HelloFresh SE (HLFFF) CEO Dominik Richter on Q4 2020 Results - Earnings Call Transcript

Hellofresh SE (OTCPK:HLFFF) Q4 2020 Earnings Conference Call March 2, 2021 2:45 AM ET

Company Participants

Dominik Richter - Chief Executive Officer

Christian Gaertner - Chief Financial Officer

Conference Call Participants

Robert Berg - Berenberg

Marcus Diebel - JPMorgan

Fabienne Caron - Kepler Cheuvreux

Andrew Gwynn - Exane BNP Paribas

Clément Genelot - Bryan, Garnier

Shaked Atia - Morgan Stanley

Operator

Ladies and gentlemen, welcome to the conference call of HelloFresh SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

May I now hand you over to Dominik Richter, who will lead you through this conference. Please, go ahead.

Dominik Richter

Good morning, everyone. I'm excited to share HelloFresh Fourth Quarter Earnings as well as our Full Year 2020 Results with you today. Both Q4 as well as our full year 2020 were impacted quite a bit by the ongoing COVID-19 pandemic, but it's really important to note that we faced very different circumstances across the many markets in which we operate.

Specifically, in the fourth quarter, markets like Australia, New Zealand and to a lesser degree the U.S. has actually been opening up, while most of our core European markets went into quite harsh measures, shutting down public life by mid-November.

Consequently, we focused a lot on understanding consumer trends in Australia and parts of the U.S. that were opening up, to understand what the new normal looks like and how consumers behave.

We will continue to watch closely and derive the right conclusions. But I think it's safe to say that consumers have continued to cook meals at home with HelloFresh and that we've also seen robust growth in these markets in Q4 as well.

As we go into our 10th year of HelloFresh, our mission remains as relevant as on the first day. We change the way people eat forever. And what we mean by that is that we offer consumers and specifically those who have been home chefs before an affordable, convenient and delicious way to cook the best meals at home.

As we've communicated on our Capital Markets Day, we will continue to focus relentlessly on making our value proposition better and better over time. With more meals on the menu, better service levels and more competitive pricing, that's the formula that we want to use to go after the huge home cooking TAM in our target markets.

On that Capital Markets Day, we've also outlined our vision for the group, which is to evolve from the leading meal kit company globally to a fully integrated food group. With our purchase of Factor, a U.S.-based fast-growing ready meal provider in Q4, hence the launch of our HelloFresh market in Benelux also in Q4, we've made the first important steps towards this goal.

After this short introduction, let me start with our 2020 highlights and revenue build, before I hand over to Christian for the remainder of the presentation.

First of all, we ended our full year 2020 with a bang, managing to deliver more than our stretched goal of 600 million meals to our consumers globally. Given that that's only been our ninth year of existence, that's really something that the team and I are very proud about.

Secondly, we grew the number of active customers to 5.3 million in Q4, so a significant step-up from the prior year period, but also a significant step-up from our Q3 numbers. Thirdly, we significantly increased our full year revenue to €3.75 billion in 2020, which is up 111% on a constant currency basis.

Both adjusted EBITDA and free cash flow came in at over €500 million per year, a remarkable result, given that we're only in our ninth year of operations. And then, finally, I referred to that before. I believe we're very much on track to become a leading integrated food solutions group with the expansion into ready-made meals and the expansion into our HelloFresh market in Benelux.

So let's look at the strong growth in customer base in Q4. We've been up 300,000 in a single quarter and hence are entering the first quarter of 2021 on a really high run rate. That's remarkable in that way, because in prior periods and in prior years, you've usually seen us about holding steady the customer number from Q3 to Q4.

The reason that we've been able to increase that customer number is that as we have unlocked more capacity specifically in the United States, we've been able to also bring in a lot more active customers and fill that additional capacity quite easily.

Secondly, we've also increased our order rates further in Q4. Compared to Q4 2019 order rates have been up 18%. So double-digit year-on-year growth with further expansion versus Q3, which came in at 3.9 orders per customer. Some of that has been back-loaded and was due to the hard lockdowns in some of our international markets, but the other half of that order rate was due to a lot of incremental improvements that we've actually done to our service offering to the number of meals that we have on the menu and to our pricing structure over the course of the last year.

Looking at average order value. We also see a very positive trend in both operating segments. Number one if you look at Q4 2020 versus Q4 2019. You see that it's been up about 8%. That's more than for the full year, which has been up about 6.5%. The reason that Q4 was up even more than our full year numbers is number one that the U.S. continued to grow quite significantly in AOV in Q4 2020.

Secondly, we've also used less price incentives given that despite the fact that we unlocked some capacity it's not like we have been not capacity constrained at all. And we've also had a very clear focus on some of our seasonal offerings and seasonal bundles around Christmas and the holidays, which were further driving up AOV across most of our markets.

So I think bottom line is Q4 very positive increase in customers in order rates as well as in AOV. And if you take all of those three levers together, we'll end up with the first time of that we actually arrive or achieve revenue at over €1 billion in a single quarter in Q4. So results that makes us really proud after the challenging year and something that actually marks a 126% increase in constant currency from €512 million last year to over €1.1 billion this year in Q4. That's even higher than our full year revenue. So Q4 has been the record quarter of the year. Full year revenue was up 111% in constant currency from about €1.8 billion to about €3.75 billion.

Please bear in mind that despite these remarkable results especially with regards to full year numbers, we've been for large parts of the year capacity constraints. And given the sort of like customer numbers that we've now put forward in Q4, we also entered Q1 on a really high note and continue with a very robust growth momentum.

With that, I want to hand over to Christian for the remainder of the presentation.

Christian Gaertner

Thanks Dominik. So Q4 2020 was not just the quarter where we achieved the highest revenue growth of the year. It was also the quarter where we achieved the highest contribution margin with 30.7%. This is actually not just the highest contribution margin that we achieved during 2020, but is the highest contribution margin that we achieved ever.

Remember our contribution margin was only 26% in Q2 2020, primarily due to some of the effects we have discussed on our previous earnings calls, i.e. temporarily higher COVID induced operating expenses. So we very meaningfully expanded that margin by around about 4.5 points over the last two quarters. We produced the contribution margin at meaningfully higher than that was about four quarters ago in 2019.

What has driven that improvement? Number one, less price incentives. Dominik spoke about that right now. So, somewhat capacity constrained environment here, we did less discount to new customers that helps margins.

Secondly, and this is really a continuation of the trends that we have discussed over a number of quarters now, further strong performance of our procurement operations where you see a further expansion of margins on that level.

And then thirdly, and also importantly, a gradual normalization of our fulfillment expenses in there especially of production expenses. This contribution margin performance is even more impressive if you keep in mind that we were in the process of ramping up three new fulfillment centers during the fourth quarter in the US and then towards the end of the fourth quarter also second site in our UK operations.

Okay. Next, let's have a look at our marketing expenses. Q4 was still in environment. We were somewhat capacity constrained. The hard lockdown has contributed to that situation. This meant that we were somewhat less over leading in terms of our marketing activities than we otherwise would have been in October and November. And then as all of you know December is then typically a time of the year a seasonally dialed back on our marketing activities anyhow.

When you put that together it means that despite our very strong growth in customers, actually kept our marketing expenses at very low levels. 12.8% for the fourth quarter. So, broadly at a similar level where we came up for the full year and five points below where we were in the same period last year.

Let us have a brief look at G&A. This is really a continuation of what we discussed over the last nine months, i.e. our G&A expenses were meaningfully slower than our revenue. And therefore, we see a meaningful fixed cost leverage on the G&A line.

We face a very significant reduction of G&A expenses as a percentage of revenues by four and a half points, only three and a half points in the fourth quarter. And all of this had meaningfully to our EBITDA margin. Our EBITDA margin in Q4 increased to 15.7%. Therefore, our full year EBITDA margin ended up at 13.5% at the very top end of the upward revised range that we put out in December last year.

So, we generated more than €500 million of EBITDA in 2020, while we grew the business by 111%. This group EBITDA of €505 million breaks down roughly equally across our two segments. We see this on slide 13. So, our US business contributes round about €283 million at EBITDA and our international business €276 million of EBITDA and also in Q4 the contribution of both of our operating segments require quasi.

For the year as you know the data when you add those two numbers up you get into the €505 million EBITDA for the group excluding, which generated negative EBITDA of €53 million in 2020.

Let me switch gears now a little bit and go through our cash flows with you. This is a key aspect of our business which I already tried to highlight you at our Capital Markets Day last December. Other than most other Internet of sort, we are strongly free cash flow positive. We reached free cash flow breakeven in 2019 and then in 2020, we generated round about €500 million of free cash flow. It means we are self-sufficient to fund our growth strategy.

And even external growth such as the acquisition of Factor that we closed at the end of 2020, we were able to finance cash on our balance sheet.

Now looking into 2021, also means we can fund internally all of our growth investments. This includes new fulfillment centers, further investment in automation, the ramp-up in the US of sector, the launch of at least two new geographies and the expansion of our HelloFresh markets and add-on offerings.

They are all critical investments to get to our midterm goal of €10 billion revenue at a 10% to 15% EBITDA margin and we will be able to fund these investments this year out of our own cash flow.

Let me now conclude by reiterating our 2021 outlook, which I gave already at our Capital Markets Day in December. For the full year 2021, we are targeting a constant currency revenue growth of 20% to 25%. And an EBITDA margin of 9% to 12%. With the first couple of weeks of 2021 already under our belt, I can say that we had a strong start for the year 2021, which means that for Q1 very indicatively obviously, we are expecting a year-on-year constant currency revenue growth in excess of 70%.

Okay. With that we very much look forward to your questions.

Question-and-Answer Session

Operator

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from Robert Berg, Berenberg. Please go ahead. Your line is now open.

Robert Berg

Thanks. Hi, guys. A couple of questions from me. And you mentioned – the first question you mentioned a few times on the call about the capacity constraints. And that was a theme through last year clearly the US has seen the largest capacity constraints that you've opened up some new capacity. So a couple of questions on this.

As we head into 2021, where are we now running in terms of capacity across the US capacity in terms of fuel rate and the rest of the world, please? And if you can comment on how much if possible the constraints impacted any customer acquisition in the quarter, which you kind of alluded to for the US that would be great.

And the second question, now unfortunately we've been made it 12 months through the pandemic. This means consumers had 12 months to adjust their lifestyles. I think it's fair that anyone now joining HelloFresh is largely doing it through choice rather than necessity. I'd like to hear your thoughts on that statement first and then I'd be interested to hear about the mix of gross adds what proportion of gross adds are totally new to HelloFresh now versus returners? Thanks.

Christian Gaertner

Okay. Thanks, Rob. It's Christian here. Let me grab the first question on capacity constraints. This is – may remember our discussion at our Capital Markets Day. So this is something that we readily lift. So we have added further capacity in the US with our Georgia site, which is being ramped up and where further capacity becomes available now during Q1. We also added a second site in New Jersey, which is being ramped up as we speak. And then our additional large Texas site will come on stream sometimes during Q2 this year.

Yes. So with respect to the US, I would say this is all going completely in line with plan and is in full flight. And also internationally, we are executing on our plan. The UK, our second site is being ramped up and has alleviated some of the capacity constraints we have there in Q4 by now already.

And there are basically further sites as we throughout the year that come onstream, an additional one in Australia, expansion in Canada, further expansion in Germany and in our Nordics business. So all of these are effectively in-flight and it basically help us effectively doubling capacity versus where we stood in Q3 last year by Q1 next year.

Dominik Richter

Yes. So how does that impact overall customer acquisition? Largely we have debottlenecked that, but we still need to do a lot of demand steering. So meaning that, we need to scale up and then throttle again some of our marketing efforts.

We tried to be able to take advantage of January and February, because those are usually the month where number one media prices are down. And number two, where people go with good resolutions into the New Year and cook more.

So we've actually created quite a bit of capacity to be available in January and February that we can then fill at very attractive rates with new customers. And so that's something that I think the team has done, like, a really good job.

But certainly, it's not that we're totally unconstrained. It's rather that, I think, we're spending at quite good levels. But there's an element of demand steering across all markets in order to make sure that we can captivate as many demand as possible.

And then finally, with regards to the question on lifestyle, as I would probably frame it. I think, one thing not to forget is that supermarkets, which is what we're predominantly taking share from and where our consumers usually spend food dollars when they're not shopping with HelloFresh.

Supermarkets have never been closed in pandemic. It's -- versus offline retail, versus fashion or furniture or others, I think in our case, supermarkets have never been closed. So no one was ever forced to order HelloFresh.

I think what happened and what we've also heard from consumers is that, they obviously had more time at their hand to try out new things and to do something that they haven't done before. And that's certainly something that has benefited us a lot, but I don't think at any point in time during 2020 customers came to us, because they felt kind of like they can't get food anywhere else and so I think that's important to keep in mind.

With regards to new customers and I think reactivation is something that was the last part of your question. As we've now sort of like gone into January, February this is usually a period where consumers that have also paused for some time actually come back.

It's always something where we invest in January and February to capture people when they actually have the right mindset to try something new, when they stay home a lot, et cetera. And so, our reactivations have definitely been at a very healthy level.

But at the same time, we've also had to keep in mind that we had to steer demand. And hence, we haven't been as unconstrained as we ideally would have liked to be, but reactivations continue to make up like a good share of our conversions. And so, basically, at around the level that we've communicated at the Capital Markets Day, high 20s is what we've been seeing in Q1 to-date.

Robert Berg

Perfect. And if I could just have a very quick follow-up. So Dominik, you mentioned Q1 more push for customer acquisition. So far have you seen the benefits of that? So a nice step-up in customer numbers in Q1 in both regions.

Dominik Richter

So, I think it's -- sorry, I was on mute, excuse me. So we -- I think it's a bit too early to talk about final Q1 numbers. But generally, what you see from us is a step-up in customer numbers in Q1. And I think the way that the quarter is going, we should certainly expect that from the 5.3 million customers that we had in Q4 that there will be a step-up in Q1.

Robert Berg

Okay. Thank you very much.

Operator

Our next question comes from Marcus Diebel, JPMorgan. Please go ahead. Your line is now open.

Marcus Diebel

Yes. Hi, everyone. Ultimately, three questions from my side. Christian, could you help us a bit more to understand the full year 2021 guidance in regards to your comments on Q1. I mean, on the first, I mean, you said, Q1 likes to be up 70% in revenues, you guide 20% to 25% for the year. So that looks in this context rather conservative. But more after like, kind of, like understanding where this guidance is coming from. Do you see a broadly similar increase in active customer to your revenue guidance, or is the majority of growth coming from AOVs? Anything you can comment on would be quite helpful.

Then on Dominik, it seems you're going to launch in a few more countries. It seems like you're hiring in Japan and Italy, so could you maybe update us a bit more how this is going and when we expect -- or when we should expect launch in those markets?

And then maybe the last question again maybe for Christian. At least a high-level comment on the question, how many of the active customers are actually paying the full price, the undiscounted price? Is there anything you can help us to understand it at least in, kind of, like high-level comments on that that would be quite helpful? Thank you.

Christian Gaertner

Okay. Sure. Let me start. So on the full year guidance. You remember that the guidance we put out the 20% to 25% constant currency growth rate in early December where I think most of you thought that was reasonably bullish and you're right. The first half of Q1 at least we've started on a strong footing. But overall it's obviously still early days.

So is there some potential upside for the guidance we've got out there where we stand right now? Yes but it's probably a bit premature to revisit that the earliest we will do that is concurrent to our Q1 results publication, so early May or thereabouts.

Now on your second question in terms of fully paying versus people on discounts. We haven't changed let's say our overall approaches towards price incentives at all since we spoke last time. So effectively when you become -- customer of us typically get a price incentive on your first delivery or you spread over your first couple of deliveries and then you become fully paying. So this structure is unchanged.

The only thing given the capacity constraints we had in a number of our markets. In Q4 we -- the overall -- we're probably a little bit more modest in terms of discounts that we gave you overall as a new customer but the structure itself is the same.

Marcus Diebel

Can I maybe then just ask follow-ups here? On the first one on the full year guidance, yeah, it's very conservative. I just tried to understand what the, kind of, like drivers are? Is it really active customer growth in that range, or is it really coming from average order values? Maybe in this regard that would be interesting.

And then secondly also reactivations also come at discounts, yeah, so that's why I asked, okay, is that basically, kind of, like to square what's the share of customers that are on discounts and those who are not?

Christian Gaertner

Yeah. So on the latter no change to basically the previous quarters. On your first one and Dominik had alluded to that earlier. Customer growth is very robust so far going into Q1 and you will see that when we are full -- a full Q1 and will publish that data but continues customer growth is definitely the dominant driver of our revenue growth.

Then looking further out into 2021, all that we discussed at the Capital Markets Day in terms of how we see our key revenue drivers shape up over during the course of this year is still unchanged. So effectively what we assume is that there will be a return to normal seasonality in most of our markets throughout this year and we also expect a certain normalization in terms of average order rate in the second half of this year. So -- but there through all of these underlying revenue driver, no change to effectively what we discussed 1.5 months ago.

Dominik Richter

Let me briefly comment on your question on internationalization. Internationalization has always been a big driver of our growth. And we also wanted to launch and unleash the two new markets this year. I think the two that you mentioned, Italy and Japan are probably more to the sort of like back end of the year. That's something that is very early days.

But I'm quite confident that it's always going to be part of our overall growth strategy because we by now have a really well working playbook and I think with regards to Japan, that's obviously a little bit more exploratory and a little bit higher risk and higher uncertainty. But there's still a lot of sort of like consumer trends and the data that we have gathered from Japan that we think could make that a very attractive target market. But certainly among the different internationalization strategies and the different target geographies one of the riskier ones.

Marcus Diebel

Perfect. Thanks a lot.

Operator

Our next question comes from Fabienne Caron, Kepler Cheuvreux. Your line is now open.

Fabienne Caron

Good morning. Three quick ones from my side. The first one for you Dominik, I saw that you created a special purpose acquisition vehicle. I just wanted to make sure you're still committed to HelloFresh. That would be my first question. And the second question would be for Christian. Can you tell us taking into account all the ramp-up of distribution centers that you're doing, what would be your maximum production capacity this year? And finally regarding the EBITDA guidance that you gave. Can you give some color regarding the two segments? Do you expect the two segments to finish the year 2021 with the same margin, or would you expect some difference in margin? Thank you.

Dominik Richter

So let me maybe start with a quick comment on my Board mandate. So I'm partnered up with a number of other people to form a SPAC doesn't change anything about my commitment to HelloFresh, quite the opposite. I think 95% to 99% of my net worth is tied up in HelloFresh and I'm fully committed to HelloFresh and it's more to be seen in light of a Board mandate such as executive also have other Board mandates in public or semi-public companies.

Christian Gaertner

And Fabienne on your other two points. So firstly on the relative EBITDA margins by segment, we expect something similar to what we've seen this year. So very healthy EBITDA margins by both of our segments with the international segment touch ahead in terms of margin, not necessarily in terms of absolute EBITDA but in terms of margin slightly ahead of our US segment.

In terms of our capacity, this is now theoretical capacity, and it obviously depends a little bit on how fast our individual markets run and how that capacity is distributed across all of our sites. A theoretical capacity once we are through, all of that expansion programs that I mentioned until Q1 2022, should be north of €7 billion of revenue.

Fabienne Caron

Okay. Thank you very much.

Operator

Our next question comes from Andrew Gwynn, Exane BNP. Your line is now open.

Andrew Gwynn

Hey, good morning, guys. Two questions if I can. So first is a familiar question which is on use of cash. Just wondering, what the intentions are? I mean, obviously, you mentioned the CapEx, but wondering if we should have in mind the potential for a special cash return during 2021?

Second question, you've alluded a little bit to it at the beginning but just talking about the reopening sort of trading almost of Australia and in parts of the US, just wondering if you could elaborate a little bit more on the sorts of patterns that you're seeing there as people go back to work. Thank you so much.

Christian Gaertner

Okay. Great. On your first point on use of cash, you're absolutely, right. Our most important news is really to invest that into our growth. We see the very high conviction, high ROI ways to deploy that cash. And therefore, we have a quite ambitious investment program across these sides across automation also across our general infrastructure also in terms of our techniques and so forth. So, that's the core focus.

Beyond that, we will maintain a very strong cash position. Which all definitely leave some flexibility for two things; evaluating add-on M&A, if we have a conviction of this would be value-creating for our shareholders such as we had the case when we were able to acquire Factor in Q4 last year. So, there we would have an open eye to it.

And then in case there were some capital market volatility where we would see our stocks trade at unreasonable levels, then we would also consider using part of our cash to buy back stock if we were in that situation.

Now, with respect to your second question in terms of what do we see in Australia as it has come out largely out of the post-pandemic? Well, right now already there you see pretty much what we have expected and discussed in the past, i.e. you see retention keeping up at a very entry level and above actually where it has been trending prior to the through the COVID period.

And we see a certain normalization in terms of ordering pattern of our customers. So, all very much in line with what we thought it would do and what also is a little bit our playbook for our own estimates for the remainder of the year.

Andrew Gwynn

Okay, that's clear. And just on the buyback, can you just confirm how much of the share capital you're permitted to buyback? Just wondering what the current--

Christian Gaertner

So, if we are in a theoretical situation where it makes sense to look at that then we would look at it but we haven't firmly committed a certain part of our cash for that. So, it would be a theoretical use of cash which comes way down priority list versus I discussed upfront in terms of investing that cash into the growth of our business.

Andrew Gwynn

Okay. Thanks very much.

Operator

Our next question comes from Clément Genelot Bryan, Garnier. Please go ahead, your line is now open.

Clément Genelot

Good morning. I've got two questions from my side if I may. The first one is just back on the let's say post-COVID era. What does a new normal look like really in Australia and New Zealand? Because it is obviously the most advanced regions in terms of normalization has depend by mix. So, in terms of retention rates in order.

And just the second question is on geographies. Quite recently if I might in 2019, you mentioned that Southern Europe was both of the median term for HelloFresh. So, what finally encouraged you to Italy so soon? And why not rather earning of mac and cheese in Europe of -- Europe of course I have in mind Norway. Thank you.

Dominik Richter

Yes, thanks for your question. So, in Australia, New Zealand some of the broad trends that we've been seeing is that as the country has been opening up. People were taking sort of like more vacations again. More vacations for HelloFresh usually means slightly lower order rates and so this is certainly something that's during sort of like December and also January we've seen in Australia. What we've also seen is that people on average have taken like a little less meals, so slightly negatively impacting our AOV.

And I think here the explanation is also people are eating more out, eating more in restaurants, it's summer time at the same time and in the Southern Hemisphere. And so, this is also one of the trends that we could observe.

What we however could also see is that our brand -- so the awareness for our brands and the unaided brand awareness for HelloFresh has continued to be at really, really high levels in Australia. And that has allowed us to still acquire a lot of new customers, even as the pandemic has ended and we've also been able now in the first quarter to win back quite a few customers that over the summer period in Australia and New Zealand had stopped some of their deliveries.

So I think in broad terms, really, very much in line with what we had projected or forecasted. And we'll, obviously, continue to look closely at it, to make the right implications and inferences for how we should think about opening up of other geographies globally.

With regards to launching in Southern Europe, I think what has happened over the last two years and especially during COVID times, is that online penetration has increased massively. And a lot more consumers in Southern Europe have actually started to order foods via food delivery platforms, via grocery platforms and also via a lot of different niche services.

And so, this is something that has not only accelerated and pulled. So COVID is not only something that has accelerated and pulled forward some demand in our mature geographies. It has also meant, in our view, that a lot of the geographies that were, in terms of e-commerce adoption, a couple of years behind has actually also sort of like made a big leap forward.

And so, now we do think that there are a lot of good conditions in place for us to be also successful in Italy. Like I said, it's more something that we'll launch towards the back end of the year, but we do believe that it has all the right ingredients to -- for us to be successful with the internationalization playbook that we have.

Clément Genelot

Thanks so much.

Operator

Our next question comes from Shaked Atia, Morgan Stanley. Please go ahead. Your line is now open.

Shaked Atia

Great. Thank you. I have three questions left. First of all on the contribution margin trends. They are quite favorable in the fourth quarter. Should we expect that to continue going forward, or should the new capacity expansions put some pressure on the margin for rest of the year? And can you remind us what level of utilization are you targeting long term?

Second, a follow-up on Japan. As you said, it's a bit of a different market to the ones you're currently in. Will you be looking to grow organically or through partnerships, can you give us any indication on how big you think this opportunity can be for you? And how much the product will really have to change?

And lastly on -- an update on HelloFresh market. I think you said in the release you've reached 100 SKUs already. What's the take-up in Benelux thus far? And how much is AOV really increased in that market since the launch? Thank you.

Christian Gaertner

Great, Shaked. Let me start with your first question on contribution margin. You may remember at the Capital Markets Day in December, I had guided for contribution margin for 2021 of between 28% to 29% and that still holds. So that's where we -- the range where we think we will end up for this year.

Now, as we approach spring and summer, then some of our packaging expenses, cooling materials and so forth will also go up a little bit, which also affect contribution margin, plus -- or the fulfillment center ramp-ups which are still to come, that's all baked into the contribution margin guidance as well. Yes, so 28% to 29%, that guidance for 2021 still holds.

Dominik Richter

With regards to Japan, I think we have the confidence to say that, obviously, we need to localize some of our content. We need to localize a lot the meals, the logistics providers that we work with, some of the service levels which always needs to be sort of like adjusted to local levels, but we have the confidence to say that we really believe in the playbook that we have developed over the last couple of years and which has made pretty much every single country launch successful for us.

And so, as I indicated towards the earlier parts of the call, it's a little more risky than some of our other bets, but it's also a really big TAM in Japan. Just given population, given household incomes there's the prevalence of a few other mutated players already in the market, which means to us or signals to us that there's going to be high consumer adoption for that type of offering. And so again I think on balance, we're really excited about launching there, but it will take some time. And it's certainly one of those markets where you go slow in the beginning to find product market fits to make sure that all of the assumptions we are making are holding true and then accelerate like once you have found product market fits and once you have fully understood how that market works. So long-term very bullish, in the short run like I wouldn't expect a huge contribution to our overall results. But I think that's the nature of some of the things that we're doing.

And then finally other question was around the HelloFresh market. So I think we've only introduced that to you during the Capital Markets Day where it was very early where we to sort of like an important customer uptake numbers and AOV impact. I would basically ask you to wait for another quarter or two because the data that we've seen so far is very positive and it's probably slightly exceeding our internal expectations. But it's also very early days. And before we don't have like two or three quarters of numbers under our belt and really understand the trends and really understand the sensitivity of customers to broadening our assortment to certain pricing, et cetera that we're experimenting with I think it's too early to draw meaningful conclusions going forward. So I would rather see us probably by mid of this year to check-in with the reports on some of the overarching trends that we're seeing with HelloFresh market.

Shaked Atia

Okay. Thank you.

Operator

This will conclude our Q&A session. I will hand back to the speakers.

Dominik Richter

Thank you for attending the earnings call for Q4 and at the same time our full year 2020 results. Q1 is off to a very good start for HelloFresh and we can't wait to share more details with you when we check back in for the Q1 earnings call in early May. Thanks a lot and have a great day everyone. Bye-bye.

Operator

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.