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Deliveroo plans to return a further £250mn to shareholders, in a sign of the food delivery group’s growing confidence in its ability to generate cash, after losses halved in the first half of the year.
“The company fundamentally is at a very different place to when we went public 30 months ago,” said Will Shu, Deliveroo’s founder and chief executive. “We are basically free cash flow break-even at this point.”
Food delivery and logistics groups such as Deliveroo, Uber, DoorDash and Delivery Hero, which have collectively burnt through tens of billions of dollars of losses over the past decade, have come under increasing pressure from investors to demonstrate profitability as the cost of capital has risen sharply over the past year.
Deliveroo’s shares rose 3.5 per cent in London on Thursday to 128p, as it reported that pre-tax losses narrowed from £127.1mn in the first half of last year to £57.6mn in the first six months of 2023. Revenue rose 5 per cent to £1bn, thanks to a 10 per cent increase in customer spending per order to an average of £24.20, driven partly by inflation. Order volumes, however, fell 6 per cent to 145.2mn.
The London-based company cut its annual forecast for gross transaction value, a measure of customers’ total spending on its app as well as other fees, to “lower single digits” percentage growth, but raised its guidance for adjusted earnings for 2023 from £20mn-£50mn to £60mn-80mn.
The stock is still trading well below Deliveroo’s initial public offering price of 390p. A post-pandemic slowdown in demand for online food delivery, pressure on consumers from the growing cost of living and investors’ preference for more profitable companies at a time of rising interest rates have all weighed on its shares following its March 2021 IPO.
However, the stock this year has risen more than 40 per cent as profitability comes within reach. “We feel very confident in our position,” said Shu.
Deliveroo had previously announced a £50mn share purchase programme in March, after completing a £75mn buyback scheme in January. The extra £250mn will be returned to shareholders through a special dividend, share buybacks or a tender offer, Shu said, pending consultation with shareholders.
“We have ample cash on the balance sheet for growth and unforeseen circumstances,” said Shu, with net cash of £948mn at the end of the first half, so it was “time to give this back to shareholders”.
Shu said that the move reflected investors’ expectations for a much faster return from equities now that interest rates have risen.
“We do listen to the market,” he said. “We don’t always just listen to the market, because the market can get a lot of stuff wrong, but in this case being rational and incremental in some of our investments . . . is the right thing.”
He denied the move had anything to do with the looming expiry of Shu’s dual-class shares, which give him extra voting powers — including the ability to block a hostile takeover — until the third anniversary of its IPO. The structure, which has become common among founder-led tech companies in the US but is more unusual in UK, caused controversy among some London investors at the time of Deliveroo’s IPO owing to governance concerns.
Deliveroo this year plans to set out its longer-term vision for investors, which Shu said would include a push into “adjacent verticals”, after recent moves to deliver groceries and non-food items.