HelloFresh SE (OTCPK:HLFFF) Q2 2022 Earnings Conference Call August 15, 2022 2:45 AM ET
Company Participants
Dominik Richter – Chief Executive Officer
Christian Gartner – Chief Financial Officer
Conference Call Participants
Miriam Josiah – Morgan Stanley
Andrew Gwynn – BNP Paribas
Emily Johnson – Barclays
William Woods – Bernstein
Sarah Simon – Berenberg
Nick Coulter – Citi
Nizla Naizer – Deutsche Bank
Victoria Petrova – Credit Suisse
Clement Genelot – Garnier
Operator
Good day, and welcome to the HelloFresh Q2 2022 Results Conference Call. For your information, today’s conference is being recorded.
At this time, I would like to turn the conference over to Dominik Richter, CEO, HelloFresh Group. Please go ahead.
Dominik Richter
Good morning, everyone, and welcome to our Q2 2022 earnings presentation. In today’s call, we will cover our most recent quarterly results, show some additional proof points while we continue to be quite excited about our growth prospects and then give you the opportunity to ask questions in our Q&A section.
But first, a little reminder on our vision and mission. Our mission is to change the way people eat forever. We want to achieve this by providing customers a superior alternative to the traditional ways of cooking and consuming food at home. Food at home is one of the largest consumer budgets and an industry that is dominated by very traditional behaviors, such as the weekly grocery run. Through our superior value proposition of offering an ever-expanding selection of tasty meals, our superior sustainability profile and the great affordability we provide, we’ve made great strides moving closer to our long-term mission.
With current penetration levels that means less than 0.3% of meals consumed at home are going to meal kits, about 0.2% going to HelloFresh, we see massive upside and growth runway ahead if we continue to execute at the highest level and improve our value proposition further.
We’ve also made good progress with regard to our vision to become the world’s leading food solutions group. The build-out of our HelloFresh Marketplace and the rapid growth of our ready-to-heat business means that we are today known for a lot more than just meal kits, and we will continue to diversify our revenue line going forward.
Our group strategy has been remarkably consistent for many years now, and very little has changed fundamentally about our business or growth outlook over the last 12 months. We feel well on track to reach our stated mid-term ambition of EUR10 billion net revenue with an adjusted EBITDA margin of 10% by 2025 as we first indicated towards the end of 2020.
Looking back on our H1 results, we had a strong start to the year defying overall global e-commerce trends and feel that we have made very solid progress across many dimensions. We’ve added capacity on time and on budget. We’ve improved our productivity very meaningfully in our centers. And we’ve also largely controlled spiraling inflation without passing it just through in full to consumers.
On top, we’ve improved the customer experience by adding more meals to our menus. And we are on track for about 30% selection expansion by end of year, as well as strengthening our relative affordability against direct and indirect competitors, who compete for the same food budgets. This has resulted in our best revenue quarter ever in Q2 2022, while our platform and customer proposition have seen meaningful improvements.
What’s also true, on the back of great H1 results, we have screwed up the communication when we pre-released our numbers a couple of weeks ago and we did not provide the details necessary to understand the underlying trends of what we wanted to communicate. We felt this was largely a non-event and did not anticipate the many open questions that investors rightly have without additional context.
First and foremost, we still see a good chance to land within the guidance range that we have issued in December 2021 at a time when the world looked very different by today’s standards. Back then, consumer confidence was much higher, inflation was expected to roll over much quicker or even a bit transitory and the war or conflict in Ukraine had not started at all. The range of our new guidance still overlaps significantly with the original one provided in December 2021, despite all the recent macro developments that nobody could have foreseen at the time.
While existing customer activity is in line or better than expectations to-date, slightly less new customer activity during high vacation and low web traffic periods in Q2 and the uncertain impact of worsening consumer confidence for H2 means we have reflected this prudently in our H2 outlook. We’ve made consequently slight adjustments of about 2 percentage points top line growth at the midpoint to our initial full-year 2022 guidance, reflecting this macroeconomic uncertainty. The newly issued guidance still sees us outperform overall e-commerce and food delivery growth rates greatly and puts us on a very solid trajectory to reach the mid-term revenue and EBITDA goals that we have communicated previously.
With that, let’s take a closer look at the most recent financial results for Q2. While overall global e-commerce growth was flat to negative year-on-year in Q2, we grew by about 16% constant currency against one of the most pronounced COVID-impacted periods. If you remember, Q2 last year was when a lot of work-from-home mandates were still in place. And the end of Q1, beginning of Q2 last year was really, especially in Europe and in some other parts of the world, the peak COVID period for our business and many other global e-commerce businesses as well.
Q2 marked our highest revenue quarter ever, reaching EUR1.96 billion. Active customers reached 8 million, a new Q2 record despite low web traffic and high pausing over the long weekend holiday period in the latter half of the quarter. Our average order value increased by about 11% year-on-year on a constant currency basis, significantly contributing to overall revenue growth and showing strong pricing power in our business. We also stabilized order rates at an impressive four orders per quarter per customer in line with last year’s order rate where, as I mentioned before, the majority of our markets saw a tailwind from work-from-home mandates.
Our contribution margin stabilized at the same level as last year at about 26% with productivity gains and price increases offsetting higher food and labor costs in the business. Finally, we remained firmly profitable in Q2, achieving an adjusted EBITDA margin of 7.5% for the most recent quarter.
Turning to our active customer development. We saw an increase of 4% year-over-year or 91% on a two year basis in Q2. Both clusters contributed to this with U.S. customers up 5% year-over-year and our International customer base up 3% year-over-year. Up to this day, we continue to see historically low cancellation rates in our customer base, in line or even lower than during the most COVID-impacted quarters in 2021 and 2020, while retention rates of existing customers have held up extremely well.
New customer activity suffered from lower web traffic as a result of holiday-heavy long weekends and an early start to summer vacations in Europe, but remains on a positive trajectory year-over-year. Since Q2 2021 was really the outlier quarter of last year for active customers, we expect active customer growth for Q3 and Q4 to be a little higher on relative terms than what we have seen for Q2 2022.
Now looking at the retention and order rates of new customers and also our existing customer base. Both revenue and customer retention, our business model endurance a big advantage for HelloFresh against standard e-commerce models. Our membership model encourages customers to order more often than in other e-commerce models, and the perishable nature of our product does not have any pull-forward effects like you see, for example, for furniture or fashion. We’ve been able to improve both revenue and customer retention meaningfully over longer periods of time and everything that we observed for 2022 underline that strong trend.
We continued to see very strong retention rates across all our existing customer base, including among recently added customers. Closely monitoring the first 10-week cumulative order rate is a great predictor of early customer behavior and has a really high predictability of future order and retention behavior. As you see in the chart, current trends for customers acquired in 2022 are significantly better than what we’ve seen for the 10-week cumulative order rate for our 2019 cohort and in line with the 2021 cohort.
Looking at our customer base as a whole, we can confirm this development also for our existing customers. Our cancellation rates have trended at historically low levels throughout 2022, while following the same seasonal pattern as in previous years. The improvement to cancel rates and early customer behavior can be tied back to enhancing our customer proposition relentlessly. We now offer a greater selection of meals and Marketplace items than ever before. We have much improved our quality since COVID limitations and capacity bottlenecks are behind us and the affordability advantage versus supermarkets and takeout, which have all raised prices a lot more than we have. In addition, food at home is a very inelastic category, which actually tends to gain in share during economic downturns.
Speaking of affordability, I also wanted to show you an update of the chart that we first showed at our Capital Markets Day in December 2021. We’ve been able to further improve on this dimension through a lot of rigor applied to fighting inflation and not passing on every cost line item increase we see to consumers unmitigated. You can see here the same long-term trend analysis that we previously shared.
We benchmark here the cost of our most popular box size, three meals for two people, in our biggest market, the U.S., in real terms and over time against the food price inflation observed in U.S. supermarkets. At the time of the Capital Markets Day, we had improved our affordability proposition by about 28 points since launching 10-years ago, which led to a massive expansion of our total addressable market and encouraged better order rates from customers over time.
Since December alone, food inflation has skyrocketed in supermarkets, whereas we have executed much more measured selective price increases. As a result, we have improved our relative affordability further against the supermarket by another 4 points in the last six months alone, now standing at about one-third lower than when we initially started the business more than 10-years ago. The combination of a better customer proposition, greater affordability and historically low cancellation rates led to strong and stable Q2 2022 order rates against the tough 2021 comp. Overall, order rates amounted to four orders per customer in Q2 with almost equal, absolute and relative year-on-year trends observable in the U.S. and in International.
Travel and vacation-related pausing in May, June and July has never been higher since we started tracking that data many years ago. And so normalizing for that, we would have actually seen an increase in order rates again this quarter, which is in line with data from the many travel companies, who have reported early starts to summer season and elevated traveling around all public holidays that we saw in Q2 and early Q3 in the U.S.
Now turning our attention to average order value. We’ve seen average order value increase year-on-year by about 11% in constant currency and about 20% in euro-denominated terms, evidencing the strong pricing power we have with consumers and the non-discretionary nature of our product. While average order value was at about EUR50 one year ago, it has most recently traded up to about EUR60 per order.
Key drivers for that development were selected price increases across most of our markets globally most pronounced in the U.S., as well as the tendency of consumers to opt for more meals per delivery, a direct result of our more attractive and larger selection. We also continued to improve our quality metrics and service levels, resulting in less compensation required, and made good progress in rolling out our HelloFresh market offering in new countries. All in all, a very solid development on the average order value side with many different levers around pricing, quality and selection, all having a positive impact on how much consumers are spending on HelloFresh per order.
Turning to net revenue. Solid customer growth, continued high order rates and a strong AOV increase have set the stage for our biggest revenue quarter ever. We delivered EUR1.96 billion of net revenue in Q2, a 16% increase in constant currency year-over-year and more than 100% year over two-year growth. In euro-denominated currency, we actually grew 26% year-over-year, benefiting from advantageous FX swings with the U.S. dollar appreciating strongly against the euro in most recent times.
Our U.S. cluster delivered strong revenue growth of about 22% year-over-year, while International came in at a solid 9% year-over-year. Differences in net revenue growth has been driven by active customer growth, as well as stronger price increases in our U.S. market. Against overall e-commerce rates, which were negative to flat for most companies, our 16% year-over-year growth in Q2 marks a strong outperformance against the broader e-commerce peer set and highlights both the strong execution the team has put forward in a very challenging market environment, as well as underlines the optimistic outlook we have for the second half of the year.
For the next section, I’ll hand over to Christian now.
Christian Gartner
Great, thank you, Dominik. So let me first elaborate on the development of our procurement expenses. So far, we’ve done well in mitigating the impact of food price inflation. We’ve done so without automatically passing on one-for-one cost inflationary trends to our customers, i.e., we have further increased relative affordability of our product, as Dominik had just gone through.
Now how did we do this? Firstly, through selected price increases, but again, typically well below what consumers are confronted with in supermarkets, in restaurants and when they do takeaway.
Secondly, we leveraged the strength of our well-diversified direct supplier relationships. We are an important and trusted partner to our suppliers and we have several alternative suppliers per SKU. This ensures that the burden of higher costs is shared equally between us and suppliers and does not entirely land on our doorstep.
And then thirdly, most importantly, if not all ingredients show the same degree of inflationary trends, we can use the strength of our data models, who on the one hand offer great recipes to our customers, but which on the other hand, include ingredients which are less subject to price inflation.
Now for H2, you will see further impact of food price inflation on our COGS, however, we target to maintain this well within the 150 basis points year-on-year impact guided to initially for 2022.
Next, let’s talk about our fulfillment expenses. Also on the fulfillment side, we have managed to largely neutralize meaningful year-on-year cost increases, which have primarily impacted shipping expenses due to higher fuel charges and higher production wages. We did this at increasing productivity, especially in our U.S. segment. As a result, as you see on this page, we maintain fulfillment expenses as percentage of revenue largely stable at 40.5%.
Our business development on the procurement side and the fulfillment side and look what that means for our contribution profit. This means for contribution profit that we grew broadly in line with our strong revenue growth, i.e., 24% to contribution profit of EUR500 million in Q2. This corresponds to a margin of 25.6%, very similar to last year.
Just to remind everyone, for Q3, you should expect normal summer seasonality for us. This means from a contribution margin perspective, a seasonal trough in Q3 same as you’ve seen last year. This is due to seasonally lower production volume during the summer, i.e. negative fixed price leverage which will then reverse in Q4, again, in line with our historic returns.
Okay, next, I would like to discuss our marketing activities. Marketing as percentage of revenue is up by circa 2 percentage points versus the same period last year. The comparative period still has some COVID effects in it. If you recall, cash for us started to normalize last year, sometimes September, October in those markets. i.e., Q4 is probably the first quarter when you will see relative marketing spend being closer to the prior year period. We continue to see a high ROI on our marketing spend. Remember, retention is holding up at the same strong levels as in 2021. Dominik had just shown you some illustration of that.
Secondly, we increased our average order value by 11% year-on-year. And we are generating a similar contribution margin on every order, i.e., we achieved continued high ROI on our marketing spend. However, as discussed earlier, we have seen somewhat less opportunity to deploy marketing spend during some of the public holiday and hot temperature weeks.
Now to put this into context, it’s also useful to report the longer-term trends in our marketing expenses. As you can clearly see on the next page, we have successfully decreased our marketing spend from above 20% of revenue in Q2 2019 to circa 15.6% in Q2 this year. And this is despite us currently ramping up a number of new geographies and brands at the same time, which at this early stage of their life cycle, have much higher marketing expenses relative to revenue, compared to group average.
Now the deployment of this marketing spend is not just highly profitable and pays back within months, it also further solidifies our strategic market leadership. Across substantially all markets where we have some competition, we managed to further increase our market share year-on-year. This applies to our by far biggest market, the U.S., where our share of the meatless segment now stands at above 70% across our brands. It also applies to our position in direct-to-consumer ready-to-eat in U.S. where we have managed to quite double our market share within the last four quarters and gained a clear number one position. And it applies to each of our larger International markets, where we have some competition, namely, Canada and U.K. on this page.
With that, let’s come back to our P&L and discuss the development of our EBITDA. We generated a strong AEBITDA of EUR146 million in Q2, ahead of market expectations and only mildly down from Q2 last year, which still had meaningful COVID tailwinds. Our AEBITDA margin in Q2 was 7.5%, a 2.6 percentage points lower than last year.
So just to recap some of the drivers again. Between the two segments, you have seen the U.S. expanding its contribution margin, while the International contribution margin decreased year-on-year. But please keep in mind that International has started later to increase prices on average and currently absorbs the ramp-up of two new markets, Italy and Japan, 1 new brand, new foods in Australia and launched our new fulfillment center in the U.K. in the second quarter. Besides that, both segments have weathered the impact of inflation well so far as we’ve just seen. Customer acquisition costs and marketing expenses have normalized at the back end of last year. So from Q4 this year, you should start to have a more like-for-like comparison.
And then lastly, we have made progress on scaling up our tech teams and certain central functions to levels more in line with the size of company we have grown into with a corresponding impact on G&A. However, with less than 5% of revenue, our G&A still compares very favorably to substantially all other e-commerce companies.
Okay, after I discuss the P&L, I would like to turn to our cash flow development. This page shows you the development of our cash position for the full first half. We generated a strong cash flow from operations of EUR177 million, which is already net of EUR106 million cash outflow for paid corporate income taxes. This cash flow from operations compares to EUR215 million cash outflow from investments, which largely consists of EUR181 million CapEx, EUR25 million payment for the first tranche for factor and circa EUR6 million payment for the acquisition of a supply chain management technology business.
The cash flow from financing, you see here represents mostly the EUR125 million share buyback program we undertook in H1, which means we retain a strong cash position of EUR642 million at quarter end. On top of that, we have access to a largely untapped EUR400 million revolving credit facility.
Now I would also like to take this opportunity to review our free cash flow development over a longer period of time on the next page. We have generated very strong cash flow over the period 2019 through 2021. As you know, we have initiated from 2021 onwards a substantial investment program, which ensures that we have the right infrastructure in place to grow our business well beyond the EUR10 billion revenue target we have for 2025 and can also successfully build on our expansion into ready-to-eat.
2022 represents the peak of this investment program. From next year onwards, we expect cash flow from operating activities to exceed CapEx and lease payments again, i.e., we target we’ll generate positive free cash flow from 2023 onwards again. This will be supported by year-on-year expansion of absolute EBITDA, as well as an expansion of EBITDA margin.
Lastly, let me repeat the outlook we have released on July 20. So based on the factors discussed earlier, we have moved our full-year constant currency growth outlook slightly to the left to 18% to 23%, i.e., at the midpoint, we are still targeting growth of around 20%. We have correspondingly moved our AEBITDA outlook for the year to EUR460 million to EUR530 million.
While for Q3, please keep in mind our normal seasonality, i.e., seasonally low contribution margin, given lower volume, and therefore, higher impact of fixed costs and higher packaging expenses similar trends to last year, and higher than here the average marketing expenses due to the back-to-school campaigns starting end of August, early September in most of our markets.
Okay. With that, I would like to hand it back to Dominik.
Dominik Richter
So in summary, we’ve seen a strong first half of the year and we look cautiously optimistic to the second half of the year. And while we are not immune to macroeconomic trends, our execution, I think, has been pretty stellar and food at home overall as a category with quite inelastic demand as seen in previous economic downturns compared to many other categories.
While we’ve adjusted our growth outlook for the second half of the year in a prudent manner, this is really an adjustment on the margin and we feel very well on track against our mid-term objective of reaching EUR10 billion in revenue with a 10% AEBITDA margin by 2025.
With that, we welcome your questions in our Q&A section now.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We will take the first question from Miriam Josiah from Morgan Stanley. Please go ahead.
Miriam Josiah
Hey, good morning, everyone. Thanks for taking my question. So it’s just on consumer behavior, so I understand you’re saying retention is very high, but just wondering how you’re thinking about order frequency for the rest of the year. I guess, what gives you the confidence that the slight drop you saw sequentially was just travel-related rather than macro, because on the whole, it sounds like you are pretty positive on top line trends. So could you just talk a bit about how you are expecting the macro to impact your existing customers, perhaps how that may differ in the U.S. versus Europe? And if you are seeing any change in consumer behavior in some of your markets. Thanks.
Dominik Richter
Let me tackle that then. High level on behavior, I think as you rightly inferred from what we’ve said, it’s mostly been that existing customer activity has continued to be very strong. I think also attracting new customers has in the periods where we’ve seen good web traffic, et cetera, been in line with what we had previously seen. So no indications that consumer behavior has become a lot worse than what it has been in previous periods, but really sort of like towards the latter half of Q2 and the first holiday weekend, 4th of July weekend in the U.S., we’ve seen an extremely high amount of both pausing and very low web traffic activity, which is really sort of like the main driver behind the active customer development.
Now for H2, it’s obviously a little early, something like six weeks in. But like I tried to say in the call, we’re cautiously optimistic that on the advertising side, sort of, like web traffic is coming back a little bit and CPMs on advertising platform usually developing positively. When we look at pause data or cancel data, we do see a slight uptick in pricing-related answers, but not a lot. And especially if you follow the press or if you follow overall sort of like trends, a lot less than what you might expect. So I think those two factors lead me to be cautiously optimistic for the second half of the year. And that consumers are not massively cutting back on meal kits given our affordability proposition, I think that’s also not something to be expected.
Miriam Josiah
Great. That’s helpful. Thank you.
Operator
The next question comes from Andrew Gwynn from BNP Paribas.
Andrew Gwynn
Hi, there, yes. Sorry, it’s going to be a bit of a theme here, I think. But just talking about the two segments, so obviously the U.S. business, I think, was a bit stronger; the International, a little bit softer. To what extent do you think that’s down to the consumer? And is there a little bit more anxiety given that the price story’s a bit further or has further to go really in the International segment, there’s still more price increases to go through. Thank you very much.
Dominik Richter
Hi, Andrew. So first of all, what you should not forget is that last year in Q2, our International business was growing very strongly. So the International business has had tougher comps than the U.S. business. But in addition to that, I definitely do feel that the U.S. had a head start. And I think if you look at supermarket prices, inflationary prices, et cetera, that has started a lot earlier in the U.S. And since that has started a lot earlier, I think it’s also a lot more mainstream and anxiety of customers in our International segment has probably been a little delayed.
On top of that, we’ve obviously had some good contribution from our ready-to-eat business, which has been performing very strongly in the U.S. If you remember the slide that Christian showed, we almost doubled our market share in the U.S. for ready-to-eat, which is also in this type of environment where customers are traveling where customers are sort of like going back to office more, et cetera, like a really good proposition and something that fares extremely well against its direct competition, which is really takeout.
So I think RTE is not so much in competition with our meal kit business, but really in competition with takeout. And I think compared to takeout, it has like a massive pricing advantage and also the proposition is quite strong. So it’s really, I think, a combination of factors, but not to be forgotten, that International has had the tough year-over-year comps as in the U.S., those were not as tough, which has surely contributed a little bit.
Andrew Gwynn
Okay. Thank you. And I’ve been cheeky there in trying to wrap two into one. But on the International price increases, how far through those are you now?
Dominik Richter
So yes, maybe, Christian, you go from that because it’s always an effect. So Christian has a better view on that.
Christian Gartner
So I would say in terms of the first one, what we are planning to do based on our price test that effectively has been put in place now, but you should see greater phasing, because in some markets, we effectively raised only for new customers, which is then taking a while to fully flow through to our average order value.
Andrew Gwynn
Okay, great. Thank you very much.
Operator
We’ll take the next question from Emily Johnson from Barclays. Please go ahead.
Emily Johnson
Good morning and continuing the theme of questions on the top line. In terms of that AOV increase in the U.S., are you able to break that down between box price increases versus Factor contribution versus Marketplace and add-ons and anything else? And given you initially guided to a 5% to 7% AOV increase in ’22 for the group, what sort of range should we now expect?
Christian Gartner
Yes. So in terms of expansion there, a bit more than half of it comes especially from the price increases that we have enacted. Second biggest bucket is then more meals per order basically, so bigger orders that we got from our customers and then all the rest. So lot of HF Market and more take-up of our surcharge offerings and less compensation given better quality levels on average.
And in terms of outlook for the — let’s say, for the rest of the year for the U.S., I would say, ballpark around that levels where we got to now. In summer, you always have a little bit of a seasonal dip like-for-like in AOV, not just in the U.S., but across all markets where mostly families basically take their holidays, i.e., average order sizes go down a little bit and then that reverses again in Q4. But ballpark from AOV perspective for the U.S. this is on where we are at the moment.
Operator
The next question comes from William Woods from Bernstein. Please go ahead.
William Woods
Hi, good morning. So you’ve kept your CapEx guidance in line with the 2021 CMD and reiterated your view of investing despite some of the macro challenges. Why do you think now is the right time to invest in all your additional fulfillment centers and your tech and data capabilities while consumer confidence and demand is going to remain weak for the next kind of 12 to 18 months? Thanks.
Dominik Richter
So thanks for your question. I think in the end, right, there is some sort of like a short-term things that we obviously want to reflect and take into account. But what we’re mostly focused on is sort of like the long-term growth ambitions that we had — or that we have. And if you look at the last two years, we were severely hamstrung for the fact that we were running into capacity bottlenecks left and right throughout our markets. And so for us, it’s really about executing a better investment program, which then gives us enough runway to basically go towards the EUR10 billion revenue target and also beyond that. And if we do feel that we need to slow down a little bit, then we can always do that in 2023 or 2024.
I think as of now, we have started that build-out. We are very sort of like well on track to meet those budgets on time financially and also in quality. And so I don’t think it makes sense to do big adjustments to that program right now, because we really need that capacity to reach our longer-term targets, and we really don’t want to run into the same type of problems that we had run into in the last two years, which caused a lot of stress, a lot of — a big decrease in productivity and also didn’t allow us to really increase the customer proposition as much as we wanted to. And so this is why we will still kind of like keep up the CapEx guidance and will return to free cash flow despite the CapEx that we plan to execute this year and next year in 2023 again.
William Woods
That’s it. Thanks.
Operator
Next question comes from Sarah Simon from Berenberg. Please go ahead Sarah Simon from Berenbergy, your line is now open. Please ensure the mute button on your phone is switched off.
Sarah Simon
Sorry, I was on mute. At the CMD in December, you gave us an absolute EBITDA drag from the new markets. And obviously, Japan is a pretty large extent into your footprint. Can you give us an idea of how much EBITDA drag came in the first half or in Q2 from the newer markets just so we can get a sense for that and how you’re progressing? Thanks.
Christian Gartner
Sarah, on that granularity we are not guiding, but effectively the EUR150 million drag for all of our new ventures, markets, brands that I was talking about at the CMD, that ballpark is the effect for the full-year this year.
Sarah Simon
So you’re still on track with that number?
Christian Gartner
We’re still on track with that number, correct.
Sarah Simon
Thanks.
Operator
The next question comes from Nick Coulter from Citi.
Nick Coulter
Hi, good morning. In your outlook, you quite rightly referenced the economic outlook for this year, but also next year. Whilst I know you aren’t guiding to next year yet, should we assume that some of the caution extends into next year? And how should we think about that? Thank you.
Christian Gartner
Look, I would say it’s a bit early to guide for next year. So right now, our base case is certainly to show you three things: one, decent revenue growth also into next year and expanding absolute EBITDA, and thirdly, also an expanding EBITDA margin into next year. But in terms of more detailed guidance, it’s too early. Let’s keep that for end of this year, basically.
Nick Coulter
Thank you. It’s helpful to understand the shape. I realize you won’t guide with any current announcement now. Thank you.
Operator
We will take the next question from Nizla Naizer from Deutsche Bank. Please go ahead.
Nizla Naizer
Hi, thank you. My question is on the outlook. I mean just trying to understand, Dominik, you mentioned that you hope that this year would end up in the range that you did first announce in December last year. With that in mind, why was the sort of July 20 release necessary in that sense? Some color there would be great.
And linked to that, if you think of the phasing for the second half on top line, do you think that the customer base could still decline in the same magnitude that it did in Q2 on the basis of the pause rate, the seasonality, et cetera, and then move back up again in Q4? Just to get some color on that trajectory would be really helpful at this point.
Dominik Richter
Yes. So on the outlook, I mean, we are a German business. And once we update and reflect sort of like our business plans for the next period, I think there is a legal obligation to update the market and update you all. And that’s what we’ve done. But as I tried to say in my initial remarks, I do think we have not provided enough color and enough context on how the numbers came about. And I think we can only apologize for that.
In the end, on the customer base development, you will see our customer numbers year-over-year grow faster in Q3 and Q4 than what you have seen in Q2. And I think the shape will look very similar to what you have seen from us in previous periods. So seasonally, Q3, the lowest quarter of the year, but like I said, higher than last year and also higher than the relative number for Q2. And then in Q4, we should have a strong quarter, again, in line with the seasonal patterns that we see out — that we see for the whole year.
Nizla Naizer
Very helpful. Thank you.
Operator
We will take the next question from Victoria Petrova from Credit Suisse. Please go ahead.
Victoria Petrova
Thank you very much. In your 10-B and 2025 guidance, what percent of sales should come from non-meal kits? And by that — from new initiatives. And by that, I mean, non-HelloFresh brands, ready meals as well as new markets you are currently entering?
And as a sort of same question on CapEx, your CapEx is the highest for sales, obviously, in ’21 and ’22, probably 23%. Do you expect to return back to around 2% of growth in the longer term? Do you think you are just a more CapEx and bank business from here? Thank you very much.
Dominik Richter
On the revenue for 2025, it’s, number one, hard to say and I think we also don’t want to hamstring ourselves by giving you a too detailed guidance. What I can definitely reveal is that Marketplace should be a significant contributor, ready-to-heat should be a significant contributor and also some of the new brand geographies that we will launch from now until ’25 will have some contribution to that. So overall, I don’t think it’s prudent to release like a firm guidance on that because there are obviously a lot of different moving parts. But certainly already today, I think we’re known for more than meal kits. And I think over time, while we’re still bullish on the future growth of the meal kit category, over time more and more of the revenue mix will also shift to ready-to-eat to Marketplace and to potential new verticals or geographies that we scale.
Christian Gartner
And Victoria, on the CapEx trajectory. So for 2023, absolute CapEx will be lower than in 2022, as I tried to illustrate on the call earlier, but still at a somewhat elevated level. Some of the projects we’ve discussed in the past are basically coming to completion in that year. And then from 2024 onwards, yes, you will see another leg downwards towards the 2.5 points of revenue or thereabouts, somewhat a little bit influenced by what we decide around certain automation solutions at that point in time. But that’s all part of the trajectory. So this year, let’s say, EUR500 million or thereabouts. Next year, I’m already a step down from that, but still reasonably elevated and then further leg down in 2024 onwards.
Victoria Petrova
Thank you very much.
Operator
We will take the next question from Clement Genelot from Garnier. Please go ahead.
Clement Genelot
Yes, good morning. My question is on the wages. Should do we see another wave of wage increase around the end of this year with new negotiations with unions? Or is it over especially since the fight for tech talent seems too may be over with several tech giants in the U.S. and in Europe now firing employees. Thank you.
Dominik Richter
So on liberates or wage inflation, I do feel it’s early, but I do feel that the market has gotten a lot better than what it was in Q1, especially as back then we always had like sort of our workforce quarantining. We had to plan with significant buffers in our workforce. And so that was on top of wage inflation. I think this is something that has eased quite a bit over the course of the year with the wages — with the wage increases that we had executed last year in around Q4 in the U.S. and Q1 this year in most of our International markets. We feel quite competitive.
You also know that other e-commerce companies have not been growing as fast, and hence, rather sort of like build down sort of like their workforce from initially elevated levels during COVID, which is also beneficial for us. So it’s hard to predict, but I do feel that we’re very competitive at the moment, and that we are able to acquire and retain the labor workforce that we need at the rates that we pay right now. And given that we can now more accurately predict and plan how much labor we actually need in our centers, we don’t have to have the 10%, 15%, 20% buffers that we have had during COVID times. I think this also helps us on the fulfillment side and on the productivity side in our centers.
Operator
I will now hand you back to your host for any additional or closing remarks.
Dominik Richter
Mainly closing remarks from my side. I think the important part is to be focused on sort of like our mid-term targets, EUR10 billion revenue, the 10% margin. I do feel we’re very well on track that. There’s obviously always some volatility sometimes due to macroeconomic things, sometimes due to how we internally execute against the business plan. And it’s always hard to basically meet every single point of guidance, but on a more long-term trend and more long-term trajectory, I don’t really think anything has changed a lot in the last 12-months.
We keep our heads down. We focus on what we can control. And the things that we can control, I actually feel like we’ve done a pretty good job, and we aim to do the same good job in the second half of the year and into next year. And that’s really all we can do. And I do feel cautiously optimistic for that period. And look forward to welcoming you back when we meet again for our Q3 results. Thank you all.
Christian Gartner
Thank you.
Operator
Thank you. That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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