A Financial Analysis of Just Eat Takeaway's Post-Merger Acquisitions and Impairments
Just Eat Takeaway's Pursuit for Growth and the Gruelling €4.5 Billion Write-Off’s of Strategic Investments in 2022
In January 2020, a pivotal moment in the fast-food delivery landscape unfolded as shareholders of Just Eat embraced a visionary merger with Dutch food delivery powerhouse Takeaway.com. The resounding approval, echoing through boardrooms and dining rooms alike, set the stage for the creation of one of the largest food delivery groups globally, heralding a new era for the industry.
Since this transformative merger, the saga of Just Eat Takeaway has unfolded on an international stage, marked by strategic moves that extend far beyond the dinner table. Notably, the company expanded its reach by acquiring Grubhub, a significant player in the United States, and Bistro.sk, enhancing its footprint in Slovakia.
As we embark on this financial exploration, we aim to dissect the fiscal dynamics of Just Eat Takeaway. From the groundbreaking merger to strategic acquisitions, we delve into the numbers that shape the financial narrative of this culinary juggernaut. Join us on this journey as we uncover the ingredients that make Just Eat Takeaway, a formidable force in the world of food delivery.
Just Eat’s Revenue and Operating Performance Landscape
Our journey into the financial landscape of Just Eat Takeaway begins with a meticulous review of its operating performance, a crucial lens through which we'll unravel the intricacies of revenue and profitability dynamics.
Revenue and Operating Profit Trends:
- Exponential Revenue Growth:
Just Eat Takeaway's revenue trajectory tells a compelling story of exponential growth, fueled by strategic mergers and acquisitions. From €416 million in 2019, the company experienced a meteoric rise, reaching €5,561 million in 2022. This impressive ascent underlines the transformative impact of the various mergers and acquisitions on the company's top line.
- Operating Loss and Impairments:
However, the tale of operating performance in 2022 unfolds with a notable nuance. The operating loss of €5,413 million signals a deviation from the upward revenue trend. One of the key contributors to this loss is the impairment of goodwill on select acquisitions. Specifically, significant impairments include €2,977 million for American operations, €893 million for UK operations, and €267 million for Canadian operations. The total impairment losses on goodwill for the year amount to €4,521 million.
- Understanding Goodwill and its Impact:
Goodwill, in accounting terms, represents the intangible value of a company's brand, customer relationships, and other non-physical assets. When a company acquires another, any amount paid above the fair market value of its identifiable assets is recorded as goodwill. Impairments on goodwill occur when the fair value of the acquired entity drops below its recorded value. This non-cash charge affects reported profits, reflecting the revised valuation of intangible assets.
In the upcoming sections, we will delve deeper into the financial intricacies of Just Eat Takeaway, analysing the impact of these impairments on reported profits and deciphering the broader implications for the company's financial narrative.
Review of Just Eat Takeaway’s Cash Balance and Cash Flow Trends
In our exploration of Just Eat Takeaway's financial landscape, the cash review offers a lens into the company's liquidity, revealing a dynamic interplay of inflows, outflows, and strategic financial maneuvers.
- Steady Growth in Cash Balance:
Just Eat Takeaway's cash balance reflects a compelling narrative of growth, evolving from €90 million at the close of 2018 to a robust €2 billion by 2022. This steady ascent underscores the company's financial resilience and strategic acumen in bolstering its cash position.
- Strategic Cash Inflows:
Key cash inflows are propelled by strategic financing activities. Notably, €520 million in 2019 and a substantial €1.3 billion in 2021 were received from financing activities, contributing to the company's financial fortitude. Furthermore, 2022 witnessed a noteworthy €1.2 billion influx from investing activities, predominantly attributed to the sale of Just Eat's 33% interest in iFood. These strategic moves showcase Just Eat Takeaway's adeptness in optimizing its cash position through shrewd financial maneuvers.
- Cash Outflows from Operating Activities:
Despite the positive trends in cash inflows, Just Eat Takeaway faces a notable challenge in generating cash surpluses from its operating activities. Cash outflows for operating activities persist, indicating that the company is still in the process of transitioning to a stage where operational cash surpluses fund its day-to-day functions.
Just Eat’s Takeway’s Financing Structure
The Accounting Equation is:
- Assets = Liabilities + Equity (i.e., funding & accumulated profits)
Just Eat’s Takeway’s accounting equation is visualised below.
Observations on Just Eat Takeaway's Balance Sheet Trends:
2020 to 2021: The Growth Spurt
- A notable observation in the balance sheet trend from 2020 to 2021 is the dramatic growth in Just Eat Takeaway's non-current assets. This surge can be attributed to the strategic acquisition of Grubhub in the U.S. during this period. The addition of Grubhub's assets has significantly bolstered the non-current section of the balance sheet, reflecting the expansion of Just Eat Takeaway's global footprint.
- Another key uptick during this period is observed in equity, driven by cash injections from additional shareholder funding. This increase in equity not only reflects investor confidence but also positions the company for strategic initiatives and future growth.
2021 to 2022: The Shrinking Horizon
- A contrasting trend unfolds in the balance sheet from 2021 to 2022 as the overall size of the balance sheet contracts. This shrinkage is primarily attributed to the impairment in goodwill, a topic explored earlier in the blog. The substantial impairments, particularly in the goodwill associated with Just Eat Takeaway's American, UK, and Canadian operations, have resulted in a reduction in the company's total assets. While the impairment charges impact the balance sheet dimensions, they also underscore the company's commitment to transparent financial reporting, acknowledging the revised valuation of acquired intangible assets.
Understanding Just Eat Takeaway’s Gearing Financial Ratio
The gearing ratio, also known as the debt-to-equity ratio, is a financial metric that measures the proportion of a company's capital that is financed by debt compared to equity. It is calculated by dividing total debt by shareholders' equity and is expressed as a percentage.
Just Eat Takeaway's gearing ratio, which stood at 20% in 2019, has witnessed an incremental increase, reaching 28.1% in 2022. This uptick suggests a higher reliance on debt in comparison to equity in the company's capital structure over this period. While a gearing ratio of 28.1% is relatively moderate, it indicates a shift in the balance between debt and equity financing.
Key Takeaways: Navigating the Financial Feast of Just Eat Takeaway
Our journey into the fiscal realm of Just Eat Takeaway has revealed both triumphs and challenges. Some of these are set out as follows:
Revenue Growth and Impaired Profits:
Just Eat Takeaway's robust revenue growth, propelled by strategic acquisitions and mergers, paints a picture of a company with a voracious appetite for global expansion. However, the startling operating losses in 2022, driven by impairments to goodwill - notably €2,977 million for American operations, €893 million for UK operations, and €267 million for Canadian operations - underscore the complexities of integrating acquired entities and the impact on reported profits.
Cash Position and Operational Challenges:
While the company boasts a relatively strong cash position, a closer examination reveals that much of this liquidity is fueled by finance and investing cash inflows. The observation that Just Eat Takeaway is yet to prove its ability to generate sufficient cash flows from operations raises questions about the company's operational efficiency and its trajectory towards sustainable profitability.
Gearing Dynamics:
A noteworthy shift in the company's financial structure is observed in the gearing ratio, escalating from 20% in 2019 to 28.1% in 2022. This shift signifies an evolving balance between debt and equity financing, a strategic move that demands scrutiny in the context of the company's risk profile and growth strategies.
Holistic Observations:
Beyond the numbers, the financial review prompts reflection on Just Eat Takeaway's adaptability and resilience in an industry marked by rapid change. The company's strategic forays into global markets, albeit accompanied by operational challenges, underscore a commitment to shaping the future of food delivery.
In conclusion, Just Eat Takeaway stands at the intersection of growth and adaptation. The financial intricacies, while revealing challenges, also offer a glimpse into a company with a strategic vision. As Just Eat Takeaway navigates the complex landscape of global culinary delivery, the key lies in leveraging its strengths, addressing operational nuances, and steering towards a future where financial robustness aligns seamlessly with operational excellence.