Grab - Earnings Call - Q2 2021

Transcript

Speaker 0

Good day, everyone, and welcome to Grab's second quarter twenty twenty one financial results webcast. My name is Ken Lek, head of Asia investor relations at Grab. And on the call today, we have Anthony Tan, chief executive officer, Ming Ma, president, and Peter Oi, chief financial officer. During the call, Anthony and Ming will discuss our business updates and highlights of our Super App strategy from the quarter. Peter will then share detailed insights with you on our 2Q results, our 2021 financial year outlook, and updates in our public listing process.

As a reminder before we begin, today's discussion contains forward looking statements about the company's future business and financial performance. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our Form f four registration statement and other filings that we have filed with the SEC. The discussion today also contains operating metrics and non IFRS financial measures. The comparable IFRS financial measures are included in this quarter's earnings materials.

Please refer to our earnings release presentation available on our Investor Relations website for more information. Should you have any questions after this presentation, please reach out to investor. Relationsgrab dot com. And now, I would like to turn the call over to Anthony to deliver the opening remarks.

Speaker 1

Thanks, Ken, and good day, everyone. Thank you for joining us today at our second quarter twenty twenty one earnings call. In the second quarter, we executed strongly in spite of the challenging COVID environment in Southeast Asia. First, we delivered a strong set of results in our second quarter, boosted by the strength in our deliveries business. This is a clear reaffirmation of our super app strategy, and Ming will touch on this more later during his section.

Second, we've proven ourselves to be resilient, especially during these tough COVID times. Lockdowns may have impacted our mobility and fintech business near term, but we pivoted quickly and doubled down on out serving our communities through the delivery segment. Now we are even more confident in the fundamentals of our business longer term, particularly as we begin to emerge out of COVID and start to see green shoots emerge. Third, we continue to invest into our future success. In the quarter, we doubled down on investments into our deliveries and financial service businesses.

GrabMart saw strong 40% q on q growth and also grew more than five times year on year. Paylater, a business that we are really excited about, was launched at full scale in Singapore and Malaysia, resulting in our lending business growing more than four times year on year, and Peter will talk more about this in his section. Now let's dive into our q two results. I'm pleased to announce that we've delivered a record set of operating results in the second quarter as demonstrated by these two metrics. First, despite the ongoing impact of COVID on the region, our GMV grew strongly by 62% year over year to reach 3,900,000,000.0 US dollars, a new record for Grab.

Second, our adjusted net sales reached an all time high of $550,000,000 It grew by 92% year over year. These results demonstrate that our business remains resilient and continues to grow strongly in spite of an extremely challenging operating environment due to COVID. To give you more context on the COVID situation here in Southeast Asia, the Delta variant has unfortunately hit the region hard. Southeast Asia now has the world's highest monthly mortality rate per capita, and lockdown measures are still in place across major cities in the region. Vietnam, in particular, has implemented stricter lockdown measures than most of our other markets with the government restricting movement even for food delivery operations, which frankly has largely been seen as an essential service in our other key markets.

This has obviously impacted our Vietnam business. In Ho Chi Minh City, for example, our GMV across both deliveries and mobility declined substantially in the third quarter. While there's no certainty over when the Vietnam government will ease the lockdowns, our team continues to actively engage with all our stakeholders to ensure we are well positioned for strong business recovery when it does happen. Fortunately, overall vaccination rates have been rapidly increasing across the region. As you can see on this slide, vaccination rates have picked up to double digit levels across all our major markets.

While overall vaccination rates in Southeast Asia are still lower than other more developed regions in the world, it is important to note that as recently as May, most of Southeast Asia had vaccination rates in the low single digits. With higher vaccination rates expected across most countries in Southeast Asia by year end, countries like Malaysia and Singapore are cautiously reopening. We expect the other countries to follow suit as they make steady progress with vaccinations, which really bodes well for the recovery of our mobility and offline payments offerings. Meanwhile, we continue to do our part in partnering with local governments to drive up vaccination rates of our drivers and communities. This chart illustrates how the vaccination rates of our driver partner communities compare to that of the overall population in our six key markets.

As you can see from the dark green bar, the overall vaccination rate of our driver community is significantly higher than that of the overall population, thanks to our driver vaccination efforts. For example, in Indonesia, we partnered with Good Doctor to set up drive through vaccination centers that have facilitated the vaccinations of over 140,000 driver partners and members of the public. In The Philippines, we've partnered the Makati city government in setting up a vaccination center to inoculate up to 7,000 economic frontliners. As a result of us driving vaccination rates aggressively, we have the most resilient driven network in Southeast Asia. This ensures the safety and well-being of everyone in our ecosystem while also increasing the resilience of our supply network.

Now beyond our vaccination efforts, we believe our business resilience has been underpinned by our geographic and segment diversification as well as our super app strategy. As you can see from this chart, which shows our weekly GMV index to pre COVID levels, our group overall GMV has surpassed and remained above pre COVID levels this year in spite of COVID resurgences in our various markets. The growth in cities like Kuala Lumpur and Singapore have more than offset the slower recovery in cities like Jakarta where lockdowns continue to impact our recovery trend. Grab has continued to maintain a firm hold over our category leadership position regionally while continuing to grow our deliveries business. And while mobility volumes may have remained weak going to q three with lockdown measures in place, this has been more than offset by the sustained momentum in our deliveries business.

As we continue to invest into our deliveries business, our super app strategy enables these investments to also contribute to sustaining our competitive advantages in mobility, positioning us very well to capture the recovery in mobility demand once lockdowns ease. Now you might ask, how would this work? Allow me to explain with this slide that illustrates the flywheel effects underpinning our super app strategy. Each of our businesses helps the others scale. First, new services can be quickly launched by leveraging collective assets.

Our pervasive mobility user base enabled us to rapidly achieve category leadership in deliveries, and every transaction on our platform is an opportunity to offer customized financial product, whether it be payments, lending, or insurance. Then consumer spending grows in tandem with more services, thereby creating more income opportunities for our merchant and driver partners who remain loyal to the platform. This creates wider selection, faster delivery times, and improved consumer experience. Even amidst the pandemic, consumer demand for deliveries has helped to cushion the impact of softer mobility demand on driver partner earnings. This, in turn, has helped to sustain the supply network of our business in a truly cost effective way.

Now a core component of our success is our ability to tie all this together into an integrated super app that seamlessly connects each of our stakeholders. Our super app Flywheel allows us to grow the ecosystem in a vastly accelerated manner versus other single vertical players. This is our secret sauce. Now our group president, Ming, will talk about how we outserve each of our stakeholders with our super app. Over to you, Ming.

Speaker 2

Thanks, Anthony. Over the next few slides, I'll help to translate the secret sauce that Anthony spoke of into the specific operating metrics that we monitor as we manage our business. We always start first with our consumers and the key metrics behind how we progressively cross sell additional services to our users over time. Since December 2018, we've seen the percentage of our monthly transacting users using two or more services grow by 60% from 33% of our total MTU base to well over the majority of our total MTUs as of June 2021. And the key to driving this cross sell is by offering more daily services that are specifically relevant to our users' everyday lives.

So from the time our consumers wake up and order breakfast on Grab, commute to and from the workplace, all the way to the evening as our consumers pay their bills or shop online, Grab is here to help our users transact everyday services like transportation, eating, shopping, and digital payments. And it's the tight integration of our services that Anthony spoke of that creates the consistently high quality experience that's led to our category leadership across the region. Now the more services that our users transact on Grab, the more loyal they become as measured by the retention rates of our MTUs. Here, we show how retention rates can grow from 34% to 85% as consumers adopt more services from Grab over time. This is a key cornerstone of our super app strategy, the ability to drive engagement among our users, which then drives loyalty, retention rates, and ultimately customer lifetime values.

And not only does this strategy drive customer lifetime values, but over the next few slides, we'll highlight how our strategy also drives the best income opportunities for our merchant and driver partners. And this is the key to becoming the platform of choice for our everyday entrepreneurs. Our super app strategy is what drives the overall productivity of our driver partners. On the left hand side, what is absolutely unique to the Grab platform is that two thirds of our two wheel drivers operate in a shared fleet that performs both food delivery and mobility jobs. And as a result, we've been able to improve the utilization rate of our drivers by over 58% year over year.

All of this means that our super app strategy directly translates into more attractive unit economics than our peers. Now turning to our merchant partners, more and more merchants are choosing Grab as their platform of choice. Over the past year, the number of transacting merchants grew by two x as our merchant partners increasingly chose Grab as the best platform to help maximize their earnings. In 2020 alone, we helped 600,000 small businesses in the region transition online and access a new sales channel to reach their customers. And across all of our countries, we've seen earnings per merchant grow in a very healthy manner year over year.

And it's this earnings power, along with our large base of users and category leadership, that has allowed us to rapidly scale our merchant base, create loyalty, and grow productivity, all the while minimizing our need to spend on incentives and subsidies. Finally, our super app flywheel has been key to driving growth in our financial services segment. Transacting users grew by 48% year on year in second quarter twenty twenty one, while the number of transactions grew by 92% year on year. All of this growth reflects the benefits of our super app flywheel, the high frequency nature of our business, and the adoption of our financial services products across both on platform and off platform. Now these strong operating results reinforce our confidence in our financial services segment.

This is a key driver in our consumer and partner retention strategies, and we'll continue to focus and double down on products like our buy now, pay later service for the rest of the year. We've been very pleased with how our operating metrics have evolved this quarter. And now Peter will share more on our second quarter twenty twenty one results and provide an update on our public listing process. Over to you, Peter.

Speaker 3

Thanks, Ming. Despite the ongoing impacts of COVID on the region, I'm pleased to report a strong set of second quarter results. As Anthony mentioned earlier, we achieved a record quarter in terms of GMV and adjusted net sales. Our GMV experienced a strong growth of 62% year on year to reach $3,900,000,000, a new record for Grab. This was driven by strong year over year performance across our segments.

Adjusted net sales reached a new all time high of $550,000,000 and grew by 92% year on year. Our GMV per monthly transacting user increased by 27% year on year as we continue to deepen engagement with users across our super app ecosystem. Overall, we delivered strong top line growth despite the challenging COVID situation in Southeast Asia. This demonstrates the continued resilience of our business amidst lockdowns and reaffirms our super app strategy. From a bottom line perspective, we continue to demonstrate strong trends in our path to profitability.

Our total segment adjusted EBITDA of $14,000,000 loss saw a marked improvement by $75,000,000, underpinned by the strong top line growth and improving margins across our business segments. Group adjusted EBITDA was $214,000,000 loss for the quarter. This was a decline of $8,000,000 year on year as we invest further in product development. We saw our adjusted EBITDA margins as a percentage of GMV improved for the quarter to negative 5.5% as compared to negative 9% in the same period last year. We will continue to execute sustainable and improving margins despite challenges in the operating environment.

Our IFRS financials continue to demonstrate strong trends also. Our revenues reached a $180,000,000 in the quarter, and our net losses was $815,000,000. As of the June 2021, we had $5,300,000,000 of cash liquidity, an increase of $1,600,000,000 from $3,700,000,000 as of the end of last year. This includes term loan b facility of $2,000,000,000. We expect to further strengthen our cash liquidity and balance sheet upon the completion of our business combination with Altimeter Growth Corp, where we expect to receive an additional $4,500,000,000 in net cash proceeds.

I'll now dive deeper into each segment. Let's start with deliveries. We continue to see strong growth in our deliveries business. We generated GMV of $2,100,000,000 in the second quarter. This represents a strong 58% year on year improvement supported by an increase in both the number of transactions and order values as we saw a strong upsurge in new monthly transacting users coming onto the delivery segment over the past year.

Our adjusted net sales for the delivery segment reached $345,000,000, a 68% year on year increase. Take rates for deliveries continues to improve and was 17% for the quarter compared to 16% same time last year. Revenue for deliveries was $45,000,000, representing a 92% increase year on year. Segment adjusted EBITDA for deliveries was near breakeven, at $20,000,000 loss for the quarter. Overall, we are continuing to observe very strong trends in our deliveries business.

A key highlight for my deliveries business is the sustained momentum in GrabMark. I touched on this at the last quarterly earnings call and want to provide an update. On this chart, you can see that GrabMark's GMV for the 2021 increased by five times compared to the prior year period. We also launched Grab Supermarket in The Philippines in September, offering users next day delivery of a wide array of high quality, affordably price fresh produce sourced directly from farmers and suppliers located across the community. This is Grab's third online supermarket in the region, and we plan to launch Grab supermarket in one more country in the near term.

We will continue to invest in our mart business as we see strong users adoptions and frequency. There are also strong benefits of the super app flywheel between our Grab Food and our Grab Mart business. Our food delivery business is in fact a significant contributor to the growing adoption and transaction in our mart business as can be seen on this slide. On the left hand side, we saw that 85% of GrabMart users are also GrabFood users in the 2021. This implies that mart users are originating from our GrabFood business, thus enabling us to expand our mart business without needing to significantly increase customer acquisition costs.

Secondly, on the right, we note that our GrabMark MTUs is only 5% of our GrabFood MTUs. This implies that there is tremendous headroom for us to grow our GrabMark business. And that's exactly what we plan on doing as we scale GrabMark significantly. Onto our mobility segment. As you can see on the three charts on this page, we have been able to report strong growth across our key metrics.

We generated GMV of $685,000,000, which is an improvement of 93% compared to the 2020 despite a spike in delta variant cases and subsequent lockdown measures across the region. Achieving this wasn't easy, and it's a true testament to our ability to execute well in a very challenging environment. Adjusted net sales grew a 122% year on year to a $146,000,000, while revenue increased a 129% year on year to a 118,000,000. Mobility adjusted EBITDA remains positive at $19,000,000 and increased by 233% year on year compared to the 2020. Our adjusted EBITDA margins as a percentage of GMV also improved considerably to 13% for the quarter compared to 7.5% for the same time last year.

What we have also seen from countries coming out of lockdown is that ride hailing bounces back faster. As you can see on this chart in Singapore, we have seen usage rates for ride hailing consistently higher and bouncing back faster than other modes of transportation such as private cars and public taxis. In fact, when lockdowns were lifted during the 2020 and even with work from home arrangements still in place for some organizations, we did witness a sharp and rapid bounce back in our mobilities business. As vaccination rates continue to improve in the region, we remain optimistic about the recovery of our mobilities business. We are also seeing growing strength in our financial services business.

Let me share with you three important metrics. First, the segment achieved its highest quarterly TPV so far in the 2021, demonstrating year on year growth of 66% on a pre into go basis. This was supported by the strength in payments TPV from both on grab and off grab use cases. Second, adjusted net sales increased by a 140% year on year to $26,000,000, while revenue increased by a 156% year on year to $6,000,000. And third, adjusted EBITDA for the 2021 was $85,000,000 loss compared to $74,000,000 loss in the 2020.

A key highlight from the quarter is our lending business, which has been tracking well over the past five quarters. Loan dispersals achieved an all time high, increasing 4.1 times year on year as compared to the 2021, supported by improved credit policy and credit scoring. Pay Later by Grab is now fully launched in Singapore and Malaysia and continues to gain strong traction with ecommerce merchants. We're really excited with the progress of Grab Pay Later as we roll this out in other countries over the coming months. Finally, looking at the enterprise and new initiative segment.

GMV grew by more than six times year on year to reach $34,000,000. Off the back of strong growth in deliveries, Grab continues to focus on providing merchants with affordable self serve advertising solutions through the Grab Merchant Super App, empowering them to reach more users and drive more sales. Adjusted net sales for the segment grew more than six times year on year to $33,000,000, while revenue was $11,000,000 in the 2021. We also made great progress and achieved segment adjusted EBITDA positive for the quarter. Finally, turning to the full year 2021 outlook and a brief update to our public listing process.

As you heard from Anthony earlier, no doubt the operating environment in Southeast Asia is extremely dynamic as a result of the pandemic. Our delivery segment continues to outperform, offsetting the weaknesses we are seeing in the mobility segment due to the ongoing movement restrictions. We expect financial services and enterprises segment to continue to grow, and we'll continue to manage our corporate overheads. However, there is still a reasonable amount of uncertainty in this region, and we are closely monitoring the pace of vaccination rates. As a result, we will provide a range for our full year 2021 outlook.

With that context, we expect that our GMV range for 2021 is $15,000,000,000 to $15,500,000,000, representing a year on year growth range of approximately 20% to 24%. We expect adjusted net sales in the range of $2,100,000,000 to $2,200,000,000, representing a year on year growth range of approximately 37% to 44%. We expect adjusted EBITDA to be in the range of $700,000,000 loss to $900,000,000 loss. I also wanna provide a brief update on our public listing process. Earlier today, we filed an amended registration statement on form f four with the US SEC in connection with Grab's proposal business combination with Altimeter Growth Corp.

This document is an amendment to our draft f four registration statement that we filed a month ago on August 2. We remain on track to become a publicly listed company and to complete our business merger with Altimeter Growth Corp by the fourth quarter of this year. To sum up, a strong second quarter results and a public listing process is going to plan. With that, I will pass the time to Anthony to wrap up our session. Over to you, Anthony.

Speaker 1

Thank you, Peter. We'll conclude today's webcast by highlighting three key callouts. First, we've delivered a strong set of q two results, underscoring the strength and resilience of our business and Super App strategy. Second, we continue to invest into growing our deliveries and financial services businesses by expanding on the early successes we've had with Mark and PayLater. Third, while we may experience some volatility due to COVID in the near term, we remain optimistic about the recovery of our mobility business and confident in our overall longer term trajectory.

Thank you so much for your time today, and special thanks goes to our consumers, partners, and Grabbers, without which none of what we shared today would have been possible. To find out more about Grab, please visit our investor relations website or feel free to reach out to our team for a chat. We welcome you to join us in driving Southeast Asia forward. Thank you very much.