Domino's Pizza Group plc (DOM) Earnings Call Transcript & Summary

Hello. Good morning, everybody, and thank you for joining us this morning for our half year 2023 results presentation. My name is Elias Diaz Sese, I am the interim Chief Executive Officer at Domino's Pizza Group. And I am delighted, -- he's sitting on the back, but I am delighted to be joined today by Andrew Rennie, my partner and our new Chief Executive Officer. Today is Mr. Andrew's first day with us at Domino's, Welcome, Andrew. And he will formally take over as CEO of the business on Monday August 7. He has definitely pizza sauce on his blood. He's been on this business and this brand for the last 30 years. And most importantly, 10 out of those 30 years, it was 1 of the most successful multiunit franchisees of the business over there in Australia. So I guess that we couldn't have found a better partner, Andrew, in order to be leading this brand, this business moving forward into the business. So welcome. And I know that he can't wait to get started, so you will have the opportunity to meet him later on the coffee break. I will then obviously stepping down with mixed feelings to be very frank, because I have had a great time from that perspective. But I will remain on the Board as a Nonexecutive Director fully committed as I have a significant family shareholding on this business. So I am fully committed from that point of view. I'm not going anywhere. And with the business extremely well positioned from a future growth. I am obviously also delighted to have my partner, Edward Jamieson and CFO of the company; and Will MacLaren, our Head of Investors Relations. So let us turn to the agenda of today on Slide 2. I will give you a short overview of the continued progress that we have been making this year before handing over to Edward, who is going to be taking you through our financial performance in detail. I will then take you through the excellent progress that I believe that the team has done with our 2023 strategic priorities before we conclude with a Q&A with all of you. Let me go to the next slide. We have definitely, I believe, delivered a very strong first half of 2023 with continued growth in orders and in sales that in the momentum that we discussed back in March that we saw in Q4 last year and definitely in Q1 this year has accelerated and this is a testament to 2 things: number one, complete alignment with our franchise partners on the direction that we are taking and working and rowing in the same direction. And second, this acceleration of our strategy that if you remember, I was manically focused together with the team to get it done. But before any other thing, I would like because I know that many of them are on the webcast, I would love to personally thank all of my partners, franchise partners for a great collaborative work in my time as interim CEO, with me and the whole Domino's Pizza Group, we will not be here without the great effort of them under teams. I laid out 5 clear strategic priorities at the start of the year, and these have been the ones that have delivered the growth that we have seen, I will talk about this later on in the presentation. But particularly, I would love to spend some time also later on, on the great and exciting acceleration that we've been taking in terms of store openings where we have just had our best quarter in the last 5 years and the third quarter ever in the history of Domino's in the U.K. and Ireland. With all of these, and such a great leader taking over the role, I couldn't be more confident in the many opportunities that we have for the rest of this year, and also for the years to come. And we -- as we continue to be working towards our purpose to deliver a better world through people -- through food that people love. Now I'm going to hand it over to my partner, Edward, who is going to be taking you through our financial performance in detail. Edward.

Thank you, Elias, and good morning, everybody. It's a pleasure to be here this morning and to present the 2023 half year financial results, and update you on our outlook and guidance for 2023. So if we can move to Slide 5. Yes. Great. So the first half of this year saw 35.4 million orders, an increase of 2.8%, with like-for-like sales up 9.7%. In turn, this led to a 19.6% increase in our revenue, an 8.2% increase in our underlying EBITDA and strong free cash flow in the half. This has enabled us to increase the interim dividend by 3.1% and following the disposal of Germany, we will return the disposal proceeds of GBP 70 million to shareholders through a new share buyback program. Let me now go through our performance in more detail. So turning to the next slide. Let me start with system sales and order counts in more detail. So starting on the left-hand side, we've split out the impact of sales and orders between collection and delivery. System sales grew 7.9% in the half with both delivery and collection contributing to the growth. Overall, total orders in H1 were up 2.8% from last year, with the decline in delivery orders more than offset by the growth of our collection business. Collection orders were up 20% in the half and are now at 120% of 2019 levels. Delivery order count was down 4.4% in the half. The trajectory has continued to improve from Q2 last year when deliveries were down 12.1% and they were only down 3.9% in Q2 this year, a marked improvement from Q2 and Q3 last year. We continue to target returning delivery orders to growth this year. In the chart on the right-hand side, you can see the quarterly profiles of our like-for-like sales performance, excluding the impact of VAT in blue; and secondly, order count in green. I'm still referring to an ex VAT number as Q1 last year still had a reduced rate of VAT. Here, you can see our performance over the half. Trading was strong as a result of effective national value campaigns, operational service excellence from our franchise partners, growth in collections and the incremental benefit of being on the JUST EAT platform. Let me walk through system sales and our revenue in more detail. As I've just said, system sales increased 7.9% in the half. But if you adjust for the lower rate of VAT in Q1 last year, system sales were up 11.2%. Our revenue was GBP 332.9 million, a 19.6% increase on H1 last year. This was primarily driven by a 23.6% growth in supply chain revenue as a result of increased volume, new store openings and the pass-through of food costs. National advertising fund and e-commerce expenditure was up by GBP 7 million in the half, driven by an increase in system sales and increased marketing spend in the period. Our NAF represents a significant competitive advantage for the Domino's system as it gives us and our franchise partners real scale as we continue to strengthen the brand and to offer our customers compelling value. EBITDA margin as a percentage of system sales increased by 10 basis points in the half. The majority of our EBITDA comes from the supply chain center through procurement, manufacturing and distribution of products to stores. In H1, we maintained outstanding service levels with 99.9% availability and 99.8% accuracy. This is due to the commitment of our supply chain colleagues working collaboratively with our franchise partners and I would like to thank all those who helped deliver this outstanding performance. Our EBITDA from the supply chain in the half was GBP 66.7 million, an increase of GBP 16.3 million compared to the prior half year. Royalties increased by GBP 1.5 million, driven by an increase in system sales. Net overheads increased GBP 2.8 million. This was driven by investment in store growth through incentives as well as investment in talent. Corporate store EBITDA reflects the disposal of 5 stores towards the end of last year. This resulted in underlying EBITDA before technology costs increasing by 16.5%. I'll come back to touch on the technology platform costs in a couple of slides. So in June, we received the proceeds from our disposal of our German associate. This was the final act of our exit from international markets. Let me walk you through the impact. Firstly, we received GBP 79.9 million, which comprised GBP 70.6 million of disposal proceeds and GBP 9.3 million repayment of a loan. As we received this in June, net debt at the end of the half was GBP 171.4 million, giving leverage of 1.33x, which is below our target range of 1.5x to 2.5x. The profit on disposal was GBP 40.6 million. In the presentation of our results, we have removed this from underlying measures to give a better indication of the performance of the business. We include the GBP 40.6 million in our statutory profit disclosure. Finally, as a reminder that following the exercise of the option on the 9th of November 2022, we no longer receive a contribution from Germany to our EBITDA. In the first half of last year, we received an EBITDA contribution of GBP 1.8 million, which was then GBP 2.4 million for the full financial year. Let me walk you through the movement on EBITDA. The net effect of increased volumes, pricing growth in our supply chain and franchisee investment, such as new store incentives was an increase of GBP 11.6 million. We made a GBP 2.3 million profit on the sale of a freehold property. The GBP 1 million revaluation of our Shorecal joint venture in the first half of 2022 did not repeat in the first half of this year and as I just mentioned, we did not receive any contribution from Germany. This resulted in underlying EBITDA before technology platform costs of GBP 74 million. When the one-off technology platform costs are taken into account, Underlying EBITDA was up 8.2% to GBP 68.7 million. So before I go into the income statement, I want to update on our technology platform investments. As I laid out earlier this year, in 2022, we started investment projects to develop and implement two new cloud-based IT systems, an e-commerce platform and an ERP system. As we have previously communicated, both systems are part of our investment in growth and the e-commerce platform is part of our growth investment framework announced with our franchise partners in December 2021. The accounting treatment of these costs is simply a reclassification from capital expenditure to operating expenditure. Therefore, this treatment has no impact on cash. The total costs recognized in underlying profit before tax relating to these investments was GBP 6.3 million in the first half of this year. Within EBITDA, costs of GBP 5.3 million have been recognized of which GBP 3.7 million relates to the ERP and GBP 1.6 million related to e-commerce platform. These represent costs spent on the development of these assets, which are expensed through the income statement rather than capitalized as intangible assets as they relate to cloud platforms. For the ERP, this represents the full spend on the project in the half. For the e-commerce platform, this relates to the percentage spent on the cloud-based element to the project, an additional GBP 2.9 million has been recorded in capital expenditure relating to the e-commerce platform. Within amortization, a total further cost of GBP 1 million is recognized. These implementation costs are one-off in nature. And when the e-commerce platform and the ERP system are complete, there will be no more technology platform implementation costs impacting EBITDA. There's no change to our guidance, that we expect to incur circa GBP 9 million of implementation costs in FY '23 with the remaining ERP implementation expenditure expected to be in the low single-digit millions range in FY '24. Moving to the bottom half of the income statement. As guided, depreciation and amortization increased to GBP 10.2 million in the half. This includes GBP 1 million of amortization and impairment as a result of the technology platform costs I talked about earlier. Finance costs were higher in the half due to lower levels of interest rates in the first half of 2022. As a reminder, in July last year, we successfully refinanced existing bank debt facilities at favorable rates with a GBP 200 million private placement facility fixed at 4.26% and a GBP 200 million revolving credit facility. Both of these are in place, until July 2027. Taxation increased to GBP 11.3 million, which delivered profit after tax of GBP 39.6 million and flat EPS of 9.5p per share. So let me touch on franchisee trading. On this slide, we've shared franchisee trading estimates in the first half in order to provide a view of the health of the entire system. The numbers are extracted from submissions from our U.K. franchisees, we aggregate the submissions to derive these averages. The numbers on the chart have been adjusted for VAT. As for the first quarter of 2022, VAT in the U.K. was at 12.5% before reverting to 20% from the first of April 2022. Our franchisees continue to work tremendously hard in challenging market conditions and their trading performance has been impressive. As you know, our #1 priority this year is to focus on franchisee profitability, and we're making good progress here. Average store EBITDA for all U.K. stores for the half was approximately GBP 76,000, equivalent with a 13% EBITDA margin, only a slight decline versus the first half of last year despite significant inflationary pressures. Franchisee profitability in 2019 before the pandemic was a GBP 70,000 per store, equivalent to a 14% EBITDA margin. So franchisee EBITDA in 2023 was ahead of these levels. Elias will talk more later about our focus on this key area. Our business model generates strong free cash flow. Let me focus on working capital. We had a working capital inflow of GBP 10.2 million compared to an outflow of GBP 11.2 million in the prior year. This was primarily due to the reversal of the prior year working capital outflow with a decrease in debtors and inflow relating to the timing of creditor payments at year-end and lower inventory levels due to higher stock holding at year-end. We continue to expect and net working capital inflow for the full year. Overall, we delivered GBP 56.2 million of free cash flow in the half. You'll now be familiar with this slide as we first introduced this in March 2021 and update you every 6 months. We have this framework to ensure that effective capital allocation can amplify the benefits and returns from the cash generated by the business. we want to retain a sensible level of leverage, which we believe to be around 1.5x to 2.5x. And working within these parameters, we will allocate cash in a disciplined way. As I previously mentioned, we generated GBP 56.2 million of free cash flow in the half, and let me walk you through how we're using this cash. Firstly, we continue to invest in the core business to drive long-term sustainable growth. To that end, we invested GBP 11.3 million in capital expenditure in the year. We will maintain a sustainable and progressive dividend and will pay an interim dividend of 3.3p. Finally, we look to return surplus cash to shareholders, and we announced a GBP 20 million buyback in May and have executed GBP 13.9 million of this program so far. And today, we've announced a new GBP 70 million share buyback, which will start with the existing GBP 20 million program is complete. So we started the year with GBP 253.3 million net debt. As I said, we received GBP 9.3 million, which was a repayment of a loan from the German Associate and GBP 70.6 million in proceeds. This represents the final receipt of cash from Germany. We also received GBP 4.4 million from the disposal of a freehold property. And here, you can see the cash outflows in the half. CapEx of GBP 11.3 million, GBP 28.3 million paid out in dividends and GBP 19 million in share buybacks and some purchases on behalf of the Employee Benefit Trust. This resulted in net debt at the half year of GBP 171.4 million, giving leverage at the end of the period of 1.33x, which as I've already explained, is due to the timing of receiving the proceeds from the German associate. Our priority will always be to invest in the core business. We continue to expect CapEx this year to be circa GBP 25 million as we invest more in our system to drive sustainable and profitable growth. To be clear, CapEx this year is elevated by a one-off circa GBP 5 million spend as we're in an investment year. In the first half of the year, we spent GBP 11.3 million on CapEx. This was on the technology platform, as I've talked about, on enhancing our digital capabilities and on continuing to invest in our outstanding supply chain with the redevelopment of our capacity in Ireland, an area where we see significant opportunity for store growth. We've also been installing solar panels across our supply chain centers. And so turning now to current trading and guidance. Trading momentum is encouraging in the first 3 weeks of H2 with like-for-like system sales, excluding split stores increasing by 7.9% with total orders up 2.3%. While the market and consumer backdrop remains uncertain, as a result of the strong first half performance and this momentum, today, we're raising our guidance. We now expect to deliver FY '23 underlying EBITDA in a range of GBP 132 million to GBP 138 million. On the slide, you can see our technical guidance for FY '23. And you'll note we now expect net interest to be in the region of GBP 14 million to GBP 16 million this year with year-end net debt of GBP 205 million to GBP 225 million lower than our previous guidance. Thank you. And let me now pass you back to Elias.

Thank you, Edward. Much appreciate it and much appreciate your partnership during the last year. It's been busy, but good fun. As Edward has explained, we have delivered a strong first half of the year from a performance perspective frankly, in a very challenging market. And again, as I said at the beginning, we believe that this is -- this has been the result of great alignment since we reached our agreement with our franchise partners back in December 2021, what is bringing us to record order count as well as solid sales and EBITDA results. Now the focus on 5 strategic priorities has been key for all of these. So let me run you through the excellent progress that we believe that we have done in this half on this. The first one that I wanted to run through is market share gains where we have seen in Q2 as increasing our share of the U.K. takeaway by 70 basis points. Interestingly enough, if we compare it to 2 years, it's already 130 basis points up to 7.3% for the quarter, 7.5% for the year, so relevant growth from that perspective that in very basic terms has been the outcome of a few initiatives: number one, value; number two, digital acceleration. Our growth in collections that continues to be going in an extraordinary direction. Remember, this was one of the strategic pillars that we had from 2 years ago. Our partnership with just did, obviously, and then definitely once more executing in collaboration with our franchise partners. Now let me give you a little bit more of detail behind this, right? If you remember, when I was here back in March, and I presented the results then. I outlined 5 key areas of priorities that the team together with the franchise partners is fully aligned behind in order to be executing. So I would like to spend a little bit more of time on sharing with you the exciting progress that we are doing on all of them. Let me start by the first and the most important one. I said it in March, and I will repeat right now, franchisee profitability and our organization. As I said in March, our #1 priority is franchise profitability in the first half. Our franchise partners have seen GBP 6,000, I repeat, GBP 6,000 increase in store average EBITDA vis-a-vis prior to covid 2019 and more or less at the same level as 2022 in what has been the most challenging year ever from an inflationary perspective. So obviously, there is far more to do, but there has been some good progress happening. What has happened? Because I think that, that's the important thing, right? The first thing that has happened is that we have supported our franchisees. This first half of the year with a very intense program from a national training perspective with roadshows across the country, that we were not doing before from that point of view, that we were just focused on improving service and product quality. This is key and the alignment has been excellent from that point of view. But we have also shared, remember, this was one of the elements of our agreement with our franchise partners back in December 2021. We have shared incentives for them to open more stores as the result that you are seeing. And also, we have continued to be sharing the food cost rebate mechanism that we agreed back in December 2021 in order to incentivize order count growth moving forward. The roadshows, as I was saying before, have been very much embraced by all of the franchise partners. Our second roadshow had 1,150 store managers attending, which is yes, probably the highest attending roadshow that we have done ever. And then we have obviously continued to be working very closely with our suppliers. In such an inflationary moment, it was critical for us, right? From 2 big elements. Number one, obviously, to have optimal stock cover, but most importantly, to make sure that wherever possible, we minimize cost inflection to our franchise partners. And I will say that our world-class supply chain has demonstrated again that -- yes, that they are where they are and that they deliver an outstanding performance. Now also, very importantly, I started to be sharing this in our March meeting. It has been very important for us to have a big amount of focus this first half on ensuring that our organization is in the best possible shape in order to support franchise partners' growth. And we have made significant progress on this. Let me give you the 3 most important elements of this. Number one, as I said at the beginning, we have announced our new partner and the new leader of this organization in Andrew Rennie. Number two, earlier in the year, I announced that we had reshaped our executive leadership team in order to ensure that we were going to be leaner and that we were going to be making faster decisions with a far more entrepreneurial approach. And very recently, point number three, we have also undertaken a wider review of the entire organization, and we have restructured the organization to focus on mainly 3 things. Number one, agility. Number two, making sure that we are focused on the 5 priorities and only on those 5 priorities. And number three, increasing profitability, ensuring that we are far more nimble in the way we do operate. As part of this review of the organization, we have prioritized talent development to nurture and develop future leaders of the business. And for example, as a consequence of that, we have promoted our partner Nicola Frampton to be the Chief Operations Officer of the company. Now I believe that because of all these changes together with our franchise partners, we are now able to add far more quickly, far more quickly to the changes in the market that we are seeing. So very glad to see this happening. Now turning to the next priority. Secondly, value for money. At Domino's, as you know, we've been sharing this, we are laser focused on offering good value, great food and an excellent experience. And as I laid out in March, there are three components to this value for money. Number one is service that sometimes we forget, but it's so critical from that perspective, is the #1 driver for customer satisfaction and frequency growth not only on the restaurant industry, the same in the retail industry. Customer service performance, including average delivery times and percentage of deliveries on time has improved in Domino's in the first half of the year, we are already under 25 minutes, which is 1 minute less than last year. Again, results of everything that we've been sharing before from a roadshows perspective. And we are focused on continuing to be improving this delivery experience, not only for our customers but also for our franchise partners. That is why we have already rolled out this enhanced GPS solution that I mentioned on the first meeting already by 1,179 stores that will be deployed by the end of the year. Great progress from that perspective that is going to be allowing us a far more efficient route planning for our drivers, much more efficiencies at the store level and definitely a much more accurate delivery time expectation for our customers, that would be able to be seen where the driver is from that perspective. Again, all this work together with the commitment of our franchisees has allowed us to bring a 4% improvement on OSAT, which is customer satisfaction. Second point, value. Remember, it was extremely important for us to continue to be bringing these value platforms in order to fight against the cost living crisis that we've been seeing. And we launched this price slice deal, GBP 8, GBP 10,GBP 12 price points, value platform for small, medium or large pizza, GBP 12 feeding 4 people. We thought that, that was great value. That was 3 months that we had this promotion and then we launched our 50% off deal, if you come through the app. So again, continue to be building momentum from a value perspective. And last but not least, product. I'll be very brief on this one. But this strategy of less is more has been paying off. We launched this new pizza that was our ultimate chicken Mexicana that has been the most successful one we have done in a long time, 667,000 pizzas and it's been definitely a great heat from that point of view. But we have continued to be working not only on dinner and late night, but we have also been working hard in order to be improving our position at lunch and food to-go perspective now that we are seeing collection growing that much. That's why we continue with our 650 calories pizza. We continue to be bringing new flavors from a wrap point of view. We are on task right now with a new line of French Fries that is possibly the best quality for delivery that I have seen in many, many years, or we are doing our Italiano's in the Republic of Ireland with toppings like goat cheese or [indiscernible] not forgetting our Domishakes that are extraordinary performing right now at the stores with a great sponsorship and partnership with both Oreo and Biscoff. Hopefully, you will have had already the opportunity to try these products. If not, I encourage you to do it. We really believe that there are good opportunities here and definitely lunch is an occasion that we want to continue to be fighting for. Now let me turn to the third and more uncritical opportunity and priority for the team, digital. We have already 90% percent of our sales on digital, right? Yes you heard it well, 90%. Our app is key for this super strategic digital strategy and the first half of the year has been -- has seen a radical step change from that perspective. This slide speaks by itself. But let me reinforce a few points within this slide. The first one is the fact that we have increased already 46% compared to H1 last year on active app customers, but also versus Q1, we are already at 16%. We have almost 8 million active app customers. Number two, the new customers to Domino's whose first order was through the app has increased 120% versus H1 first year -- last year, sorry, and our app orders as a percentage of digital orders for the quarter was already up to 75.2%. Remember, I told you that Q4 last year was 59%. The first half is 69%. Q1 is 75%, and we are last week at 81%, 30 basis points better than last year. So definitely, our app is going into the right direction, and our downloads are already 140% higher than last year. And this is critical for us. Why is it critical? Because we have seen over the last 12 months, that all those customers that were coming through the app, their sales were [ dual ] at 43% higher sales than the customers that were coming through the website, but not only on sales, also on frequency, where their frequency was 51% higher than those customers that were coming through the app. Again, attracting more customers through the app is going to continue to be one of our priorities in 2023 and beyond, but definitely an excellent progress from Nick Bamber, our Head of the Digital and his team on this arena for sure. Now let me move to our fourth priority, convenience. There were 2 elements on this one. Number 1 was our partnership with Just Eat, and number 2 was increasing our store openings. Let me start by the first one. We've been already for 2 quarters on our partnership. With Just Eat and we are seeing this incrementality that I mentioned on the previous meeting to continue to be going forward, and we're really looking forward to see a full year benefit of this platform. But also, as you may have read, the following Domino's Pizza Incs' global agreement with Uber, we expect to start the trial in some stores in H1 of next year. We will follow a data-led trial exactly the same as what we did with Just Eat. If you remember, we started with a 100 stores trial, then we moved to 300 and then we launched, we'll do exactly the same. Yes. And those customers that go through that trial, we'll be able to also get our products through Uber Eats. Now the pizzas will be delivered by us directly, exactly the same as with Just Eat because, as you know, nobody -- absolutely nobody delivers like us, right? We are the only ones controlling that supply chain that goes from manufacturer into the step door of our customers, and we will continue to be doing, so, that's a unique selling proposition for sure in the industry. Point number 2 of this convenience, I am extremely proud of the progress that we have made on new store openings. Q2 was our highest, as I said before, number of openings in a quarter for 5 years. And again, another great example of collaboration and everyone rowing in the same direction between our team and our franchise partners. We opened on the first half, 29 stores, by today 30, and we have already 6 stores under construction. Those 29 stores compared to 12 last year. And those 29 stores were open by 11 franchise partners, while last year, they were opened by 7. This acceleration is obviously because of the fact that the pipeline has been continuing to be grown together with our partners, but also because everyone is seeing a huge opportunity here to continue to be growing our store estate in the U.K. and Ireland. As I said, 6 stores under construction and a further 25 stores already today with planning permissions approved, which, as you know, is one of the big hurdles in order to be able to be open in these stores, which makes a total of at least 60 stores with a very clear path to happen this year already at the beginning of the month of August. So very exciting from that point of view. 70% larger pipeline than last year. 60% of that pipeline with planning approval. So again, an arena where we believe that there has been a great progress from that perspective, not forgetting that we have already 25 stores in the pipeline for next year, and we are growing this pipeline as we speak. So great progress from [ Neil ], Andrews and the rest of the development team also in this arena. Now let me turn to the next slide and our last enabler from a strategic perspective. Edward has explained you already in some detail about the investment we are making. They're one-off nature and the accounting treatment of this technology platform projects, but I want to reiterate a few points that I believe that are important from a business perspective. Number one, our e-commerce platform implementation is on track and is expected to be completed by the end of this year, 2023. This will enable us a critical avenue of growth for the future. because it's going to enable us to offer our loyalty program to customers in 2024. Yes, can you imagine, we don't have loyalty yet, right? And this is a huge, again, as I said, growth avenue for us in 2024 and beyond under the leadership of Andrew and the team. Secondly, our new ERP program replacing our 2016 system will enable us also to improve processes and efficiencies across the company, but most importantly, between operations and supply chain, which, as you know, is critical for us. And again, remains also on track for launch in the first half of next year. Now coming to the end of my presentation. And as some of you will know already our corporate purpose is to deliver a better future through food, people love, and earlier this year, we have communicated we have been very pleased to not only communicate but also published our Connect the Dots, sustainability strategy, which sets out our approach on 5 focus areas: customers, our people, environment, sourcing and communities. And as our focus areas include giving customers more choice such as the testing that we've been doing. I have communicated already with the 650-calorie Cheeky little pizza, but also minimizing the impact on the environment, such as we did with the opening of our first low carbon opening in Hammersmith. Again, we continue to be making sure that we connect purpose to Pizza as much as we can and wherever we can across the business activities and we are looking forward to our first sustainability report, which will be published early 2024. So in summary, the execution of the strategy and alignment with our franchise partners has delivered growth in sales and in orders, but also has allowed us to maintain broadly store profitability, excluding VAT versus last year. And our focus on the 5 priorities have also delivered strategic progress with a step change, I would say, radical step change on digital new store openings and 16.5% improvement in our EBITDA versus last year if we exclude investments, one-offs on [ TAC ]. Now the consumer environment remains challenging. We won't shy from that. But we are very confident that if we remain focused on our priorities, we will be very well placed together with our franchisees, one, to deliver further returns to our shareholders as we have been doing. But also, to make sure that our franchise partners continue to be seeing returns growing this year and beyond on their stores. I have loved my time as interim CEO leading this amazing brand in the U.K. and Ireland, with this very unique franchise team and team in DPG. But now I return to my nonexecutive role with real and sustainable momentum across the system. And I believe that we have a very strong platform for future growth under the great and very unique leadership of my partner, Andrew Rennie. Now thank you very much for listening. I would like now to turn the meeting over to Q&A. And I will really appreciate the ones that you get the mic, you could state your name and your institution from the perspective for those in the webcast. Thank you.

Rich?

Richard Stuber from Numis. Three questions, please. First one is, could you talk a little bit more about price rises you've seen in the first half of the year? And also when you expect orders -- like-for-like orders to get back into growth? The second question is, I guess, you talked about sort of the average EBITDA per store for franchisees. Can you talk a little bit more about how the recent store openings EBITDA have been? And therefore, what the returns on new store openings have been for franchisees? And the second and the third question is you talked a lot about sort of the IT systems that you are putting in place. Have you seen any benefits from them already? Or would we see most of the benefits coming through from FY '24?

Sure. Let me thank you very much for the questions, Rich. Obviously, three parts of the question. Let me run through again my response against each of those 3 points, and then I'll pass over to Elias to see if there's anything you want to add. So I think your first one was about sort of was about pricing. I think the place to start is that, again, start with orders. What we're seeing obviously strong, robust sort of order growth, 2.8% in the first half, 2.3% in Q3 to date. And that's driven by the strategic process, the progress that we're making, the levers that we're driving. So that's because we're continuing to grow market share. We continue to attract new customers. Now if you then play that through into pricing, you can see that -- and you'll see from the tables in our pack that you can see that the like-for-like growth is primarily coming through sort of in price. That's a function of food cost inflation being passed through to customers like other QSRs and obviously, the fact that there is a delivery charge within that. But we remain relentlessly focused sort of on ensuring that we have compelling value for consumers. So if I move through then into your question around average EBITDA per store, while we don't disclose details of individual store performance. What I can say is we have been sort of extremely pleased with the performance of many of our recent store openings. We've seen some very strong numbers there as we roll out in new areas of the country as we particularly [indiscernible] areas into areas where there's less competition, for example, in areas of lower address counts, and we are seeing some really strong momentum from day 1 in those. So I'm personally very pleased by what I see there in terms of performance. And then thirdly, on the IT systems, we haven't seen any benefits yet from those. We are -- those projects are in sort of implementation. So the e-commerce platform will complete at the end of this year and will then enable us to build products such as loyalty, as well as refer to -- drive benefits in 2024, with the ERP program then being on track to launch in H1 2024. So I think those are the sort of the three parts of the question and those were the 3 elements that I wanted to land. But Elias, if there's anything you'd like to add on any of these 3 elements.

I think you have touched on everything, but I will add a couple of things. You're talking about when to expect those orders from a like-for-like perspective to continue to be growing. You see total orders growing already. It would be difficult for you to see any other company that has disclosed numbers with order count growing from that perspective. But I really believe that with the growth that we are seeing from an app perspective, very soon, you will be seeing that going in a very different situation from that perspective. Why do I think so? Remember, we ended Q4 last year at 59% of the orders -- digital orders through the app. The first quarter was already -- sorry, the first half is at 69%. Q2 is at 75%, and we are already at 81%. So that growth that you are starting to be seen at 51% of frequency growth gives me the very clear path that I believe that, that will be coming very soon. That's point number one. Point number two, link to what Edward was saying. Yes, loyalty will be coming next year, right? That's why we are extremely excited by the fact that we will be having this e-commerce platform implemented by the end of the year, that is going to be allowing us to bring loyalty, right? We're probably the only company in the industry right now that doesn't have any strong loyalty program from that perspective. So the avenue of growth from that point of view, when you get it right, is critical and fundamental. I was thinking yesterday, right? When the U.S. launched loyalty over there, the increase on year 1, 1.7x their frequency from that perspective. So I really believe that between app. I'm not talking about the basics of the business value or operations, right, with the app and loyalty definitely, those orders will continue to be growing at even a higher step after this 2.8% that you have seen.

Alex?

It's Alex from Panmure Gordon. I've got three questions, if that's okay. So you highlight the uncertain consumer backdrop in the outlook statement. Have you seen any changes in consumer trends. Second question is on cost inflation. Greg this morning said is starting to ease. Just any comments, I appreciate, it's a different business model, any comments and that would be great. And then finally, on the slides, the U.K. market share dropped between Q1 and Q2. Just any comments on that would be great.

Yes. I'll take the first 2, and you take a little bit of the market share. Let's go through consumer trends, right? Well, obviously, there has been a great reception to the value platforms that we have launched. That's the first one. The second 1 that I will say is collection. We are already at 42% of our orders through collection, 42%. And we are still seeing 20% of growth this year versus last year. And the most important thing on this collection is that with real data we are seeing minimum cannibalization between the delivery customer and the collection customer, which was a big concern that we had even if the U.S. -- our colleagues in the U.S. were very clearly saying that these were very different consumers. That's what we are seeing right now. And I will say that the reason for this growth in collection, you've been here for the last 2 years, this has been a very clear area of focus for the team on many different angles, right? And it doesn't happen in 24 hours, it happens over time, right? But the team was first extremely focused on getting alignment with the franchise partners; number two, bringing awareness; number three, making sure that the operational was there, that the systems and the process were right there to execute at the store level without having a problem with delivery and fourth, value for money. We have launched 2 huge campaigns on local marketing that has been very much aligned with most of the franchisees across the country. The first one, GBP 7.99 for a medium pizza, 2 toppings. The second one, GBP 9.99 for a large pizza, 2 toppings. So even better price than the GBP 8, GBP 10, GBP 12. So obviously, we have seen that increase from that perspective. I guess that the immediate question that could come is, okay, but delivery is going down Yes, but the trend is up. Q3 last year, we were as between minus 12% to minus 15% down on delivery. The total year last year was minus 10%. Q4 last year was already a minus 5%. We started Q1 this year -- help me here. I think it was at minus 4.9%, and we are already in Q2 at minus 3.9%. So I think that the initiatives that we have launched are starting to be having a good positive impact on delivery too. Now cost inflation, yes, we are seeing the same. Yes, we have seen the same. We have seen a stabilization from a cost pressure from that perspective. Obviously, it has also been a great work by the procurement and the supply chain team. I told you in previous meetings, right, our 6 largest ingredients with the suppliers of our 6 largest ingredients, we are the largest supplier of these companies from that point of view. And obviously, we are growing more than our competitors. So obviously, we have a very strategic long-term partnership, right. But for example, with our chief supplier. We have seen month after month already for a few months, a decrease of food cost that has obviously been extremely positive for us considering how important is cheese, right? Now I will say here, I think that we can't relax, we can be complacent from that perspective because we are seeing also still some inflationary pressure on some categories, for example, meat pepperoni, where immediately, we've been working very hard with our supplier partner, but also continue to be approving alternative suppliers in order to not relax for a second and give the best possible price to our franchise partners. You want to take the market share?

Sure. Just a couple of points on that. So as earlier said, there's variability between different categories. They're overall broadly stable, but categories like dairy. There's some signs of deflation, and obviously, we will pass deflation as well as inflation on to our franchisees. It's important to [ number on ] -- cheese, as a number of you already know, that's a cash sort of margin. So in fact, our take from that doesn't change. But that's a little bit about what we're seeing on deflation. We then move on to market share. So market share tends to work best because of inevitably because of sort of seasonality and sort of cuisine to really compare on a year-on-year basis. And so I think if you look at that slide that you're referring to, and you see the trajectory this year is similar to what you've seen sort of in previous years. So yes, there is some change between Q1 and Q2. But really, the most important piece is to look at sort of look at the year-on-year is because that adjusts for the all corrects for the seasonality. Dara?

Darragh O'Sullivan with Jefferies. I was wondering if you could comment on the white space opportunity in the U.K. and Ireland. Edward, you mentioned that you see an opportunity in Ireland, particularly. So any comments on that would be appreciated. And then on the new store openings, I was wondering if you were able to give us an indication of what the split is between new franchisees and existing franchisees opening stores?

Yes. Very good. Let me start by white space. I guess that the best way to summarize this answer will be -- if we take the penetration of the Domino's brand, I mean, a very successful market for us, that my partner, Andrew Rennie knows very well, which is Australia. The penetration of the brand is over there, one store per 29,000 people, one store per 29,000 people. We are today here in the U.K. and Ireland at one store per 53,000 people. There you have the white space. I really believe I strongly believe that there is a huge opportunity in this market for Domino's to be extremely successful this year and the next years to come, it will continue to be aligned, which we will under the leadership of Andrew on development. Do I have facts to support this? I do. I do, this year, our franchise partners -- can give you many examples. The first one that comes to my mind is the latest opening of my franchise partner, Ricky Kandola, the SK Group, one of the openings that they have done. Our average per store in terms of addresses in this country is 22,000. So we captured 22,000 addresses per store in this country, he has opened very recently store at 7,000. He is selling GBP 40,000 a week, GBP 40,000 a week. So I do believe that there is a huge opportunity for us to tackle new territories or white space where nobody is delivering, and that's what we want to tackle from that perspective. That's point number one. Point number two, there is still a lot of white space on a split in. That's Andrew's -- that's adverse point. our addresses per store in Ireland are even higher from that point of view. Profitability is higher, and we are #2. We are not #1. So there is a huge opportunity for us to continue to be doing openings over there under the leadership of Andrew and that's why we have invested in us, our supply chain, manufacturer over there, I think it was [ 11 million ] in order to be making sure that we capture the opportunity growth that we have there. So that's regarding a white space. The next one was regarding new store openings, right?

It was about new -- how many were coming from new existing franchises?

Look, most of it are existing franchisees. We have 64 franchisees right now in the market. Most of them are existing franchisees, but we have been extremely successful over the last year on career development for our store teams. What do I mean by that? We saw last year that there was a lot of tension and his last competition to recruit talent for our stores. And what we designed with our franchisees was to offer a career development path. So what we are doing is a program called HomeGrown Hero, by which our franchisees identify extraordinary talent at their stores that don't have the opportunity to grow within the structure and that we support for them to become a franchisee. We have had 4 openings with this Homegrown Heroes last year. And this is a program that I am completely sure that Andrew together with Nikola Frampton will continue to be pushing hard on the next months as last years. Because it's a great avenue for growth, right, for the future. Some of our franchisees that right now have hundreds of stores were driving bikes at the beginning when they started the history within the Domino's business, right? So I think that, yes, that's a little bit of the speed and the reason behind it.

It's Anubhav Malhotra from Liberum. Can I just ask on the GBP 70 million buyback that you are announcing today. I mean you got that cash a while back, how was the decision made in terms of the opportunities that you thought about? Did you think about maybe potentially inorganic opportunities in terms of adding a new brand, maybe or maybe even organic opportunities in terms of opening new stores, given you have a lot of opportunity in Ireland, for instance, you have a minority stake there in one of your partners. So how did that decision was made, what wall was explored, what was not? And maybe another question on new store openings, how much at the moment are being done by via split and how much are going into virgin territories? If you would give that number to me, that would be helpful.

If I start with sort of buybacks, then I'll hand across to Elias, you can comment on split and virgins in the stores. So the GBP 70 million share buyback, look, what we as a Board, we applied the capital allocation framework. We've talked to you obviously consistently since March 2020 about the 4 principles sort of -- of those. So obviously, we look at investment opportunities within the business, and then we work through the dividend and other opportunities. So look, as a board, we continue to look at all opportunities. I think the point that's really important is that we've got very strong free cash flow generation. So we have the ability within the sort of performance and profile of our business to both invest in the business and drive it forward for sustainable long-term growth, and to return surplus capital to shareholders. And so in this case, we as a Board, we assessed that and debated it and decided carefully and have announced the GBP 70 million buyback of those proceeds today.

Just before I go to the other question, priority of the team is the U.K. and Ireland and Domino's, the priority of the team at this particular moment. Again, I just mentioned the opportunity that we have is still from a store opening perspective. Let me go through a few more right, loyalty opportunity from that point of view -- the app. We just started huge momentum but we just started, we need to continue to be reinforcing CRM from that point of view. Our technology platforms, they will be done one in November, the other one on H1, 2024, lots of work to be done from that perspective, there is still a lot to be done, right? Andrew will correct me, but I think that we still have or we have approximately 20 minutes delivery in Australia. Room for us to continue to be doing lots of openings and continue to be doing lots of work in order to be capturing growth from that perspective. So that's on the first one. On the second one, quite frankly, I don't remember the numbers exactly between a split and new territories, we'll share later on. Most of them, I believe there have been splits. But quite frankly, we are pushing both of them, so we could give the number later on, that would be great. But we're pushing both of them. The new territories is an area that probably we should have put a little bit more focus in the past, we haven't. So that one is definitely one that we are pushing hard, but at the same time, splitting, right? We have a franchisee that bought the business in Brighton, right? And that has already splitted that city a lot over the last 12 months in order to continue to be growing the penetration in that market now is doing very well. Very recently, one of our partners opened the store 215 Telford, right? Very soon we'll have 6 stores in Telford. And profitability growing and penetration growing, right? Who was going to tell us that we were going to be able to have 6 stores in Telford, right? So we'll push both. But we'll get the -- sorry.

I don't need to put my glasses on, its [ 21/21 ] splits and 8 greenfield. I think that concludes today. unless there's any final questions?

Please go ahead.

Anubhav Malhotra again from Liberum. I just wanted to ask on the cannibalization point that you were making about collection, not cannibalizing deliveries. Now you don't have a loyalty app at the moment. So I see the delivery order count is down. I see that the number of customers are up, which suggests to me that the frequency is down. And I'm wondering if collection is really cannibalizing that because of lack of loyalty app, you don't really know what is the -- who is the customers coming in to collect because they're not scanning at the till like they do for other brands. So?

The data that is telling to us that, that's not the case. But you're right, we'll know far more with loyalty, and we'll grow far more with loyalty from that point of view. This said, again, just delivery frequency is slightly down. Yes, it is. But again, as I said before, right, it's going on the right direction. One of the biggest concerns that I had when I joined the business back in end of Q3, beginning of Q4 last year was that one. You remember, I remember one of your notes, was already a minus 15% on Q3. We are at Q2 at minus 3.9%, right? And if you see the results of the aggregators, that's not the case, right? So we are starting to be having an impact from that point of view on that. But again, lots to be done and loyalty definitely will be a good help from that point of view. That's why it's so important for us that we get this e-commerce platform in place, and that we bring loyalty to the customers that we believe is going to be continue to be bringing that delivery frequency up without forgetting again app customers, right? During the last 12 months, 51% more frequency for our customers coming through the app, vis-a-vis customers coming through the web. And I told you right? 59% of our customers were coming through the app in Q4. We are already at 81% last week from a 90% of digital sales. So I think that you will see the growth coming. When? That's what I ask my team every single day, but -- is starting to be coming because we are seeing that result, and we believe that, that will continue. Look, thank you very much all of you for coming. We'll be here to have a coffee if you want, we'll have Andrew also here. And thank you very much for everyone on the webcast for attending today's meeting. Thank you. Thanks a lot.