now, we are offering SKUs up to 10,000. And the results have been encouraging. We've seen a 5% to 10% increase in basket sizes, we've seen a 6% reduction in amended orders, we've seen an increase in substitutions as there's more to substitute with.

And then, we're also piloting some, I would call them, more finely grained menus. We have these subcategories, now that this really helps browsability. So it's basically adding a sub layer to the current aisle shopping tiles in the app. So you can see here, instead of just browsing for fruit, you can browse for raspberries, you can browse for citrus fruits. And so, you can get a bit more granular just like if you're in the baby category, you can go into nappies as well, right, so just adding more layers on. We've seen positive initial results in the number of items added to baskets per session, and the percentage of categories viewed per session, which is pretty encouraging.

One other area where we've been making big advances is driving value in this grocery segment, which is under that price value CVP pillar. Cost of living crisis is having a huge impact on consumer spending power, so offering good value is critical. We've been working with our grocery partners to drive more value for the consumer. We were the first to offer in-store price matching with Morrison's for selected items. We've rolled this out with some other partners as well.

Now one thing that was pretty amazing for me was in the first in-store price match campaign with Morrison's, we delivered a more than 20% increase in order volume once we've rolled that out. And this is something that benefits the grocers and consumers as well as us.

There's also more to come, you'll see. We're going to be improving different offers from groceries. So mechanics such as three for the price of two or buy one get one with a percent off, and we want to make sure we merchandise as well. We want to make sure that customers get the confidence they're not missing out on deals on Deliveroo versus going into physical stores.

Another thing that has been, I think, really, really powerful and relatively new. These are the two areas I mentioned at prelims last year as something we were building and trialing. This is our substitutions feature in our dedicated picking app. So here's a quick update on each. So our substitution technology is now live in over 5,500 sites globally. There's a number of notable partners that are using this. It allows consumers to update unavailable item settings to either substitute with the best available item, remove unavailable items, or cancel the entire order if they don't have one thing you want. And you can kind of see – you can see how that looks on the left side of that screenshot. And then, our APIs enable our grocer partners to see which of these options the consumer has selected to amend the order real time, and you can see that on the right side there. So that's what the grocer would see on the right and what the consumer would see on the left.

And this means that customers are hopefully not disappointed because they're offered an alternative that they've selected. And for grocers that have this tech, they are able to generate additional revenue and increase customer satisfaction.

I tend to think I'm most excited about on the grocery side – or one of the things I'm most excited about in our core grocery business is we have been rolling out a dedicated picking app for our partners. So, there's a scanning tool within the app that allows pickers to scan items as they pick them. It reduces picking accuracy errors, it increases availability updates as well. So it's all integrated. We're live with a number of partners, we're going to roll this out onto many more partners through 2023.

But the initial results are very, very significant. We have seen pick time reduce by 22 seconds per unique item, which is huge. And we think this could drive significant labor savings for our partners, but also an incredibly improved consumer experience as order accuracy should be much higher, and delivery should be executed faster.

And then, of course, there's HOP. We continue to roll out with HOP. That's our Deliveroo operated dark store model. And during 2022, we saw the pressures in this industry. We saw a lot of the pure-play quick commerce guys have some difficulties as funding has dried up, we've seen players merging. And for us, we've always believed in HOP. We believe that it is a great part of the CVP, it belongs on a platform with a wider network, so with preexisting consumers, with a lot of merchants and lower cost deliveries. And we have made really significant advancements in profitability of HOP. And we're very confident of its role in our marketplace. So excited about the progress we've made there as well.

All right, I wanted to talk a bit about an example of what we mean by hyperlocal. And I'm going to use Italy as a case study. So let's just give you a little bit of history of food delivery in Italy. So, historically, it really only was a restaurant fulfilled delivery market. There was one major international player. They launched in, I believe, 2011. And food delivery itself, I don't think it was a major part of the culture. And so, when we launched in 2015, there were not that many sort of mid to high quality restaurants on offer for delivery. And in a country that is food obsessed, well, certainly, we wanted to change that.

Now today, I would say the food delivery market is still under penetrated versus, I would say, places like the UK. And Internet penetration in Italy itself is significantly lower than other Western European countries. So we do see a lot of growth just occurring I think as the market matures.

Now as a country, you have major cities like Milan and Rome, but it's such a local place. You have hundreds of moderately sized towns and cities. They all have varying density, culture and identities. 65% of the Italian population live outside the big cities. And also, the penetration rates vary. You're close to 20% in the north, less than 5% in the center and south. So a lot of regional variances as well.

So, I think what our point is here is it's been really important to have a tailored strategy. We've had to look at things zone by zone, neighborhood by neighborhood. And our strategy has been consistent, as I talked about, focus on areas where we see the greatest profit pool potential first and win them zone by zone.

And today, we're the number one player in Italy. We really are very, very strong in Northern Italy, particularly in Milan and Lombardia. We have 65% of the population coverage in Italy. That's the highest amongst any players utilizing logistics. And we've done this whilst we improve profitability. Italy is adjusted EBITDA profitable before allocation of central costs.

And the success is due to this hyperlocal approach and the team that have executed it. So let me talk a little bit about how we've done it. We entered this market by initially launching in Milan in 2015, Rome in 2016, we've been building up strong positions in these major, major, major cities.

But as we were growing quickly in these cities, we also wanted to build a sustainable model across the whole country by focusing on smaller, but dense neighborhoods as well as these large cities.

And at the beginning of 2018, we started partnering with a major international food brand. This allowed us to expand into smaller towns and cities across Italy. And at that time, our competitors were just focused on the big cities like Milan and Rome. We launched in the likes of Piacenza. This is an area where our competitors weren't launching. This is a smaller city south of Milan that's got less than 200,000 inhabitants. It's quite an affluent area and the cost of living is lower than Milan. So that combination definitely benefited our unit economics. For whatever reason, our competitors didn't really see the opportunity. And our team was busy at work and spending time in Piacenza to develop a competitive edge. But I would also argue that Piacenza was where we developed our playbook. And over time, we systemized and institutionalized that playbook, but Piacenza was really where it was born.

So, we began building the best CVP at the hyperlocal level. We signed up a mix of well-known casual dining and QSR restaurants, spent a ton of time cultivating the local gems, we balanced this portfolio both with exclusive accounts and non-exclusive accounts. And what we started doing is just using data on sales, on marketing and operational KPIs. We continuously identified areas of improvements week by week. So whether that's a neighborhood of Piacenza that needed more riders or we were missing a certain cuisine in a certain neighborhood, we were on the ground executing. And I think that experience really allowed us to use data to identify our issues, allowed us to fix input metrics to solve for outputs. And I think doing it in that first kind of midsize city really was a big learning.

And Piacenza is one example of how we differentiated our CVP at a neighborhood level, right? We've done this in a lot of places. And I think it's also worthwhile calling out grocery. We've offered grocery with Carrefour, Conad. And thus far, we work exclusively with Esselunga, as well they partner with our HOP service. We've added butchers, cheesemongers, and bakers. These are more profitable than large grocers. And so, we're effectively adding the same strategy, and so grocery is just part of this hyperlocal strategy.

And I'd say that, overall, this Piacenza story was repeated hundreds of times across Italy. And I think we've made huge progress. This is a testament to Matteo, our GM in Italy, and his team. And we've transformed this market from one that was just – it was restaurant fulfilled, it was very small to, I think, a dynamic, diverse market now where it really is becoming a way of life in many parts of Italy. And we're proud to have done this. And we've gained market share consistently to get to where we are now. But we do this through hyperlocal focus. And we are the market leader in Italy now. So I want to just thank the team for what they've done. So we're excited about the future of the market. We're excited about other markets where we can replicate this as well.

All right, quick update on riders. I've talked a lot about how they value flexible self-employed work. And through 2022, our rider attraction and retention rates were quite high, despite the labor markets being strong in many of these markets, and satisfaction itself has remained strong. It is at 83% that are satisfied or very satisfied in the fourth quarter. So I think we have both qualitative and quantitative proof that people value this work.

And I also believe that engagements with trade unions is important, and I want to mention two examples. In May, we signed a first partnership of its kind, we signed a partnership with the GMB Union, the third largest union in the UK. The agreement explicitly recognizes riders as self-employed, but also provides real benefits for riders.

In France, we are participating in a social dialogue. These are government led negotiations between platforms and unions designed to improve the working conditions of riders without calling into question the self-employed status.

If we talk about regulation for a second, in Europe, we have this ongoing debate about the Platform Work Directive. This continues. I talked about this on our Q4 call. Discussions are ongoing at the parliament and council level. There doesn't appear to be a clear timetable for final agreement.

It's worth remembering, however, though, the original proposals by the Commission were broadly in line with the way we're currently thinking – or sorry, our current operating model. And we think core elements of these proposals are likely to remain in place. And so, we like other platforms, we will be engaged with regulatory bodies as well. And this is the case in a few markets.

So, in France, we're participating in constructive dialogue with social security bodies in relation to an ongoing investigation concerning engagement with riders. In the Netherlands, although we've exited, we have ongoing litigation concerning rider status as well.

Alright, just want to wrap up here. I wanted to bring this back to what we achieved in 2022. So we continue to grow this business in what has been a difficult consumer environment. We've balanced this with excellent progress and profitability. We've reached adjusted EBITDA profitability well ahead of schedule. And I want to just congratulate the Deliveroo team for executing really well. We've achieved a lot in 2022. Obviously, we are executing in 2023, and there's a lot more to do.

At the prelims, we called out a bunch of levers that we had at our disposal. Some of these are listed on the right hand side here of the slide. I'm not going to talk about all of them. But let's pick a few.

So, let's talk about consumer fees. We have ensured consumer fees appropriately reflect delivery distance, we've adjusted the balance between delivery fee and service fees. And we also have been educating consumers what additional services and benefits they're getting to justify those higher fees.

Now we've been pretty paranoid about the fee optimization. So we've run multiple experiments for a long period of time to get a decent sense of the impact before rolling these changes out widely. And this has been a big driver in our progression in 2022. And while I think there's more optimization to come, I think we're being quite thoughtful about the cost of living crisis. And so, that's going to be, obviously, front of mind for us.

Secondly, let's talk about advertising revenue. I know we really haven't met a lot of questions, and we haven't really given a specific answer. And so, we plan to do that today. But this year, we saw the first real contribution from our nascent advertising business.

Growing this revenue and profit stream, obviously, it's going to be a multi-year effort, but we've got an encouraging start. We've had advertising revenue reaching 60 basis points of GTV in Q4 2022. So that's an annualized run rate of £40 million or so.

And it's worth noting, at this stage, this is almost entirely from the restaurant side of the business. So these are sponsored positioning ads that you can see in the app. So that's high vis carousels, that's search results, things like that.

But we also launched, during the year, a new platform enabling FMCG partners and other companies that advertise their products. And that's still in its infancy. But you can see that on some carousels, but also on the rider tracking screen. And so, we expect this to become a more material contributor in 2023. But it definitely, I would say, by the fourth quarter last year was contributing.

So, lastly, I want to comment on the actions we've taken on overhead costs in 2023. You will have seen we announced the redundancy program in Feb, which could see around 9% of colleagues leave the business.

So let me explain a bit more about this. In recent years, we grew our headcount very quickly. There's really two reasons behind that. So, one in 2020, we had a significant headcount reduction, and this was related to the to a UK antitrust investigation, which placed us in a very, very precarious cash position. And that was resolved by August 2020.

And then, secondly, at the same time, COVID became a real tailwind. And we wanted to take advantage of that through 2020 and 2021. And I think we hired too many people too fast. I think we got a bit carried away with some of this.

And now, if we look at our business, we're not seeing the same growth. We've exited some markets and we need to look very hard at ourselves to become more efficient, and this is not an option. And so, to counter this, we started taking action during 2020. Midway through the year, we implemented a pause on all non-tech hiring. We raised the bar for adding new tech headcount. We stopped backfilling roles when people left the business, but towards the end of the year, it was obvious that we had to do more, and this led to the redundancy process we commenced last month.

I want to say this is not some sort of short term reaction to reaction to a challenging macro or stock market. The objective of this process is to deliver a permanent shift towards increased efficiency, reduced friction in decision making, increased speed of decision making, and also cost savings. And hopefully, through all of this, this becomes a better place and more enjoyable place for employees to work as well, and that we can solve consumers problems faster and more comprehensively. I firmly believe these actions will help us achieve that.

And so, Scilla will talk about the financial impact later on, but I wanted to address this upfront. And as difficult as this decision was, it really is the right thing to do for the business.

So, to conclude, we said we would improve profitability by acting on the levers I've mentioned. We've delivered on that in 2022. This gives us confidence we can again, deliver in 2023 and beyond. And you can see on the slide, we still have levers to pull to help drive both growth and profitability as well.

So I'm going to hand over to Scilla. She's going to take us through the financials. Thanks.

Scilla Grimble

Thanks, Will. And morning, everyone. Let me start by saying how delighted I was to join Deliveroo a few weeks ago, and that I'm looking forward to talking and meeting with you all over the coming months.

Before we tend to the numbers, I want to highlight that all the P&L metrics I'll cover are for continuing operations, unless stated otherwise on the slide. That means excluding Australia and the Netherlands, which we exited in November 2022, and Spain, which we exited in November 2021. All cash flow and balance sheet metrics, though, will include all operations.

So let's look at some of our key financial metrics. As Will said, 2022 was a strong year. Starting with GTV, we grew 9% or 7% in constant currency. This was driven by a combination of growth in orders and higher GTV per order, both from item level price inflation and optimization of consumer fees. Revenue growth outpaced GTV growth, up 14% year-on-year, driven by the expansion of revenue take rate. This uplift in revenue alongside efficiencies in the rider network saw gross profit increased 30% to £643 million.

Adjusted EBITDA was a loss of £45 million, an improvement of £55 million year-on-year. We reached adjusted EBITDA profitability in H2, though, with a result of £7 million. This was a key milestone for us, reached well ahead of expectations, and a good foundation on which to continue to improve profitability in 2023 and beyond.

We're conscious, though, that adjusted EBITDA is not true profitability and a focus on reaching sustainable profitability and cash generation. So on the slide, you therefore see a free cash flow measure. In 2022, this was an outflow of £243 million, although this includes a few one-off cash outflows, which I'll come on to. Again, the shape is important, with an outflow of £169 million in the first half, improving to an outflow of £74 million in the second.

So, significant progress on profitability and improving cash profile, and we ended the year with £1 billion of net cash, which leaves us well positioned to capitalize on the opportunities ahead of us.

And in recognition of these factors, we've today announced a further share buyback of £50 million. I'll update you more fully on our approach to capital allocation with the interim results.

Before we delve into the detail of the P&L, I want to take a quick look at the shape of the performance over the last year. On the left, you can see the encouraging shape of several of our metrics, with orders up 5%, GTV up 9%, revenue up 14%, and gross profit up 30%. Of course, the ability to drive value through the P&L is critical, particularly at a time when the top line is facing consumer headwinds. And we'll look at each of these in a bit more detail shortly.

On the right hand side, you can see the shape of our profitability improvements. Since H2 2021, we've improved gross profit margin by 250 basis points from 7.6% to 10.1% in H2 2022. Adjusted EBITDA margins improved even more, nearly 300 basis points over that same period, from negative 2.7% to positive 0.2%.

So let's now look at how we've achieved this. So starting with our top line metrics, as I said earlier, revenue growth of 14% outpaced GTV growth due to the expansion of revenue take rate. We've delivered this through pulling the levers we described with prelims last year, namely our consumer fees and the start of scaling our higher margin advertising revenue stream. Will has already touched on these earlier, so I won't dwell on them.

While it's not a specific lever that we've pulled ourselves, we also saw an increase in commission revenue from higher GTV per order, which was largely as a result of item level price inflation. Clearly something our merchants control rather than is.

I also want to highlight the shape of performance through the year. As you can see on the right hand side, Q1 saw strong order growth of 19%, in part boosted by Omicron-related COVID restrictions. Gradually, order growth slowed to 4% in Q2, 2% in Q3, and negative 2% in Q4 as consumer headwinds increased in many of our markets, in large part due to inflationary pressures. However, inflation, alongside the levers we've pulled on consumer fees, meant GTV growth held up better than orders, as you can see in the top right hand chart.

The bottom chart splits this growth by segment. We saw broadly similar shape in UKI and international growth rates, although this separated somewhat in H2. That reflects some tougher COVID comps for international and, as we touched on at our Q4 call, some overall market weakness in certain markets.

These Q4 trends have continued into the start of this year. We expect GTV growth to be broadly flat in Q1 in constant currency, reflecting consumer headwinds and that Omicron-related comp I mentioned. However, GTV and revenue growth should improve through the year as we deliver on our plans and the comparison base eases, and I'll come back to guidance shortly.

Moving on to gross profit. We've been really pleased with the progress here with an increase of 30% to £643 million. We saw improvements in both geographic segments. International saw particularly strong growth, up 44%, which reflects a combination of a comparatively weak H2 2021, as well as the good progress we've made driving forward profitability across our international markets in 2022.

Full year group gross profit margin was up 150 basis points to 9.4%, increasing through the year from 8.7% in H1 to 10.1% in H2. This reflects the revenue take rate improvement as well as efficiencies in the rider network. We rolled out new meal prep time models that have further reduced rider wait time at restaurants, we've worked to better balance supply and demand in the network, and we've also aimed to capture efficiencies from order stacking without degrading the consumer experience.

All that's enabled cost of sales per order to remain broadly stable at £4.50 per order compared to £4.40 per order in 2021 despite rider wage cost headwinds in a number of markets.

So stronger take rate and effective management of cost of sales has created leverage in gross profit, driving the margin expansion.

Good progress then in 2022, although we'll be very thoughtful about how much further we'll pull some of these levers in 2023. For example, as Will said earlier, we're very mindful of the current cost of living crisis as we think about consumer fees. But we do expect the contribution from our ad revenue stream to grow.

Now on to marketing and overheads where costs grew 16% to £688 million, although spend did fall slightly in H2 from H1. Marketing costs were down year-on-year, reflecting more targeted marketing investments, particularly in H2, in light of the weaker consumer environment. And you can see marketing dropped from £127 million in the first half to £88 million in the second.

Overhead costs increased year-on-year, mainly due to growth in our technology team. This investment supported a number of the improvements we've seen across the P&L. For example, the consumer fee optimization and the scaling of our advertising platform.

Cost control became an increasing focus as we move through the year, and this has continued into 2023 with the announcement of a redundancy process that Will touched upon earlier. This could see around 9% of our colleagues leave the business after consultations are completed during Q2.

As with all companies, we will be impacted by wage inflation, which is currently running at about 6% in the UK where the majority of our employees are based. So, given the timing of redundancy consultations, wage inflation and the shape of overhead growth in 2022, we expect limited absolute reduction in people costs full-year 2023 on full-year 2022. But if we look at this for H2 2023 compared with H2 2022, we do expect to see a clear reduction.

Moving on to adjusted EBITDA. I've already covered the progress we've made to reach a positive adjusted EBITDA in H2. What I want to focus on here is the right hand side of the page that shows the significant improvements we've made in both geographic segments.

The UKI has grown adjusted EBITDA from £91 million in 2021 to £158 million in 2022, taking margin from 2.6% to 4.1%. And if you did allocate central costs on a percentage of GTV basis, the UKI would be profitable, which clearly shows the strength of this business.

The international segments made an even bigger improvement, moving from negative £28 million to positive £48 million. And within this, every market improved profits. But as we said before, adjusted EBITDA is just a milestone on the way to true profitability and cash generation.

So on the next slide, I want to take you through the cash flow. We continue to have a very healthy balance sheet and are well capitalized to go after the opportunities in front of us. We closed 2022 with net cash of £1 billion, about £300 million lower than the prior year.

So looking at the key elements of cash flow then and starting with adjusted EBITDA, here you see a £71 million loss as it includes the £26 million adjusted EBITDA loss from discontinued operations.

Looking ahead, as we've said, we expect adjusted EBITDA to be in the range of £20 million to £50 million for 2023. So a significant positive swing for our cash flow in the year ahead. We spent £80 million on capital items, £50 million on capitalized development costs, largely projects developed by our internal tech team, and £30 million on CapEx, which reflects the rollout of our additions and HOP sites. In 2023, CapEx will be lower, given the slower pace of rollout of additions.

We also had an outflow from working capital and exceptional items of £85 million. We said at interims that £40 million of the working capital movement was a one-off outflow due to timing of employee tax and social security payments for share awards related to the IPO.

And there were also some significant cash outflows in respect of exceptionals, which account for the rest of that £85 million outflow. The major items here were costs related to Australia, the Netherlands and Spain, as well as smaller amounts related to legal settlements and some other restructuring costs. So excluding these factors, you can see the underlying movement was minimal.

Cash interest is next. Not overly material in 2022 at an £11 million inflow, albeit second half skewed given the rate environment, but we expect interest income in the region of £30 million to £40 million for 2023.

And, finally, we have the cash outflow from the share buyback. Of the £75 million program announced last year, we completed £66 million pounds in 2022, with the remaining £9 million falling into January 2023. And I expect the further share purchase program of £50 million announced today to commence shortly and be completed during 2023. So to round that off, we expect to materially improve our cash flow in 2023.

Finally, then to guidance, we enter the year in a strong position and we'll look to find the right balance between growth and profitability during 2023 and beyond. We're guiding to GTV growth in constant currency for the year to be low to mid-single digits. And we expect GTV growth in Q1 to be broadly flat, with growth improving through the year as we deliver on our plans and the comparison basis.

We expect adjusted EBITDA to improve and be in the range of £20 million to £50 million pounds weighted to the second half. Despite macro uncertainties, our record over the last year gives us confidence of delivery in this range.

And with that, I'll hand you back to Will to wrap up.

Will Shu

Alright, so thank you. And to conclude very briefly, so against this difficult market backdrop, business performed really well in 2022. We have delivered our own breakeven targets well ahead of schedule, we reached adjusted EBITDA profitability in the second half of 2022. well ahead of schedule, as I said, and we continue to grow the business in challenging market conditions. And we've done this well we continue to improve our CVP and gained share in key markets.

So thank you all for listening and looking forward to the Q&A. Operator, over to you. Thanks.

Question-and-Answer Session

Operator

[Operator Instructions]. The first question comes from Andrew Ross of Barclays.

Andrew Ross

I've got two. So, first one is on advertising. Thank you for giving that disclosure of 60 basis point run rate in Q4. I'd just like to ask what you think that number might be in 2023. And now that the FMCG platform is up and running, whether you may want to be more specific on the long term ambition for how big advertising could be? Then the second one is just to complete the free cash flow bridge below the EBITDA guidance. So you've already given some helpful comments there on CapEx, working capital and interest, but if I could press you on any cash exceptionals this year and how to think about stock-based comp?

Will Shu

On advertising, I'll pick this one. And, Scilla, if you don't mind talking about the free cash flow question. So as we said, in Q4, we got the 60 bps of GTV. And for the overall year, it's going to be obviously a bit lower than that as we scaled that up during the course of this year.

On 2023, we're not guiding precisely on what adds is going to be, but I can say that we expect it to grow very strongly. We expect it to be accretive to the GP margin, all other things being equal.

And I guess the other thing I'd say is, as I said on the presentation, this was almost 100% restaurant adds, and we launched our FMCG initiative in the second half. That's picking up.

So, I guess if I put all this together, really restaurants is still early, as we just ramped that up from the beginning of the year. FMCG was sort of non-existent in Q4. And putting all of that together, we're really excited about the opportunity long term. And we do expect this to be a much bigger part of the business in 2023 than in 2022, but we're not guiding to specifically what that looks like.

Scilla Grimble

Andrew, just in relation to your question on the free cash flow page below EBITDA, so in terms of the cash exceptional, with the exception of the redundancy costs, and I would expect that those obviously we're still in consultation, but I expect them to be sort of high single digit millions. There's nothing else at this stage to flag in terms of [Technical Difficulty] of any of the P&L charges.

Then can I just double check. Your question on share-based comp, I'm presuming that's a P&L question rather than a cash question.

Andrew Ross

Yes, I guess just thinking about [indiscernible].

Scilla Grimble

I think the thing to think about is just the number that we've disclosed for 2022. So, the £69 million round numbers. So in the RNS, we do detail that that includes, so that's share-based payments and accrued national insurance. Just because of what's happened year-over-year, so exit 2021 versus exit 2022 in terms of our share price, we did get a fairly significant release of the national insurance accrual. So in the region of about £15 million. So if you kind of adjust back for that in terms of 2022, that gives you, I think, a good starting point for the charge for 2023.

Operator

Next question is from Andrew Gwynne of BNP Paribas Exane.

Andrew Gwynne

First question, actually, is cash flow orientated. But actually talking about the capital allocation, you said we'll save that conversation until the interims. Maybe just a couple of hints as to what the topic for discussion might be. And the second, obviously, certainly with myself, I've been concerned by the bit of a race to the bottom over the years within the food delivery sector, particularly around choice. So do you think that we're now sort of through that? You obviously had a lot of focus here on grocery, and my understanding is grocery is more difficult to make profitable, certainly at the EBITDA level? So do you think we're now sort of where we need to be from a choice perspective, and specifically around the QSRs?

Will Shu

Scilla, do you want to take everyone's favorite question? I'll answer the second one.

Scilla Grimble

I've only been here a few weeks. So as I said, we'll come back and talk about capital allocation more fully at interims, and there'll be no surprise, I think, in terms of the things that you would expect me to cover in terms of how we think about spending, the shareholders capital, both in terms of sort of how we're thinking about organic options and what that means in terms of cap structure.

Will Shu

Will here. I just wanted to maybe better understand your question a bit. Is your question, are there more restaurants and merchants to add to the platform in the long run? Or is your question something around competition? I apologize. That wasn't crystal clear.

Andrew Gwynne

More in the sense, obviously, the industry has added more and more choice and the risk on some of that choice has been, in many cases, very low or even negative gross profit, and particularly about sort of QSRs being added to the platforms. So do you think that now the industry, and Deliveroo specifically, you're at a place where the choice is broadly where you want it? We shouldn't expect significant changes, lots more, say, McDonald's in the mix?

Will Shu

I think we and other players are mostly working with all the major QSRs at this stage. I don't really see that changing. I think on the grocery side, I think we're pretty well penetrated in the UK with major grocers. But we added as the last year – we're going to add probably a few other people. I think internationally, though, certainly, that's more of an opportunity for us to add more merchants.

And I would say that, on sort of the grocery profitability side, yeah, no question, groceries are not a 70%, 75% gross margin business. So it's quite different. However, I guess, the way we sort of operate is what do we think consumers are willing to pay to get a £30 basket in 20 to 25 minutes, right? And so, there's always going to be this tradeoff between unit profitability and TAM. And navigating that in the right way is something that we've been trying to figure out for some time. I think what we mentioned – and David, correct me if I'm wrong, I think this was at the half year in 2021.

David Hancock

We said gross profit per order in the UK was £2.40, I think, in restaurants and £2.10 in grocery.

Will Shu

I don't know exactly what it is today. I don't think it's like remarkably different. But, certainly, that may impact, obviously, the size of the prize, right? And so, we're going to be trying out a lot of different things to see what that ideal balance between unit profitability and TAM is. And so, I think we made a bunch of progress on that over the last year.

Operator

Next question is from Joseph Barnet-Lamb of Credit Suisse.

Joseph Barnet-Lamb

Two questions from me. I guess the first one. With regards to low to mid-single digit percentage GTV growth, can you just quantify what that actually means numerically to you guys? And with regard to the phasing of growth through the year, you said sort of Q1 flat, if you can help us understand your working assumptions, the scale of improvement in Q2, that'd be great.

And then the second question, obviously, we've seen the cost of sales per order has remained broadly stable with GTV rising. It sort of feels, very simplistically, like general inflation was an FY 2022 phenomenon and wage inflation is an FY 2023 phenomenon. You've spoken about wage inflation within sort of central costs. Could you give some color on how you view COGS per order into FY 2023? Is there any risk that you would need to raise that effectively to secure riders?

Will Shu

Scilla, do you want to take the first one and second one. I'll jump in a bit as well on the second one.

Scilla Grimble

Low to mid-single digit, so the reason why we gave sort of phraseology rather than specific numbers is it feels a little bit artificially precise in these markets to give a numbers range.

But I think from a straw poll, so to speak, around the table, low would be, in our view, sort of 1% to 3%, mid would be 3% to 7%, and high would be 7% to 9%. So I think you can kind of therefore get a sense of what we were meaning in terms of low to mid.

Then I think your second question was in relation to what we were seeing in Q1?

Joseph Barnet-Lamb

I think you said Q1 was going to be flat, if you could give us any sort of narrative around sort of how you expect the uplift in Q2 to look like, any color you can give?

Scilla Grimble

I'm probably not going to give you a whole lot of color more beyond what we said within the presentation. So a couple of things to bear in mind, as we highlighted in terms of Q1. So, we're comping a very high COVID related Q1 2022, particularly at the beginning of that year. And what I'd said in the presentation was that what we're seeing in Q1 really is a continuation of some of the trends we saw in Q4 in relation to the sort of order volume, order value mix, and also UKI holding up a bit stronger than international. And we've given some color in Q4 in relation to that international piece.

And then, as we go through the year, in terms of that – ratchet up, if you like, within the range in terms of the GTV guidance from flat to the low to mid-single digits. That's a combination of things that we're continuing to do ourselves, as Will has described, and that comp base easing as we go through the year.

Will Shu

Just upon your question around cost of goods sold and also overheads, so the way I'm sort of thinking about it is the cost of goods sold line, we can influence very heavily through driving more efficiencies in the rider network. So what does that actually mean? That means less time on a single order for riders, the ability for them to do more orders in an hour, just driving out inefficiencies in that system. So, by keeping that number flat last year, we thought that was a pretty good achievement. Do we sort of expect further sort of gains on that, I think we will be watching wage inflation, obviously, very closely. At the same time, we're pretty confident that we can drive more efficiencies throughout the year. So, I guess those two things just sort of counteract each other.

Operator

The next question is from William Woods of Bernstein.

William Woods

Two questions. The first one is just on the bottom [Technical Difficulty] EBITDA guidance. Obviously, at the bottom end, it suggests limited margin improvement from H2. And the midpoint only suggests 20 or 30 basis points or something? Are you finding it much more difficult to push towards profitability in the first quarter of this year? Are you slowing down the push to profits?

And then the second question is just again on free cash flow? Should we expect free cash flow breakeven in H2 2023?

Scilla Grimble

So, I think they're probably both for me, William, although I'm sure Will will chip in. In terms of in terms of that range of 20 basis points to 50 basis points, I think the first thing is to point out that we're obviously confident in our own plans, as I'm hoping is coming across in terms of the presentation and our responses, and therefore, we're confident in that range of guidance given.

But, obviously, we don't operate in a vacuum. So, that range also reflects the guidance that we're given in relation to GTV guidance. And obviously, as we go through the year, we'll see how consumer confidence and the inflation mix plays out.

I'm not going to give you probably a half-on-half split in relation to cash flow profile. But I think it's fair to say if you – given the guidance that I gave on the cash flow bridge, and so hopefully that was sort of helpful, I can see that if you were at the top end of the range, you might get – in terms of our guidance on EBITDA, you might get – and interest income, you might get to a place where you're thinking that free cash flow for the full year was broadly negative. And clearly, if you were at the midpoint of that range…

Will Shu

Positive.

Scilla Grimble

So, broadly flat. Broadly flat. And if you are at the midpoint of that range, you'd be slightly negative.

Operator

The next question is from Chris Johnen of HSBC.

Christopher Johnen

A couple of questions. First, a broader one with respect to the sort of return to more normal growth. Obviously, the sector has had a bit of a, let's call it, COVID superbump, for lack of a better word. But on top, a lot of other things changed, right? With the increased focus on profitability, the minimum order values have sort of rationalized. Overall, unit economics are more rational at a level where it should be, but it's come at the expense of growth. I was just curious on your thinking as to when this will be done. Is the end of 2023 the end of the, let's say, distortions for variety of reasons, whether it's comps or cost of living crisis, just to pick your brain on that? I'd also be curious to hear if you have any views as to how the cohorts have changed, whether it's easier to read past cohorts now or whether this will take more time.

And then second question, I'll be curious to hear, you've commented on Italy. I'll also be curious to hear what it is and any other updates in respect to markets where you think you lost or won market share in 2022.

Will Shu

Yeah, I will I think take this. I think, yeah, you're asking the question I'm asking myself all the time, which is when growth will return. I strongly think that this has been very linked to inflationary pressures, the slowdown in growth. Obviously, some of this was decisions we've made on our own, the industry, i.e. optimizing on the fees, things like that, but the overall food inflation numbers are just huge still, right? In the UK, I think we're at 18% still. In France, we're up above 15% now. And until that really subsides – because keep in mind, we don't set our prices on our platform. Our restaurant partners do. And very frequently, you'll see restaurant partners mark up prices on top of the increases they've put through their inhouse menus. And so, when you're in a situation like that, yes, of course, there's things we can do. We work with certain partners to demonstrate value to customers. We offer certain discounts on certain days to help with certain types of customers, we're pretty targeted about that. But overall, if menu prices on the online platforms are above 20%, 25% higher than they were a year ago, that is just a difficulty for demand, especially wage growth hasn't kept at pace, right?

For me, the biggest thing is, hopefully, the inflationary cycle will subside at some point. We have positive sort of signals on that. And once that happens, I think we're back in more of a normalized growth pattern. Certainly, I hope so. But I do believe that that is the case. I do believe it really is cost of living driven.

I think your second question was really around what are we seeing in different markets. So I guess maybe point out a few. France is a market where we gained a quite a decent amount of share in 2022. But I would flag that, overall, the French market has been less strong than we would have liked. And that is a market issue. And I think one of the things that has been pretty interesting to me about France is, if we actually just look at the physical grocery industry in France, you're seeing a pretty tough time. The French consumer has been accustomed to about negative 1% to negative 2% in deflation in grocery since 2012. And now that number is up to 15%, 16%. And that's happened over the course of 2022. And so, when you have as dramatic a change as that, I think it impacts the market. But from a share perspective, it's fine, but certainly we hope inflationary pressures reduce. And I would also call out that France sort of lagged other countries in terms of the rate of inflation. And so, you're kind of seeing a lot of this stuff hit throughout 2022 and 2023.

Operator

The next question is from Luke Holbrook of Morgan Stanley.

Luke Holbrook

Just a couple, if I may. First, I'm notice in the press release that you put out this morning, you've mentioned the 4% plus adjusted EBITDA margin target for 2026. Just really trying to work out the levers to getting there. What the market is missing in terms of does that come out of a higher gross profit margin than the market is currently expecting? And then just secondly, on exceptional items of around £70 million last year, just trying to understand how much of that we should consider it recurring in nature, maybe into 2023, 2024.

Will Shu

David, do you want to take the first question on long-term EBITDA?

David Hancock

I think that the levers view on that is still same as this time last year, when we set out that path to profitability and listed out the levers. So, some of those being above gross profit in terms of the consumer fees, which, obviously, we made good progress on in 2022, the advertising revenue and some of the cost of sales levers being some of the strongest levers above gross profit. And then below gross profit on improving our marketing efficiency and driving leverage on the overhead side.

I think the progress we made in 2022, as I said, was skewed to things like the consumer fees. We think there is still plenty more opportunity to go across the other levers, indeed. Even on consumer fees, I think there is more that we can do, but we want to be very thoughtful about that in 2023, given the cost of living pressures.

Maybe just in terms of overhead leverage, clearly, in a weaker top line environment, you get a bit less natural leverage of controlling those costs as the top line grows, you need to work a little bit harder to drive that efficiency. Hence, the actions that we announced in terms of redundancies in the announcement in February. So I do think that over this period out to 2026, as we described, we think there is more to go across the levers that we enumerated.

In terms of what the market is missing, I think it's fair to say that as an industry, historically, maybe the guidance that people are given in the longer term move to the right over time. And so, I can understand why there is some reluctance maybe to put these things all into numbers at the moment, but we feel very confident about the levers we have in our control and our ability to deliver against them.

Scilla Grimble

Luke, just on your second question in relation to exceptional, so, yes, total exceptionals in the year of £92 million, but £22 million of those related to our exit from markets. So in respect of the remaining £70 million, you can see in the notes, some of it was restructuring, but most of it related to legal and regulatory costs. And if you look in the provisions note, you can see that increase in provisions. So probably nothing more to say on that.

In terms of the go forward, when I was replying to Andrew earlier, we will have the costs associated with the redundancy program. And I expect those to be in the high-single digits. And just for clarity, they will be taken as an exceptional charge. The rest by its nature is quite difficult to guide on because exceptional costs are one-off. So, hopefully, that's helpful.

Operator

The next question is from Georgios Pilakoutas of Numis.

Georgios Pilakoutas

Just going back to order growth, [Technical Difficulty] upper end or lower end of your GTV guidance, perhaps touch on category spend versus market share, and just how you think inflation is going to play through the year and how that's going to impact AOV versus orders.

Second one is on central costs. Are you able to quantify the reduction from the central headcount reduction? Also, kind of perhaps touch on India. Is that kind of ramping up? Is there any kind of meaningful saving to touch on there? Does that come into central costs or into more divisional operating costs?

And then a quick third one, if that's okay. Can you discuss the pace of the buyback that you're expecting and kind of mindful of where the share price and cash position is?

Will Shu

Scilla, I think these are these are for you.

Scilla Grimble

Georgios, I'm going to try and step through these. You may need to refresh my memory as I'm going through, but I think the first one really was in relation to the shape of the GTV guidance, kind of through the year and the sort of component parts within that. So, yeah, I think we've covered off what we've seen so far in terms of Q1.

You're also very well aware in terms of the shape of the comps last year, so there is that, which is pushing through in terms of why we'd expect it to improve during the course of the year. But then on top of that, as we've been saying, we will be continuing to deliver on our plan. So, improving CVP, further City Sprint, expansion of groceries, as Will has talked about, and as we do more of that, of course, that will continue to drive more benefits as we go through the year.

It's quite difficult to call out exactly the mix as we go through the year on inflation versus OV because, frankly, I'm not sure I'd be in this chair if I had the perfect visibility on how inflation was going to play out. But as Will sort of touched on, we're continuing to see some of that inflation come through markets, particularly in France, and to some extent, you'll get the elasticity offset if one is hotter than we're anticipating. So that's probably all I'm going to say in terms of shape of GTV.

I think your next question was then in relation to costs, in particular, and I think people cost as we went through the year, is that right?

Georgios Pilakoutas

Yeah.

Scilla Grimble

Again, I'm sorry. I'm going to have to take you back a little bit in terms of history to get some understanding of the shape. As Will has touched on in response to one of the questions and I touched on, remember that we've effectively – post the CMA review, we invested back into people. And off the back of that, that meant that the shape of 2021 was lower in the first – sorry, the shape of 2022 was lower in the first half and ramps up into the second half. So, the right way to judge full year 2023 before any actions is effectively an annualized second half cost.

What we've also seen, obviously, the consultation impacts from the end really of Q2, so we get the benefit of that more in the second half. We've got wage inflation running at about 6%. But we've also not been sort sitting on our hands and we've been taking advantage of natural attrition and all the things that you'd expect us to do in relation to closing vacancies and so on.

So what I'm basically saying, Georgios, long winded way maybe, is that think about it in terms of the exit rates. And for 2023 versus the exit rates for 2022. I think you should expect low double-digit run rate saving from the redundancy and vacancies, but partly offset by wage inflation.

David Hancock

Low-double digit in percentage terms in terms of the reduction.

Scilla Grimble

Yeah, sorry. Percentage, yes.

Will Shu

Georgios, the question on India, so I had a chance to go to India for the first time last week and spend a bunch of time with our developers there. And, yeah, I was incredibly impressed with their passion and capability. This is our – obviously, it's an investment for us in Hyderabad. I think what we're trying to figure out is how do people in India work best with embedded teams in the UK. So, spending a lot of time figuring that out.

I think as a sort of global technology company having devs in different markets is pretty common. And so, spent a bunch of time just kind of trying to build our brand out there where we don't have a consumer presence. And I'm quite bullish about the people that we've met out there and their capabilities and their ability to contribute to our teams here.

Scilla Grimble

Finally, in terms of the pace of buyback, so, obviously, we announced the £75 million program with the interims last year. And we completed that in January. And I think that gives you a reasonable proxy, Georgios, in terms of the pace with which we're able to execute these things.

Operator

The next question is from Giles Thorne of Jefferies.

Giles Thorne

My first question is on grocery and HOP. You made the point in the prepared materials that the synergies of operating a dark store alongside a food delivery platform are significant? Is there any more color you could give or any metrics you could share that would bring that to life?

And given [Technical Difficulty] about these synergies, but having a more measured rollout, aren't you inclined to push a bit harder, especially with some of the pure play dark store operators are currently retrenching?

Secondly, I guess this is a similar natured question around your attitude towards competition, but this time in advertising. So you've spoken about scaling it. You were just talking about the contribution that could come from FMCG. I'd be interested to hear under what conditions you would be inclined to selectively weaponize some of those income streams in markets where your peers have been a lot slower to the punch on the FMCG side of things and there's an opportunity for you to take share in food delivery? Or is it just going to be rigidly allocated towards hitting your profitability targets?

Will Shu

Maybe I think the second one first. I think the way we think about it is, it's going to be a balance of profitability and growth. And there are going to be some markets where we're pushing harder on growth and then there are going to be some markets where we're more focused on profitability. And I would say the ads revenue stream is just one of those things we look at. We look at rider costs, we look at commission levels, we look at our consumer fees. And we're really excited about the ads product because it's incremental, and it obviously drops down to the bottom line. But I wouldn't say it changes our attitude towards competition. It's just another thing that we look at.

And if I look back, Deliveroo has been around for 10 years now, and what we have to work with today is pretty different than what we had 10 years ago. But I think our strategy is still the same, let's develop the best CVP in neighborhoods and let's gain market share there and then let's press profitability. So, I don't think that's going to change, but this is definitely something else that we think drives meaningful contribution to the bottom line.

And then, on sort of the HOP product, so I'm just trying to think, when did we launch the first one? I guess it's been a bit over a year. I think at this point – probably Q4 2021. What have we learned? We learned that we can make money on it. Right? I think that's the critical thing. I don't think anyone had any doubts about the customer experience. That was always going to be good. We've just been optimizing both on the forecasting side, on the purchasing side, on how we lay out the stores, working with our partners to just get a better experience. And I'd say it's a really, really big part of our CVP in areas where we have high market share, in areas where we can drive a lot of order density. It makes complete sense.

I think your question on does it belong in a platform or standalone? Yeah, my view is pretty simple. I don't know that I have a lot of metrics to back it up because I don't know the metrics of my competitors. But I'm pretty sure I can do deliveries cheaper than standalone players. I'm pretty sure I have a bigger customer base. I'm pretty sure I can negotiate perhaps better deals with grocers. So, I put all that together. And I really don't have a great sense of people's operational capabilities that I don't know. I'm pretty proud of what we've done. I think the team's great here. Put all that together, I definitely think about that as an advantage over the pureplay guys.

Giles Thorne

And why not push a bit harder against them, Will?

Will Shu

We will build more stores, but we've got to make money from them. Right? And I think the bar for making money has gone up a lot. And the bar for return on investment quickly has gone up a lot. And we're not immune to that. And that is something that doesn't just apply to HOP, but it applies to our marketing spend, applies to the developers we hire, applies to everything we do. Right? And that's no different.

Operator

Final question is from Marcus Diebel of J.P. Morgan.

Marcus Diebel

I have two questions from my side. The first one is on the UK. Will, could you talk maybe a bit more about the competition? I know it's an ongoing topic. But it's interesting. When you look at one competitor, Uber Eats, they seem to gain some share on both orders and in GMV. Is that, from your assessment, right? And then, secondly, given that kind of like focus on vouchering, still what does it mean for your expense line and also your marketing line?

And then the second question, very simple. Could you talk a bit more about white label? We have been following this since the IPO, but if you can just shed some light on how customer acquisition is going in that segment, it would be very interesting.

Will Shu

I'd say, Marcus, I'm probably not going to dive too deep into hypergranular competitive dynamics. But what I would say is that we've got competitors around the world and sometimes people push harder, sometimes people push less, I don't really get too concerned about sort of kind of a short-term market share shift. I think we in the UK gained significant amounts of market share in 2022. There's times when that's higher, there's times when that's lower. As I look at 2023, I think we've done an outstanding job on the share side in the UK. But it's just one of those things that's in the back of my head as opposed to sort of reacting to short-term movements,

I think what we're focused on is long term CVP. And, yeah, you can always change dynamics with some vouchering and things like that. And certainly, cost of living crisis, like some of that stuff will maybe stick more than others. And so, we do some of that as well, right? It's not like we don't do that. But I think the important thing is that we've got a really big long-term plan for the UK market, and Carlo is leading that. I think the team and him have done an outstanding job throughout 2022 and 2023. Yeah, and it is a competitive market.

But, overall, I'd say I don't think that it's more competitive than it has been. It's just sometimes you have some players pushing harder and sometimes that ceases. It's a bit erratic, right? So I think that's kind of my view on the UK.

And then, what's the second question, Marcus?

Marcus Diebel

The second is on white label, just to see the developments. We have been kind of like, obviously, following this since the IPO. Just would be interesting to hear, did you – not by name, obviously, but did you add larger ones, smaller ones, more customers moving towards white label established customers? That would be quite interesting, what the mix of it is?

Will Shu

I wouldn't say white label is a huge part of our business. I would say that we have added large enterprise customers, that's basically who we're working with. So, some of the biggest chains internationally, we do work with. But I think what we've found, though, is customers still, I think, want to transact through our marketplace, we offer more choice. They've got their own benefits on our platform. And we want to do this as a service for our partners, and we've been building better product for it. But, no, I wouldn't say, it's something that, like, I would call that as a giant part of our business today.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Shu for any closing remarks.

Will Shu

I just want to welcome Scilla to the team. I guess that's probably the thing I want to say the most. And I look forward to partnering with Scilla. And also, I want to thank the Deliveroo team for a great 2022. I think we've demonstrated – I think we've given proof to a lot of the initiatives that we talked about last year, and we're making good progress. And obviously, things aren't the easiest in the economy or the financial markets. But we're really optimistic about what we can do in 2023 and beyond. So thank you very much. And we'll all talk soon.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for joining and you may now disconnect.