Deliveroo PLC

LSE:ROO

Good morning, and welcome to our Interim Results Presentation for '23. I'm Will Shu, Founder, CEO of Deliveroo, and I'm joined this morning by Scilla Grimble, our CFO. All right, before we get started, I do want to take a big step back. I'm not a particularly retrospective person, but I'm going to give it a shot. It's been 2.5 years since we went public, and what has changed with Deliveroo over that time.

I think a huge amount. So let's get into it.It's also worth pointing out that we Deliveroo, we have pioneered a lot of the food delivery industry. I'm very proud of what we've done there. We were the first to develop a subscription model. We were the first in delivery-only kitchens.

We move quickly to develop Hop. We started Hop as a service. There's countless other examples. Innovation and growth is at the heart of what we do. Perhaps the best example of this is grocery, we started this business from a standstill a few years ago.

We grew this business through conscious deliberate investments, dialing-up harder when we felt growing confidence in the CVP, as well as the unit economics. And we also invested heavily in the tech platform.Our grocery business is now over 10% of our GTV, and I see no reason why it can't be much bigger in the future. These investments have formed the bedrock of our business, and we're going to keep investing in areas that we're excited about, because philosophically, this is what we do. But it's not just about new verticals. One of the values at Deliveroo is champion innovation, both big and small.

We relentlessly think about how we can develop the core CVP through daily improvements in our technology platform.So let me give you some examples from the first half. Improvements in our ML models that drive our delivery network greatly enhance the reliability of deliveries, but also bolster our unit economics. We're going to talk about that later. Improvements in our self-service care capabilities means, consumers can resolve issues themselves more seamlessly, and it also saves us money as well. Continual improvements in personalization outgoes means consumers are discovering brands and dishes they've never considered before.And we know before they do that they will likely love these dishes.

We're shipping product faster than ever. The cumulative creativity and impact of these daily incremental improvements is just as impressive and impactful as new verticals. And we are very proud of that everyday work. And so, we continue to invest in "our core proposition." The compounding impact of these small daily improvements is massive. It's the engine to growth across the industry and also market share gains.Now in the last few years, the macro shocks have been huge.

We've navigated a pandemic. We're navigating food inflation. We're navigating a tough consumer environment, it's always intense at work. Yet we have seen good growth. And on top of that, we've made massive strides towards profitability.

We have an adjusted EBITDA margin of over 1% of GTV in the first half. We reached positive adjusted EBITDA a year earlier than we guided to. And now, we're getting very close to cash flow breakeven. So we're really proud of those accomplishments.We've also demonstrated strong capital discipline. We exited Spain, Australia and the Netherlands to optimize our portfolio.

And including the proposed return we announced this morning, we've announced GBP 300 million of capital returns to our shareholders in the last six months in addition to the GBP 75 million in H2 last year. So I guess if I take a step back and I put it all together, we are fundamentally stronger than the company that went public in March '21. We're a much stronger and a more resilient company in an industry that I think is "getting back to normal."Our CVP is better. Our tech platform is much more established and the team is the best it's ever been. So here I am talking to you 30 months after the IPO, I'm excited about the future, I'm excited about our future plans, and I'm excited to come to work every single day.

So we're going to talk more about these future plans at an investor event in November, but I wanted to take a step back and think back on the last 30 months and provide a little context for this presentation.All right, now on to the key takeaways for the first half. I just want to start by saying, I am really pleased with the team's delivery. I want to thank the team. It's driven a solid top line performance with profitability ahead of expectations. UKI orders returned to year-on-year growth in Q2.

GTV growth also accelerated. This is a strong performance despite some pretty tough consumer headwinds. We also made great progress in our CVP, I'll talk about that later. International is varied by market. I'm very pleased with our continued leadership in Italy and improving performance in Hong Kong.

France has had a tough market backdrop, but I'm confident in our ability to deliver progress here.I'm someone who focuses a lot on inputs and specifically on the CVP. And we have made great progress in the first half in our consumer experience pillar. Specifically, on making sure our consumers get the best service possible, we've accomplished a huge amount on service in the first half. I'm going to be excited to talk about that later. We also have a healthy balance sheet, and we're well capitalized to go after growth opportunities ahead.

We've made really good progress towards free cash flow breakeven. And, although, I think we have further to go in terms of sustainable cash flow generation, we now see this as the right time for us to assess our surplus cash position, given all the progress we've made. I think we're well aligned with shareholders on what drives value creation, continuing to build on the compelling growth opportunity in front of us, but we are also disciplined. We're announcing a proposed further return of GBP 250 million, and Scilla is going to talk more about this.So with that, let me hand over to Scilla to talk through the financials.

Thanks, Will, and good morning, everyone. As Will said, we've made good further progress on profitability in H1 and against a difficult market backdrop. We delivered resilient top line performance. GTV grew 3% or 1% in constant currency, with growth improving in Q2 compared to Q1. Revenue growth again outpaced GTV growth, up 5% year-on-year or 3% in constant currency. And this increase in revenue, alongside efficiencies in the rider network, meant gross profit grew 23% year-on-year.Adjusted EBITDA was GBP 39 million, an improvement of GBP 91 million year-on-year. This was ahead of expectations for H1 and a good sequential improvement on the GBP 7 million we delivered in H2 last year. As we said with prelims, we remain conscious that adjusted EBITDA is not true profitability, and we're focused on reaching this and delivering sustainable cash generation. Free cash flow, which as a reminder on our definition is after exceptionals and before interest income was an outflow of GBP 28 million, that's an improvement of GBP 141 million year-on-year. So significant progress on profitability and improving cash flow profile, albeit with further to go to get to sustainable free cash flow generation, and we ended the half with a strong net cash position of GBP 948 million.Moving into more detail then and starting with our top line metrics.

On the top left of the slide, you see the shape of our GTV growth in constant currency, which showed improvement in Q2 after a tougher Q1. GTV growth was particularly led by the UKI, with year-on-year growth of 6% and 8% in Q1 and Q2, respectively, despite consumer headwinds. In Q2, order volumes for the UKI business returned to growth and were up sequentially on Q1. We improved our CVP, particularly on service and selection and improved our value perception, International and UKI, but showed improvement in GTV growth in Q2.The major market that weighed on International through the first half has been France. Looking at the chart on the right, you can see that excluding France, international would actually have returned to GTV growth in Q2.

The biggest positive driver in international is Italy, which we talked about at prelims. Our business continues to develop very positively there, and we continue to see further opportunity. In our other larger markets, we saw nice growth in the UAE again in Q2 and quite an improvement in Hong Kong, thanks both to easing COVID comps and our own actions there.But I also want to say a few words about France. The market here has been contracting for the last 18 months, driven first by a stronger unwind from the COVID peak than other markets. And more recently, the fact that the French consumer seems to be impacted a bit more by cost of living pressures.

When you compare it with markets such as the U.K. and Italy, consumer confidence in France has not yet recovered this year as it has in other markets. And that's partly why our strategy in France for the second half includes not only continuing to improve our selection, especially in grocery, but also focusing even more on value for money. So not an easy market backdrop in France, but it's worth noting that our France GTV is still over double the size of pre-COVID levels.Turning now to look at revenue. Revenue for the half was up 3% year-on-year in constant currency, that's 4% in Q1, and 2% in Q2.

The UKI saw strong revenue growth of 10%, while International lagged for the reasons I mentioned earlier, namely the top line weakness in France. We prioritize value for money for our consumers in both segments in light of the tough macro, by reinvesting some revenue into discounts and promotions to support demand.Looking to the right. Our revenue take rate improved by 60 basis points year-on-year and was broadly stable sequentially on a half year basis. The slight tail off in Q2 was due to increases in promotions, which are taken as an offset to revenue and also some mix effects, such as driving pickup in Hong Kong. Alongside the factors that drove GTV growth, revenue was boosted by our advertising business, which has reached an annualized run rate of GBP 55 million in Q2.Moving on to gross profit.

We've been pleased with the progress here with a year-on-year increase of 23% to GBP 365 million. As you can see from the bars on the left, we saw improvements in both geographic segments, which led to group gross profit margin expansion of 170 basis points year-on-year to 10.4%, and slightly above the 10.1% delivered in H2 '22. This reflects the year-on-year increase in GTV per order, as you can see on the right. The revenue per order improvement that I talked about earlier, as well as efficiencies in the rider network.Despite the impacts of cost inflation in many of our markets, we managed to keep cost of sales per order broadly stable at about GBP 4.50 compared to about GBP 4.40 in H1 '22. And in fact, when excluding FX impacts, the year-on-year increase is less than [GBP 0.05.] This management of the unit economics has clearly helped create leverage and margin expansion.

Now on to marketing and overheads, where we reduced costs by 6% year-on-year to GBP 326 million for the first half. Marketing costs were down 27% year-on-year to GBP 94 million, reflecting the more targeted approach to marketing investments that we initiated in H2 last year, given the weaker consumer environment. We continue to focus on efficiency, although, I do expect spend will tick up a bit in H2. Overhead costs increased year-on-year, but decreased sequentially, and it's worth spending a minute to talk through the dynamics over the last 12 to 18 months, which you can see on the right-hand table.If we start with salaries and wages of our employed staff, you see that they were up 15% year-on-year, but the increase essentially happened last year, before we began taking cost control measures in light of the weaker consumer environment. During H2 last year, we implemented a pause on hiring and stopped backfilling roles.

And then in February, we initiated a redundancy programme that removed 9% of roles during H1. The in-year cost impact of the redundancy programme is limited given the wage inflation is running at about 6% in the U.K. at the moment, but we do expect the changes we made to deliver a permanent shift towards increased efficiency, reduced friction in organizational structures and increased speed of decision-making.Outside of staff costs, we've been able to reduce other people costs pretty substantially in H1 earlier than originally expected. A large chunk of this has come from reducing our use of contractors. And we've also taken down non-people expenses by 13% sequentially, driven by areas such as IT expenses and professional fees.

Overall, we've brought overheads down 8% compared to H2 last year. We don't expect a substantial further decrease in H2, but these are decent first steps forward to drive operating leverage when top line growth begins to accelerate.So all those components together meant we delivered adjusted EBITDA of GBP 39 million in H1, a year-on-year improvement of GBP 91 million. This meant significant margin expansion of 260 basis points versus H1 last year, and about 2/3s of that came from gross margin and the rest from operating leverage. As I talked about on the last slide, some of this progress came earlier than anticipated, as we landed some cost efficiencies earlier in the year than we had originally expected. We planned further investment into the CVP in H2, and Will is going to talk about why this is so important for the business.

Overall, I'm pleased with our progress on profitability, a step forward again.Turning now to look at our cash position. And we closed the half with net cash down about GBP 50 million to GBP 948 million. Looking at the key elements of cash flow then and starting with adjusted EBITDA of GBP 39 million, which is what we're seeing was a significant positive swing for our cash flow compared to prior periods. We spent GBP 25 million on capital items, that was GBP 20 million on capitalized development costs, and GBP 5 million on CapEx, which reflects our discipline and rollout of additions and Hop sites in light of the macro environment.Working capital reporting date is, by its nature, a snapshot and doesn't reflect what we see through the year and intra-month and intra-week even. For the first half, we had a small outflow from working capital.

We also had an outflow of GBP 9 million relating to leases and a GBP 19 million outflow for exceptionals, which mainly related to market exit costs and legal settlements, but also include GBP 6 million for the redundancy programme. Excluding exceptionals, the underlying movement in free cash flow was minimal. Cash interest is next. We saw a GBP 30 million inflow up year-on-year as expected, given the rate environment. Then finally, we have the cash outflow for share buybacks, $9 million of this relates to the completion of the GBP 75 million programme announced last year, and GBP 29 million relates to the GBP 50 million buyback announced in March this year. So to round that off, good progress as we move towards our goal of reaching sustainable positive cash flow generation. Turning to our guidance for the year.

If I start with GTV growth, back in March, we guided you to low to mid-single-digit percentage growth in constant currency for the full year and said we expected to see growth improve through the year. Today, we're narrowing that range to low-single-digit growth based on performance through H1 and into the start of H2, and consensus currently sits at above 3%, so very much already in the range of our updated guidance. Turning to adjusted EBITDA. With prelims, we guided to GBP 20 million to GBP 50 million weighted to H2. H1 EBITDA came in ahead of expectations driven by the earlier realization of some of our overhead efficiencies and a mixture of timing benefits and lower marketing spend. For H2, I already mentioned that we do not expect a material further decrease in overheads, and we do expect marketing spend to tick up a bit.

We'd also be reinvesting in our CVP to keep controlling the levers we can, so further improvements to consumer experience to service to value and so on, and you'll hear more about this from Will in a few moments. So taking into account, the first half performance and our plans for H2, we're upgrading our adjusted full year EBITDA guidance to GBP 60 million to GBP 80 million.

Moving on to look at our capital position. Our progress on profitability and cash generation has given us confidence that now is the right time to assess if the group has structurally surplus cash. When assessing our balance sheet, we've considered our capital structure, our growth plans and operational requirements. Investing for future growth remains our priority, as Will mentioned earlier.

We're excited by the number of potential growth opportunities ahead of us and want to preserve the financial flexibility to pursue these, of course, with the right investment discipline, and we'll come back to these plans later in the year. As you all know, our industry is very dynamic, constantly innovating and is yet to reach a steady state. It remains highly competitive, and we have several well-capitalized competitors. We have strong market positions and need to maintain financial flexibility to retain and grow these. Of course, in addition to growth, we also need funds for ongoing operational requirements and working capital. So those are all the things we've considered in strategic and operational capital.

We've also considered headroom. Here, we mean the need for financial flexibility for unforeseen events. And as you're aware, rider status remains under-scrutiny in certain markets. At any given time, Deliveroo will be involved in regulatory and legal challenges and appeals, and we have recognized provisions or contingent liabilities as appropriate. As a reminder, our legal provisions increased GBP 27 million in the half to GBP 156 million, quantifiable contingent liabilities were GBP 14 million, and we have a disclosed range for other contingent liabilities of GBP 50 million to GBP 200 million. And then, we've considered the structural surplus, i.e., cash, which we think is not required in any reasonable scenario. For clarity, whilst we've made good progress on our path to profitability over the last 18 months, we're not yet generating consistent positive free cash flow, nor are we fully profitable.

And as such, we haven't considered potential future cash flow generation as part of the current structurally surplus cash. Going forward, we will regularly review our capital position as we make further progress on our profitability and cash generation, and as the competitive consumer and regulatory backdrop becomes clearer.Taking all of this into account, the Board announced this morning a return of a further GBP 250 million to shareholders, this brings us to a total of GBP 300 million announced in 2023 or broadly 1/3 of net cash at the start of the year. We'll be consulting shareholders on the appropriate mechanism for this return and would expect that consultation to be completed before the end of September.And with that, I'll hand you back over to Will to talk through our operational progress.

Thanks a lot, Scilla. Now I'm going to talk to you about our operational progress in the first half. So as I mentioned earlier, the thing I am most proud of in the first half is the progress we've made on our consumer value proposition or CVP. Our industry is early in its maturity. It's a super interesting market.

It's a really big one, yet one where, let's face it, there are a lot of improvements that we could still all be making for the consumer, even 11 years on.And that's what motivates me, making sure that every single order is flawless, making sure we surface what consumers are looking for and then figuring out the things consumers don't even know that they want yet. I've been doing this for 11 years now. I'm surprised that the complexity and opportunity every single day through relentless focus and consumer obsession and always putting ourselves in the shoes of the consumer, there are many growth opportunities in front of us. The team has done an incredible job on the CVP in H1. I think this is the fastest we've ever moved.

We have a heightened sense of energy and vigor on consumer obsession, and continuing to develop our CVP is the key to our long-term success as a company.So on this slide, you can see the five pillars of our CVP, and specifically the improvements we focused on in the first half of this year. We've made progress across all five, including progressing our brand refresh and improvements on availability, but I'm most excited to talk to you about the three pillars on the left, and I'm going to unpack these in the upcoming slides. So what is the consumer experience pillar? Well, that's a lot of different things. How is the search and discovery experience?

How was the rider tracking page? How is the interaction with the rider? Bunch of different things, right? But specifically here, I'm going to focus on that delivery experience.This is everything that happens after the customer has placed the order. So questions such as how fast was the order?

Whether timing is accurate? Could the rider seamlessly find the customer? Did you get exactly what you ordered? Was it hot? When somebody went wrong, did we deal with it appropriately? We think of this as Service with a capital S, a key part of our consumer experience pillar. So let's focus what we've done on service. Back in Jan, I asked the whole team and a firm-wide a very specific question. How many of you have had a negative order experience in the past year? And how did it make you feel?

Of course, I knew the answer, but I wanted everyone else to hear it. There's nothing worse than when something goes wrong with your order. Let's say, you don't get your Fanta Zero orange and you got a Diet Coke instead, happened to me.Let's say your curry is spilled, your kids are screaming for dinner, it's not showed up, where the milk is missing from your grocery order, so you can't make your cappuccino. The number one reason for churn out of the industry or to competitors is when something goes wrong. And I actually think this is one of the top reasons the industry isn't bigger.

You don't ever think about an Amazon package going wrong, you just expect it won't. And in food delivery, it's even more emotional. Maybe you've had a long day at work, maybe you're having a treat, maybe it's your Friday regular takeaway. Whatever the reason is, you want a flawless experience. And we need to make sure that happens.I think we're pretty good at it, but I think we can always be better, and I actually see this as a huge point of differentiation and growth in our industry.

So back in Jan, I challenged the team, every single one of them to play their part in improving things on this front. And I'm incredibly proud of what they've already accomplished in the first half. I'm really proud that we've significantly reduced the percentage of orders with missing items and orders received late. We've reduced orders, not received at all by around 70%. We've also worked with our merchants to reduce order rejections or cancellations, and our customer satisfaction KPIs have improved greatly as well.All of these things lead to a happier customer, and also a lower net cost of the business.

And this also, and most importantly, this also has a compounding impact, this helps grow our max, it improves frequency, it improves retention, and ultimately builds market-leading positions. Getting this right is a key aspect of industry growth, and Deliveroo's growth. So I'm going to challenge the team further every day, they're listening to this call, so I'm going to challenge you to see if we can do better than the day before. And we can, and we will.All right, we're looking at the next slide. We're going to go over some other elements of the consumer experience pillar.

We've made some really exciting progress on some new features in the app. Let's start with premium delivery. This is in the UKI only right now. This allows consumers the ability to enjoy priority delivery at a small cost, and it guarantees they're not going to be the second leg of a batched order. This is absolutely one of my favorite features on the app already, I think it's been live for a short amount of time.

We've also introduced our top-up feature, grocery top-up feature, consumers can add grocery items to a restaurant order during checkout.So for example, if you want a bottle of great wine at grocery prices to arrive with the pasta you've ordered or some cold beers with your burgers, the riders will bring you both of these things. And this has been a really great way of introducing restaurant consumers to the grocery offering, and it's not just beers and wine we're selling. It's also ready-to-eat meals and eggs for tomorrow's breakfast. We've been really pleasantly surprised by the basket sizes on these incremental orders.Finally, we wanted to bring customers closer to our partners through a richer in-app experience that I think will help drive discovery. So we introduced video content, which does exactly that.

I get very excited and hungry when I see merchants telling their stories in our app. And ultimately, it's been sort of a dream of mine for a long time, I want merchants and consumers to share their stories about food and then illuminate and bring this emotion to life in this really, really rich industry. And this is one major first step in doing so.All right, now we're going to move on to selection, and we are continuing to enhance merchant supply across all of our markets. We want Deliveroo to be the #1 choice for consumers everywhere. And we're working with over 182,000 restaurants and grocers globally now.

We're always trying to improve this on a hyperlocal basis. Just a few things we've done in the first half. We've expanded our radii in certain neighborhoods to give consumers a much greater selection of merchants within their reach, some of you may see that in your app today. The aim is to leverage our restaurant supply to deliver differentiated, high-quality selection to consumers.Increasing radii is also attractive for our merchants as it clearly lets them access more of our customer base and increase their volumes. But alongside increasing radii, our models will be increasingly aware about how certain cuisines and restaurants travel better than others.

The chicken curry is plainly going to travel better than a Neapolitan pizza. And over time, we want to offer as much selection as possible to consumers but at a very good service level.All right, now on to price value. Now this is clearly more important than ever, as there's no question that inflation has hurt the demand side and also NPS scores across the industry. Things simply cost a lot more than they did two years ago, and prices have increased much faster than wages. Now these trends have gotten a bit better, maybe they stabilized a bit, but it's still a really big issue in the U.K. and Europe. So what did we do in the first half? We set up a team to tackle how we mitigate the impact of food inflation to support our consumers. This included setting up pricing incentives for our partners to encourage them to offer fair pricing and good value for money. But we've also been targeted -- targeting promotions such as buy 1 get 1 free or GBP 7 off 7 orders to give our consumers real value for money and to drive order frequency, I'm going to keep doing this in H2.We've also created carousels in our app that we think highlight really good deals from merchants, but also affordable menu such as burgers under GBP 10, as well as an offer tile.

We're also making consumers more aware of the great value they're getting on Deliveroo by improving the ways that our promotions are displayed in that, as well as bringing value options to greater prominence in our TV and digital, and print media campaigns. I think this focus on value has been a really significant but also very useful undertaking. And now that we have started, I think, a really strong foundation, I'm excited about how we can get better in H2.Okay, now we're going to move on to advertising. I talked about this briefly in March. Basically, we've carried out making really good progress.

Just to remind you, our advertising business gives restaurants and grocers the chance to advertise their products on our app, they can pay to appear in high visibility carousels or in search results. This creates incremental demand with a high proven return on spend. FMCG and other non-food companies can also advertise products. As you can see on the slide, we've got ITVX advertising in our rider tracking page, and they can also do this in virtual storefronts in the app. I think we're just at the beginning of this opportunity.

It's very exciting. On the numbers themselves, in Q2, the advertising business reached an annualized run rate of GBP 55 million or 80 basis points of GTV.We saw a very positive increase in our restaurant advertising partners, which shows, obviously, a very clear interest in this side of the business. The FMCG side of the opportunity is still very nascent for us. As I mentioned earlier, though, the thing I think about most is that consumer experience and whilst ads is exciting. To me, the consumer experience is absolutely paramount, and we're going to make progress on ads, but in a measured way without impacting the overall experience.So in summary, we've made significant progress on profitability.

We've had a resilient top line growth despite market conditions. And our teams are working diligently to improve things in our control, such as the CVP. I'm super proud of the improvements we've made to our CVP, and I'm really, really happy with the team's performance on this. Thank you, again, team. Particularly, I would say, on consumer experience and what we've accomplished on service, the balance sheet is healthy.

And whilst we are very focused on delivering future growth and having the flexibility to do that, we've recognized that we've had structurally surplus capital, and so, we are planning to return a significant amount to shareholders, as Scilla talked about in detail.And let's take a step back. As I said at the start, I think the company is fundamentally a stronger company than we were -- when we went public. The CVP is stronger. The technology platform is stronger. We're shipping product faster than we ever have before, and the team is the best I've ever worked with.

So overall, it's been a really positive first half, I'm really excited about the future, both our future as a company and the future of this growing industry.And so with that, let's open it for Q&A. Thank you.

[Operator Instructions] The first question comes from the line of Andrew Ross with Barclays.

My first question is to, I guess, narrow down a bit into the investment to the customer value proposition that you guys are talking about into the second half and I guess into next year as well. Can you just give us a sense as to how much you're actually investing in that in a discretionary sense? Because there's obviously quite a bit of other stuff going on in the gross margin as well. But if you could try and kind of put a number around how much the incremental investment is both this year and into next year?And then the second question is an extension of that. I guess as we think into next year, which is some way off.

Can you give us some insight in terms of how you're now thinking about the trade-off between growth and kind of further EBITDA improvement into next year? Like you guys basically at a point of being free cash flow generative, you're well capitalized. So is there now a desire to pivot back to growing [Technical Difficulty] you still have that [ 5% to 4% ] margin target for '26. But just give us a sense as to how that margin profile might look as to how we get there in the next few years.

I guess, I think some of this is for Scilla, some of it's for me. I think specifically on the suite of investments, maybe I'll just lay out kind of how we -- the buckets that we think about, and Scilla, maybe you can go into how you're thinking about next year. I almost think about it as four different buckets. One is, I would call, tactical. And so, these are sort of, I would say, sort of marketing or discounting actions you might take, it might be response to competition, it might be -- you're looking for growth in a particular area, particular geo.I think the second one is what I call the CVP builder.

And that's one where I talked a lot about on today's call, right. So these would be greatly improved service outcomes, improved selection. I think the impact of those typically take longer. To me, a lot of the defects in the industry sort of sit in that second bucket. The third bucket to me is, what I would call a CVP adjacency.

So these are things that maybe relate very much to the core business, but we haven't fully developed out yet, right? So one example would be -- I think for those of you who were there at the grocery day, we are going to be pursuing a mid-sized basket, call it, GBP 50, GBP 60. I think we've made some progress on that, but that obviously, I think, has been very compelling long-term returns to our business, and it's something we're working through. Another example could be creating a better white label product for merchants, right? So those are things where we've already kind of spent some time on, but it's a pretty big lift.And the fourth one, I would just put is kind of new verticals, right?

And so, when we think along those four pillars -- sorry, those four buckets, there's always a bit of things we have to do tactically in the quarter. And then I'd say the other three are more long-term in nature, but some are things we know pretty well. Some are things we know a bit about and some are completely new things. So Scilla, maybe you can help with some of the specifics.

Sure. So Andrew, if I kind of stand back from everything in terms of the guidance that we originally gave as the shape into '26, so you remember that was the sort of 4% plus EBITDA margin target and within that 10% to 11% in terms of gross margin. And we still think that, that's the right shape. So you should think about our investments into CVP as being against that backdrop of the kind of gross margin range. And then as Will described, there'll be a number of different investments that we'll look to make effectively into the CVP.

Some of them will be sort of shorter-term in nature and some of them will be sort of slightly longer-term plays, as we're looking to build that kind of durable CVP proposition.As you'll remember, if we kind of step back in terms of that kind of growth shape that we experienced pre-pandemic and pre-order with the noise. Obviously, we were seeing some improvements there in max, and some improvements in frequency, but that didn't happen just by itself, that was off the back of everything that we've done in terms of our investments into CVP. So I think you should see them as delivering both things within the shape of the P&L, the investments into future growth, but still within those parameters about 10% to 11% range.

Yes. And thanks, Scilla. And Andrew, I think on your second question, which is the eternal question of what is the trade-off between short-term EBITDA and, let's say, growth. But my view is this, I'm very happy with the progress we've made on profitability. I think as Scilla pointed out in the slide, free cash flow was negative GBP 28 million in the first half, and that included exceptional, it didn't include interest income.

So all of those things from an OpEx perspective and a gross margin perspective are moving in the right direction.Now if you ask me which side am I sort of biased towards. Well, the way I sort of think about it is, this industry is nascent. I still believe it, I think penetration rates are low in our markets. It's a really big industry. We know that obviously.

It's a very competitive industry. And it's also an industry where I think the CVP could be much better as we talked about. And I think making a better CVP is the number one reason why that industry is not bigger. And then finally, there are a number of new adjacent verticals that certainly, I think, are exciting, and we're going to be looking at those in a very disciplined way. We'll be experimenting.

We'll be looking at unit economics improving and seeing the impact on CVP. And if we have confidence in those things, we will push it. So I think as I tie it all together, I would say this company is in an industry that has a lot of growth in front of it, and that's what we'll be focused on.

The next question comes from the line of William Woods with Bernstein.

My two questions around profitability. The first one is, obviously, you achieved GBP 39 million EBITDA in this half. And your guidance at the bottom end and even at the top end implies some margin dilution to H2. Just give some clarity on that. Are we at the end of the profitability inflection do you think, or are you seeing -- are you struggling to expand further in some places? Could you give some context on that?And then the second one is, if we go back to a question I asked at the full year results on free cash flow breakeven. You suggested that if we were at the upper end of the old EBITDA guidance, then you could understand how we might get to free cash flow breakeven in H2. You've obviously now upgraded that EBITDA guidance above the upper end. So can we expect free cash flow breakeven in H2?

Well, I think they're both [Indiscernible]. So if I stand back and I look at the sort of the shape of profit for the year, so as a reminder, the GBP 39 million effectively was a beat ahead of what we'd expected with prelims. That was really driven by a combination of things. Firstly, with that nice movement that we saw in gross margin rates to the 10.4%. And I think we've just -- I'm being talking through how we're thinking about that into the second half and some investments that we want to make into the CVP there.And then secondly, I mean, clearly, the rest is in OpEx and a couple of things there.

So first one is just on overheads. As you heard me talk about on the slide, we've made some really good progress, I think, there in terms of those costs being 8% down on the second half last year. We got more benefit than we'd anticipated in the first half just because of the timing of some of the people head-savings. So the quantum of those, in total, on a run rate basis hasn't changed. They've just landed earlier in the year than we'd anticipated.So therefore, overhead sort of flattish H1 on H2.

And then again, as I said on the slides, I do expect a little bit of a tick up in marketing spend as we go into H2 from H1. And that's -- some of it sort of if you like to circumstance timing, and then some of it as we're thinking again about reinforcing our value credentials, for example, in some of our key markets. So that's really the shape of profitability. That means that, therefore, the EBITDA margin, if you kind of take the middle of the range and you take 3% as the GTV, which is where consensus is for the full year, it does mean that EBITDA margin would go backwards slightly H2 on H1, but we're at 1% or so for the year on those numbers. And I think, again, sort of referring back to our kind of '26 guidance, we're very comfortable with that still.

We've always said that it's not going to be perfectly linear kind of effectively half-on-half, and we're confident with where we've ended up for the year.Then your second question on free cash flow. If I look at the numbers for the first half, so our headline number of GBP 28 million outflow, clearly, that includes exceptional, so GBP 9 million outflow excluding exceptionals. So kind of there or thereabouts really in terms of cash flow breakeven in the first half. If I look at the other items of cash flow, so I mean their working capital, CapEx, captives and leases, I'd expect in aggregate them to be similar, H2 on H1. I mean, some sort of puts and takes in terms of the categories that's sort of similar.

And therefore, again, we'd expect to be in a similar position in terms of cash flow breakeven if you're at the top end of the range for H2 and slightly below breakeven, if you're at the bottom end of the range or the implied range for H2.

The next question comes from the line of Andrew Gwynn with BNP Paribas Exane.

So two questions if I can. So firstly, I suppose what does normal growth look like? Clearly, we've had a few exceptional years as we begin to settle out and think about the balance between profit and top line, where should we be thinking GTV growth over this medium-term? And the second one, if you look at the exceptionals, obviously, we've been running at -- of loosely GBP 20 million to GBP 30 million run rate on legal provisions per half. Is that sort of behind us? Do you think that now you sort of fully provided many of the risks about us?

And I'll take the second one, and then it will probably be kind of Will leading in me following on the first one. So if I look at the sort of exceptionals for this first half, so clearly outside of the GBP 6 million that we had for the redundancy costs, everything else is in legal provisions as you're calling out. This is going to [ Sunglow ] and I don't mean it to, but sort of in exceptionals by their nature are exceptionals, and therefore, very difficult to forecast. When we look at the sort of legal provisions, they are our best estimate of what we think the likely outflow is at the time of the balance sheet date effectively.So therefore, in publishing the results today, I'm saying that my best estimates of the likely outflows is what I've got on balance sheet today. So I'm not expecting, therefore, any further increase in those.

Clearly, as you know, they are very judgmental both in terms of how -- whether or not it's a provision or a contingent liability or the quantum. But I wouldn't steer you to expect any sort of ongoing charge to be coming through the P&L for those.

Maybe just before Will jumps in. Is there a time line do you think when you sort of have a bit more clarity as to what the final amount might be? And obviously, this is relevant in the context of excess capital as well.

So I can't comment either on -- anything further on the RNS either on timing or quantum. Andrew, and you'll understand that I'm keen that we don't prejudice any of the outcomes of those proceedings. But in terms of the capital, well, effectively, we have committed to is that we'll continue to keep the balance sheet under review as we go forward and as things evolve. And that could be -- as our growth ambitions evolve, it can be as some of these sort of legal proceedings of role.

Andrew, just on your first question, which I think is obviously a question. We think a lot about, I think everyone on the call thinks about, which is what happens when the industry gets back to normal. Obviously, it's gone through just a really crazy cycle with COVID and obviously, all of this cost living and food inflation side. I guess if I take a step back and think about really from sort of first principles where we're at, we model this from a bottoms-up perspective. So we model our customer cohorts based on pre-COVID levels, looking at sort of frequency trends, retention trends, having some, obviously, new user input as well.

We also look at it from a top-down perspective. So what percentage of the restaurant market, the grocery market, we think, can be online, given where our prices are.We also look at different countries, the level of frequency and penetration. So if you look at UAE, if you look at Korea, Saudi Arabia, place China, those are very much on the high end. If you look at Italy and France, they tend to be on the low end. We put all of that together, given where the geos were at and given where we think prices are going.

And I think we get to a 20% to 25% medium-term growth. So we still believe there's a huge amount of growth ahead of us in the markets we're in. Obviously, we're investing in the CVP. We'll be investing in verticals as well as I talked about. And we're going to revisit this more specifically at our investor event in late November.

So there'll be a lot more to come on maybe a more refined and nuanced look on medium growth -- medium-term growth. That's where we are now.

I'm sorry, the 20% to 25% that's the sort of CAGR growth you'd expect in the medium-term?

Yes.

The next question comes from Georgios Pilakoutas with Numis.

First on the U.K., now at 6% margin. Just your thoughts on kind of how sustainable that is as you kind of go back into focusing on growth, how you think around not getting too much oxygen to competitors? Second one, international looks like it was back in sequential growth. I guess, can you comment particularly on France? Is there anything to suggest that sequentially that business has troughed, or is it still a bit too early to make that call?

Georgios, why don't I start on both, and I'm sure will build. Yes, you're right in terms of the sort of 6% margin. Clearly, the way that we're thinking about the UKI is sort of no different really than we're looking at that, then we're thinking about the CVP as we've described earlier on the call in terms of those investments. So we'll be looking to make sure that we're making appropriate investments into the second half and beyond into the CVP to continue to drive frequency and max as we were describing.

And the thing I'd say about the U.K. is, so I think it's a very good question, and it's totally valid for us to debate. But the thing I would say is the areas and geos in which we are strong, I just think support a structurally higher gross profit rate, because the population density is higher, so you've higher drop density, you have more affluent customers, you have a higher mix of independent merchants. And so, not every neighborhood is created equal, which is why at delivery, we think about things hyper-locally.And so the areas where we have very strong share, we have confidence that they can accommodate higher degrees of profitability that we can deploy elsewhere. But we're always reviewing that.

And look, the market's always been competitive in every single area we're in, and I've been doing this 11 years in the U.K., and it's always been competitive. So we're always looking out on for that as well. Sorry, I interrupted you Scilla.

No. I think that was a very good build. And then France look, so in terms of what we're seeing there, Georgios, as you said, is very much a market-driven phenomenon, if you like. When we've looked at -- looking into various different aspects of kind of economic behavior. Honestly, we're not seeing a whole lot of differences in the economic data than we are in some other markets such as the U.K. and Italy. But what has been the sort of telling difference, as I kind of touched on in the presentation is consumer confidence, where the French consumer confidence just hasn't rebounded in the way that it has in some other markets in Europe. And therefore, and it's difficult to call exactly when that will happen.But that being said, while obviously, it's a difficult macro backdrop. In terms of GTV, we're still double the levels that we were pre-pandemic. And we've got our own plans into the second half in terms of what we're looking to do within France.

So for example, some of the things that we've talked about in terms of CVP investment, particularly in relation to value in France. And we're also very focused on how we're thinking about grocery, where actually versus some of the other markets, groceries a smaller penetration. So we're looking at how we can expand selection there.

The next question comes from Luke Holbrook with Morgan Stanley.

Just a couple of questions from my side. I know Scilla, you spoke about the GBP 50 million to GBP 200 million of contingent liability for an adverse kind of outcome situation. It implies that you'd almost pencil that capital aside for the time being. But should, I guess, some of the outcomes being known within the next 12 months, does that effectively penciling the ability for you to announce, let's say, further distribution to shareholders next year?And then just my second question, Will mentioned about moving up the grocery basket size to GBP 50, GBP 60 and also the ability to kind of add an additional product Hop products at the end of the restaurant order. Just wondering on that side, does that require more investment into Hop for the coming year.

So maybe I'll start with the first one. So the way that we've thought about that kind of headroom bucket within our capital allocation is really in two ways. One is, as you'd expect -- any business would look to preserve some sort of headroom for seeing events, steady standard and that sort of natural and prudent thing to do. And then clearly, the status of our riders remains on discretely in certain markets, and you've got inertia relating to the provisions and contingent liabilities disclosure.At this point in time, we've taken the view as of today. And I think it's right that we should retain some elements of cash in the case of any cash outflow. But I'm not giving you a precise sizing as to exactly what we've included within that bucket, but I think we've taken a sensible and kind of prudent approach there. But then stepping away from that detail and your point really, which is about how we're going to think about capital allocation beyond today. And really what we're committing to is sort of as I've touched on, on the presentation that we will continue to keep that, that balance sheet under review for a number of different changes that are likely to happen over the coming years. One of those could be, how provisions and contingent liabilities do or don't crystallize. But other things can be in relation as we said to our performance and our growth opportunities ahead of us.

Yes. And then, Luke, just on your question in terms of moving up in the basket. Can you just tell me, was the question really -- does that mean we're going to look to expand our Hop business? Or was it -- sorry, I probably wrote it down...

Yes, exactly. Just generally around the investment, does it require investment in the rider network around grocery into Hop itself. Just more color really on the implications of some of that purchase that you've had in the CVP.

Yes. I think on the -- so there is kind of two different things here. One is the top-up order. Top-up grocery order, which we have built, which is live, which has a customer in London and elsewhere you can definitely use. That was really an investment in technology and sort of visibility as opposed to any sort of CapEx. I think moreover, the sort of larger basket size, again, will be primarily an investment in -- improvements in our rider network. So vehicle class -- so assignments of riders with different vehicle classes, better volumetric data. But then also, I would say, better integrations with grocers as well as the ability to increase SKU count. We're at 10,000 SKUs with, I think, Sainsbury's or a few other grocers right now and we'll be upping that.So an investment into that. And I do think, once we believe that the CVP works, the unit economics definitely work on larger baskets.

I don't think there's any question about that. But the question is, does the CVP really work well? Can we deliver these things very reliably with the minimal stock-outs and doing that in a timely manner, that's what we need to figure out. And once we feel good about that, the CVP and the unit economics, then I think we would then push on visibility. But it's not a CapEx investment per se, I would say.

The next question is from Lisa Yang with Goldman Sachs.

I have two questions as well. I think firstly is on your GTV guidance for the year. I understand you just noted down slightly and consistently there. But I just wonder, obviously, given Q2 GTV was bit better than expected. What are you seeing so far, maybe in the third quarter that maybe you drive the [Indiscernible] for the year? And if you are low-single-digit for this year, what makes you confident that you can reach double-digit next year, which I think -- which were consensus is at the moment? So that's the first question.And the second question, I guess, more for Scilla, could you maybe elaborate on the different mechanisms of cash returns that you will be discussing with the shareholders and also if you can give some color on the potential tax implication associated with each of the mechanism, because I understand the return on capital that has been previously raised, there might be some difference in terms of how they get treated in terms of tax.

Okay. Why don't I start and then Will. So just in terms of the GTV guidance just in terms of future years. In terms of GTV guidance, Lisa, so you're right, we've narrowed within the range, and we thought that, that was sort of transparent thing to do. And so we've -- as you've seen, we've moved from negative 1% in Q1 to sort of plus 3% in Q2. And if you take that 3% consensus for the year, that sort of implies 5% broadly for H2. So you're already seeing some step-up there. In narrowing the range, we weren't guiding to anything particular that we're seeing in Q3. What we were really trying to say is that, if we remain at the top of the range, the daily implication would have been -- there would have been double-digit growth in H2. And we simply weren't seeing the acceleration in growth in GTV that would have made that sort of credible.

So we were just being transparent in narrowing that range. But as I said, effectively exit rate was 5% for H2.Then kind of answer your question for '24, we remain very optimistic as we've touched on in terms of the potential for profitable growth. As Will has already mentioned, we think the industry is still early in this stage of maturity. We've got lots of levers for growth ahead of us. And that's in the call.

So in terms of some of the CVP improvements that we've talked about all the extensions such as the medium-term baskets that we've touched on or in verticals such as a harder push into non-food.So some sort of short-term macro headwinds from cost of living and macro, but strong growth as we go beyond this year. And then again, as Will has already touched on, if you look at that also from a cohort perspective and which has been historically an important driver of growth, we're seeing some signs of stabilization there in terms of both frequency and max, and we see some opportunity ahead for those. So those things really that I would guide to in terms of why the shape into '24, we're still reasonable.Then the second question in terms of the different mechanics and I'm afraid, I'm not going to comment on tax treatment because that really is something that's down to kind of individual shareholders rather than for me. But in terms of the different kind of mechanics, clearly, there are three broad mechanics that could be looked at also one with two subs and another. You could look to do a share buyback.

And effectively, there are two options there. That could either be on market or through a tender. And then the other option is clearly a special dividend or frankly, it could be a combination of all three. But we recognized that shareholders will be in different positions, will have different preferences. And that's why we're looking to consult with them over the coming weeks.

The next question comes from the line of Joseph Barnet-Lamb with Credit Suisse.

Most of mine have been asked and time is advancing. So I'll keep it to one quick one. We obviously saw a major launch in recent months in Hong Kong. Can you just talk a little bit about what you're seeing in the market and your views moving forward?

Yes. So this is in regards to the Meituan's Matan launch in Hong Kong, which they launched in early May. So I guess the first thing is, we have a huge respect for Meituan as a competitor. They've -- they're the biggest food delivery company in the world, and I think what they've built is incredibly impressive. I do think sort of going into different markets, especially from a market like China requires a bit of adjustment.

So I think they've launched with a new brand in Hong Kong. The rider model in Hong Kong is very different than it is in Mainland China.And I think that our team was very prepared for their launch, and I think they've done a really, really good job defending our territory. In fact, we've gained a significant amount of share in Hong Kong over the last kind of nine to 12 months or so. So I actually think the Hong Kong business is absolutely on the right trajectory. I will say that, like I said, Meituan is a business that we have a lot of respect for, and we've seen them kind of execute over the years in China. But so far, we feel very good about what we've done. And we're looking -- we're eager to learn from what they do and kind of respond in the right way.

And just to clarify, you don't foresee any material incremental costs associated with that response for you guys?

I don't think anything that will affect the P&L in some way that is too interesting.

The next question is from Chris Johnen with HSBC.

Mine is also just one on competition going forward. I know this is generally difficult, but how are you thinking some of your -- or what do you expect your competitors to do once profitability keeps increasing, right? I mean a lot of your competitors are significantly bigger and we'll probably have more cash to weaponize going forward. How are you thinking about that? Is that already a topic for '24 or later, any sort of use that would be interesting?

So your question is, what do we do when our competitors are bigger? I think that's been the case for quite some time. I don't think that's really different. We compete against the biggest global Internet companies day in and day out, whether that's Meituan, whether that's Uber. And I think our track record speaks for itself. I think what I'm focused on is, can we build the best CVP? Can we add new verticals? Once we've proven out they're accretive to the CVP and the unit economics work, and then we invest behind that. We're really confident with our market positions. I think we continue to do really well in our markets.

And competition is just part of this industry. Like I said, it's very big, it's nascent, there is a reason why it's big, and we're just going to continue down our strategy. So sorry if I'm -- I can't be much more specific than that, but this is all I've been doing for 11 years, it just hasn't changed.

The next question is from Giles Thorne with Jefferies.

My first question is on flat. Pace have gone for differentiated with some pace, across the differentiated commissions on new restaurants and their subscription programmes. [Indiscernible] Deliveroo results, is that correct? And if it is correct, would you think about going in that direction given some of the benefits?

So -- sorry to interrupt you. For some reason, we've got quite bad feedback. Could you just repeat that question for us?

I will. So it was a question on Plus, and it was an observation that some peers have participating restaurants and difference in the commission structure. So it is to participate in restaurants, but I don't think Deliveroo does that. So is that correct? And looking loyalty for the general time? And then the second question was on the Gojek partnership announced in Singapore, whenever that was a couple of weeks ago, which feels like a pretty substantial addition to the overall direction of travel on strategy. So it would be useful to have an update from Will on latest thinking on SuperApp?

Okay. I'll take maybe the second question first, but I'll also get back to you on Plus. Yes, so we partnered with the Gojek. These are a team that we've known for a few years now. We also saw Foodpanda and TADA units as well in April, right? So it's sort of -- it's not the first -- we're not the first people to do it. I wouldn't read too much into this. I think what it is here is, we've got a partner who is looking to expand in ride-hailing in this market. They don't operate in food delivery. There's not much overlap in global operations.

And so, we think it's a really interesting way to create a great partnership for our consumers.And so really, we just view it as a partnership at this stage. I certainly understand the question of, is this a harbinger of things to come. I wouldn't say that's the case that we're going to get into ride-sharing or anything like that. I do think if there's interesting partnerships to help complement the CVP, and I think specifically in sort of very high-frequency use cases, we're going to be looking at that. And we're having some other conversations as well.And then I think on the Plus side, I think your question is, will we charge different levels of commissions for Plus customers.

I think some of our competitors charge higher commissions for restaurants that are part of their -- if they extend a subscription user over. We have different types of commercial arrangements that I'm not going to go into on this call. But we certainly view our Plus customer base as our most valuable asset in many respects. These are a lot of our top customers, and they get benefits from restaurants that are a bit differentiated from our non-Plus customers. So I don't know if that's all sort of exactly what you're asking, but yes, you can get different deals being a Plus customer that outside of just the free delivery, and it's a proposition that we're always going to keep building on.

The next question comes from Sean Kealy with Panmure Gordon.

My first question is just around the discounting and the offers that you've added to the platform on grocery. Is there any sign that, that is helping drive some price competitiveness between the grocers on the platforms? I know they probably wouldn't bring prices down to the level of in-store, but are you seeing any signs of that premium starting to move away? And then secondly, just on the white label opportunity, how do you see that going forward? Is that something you're leading into very hard at the moment? Words on that would be appreciated.

So just on the kind of discounting and offers, nothing that we would call out in terms of sort of responsiveness from the grocers. I think bear in mind, and this is something I lived for several years, not [ Friday 11 ] that will done delivery. But I mean, you know how the growth has worked, so they will always be...

What you were at?

So I was at Tesco for six years. So they will benchmark off each other clearly in terms of their pricing. So they will follow one another. What we have seen is we're -- and we talked about this, I think, at prelims, when on the app where we've made clear that we're matching in-store prices, which we have done with certain partners, we've definitely seen their volume pick up and volume swing effectively as a result of that. And clearly, any partner that engages in the platform can see the returns that they generate from either promo or different kinds of ads. So I would expect them to be responsive, but nothing that I would call out particularly in that regard.

Yes. And in regards to our white label product signature, I think that it's been quite valuable to the large restaurant brands. A lot of them have the capability to have their own app or their own website that's popular with consumers. They can add loyalty programmes and things like that. But they can also do that on the marketplace. I think it's an area that is a good sort of merchant benefit. I'm not going to call it out as something that is ultimately giantly transformational for merchants at this point in time, in my view, although, I think we're going to keep evaluating that and maybe we'll invest more on the technology side to make it a bit more of a seamless product.

Thank you. This concludes our question-and-answer session. Ladies and gentlemen, this concludes today's conference as well. Thank you all for joining us. You may now disconnect.