Earnings Call: H1 2021

Aug 3, 2021

Hello, and good morning, everybody. Thank you for taking the time to join us this morning for our Interim Results twenty twenty one Presentation. Hopefully, when we next report, we won't be limited to a virtual format, and I look forward to meeting you all in person. In the meantime, I hope you and your families are keeping safe and well. I'm joined here this morning by Neil Smith, our CFO and Will McLaren, who is our new Head of Investor Relations. So let's turn to the agenda first on Slide two. I'll be giving you a brief overview of the first half performance to date before handing you over to Neil, who will talk you through our financials and outlook in more detail. I'll then give an update on our current trading environment before taking you through the progress we have made against our strategic growth pillars and initiatives before concluding with your questions during Q and A. The Q and A session will work the same way as it did at the full year results. You should be able to see a tab on your screen where you can type in any questions you have at any time during the presentation. Please tell us your name and who you work for at the start of the question. And when we move to the session, Will will read out your questions, and Neil and I will answer them. So let's move to Slide three, our first half performance summary. I'm really pleased to say that we've had a very strong trading performance in the first half with total system sales up by 19.6%. The strong performance has translated into a 27.7% growth in underlying profit before tax and cash generation of million. As a result, we are pleased to announce we will be paying an interim dividend of 0.03 per share and have announced an additional million share buyback. This brings the total buyback announced since March 2021 to million and including dividends, a total distribution to shareholders in the year of million. Our focus to grow our core business in The UK and Ireland is firmly on track and the dispose of our Sweden and Iceland businesses completed in the first half and the dispose of remaining Switzerland business is progressing well. We've continued to invest in the business as we focus on delivering the strategy. Our Supercharged marketing campaign has strengthened our brand, significantly boosting awareness levels. We continue to grow our digital platform and since our last results presentation, have launched a new redesigned app with group ordering, Deal Wizard and in car collection. And I'll talk you through these new ordering features in more detail later in the presentation. We're very pleased with the momentum of our new store openings with plans to open up to 30 stores this year. Our franchisees opened 13 stores in the first half, benefiting from the new store incentive we launched at the end of quarter one. Early trading in these new stores has been above expectations. We have world class franchisees who have delivered an outstanding performance in the period, and we continue to have constructive engagement with them whilst continuing to work together to grow the system. Finally, we've opened a new state of the art supply chain center in Scotland to support our growth. I really am delighted with the performance of the business to date and the progress we are making against our finally, we've opened a new state of the art supply chain center in Scotland to support our growth. I really am delighted with the performance of the business to date and the progress we are making against our medium term ambitions. It's been another tough first half of the year for so many, and I could not be prouder of the work our colleagues have done to continue to operate safely and effectively throughout this pandemic. Whilst market conditions remain uncertain, we continue to demonstrate that our flexible and robust business model is incredibly agile and can adapt quickly in these changing market conditions, and this provides me with confidence for continued progress in the remainder of the year. I'll now hand you over to Neil to walk you through our financials. Thank you, Dominic, and good morning to everybody. It's a pleasure to be here this morning to present the financial results for the first half of twenty twenty one. Let's start with the income statement. This slide refers to underlying numbers, so excludes non underlying items and charges from our discontinued international operations, which I will cover later on. The underlying UK and IE EBITDA is £69,500,000 up £11,900,000 on last year. A strong underlying trading performance assisted by two main impacts. Firstly, COVID related costs have reduced to £1,500,000 down from million in the first half of twenty twenty. And secondly, we've received an estimated net benefit to our profits of million from The UK VAT rate reduction on hot food takeaway, which is applied since July 2020. Profit before tax is £60,800,000 up £13,200,000 or 28%. Our underlying effective tax rate for the half is 18%, which is the effective tax rate forecast for the full year. The resultant underlying basic EPS is 10.7p, up 23% on the first half of last year, an excellent performance. As I mentioned, COVID related costs have reduced significantly in the half to just £1,500,000 compared to £6,200,000 last year. In the first half last year, to ensure the system could operate safely, as the pandemic hit, we supported our franchisees picking up the cost of initial orders for PPE and other safety equipment. This year, we're continuing to incur incremental costs in our supply chain to ensure that deliveries can be maintained safely, and we have funded a further pizza giveaway to key workers in January. As the COVID restrictions are expected to ease in the second half, so we expect to be able to normalize the operations within our supply chain and see these COVID costs continue to decline. The UK rate of VAT was cut from twenty percent to five percent in July 2020 and has provided us with some financial benefit estimated at GBP 3,700,000.0, largely in the form of increased royalties from the franchisees and enhanced income from our corporate stores and our joint ventures. Assuming the government implements the scheduled increase in the VAT rate to 12.5% on the October 1, then clearly the benefit to the second half will be reduced. If we look at the analysis of EBITDA, as you're aware, a significant proportion of our EBITDA comes from the supply chain center through the procurement, manufacture and distribution of product to stores. Throughout the COVID period, our supply chain maintained excellent service levels. Our EBITDA from the supply chain in the first half of the year was 52,600,000 up 9% on the same period last year, largely as a result of the increased volumes sold and the lower related COVID costs. Net royalty income has increased 19% in the year, driven by strong system sales growth. The small increase in overheads was due to increased investment in our capabilities in data analytics, marketing and IT and also incremental investment in new store incentive, which was launched in the first half. Our investments in joint ventures and corporate stores have traded well, helped in part by the VAT rate reduction, although we have passed much of this benefit on to customers in our corporate stores with deeper price promotions. Before I look in more detail at our performance, let's touch on franchisee trading. Historically, we've shared franchisee trading estimates in order to provide a view of the health of the system. The numbers are extracted from submissions from our U. K. Franchisees. We aggregate the submissions to derive these averages. Our franchisees are great operators and have worked tirelessly to operate safely in a constantly changing environment. The financial performance has been strong with the average profit level increasing significantly during the half. Average UK store EBITDA was compared to in the first half of twenty twenty. On this slide, we provide more details of the sales performance of the business and we disclose two sales measures. I'm on Slide nine. Firstly, we have system sales, which represent the value of sales made to end consumers, primarily by our franchisees and also our 35 corporate stores. These system sales benefit from the impact of The UK VAT rate reduction. System sales have grown significantly, up 20% in The UK and 12% in Ireland. Excluding the impact of the VAT rate reduction, then the underlying like for like system sales growth in H1 would have been 5.5%. In the current quarter, we've now passed the anniversary of the lower VAT rate in The UK, which was introduced in July 2020. As you would expect, this means we are now seeing a lower level of reported system sales growth, but still in line with the VAT adjusted growth rate of 5.5% seen in the first half. Secondly, we have our own reported revenue. These are the revenues that we, DPG, enjoy. We've reported revenues of $277,800,000 up 12.5%. Our reported revenues comprise supply chain revenues, royalties, income from corporate stores and NAF income. Over 80% of our revenue is unaffected by the VAT rate reduction and therefore, it has limited flow through to our profitability. Reported EBITDA margins as a percentage of system sales were flat at 9.2%. This slide looks at the profile of system sales and order count in more detail. Starting on the left hand side, we split out the impact of sales and orders between collection and delivery. Collection orders are up 27.1% in the half as it recovers from the complete closure of collection that was necessary back in Q2 last year. It's now at around 75% of 2019 levels, and we expect to see this recovery momentum to continue in the second half. Delivery is performing well. Order count is down only 1.5% in the half with growth in the first quarter offset by a decline in the second quarter caused by the exceptionally strong comparative period last year when the pandemic initially hit. Comparing to 2019, delivery order count in the second quarter was up 12%, and it's pleasing to note that delivery order count has returned to growth in the second half. In the chart on the right hand side, you can see the quarterly profiles of total system sales growth in blue and order count in red. In Q1, the UK was still in lockdown. Like for like sales were up 18.5% and total order count fell by 5.2% due to the impact of lockdown measures on our collection business. This represents an improvement compared to the 8.2% order count decline in Q4 of last year. In Q2, we've seen total order count return to strong growth, up 13.5% as we lapped the period last year when the nation entered the first national lockdown and we had a period when our collection business was completely closed. Overall in the half, we've seen like for like sales up 19.3% and total order count up 3.5%. As I mentioned earlier, we so far concentrated on the underlying performance of the business, but we do have some non underlying and discontinued charges. The majority of these charges relate to the international businesses that we are exiting, and we are making good progress. Last year, these businesses reported trading losses of £7,300,000 This year, that's reduced to only million and in 2022, are expected to be zero. Below the trading loss line, we have the accounting losses associated with the disposal activity. In May 2021, the group disposed of the operations of Sweden and Iceland and with the process of disposing of Switzerland currently ongoing. Sweden was sold at a small book loss of $400,000 Iceland was sold for $13,500,000 of cash, which produced an accounting loss of $6,600,000 The great news is that these international operations are no longer a drain on group resources. We are able to focus all energy on the execution of our strategy and to grow the business in UK and Ireland. We have a business model that generates strong and consistent free cash flow. Strong trading from operations produced excellent EBITDA of £71,700,000 which effectively flows through to free cash flow. And as I mentioned earlier, we've reduced the cash outflow from our international discontinued operations. Working in the period was a small inflow of £3,500,000 which is as we expected. The large working capital outflow inflow, sorry, last year of £17,200,000 was as a result of a one off in the timing of payments around the 2019 year end. In total, we generated £51,300,000 of free cash flow this year compared to £46,900,000 last year, reflecting the strong underlying trading performance of the business. We've invested 7,800,000.0 of capital in the first half, investing in our core business to enhance our supply chain and our digital infrastructure. We expect capital investment this year to be in the region of £15,000,000 Acquisitions and disposals primarily reflects the million of proceeds from the Iceland disposal and receipts from the German associate of million, which largely relate to deferred consideration paid in respect to the market access fee. In the first half, we've distributed £70,700,000 to shareholders, represented by a dividend of £42,300,000 being the FY20 final dividend of 9.1p paid in May and share repurchases of 28,400,000.0 being the spend in the first half of the £45,000,000 ongoing share buyback program. We introduced this capital allocation philosophy back in March and we've used it to determine the appropriate use of capital in the first half. First and foremost, we want to ensure that we continue to invest in the core business to drive long term sustainable growth. We also wish to maintain a sustainable dividend with an annual EPS cover of around two times. And for the first half, we'll pay an interim dividend of 3p equating to £13,800,000 which is approximately one third of the final dividend paid last year. As part of a sustained share buyback program, we're pleased to announce today an incremental GBP 35,000,000 share buyback, which is in addition to the previously announced share buyback of GBP 45,000,000. This brings the total program to £80,000,000 and is clear evidence of the business's ability to generate significant cash flow and our commitment to return surplus cash to shareholders. In total, we've announced million of returns to shareholders this year in the form of dividend or buyback. I summarize here some modeling guidance for the current year. We are expecting to deliver incremental growth from the execution of our strategy. In addition, we want to be clear on the full year expected effects of COVID and VAT. We expect to see a net benefit of million from reduced COVID-nineteen costs and a benefit from the lower VAT rate of approximately million on a year on year basis. So a total net benefit of million. Capital expenditure is expected to be around million for the year and net debt is expected to grow to around million as a result of the use of cash to deliver shareholder returns. Now let me hand you back to Dominic. Thank you, Neil. So let's turn to Slide 17, which is the trading environment. Before reviewing progress on our five strategic pillars, I do think it's worth touching on the current trading environment. The variable and unprecedented market conditions we have seen this past year has proved that our agile franchise business model is a real advantage in the market. Let me explain how our business model is different and how that gives us an advantage. First, our vertically integrated ownership of the supply chain means that we guarantee great quality every time. Secondly, our 100% ownership of the customer relationship from order through to delivery provides us the ability to leverage our brand, marketing and technology directly with our end consumers, demonstrated by a net promoter score of 56 and our consistent customer satisfaction rating of 69% and of course, our sustainable profitable growth. Our delivery times are industry leading. We consistently deliver hot, great tasting pizza in under twenty five minutes. And finally, we continue to see real benefits from our franchise model. Working with our world class franchisees enables us to respond rapidly to any change in market conditions. As you all very well know, the delivery market grew rapidly during COVID-nineteen, giving us a real opportunity to retain our new customers and maintain that momentum as the restrictions lift. We know our delivery business is facing more competition as hospitality trade reopens, but early signs are that we are building and holding our share, and we believe that we're well placed to maintain this given the strength of our brand and offering and the agility of our franchise model. We saw how coming together can boost delivery rates during the euros with the England against Scotland game being our biggest delivery day this calendar year. Encouragingly, collection has been recovering strongly since the year end and showing improvements in each quarter, and we are now at more than 75% of 2019 sales levels. And I'm confident that our agile business model is able to mitigate some of the inflationary pressure and labor availability which the wider market is experiencing. The second half has started well. While the external landscape remains uncertain, I believe that we are well placed to capitalize on the significant opportunities ahead while investing in our strategy, which will deliver benefits for franchisees and shareholders alike. So let's turn to Slide 18, our purpose, vision and strategic objectives. Back in March, we launched our strategic growth plan under our five strategic pillars underpinning our purpose to deliver a better future through Food People Love. To recap, pillar one, nobody delivers like Domino's. We are a market leader and can build from a position of strength. Pillar two, we will turbocharge our collection business where there is an opportunity to grow market share. Pillar three, we will amplify our product quality and value through continued innovation and marketing effectiveness. Pillar four, we will uphold our industry leading economics by maintaining the world class profitability of our system. And pillar five, we will model excellence as a franchisor through increasing capability and attracting the best franchisees. So let's move on to Slide nine, where we have a clear strategy execution road map, and we have made excellent progress across our five pillars. When we set out our new strategy in March, we set ourselves clear and ambitious medium term targets to reach system sales of billion to billion and to open 200 new stores, and we're making progress in achieving these. We established priority initiatives and created work streams that support the delivery of these initiatives with leadership team sponsorship to drive high level accountability, supported by a robust governance framework to oversee and track progress against our KPIs. There is a high level of engagement across the business around the transformation program. And as a result, we are building momentum, and we've already delivered a number of key initiatives highlighted at prelims. We've accelerated our data and digital program following the investment we made in capabilities at the end of twenty twenty and have started work to replace our web platform and made material progress in upgrading our CRM platform. We've improved the customer ordering experience, launching our new ordering app at the April, and we've begun rolling out our web platform and made material progress in upgrading our CRM platform. We've improved the customer ordering experience, launching our new ordering app at the April, and we've begun rolling out our in car collection ordering channel supported by a targeted promotions campaign. We're making good progress on our food innovation process, and our supply chain continues to innovate, bringing efficiencies to the Domino's system. We've achieved a lot since we last updated the market, and I'll talk you through a number of the key initiatives we have delivered so far this year. Moving to our first pillar, nobody delivers like Domino's. This is something we believe to be true. We own the process, so we know that we deliver great quality pizza fast. We strive for continuous improvement and have made some excellent progress on digital engagement through our new app and ordering functionality, group ordering, deal wizard, a new CRM platform and a website reskin. Each of these new features makes it easier for customers to find the best deals and order more quickly. Our deal wizard has improved our customer perception of value as its algorithm ensures that our customers get the best deal every time they order. Since the new app was fully rolled out, we've seen a significant improvement in app usage with average weekly traffic increase of over 30% compared to the prior period. We had 2,500,000 app downloads in June 2021, which compares to 2,000,000 in the same month last year. And confirmation that our customers love our app are the 4.8 star reviews we've received on the App Store and 4.6 star reviews on Google Play. We implemented an omnichannel customer engagement platform called Braze, enabling a step change in personalization and automation of our CRM activity. This allows us to harness the value in our customer data and send marketing communications relevant to customers' purchase history at a time and in a channel they are most likely to engage with. We'll continue to be relentless in our approach to improve the customer experience with a number of new initiatives coming in the second half. But let's move to Slide 21, turbocharging our collection business. Collections are a core component of our Agile business model. We're seeing the collection market bounce back swiftly as we emerge from lockdown and High Street footfall has increased. We continue to see this as a strong growth avenue for Domino's. Collections for the first half were at 71% of 2019 levels, and this upward trend has continued into the current quarter with levels currently sitting at greater than 75% of pre lockdown levels. Whilst there is some uncertainty ahead, we anticipate this upward trend to continue over the second half as restrictions are lifted and offices, universities, sporting events, etcetera, reopen. An exciting development has been the rollout of in car collection to more than 300 stores, and we plan to expand this to four fifty. This is obviously not something we can roll out to the full estate as it depends on having access to a dedicated car park, but it really does offer our customers another convenient way to pick up a pizza and has the added benefit of being very cost effective. Let's move another convenient way to pick up a pizza and has the added benefit of being very cost effective. Let's move on to our next objective, amplifying our product quality and value. Under new marketing leadership and with great input from our franchisee partners, we launched our new media campaign at the May to demonstrate that nobody delivers like Domino's through a strong creative and digital campaign. The campaign is rooted in reunions between friends and family and cements the Domino's brand as the perfect partner for these occasions, capturing the opportunities as lockdown eased across The UK. The fully integrated Supercharged campaign saw a significant shift to higher performing digital channels and included TV, radio, social, digital, video and outdoor. Early data suggests that we've driven awareness and consideration, and we have seen a significant rise in brand perception since the campaign went live. Our value for money scores improved in the period, giving clear evidence of better value for money being provided by franchisees to our customers, which in turn has driven an increase in the frequency of purchase. In response to customer feedback, we have bought back old favorites like double decadence and relisted items like gluten free that had to be removed as we simplified the menu during lockdown. I'm really pleased during this half that we have maintained our customer satisfaction score of 69% and maintained our net promoter score of 56, reflecting how much our customers love our product and service. Moving on to our next objective, uphold our industry leading economics. We are accelerating new store openings. Over the years, we have built a system which rewards both franchisees and DPG for the great performance of the brand for which we are all responsible. We continue to invest in the system to exploit technology and drive further efficiencies along the value chain. In March, we made the proposed new store incentive available to all franchisees, which resulted in 13 new store openings in the first half with 11 of those opening in quarter two. Our new scheme offers franchisees in three annual installments for new stores and in three annual installments for split stores. We believe that these new store incentives offer our franchisees world class returns. The 13 new stores were franchised by six different franchisees and the largest to the smallest, demonstrating that when our interests are aligned, our franchisees remain enthusiastic to invest in system growth. We plan to deliver up to 30 by year end compared to 19 in the prior year. Early trading in these new stores has been above our expectations, and the pipeline is building for new store openings in 2022. I'm excited that we've been able to open new high street stores where many other shops have been closing over the past year. And moving on to our final objective, modeling excellence as a franchisor. We strive to provide our franchisees with the tools they need to be as successful as possible. We've built our data and insights team alongside capabilities to ensure that our decisions are backed with data, giving our franchisees confidence that we can support them to reach their full potential. We've invested heavily in our supply chain with the opening of our new supply chain center in Camberstlung, Scotland with further investment planned for Ireland. In our commitment to health and safety, we've rolled out cages and dollies, which are used on deliveries to around 200 stores with further expansion planned in the second half. We've also invested in our IT infrastructure to ensure that our e commerce platform is stable. I'm pleased to say that the platform was tested during the increased demand for pizza during the England games at the Euros, and it coped very well under the pressure. Now let's move to Slide 25, franchisee alignment. We've worked closely with our world class franchisees to maintain fantastic service levels to our customers, while continuing to prioritize the safety of our colleagues and our customers. I'd like to thank everyone in the system for their incredible commitment during the pandemic. It's been very humbling. We truly have a fantastic group of franchisees. We continue to have a constructive and open dialogue with franchisee representatives on how we can enable the whole system to align behind our strategic growth objectives to our mutual benefit. Some months ago, we provided the franchisee representatives with an offer. And where appropriate, we're implementing components of the proposed offer, which is delivering early results. And to wrap up, let's move to our last slide, our summary and outlook. We have great foundations for future growth as our agile business model has demonstrated that it can deliver returns in ever changing market conditions. We have a very clear strategy to deliver upon our medium term targets, which will deliver sustainable returns to shareholders. Our recent trading has been and remains strong, and this gives us the confidence to increase the size of our share buyback program and pay an interim dividend. So what's next? Well, what the last twelve months has taught us is that the market can change very quickly. What we have proved though is that we have an agile business, one that can react well to change and uncertainty. We have an industry leading delivery business. We've got plans to turbocharge our collection business, and we continue to invest in quality and value. Our plan is clear, and it's working. So with that, we'll start the Q and A session. Will, could we have the first question, please? Thanks, Dominic. First question is from Douglas Jack at Peel Hunt, and there are three questions from Douglas. First question is, after million of share buybacks, net debt to EBITDA will just be 1.5 times. Is there a case for committing to an extended share buyback program in future years? The second question is what were the volume trends behind the circa 5.5% underlying like for like sales growth? And the third question is what were the volume trends behind the circa 5.5% underlying like for like sales growth? And the third question is what were the volume trends behind the what were the volume trends behind the circa 5.5% underlying like for like sales growth? And the third question is, what pace of expansion are you targeting in 2022 and 2023? And to what extent has this been boosted by the franchisee's VAT windfall? Yes. So the question around extending the share buyback program. I think I would say that the capital allocation philosophy that we've laid out is a sort of ongoing philosophy. It's not a philosophy for the interims or the prelims of last year. We will apply that each and every reporting period to look at the cash flow that we've generated. And if we've generated surplus cash, which I would expect because, as we mentioned, it's a very cash generative business, then we'll look at the best use of that cash and often that will be returning to shareholders. So is it an ongoing it's not an absolute nailed on commitment, but yes, we generate surplus cash and the majority of that surplus cash will find its way to shareholders. Pick up the volume one. The volume trend. So I think the question was system sales are growing, what's happening to volume. I think the key message from us is that volume in the first half, total order volume growth was 3.5. Yes, we saw volume decline last year predominantly because collection was suffering in the pandemic. Collection is recovering, but delivery is holding up as well, which is great news. So that we've moved into positive territory for total order volume in the first half, which is great, and that's continued. It's actually gone a little bit stronger in Q in H2, albeit some of that has been boosted by the football right at the beginning of the half. And then shall I talk about the pace of expansion? So I think what we're really pleased to see these new store openings. We had 11 store openings in quarter two. We're delighted there to support the franchisees with the new store incentive that we've put into place. The franchisees have delivered strong profitability during that period. They've also worked exceptionally hard during the period. And new store openings are way for them to invest in that future growth. The returns on those new stores are strong. So we think it makes real sense to invest in those new stores. And we're really keen to work with the franchisees to ensure that those returns are world class. And we think that's what's going to support the future growth of the business. We outlined our medium term aspirations to open 200 new stores. So we would look for that pace of new store opening growth to accelerate as we come out of COVID. Key to that is the new stores performing well and the early stats in those new stores are really encouraging. Thank you. The next question comes from Paul Ruddy from Goodbody. And there's three brief questions here. First is, given the strong system sales growth and the expectation of both like for like sales growth and store openings in the coming years, how was utilized? And there's three brief questions here. First is, given the strong system sales growth and the expectation of both like for like sales growth and store openings in the coming years, how is utilization looking? And are there any additional capital investments you will need to make to support the growth, whether it be in Manufacturing or IT? Second question is any thoughts on the German JV and whether you may look to exercise your put option here? And finally, what is your expectations for how franchisees will react with regard to pricing when VAT begins to normalize? Would you expect them to push price higher to keep margins at the current elevated levels? Can you pick up the first two? Yes. So I think the first one is around cash utilization in terms of given the strong performance. It's how is utilization looking? I assume that it's around utilization in terms of cash, which refers back to the previous question in terms of we generate quite a lot of strong free cash flow, and we are utilizing that first and foremost to invest in the business. We spent $7,800,000 in the first half, '15 million dollars expected for the full year. That is investing in capacity and capability within our organization in the supply chain and in IT. And those are the two big areas of capital investment that we envisage. But we don't expect that to spike. So we expect that sort of level of million to million a year to be ongoing. Within that number, we'd spent the money to open up Scotland. So it's a reasonably consistent level of capital expenditure expected, which means that there should be surplus cash available for distribution to shareholders. Second question was around the German JV. Quite rightly asking the question, we have the option to exercise our right to sell effectively our investment in the German JV up until, I think, the 01/01/2023. We have no current plans to do so. We think it's a great business. It's being run fantastically well. We enjoy being part of that business, not only from the returns that we get from the knowledge share that we get from participation in board meetings with that business. So no particular plans to exercise our option. And the third one You want me to cover the third one, aren't they? So I think the third question was about pricing as the VAT rolls back. I mean, central to the Domino's proposition is the consistency quality of our product offering. And I think we talked about the vertical integration that gives us enormous strength in that area. The other area that's really important is a consistent value message. The franchisees do an amazing job of having this kind of hyper local approach to pricing. So effectively, they set the pricing in their local areas and do a great job of doing that. They have multiple different deals for multiple different segments of their customer bases. Underpinning it all is actually a very strong value message. So I think that it's clear that that the medium term position of our businesses absolutely continue will continue to be rooted in the value proposition. Will local prices adjust slightly as VAT changes? Possibly. In the same way that we put slightly sharper deals in during the VAT pro as the VAT cut came in. But I'm really confident that everybody is very aligned behind the fact that we need to consistently continue to offer a strong value proposition to customers. Next question is from Ross Broadfoot at Investec. Again, there are three questions. First is, has there been any discussion are we using the buyback spend to buy up territories and open corporate stores to prove to the franchisees that your strategy will work? Second question is, are we the new franchisee stores? Can you share the scale of the increase in new store incentives? And were any of the six that opened stores the big franchisees? And then finally, how the broader franchisee discussion is going and how they factored into these discussions? Is the return to more normalized VAT and intensifying competition. Can you just summarize the three again? Sorry. Corporate stores. The first is corporate stores. Second one was around the new franchisees. Which I can deal with that one, if you like. And then third one is the broader discussion. Broader franchisees discussion. Okay. So we talk about I mean, I think the framework that Neil laid out in March about the capital allocation framework, that framework is in place. That doesn't mean we don't continue to invest in the business. We've been very clear about that. First and foremost, our focus is on delivering a strategy which requires investment for the medium and long term. We have 35 corporate stores currently. We really like running those stores. It gives us an opportunity to get closer to the consumer. It gives us an opportunity to test and trial things. We will possibly open more corporate stores at some point in the future, but fundamentally, we are a franchise business and will remain very focused on supporting our franchisees. That's where we think the majority of our growth will come from in the longer term. And I would just slightly build on that in the sense of it leads back to the first question, which is we do have quite a lot of capacity within our balance sheet. So if we wanted to expand our corporate stores, we could use debt to do that without putting any strain on the balance sheet or indeed affecting the desire to return value to shareholders. The second question was around the new franchisee store incentive. Dominic gave you in the slides the detail of it. Part of the benefit of it is the simplicity of it now. It's spread over three years. It's almost pretty much certain that the franchisee will get it. The previous scheme we had was quite clever, but it was almost too convoluted and wasn't certain in the franchisee's mind that they would get it. It was at a lower level. So the average level, I would say, of the two of the split between Splits and Virgin is about per store. It was around per store in the previous version. So it is richer, quite rightly, to encourage store openings because the economics of store opening are really advantageous, both for the franchisee and for us. And then the kind of next point, I think, was the wider franchisee discussion. So I guess the points are linked, which is with this level of incentive, which works for the franchisees, we believe the franchisees can get world class returns from opening their stores. And fundamentally, the majority of our franchisees want to continue to grow their businesses, but they want to understand how they can continue to grow their businesses and continue to grow their profit at the same time that they grow the business. And that's the discussions that we're having. We've had constructive talks. We've put an offer on the table, which we think gives them that level of confidence about the growth. But in the meantime, we're getting on and executing the strategy. And actually, we've worked together really well in this. We've worked together really well in this period. And I think what we've outlined today are some of the proof points of executing that strategy. We've got unbelievable core strengths of this business. The brand is immensely strong. The delivery system is incredibly strong. The vertical integration gives us unique capabilities in this system. Continue to invest in those edges that we've got and continue to improve them should give us all the confidence for the long term profitable growth of this system. The next question is from Anuhav Malhotra from Liberum. So again, it's three questions. I think the first two we've actually covered because they are asking about the detail around the new incentives for franchisees and the six franchise which is franchisees who have opened the 13 stores. So I think we've covered those in the questions. The final question is, at what PE multiple would you believe doing the buybacks is counterproductive and your shareholders will be better served with special dividends? Not going to put a specific number on it. I think what I would say is that we are constantly reviewing as a board the intrinsic value of the business to ensure that we believe that share buyback is still the most appropriate use of surplus cash, which obviously we do at the moment. Just a follow-up from Liberum is what are the 100,000 to 150,000 incentives for new stores paid in three installments contingent upon? And are there specific volume targets? Or are they guaranteed these incentives? They're not guaranteed, but there's no volume targets. As long as the store is up and trading and that there's certain standards being complied with, but not onerous standards is the normal sort of level of standard of operation that we would expect, then they'll be payable. One of the things I think that we've learned as we've gone through the pandemic together was our franchisees run great businesses. And in some of the incentives that were in place before, for example, with new store incentives, there were a lot of hoops that had to be jumped through. But actually, the franchisees are very committed to opening those stores and trading them well. So we want to make it as simple as possible. I think generally these kind of incentives when they're simpler, they're more straightforward and they align everybody's interests are more likely to result in long term success. And that's why we've done it this way. The next question is from Richard Stuber at Numis. Again, it's on the store incentives. You've carved out the store incentive mechanism from the ongoing holistic agreements with the franchisees. Is there anything else that can be carved out from the agreement, e. G, volume rebates, which can help accelerate your medium term strategy? And the second question is on two corporate stores were closed in the half. Can you explain why? Given the improvement in performance, do you have plans to open more corporate stores in the near term? So I guess to the first question, possibly. I think the most important element is what we've talked about is a package of incentives that will give franchisees more confidence about growing their businesses. And there is a possibility of doing what Richard touched on. The key thing for us is we are driving and building the momentum in the core business, which in itself starts giving everybody more confidence. The delivery business has held up really well. We're adding business now in terms of collection. We've done a lot of digital and IT investment, which gives the franchisees more confidence that we're approaching the business in the right way. And that in itself, I think, will drive that level of confidence to support franchisees to grow their businesses. In terms of the corporate stores, the two stores that closed were very particular issues that weren't actually related to trading. There was a lease issue and another issue with that store, which was planned for a long time. There could be some opportunity to add some growth within that corporate store network. We've been really focused on trading those corporate stores successfully during this period. And the performance as you saw in the numbers today has got better And we've learned a lot from running those corporate stores. Okay. And then the final question we have at the moment is from Richard Taylor at Barclays. Please can you outline plans for enhancing through the day trading, especially for walk in business? What sorts of products are you thinking about? And when might you launch this? So I think the primary for us, I mean, dinner is still by far and away our largest day part. And I think it will always be so. And there's a reason for that, which is generally people prefer eating pizzas as part of their early evening, late evening or late night, late night meal. But lunch is an opportunity too and we have a reasonable amount of business coming through lunch. Certainly, what we saw during the pandemic is the demand spreading more a little bit more evenly during the day, a little bit more evenly during the week. As we come out of the pandemic, we're seeing the patterns could become slightly more normalized, so more late business, for example. We do believe there's this real opportunity in collect. The key thing for us is we don't think customers understand how good the value proposition already is in collect. So I think there's a real opportunity in helping customers understand what good value Collect can be because that draws more people into the brand. The really interesting opportunity for us, I think, as Collectives as a system is that the majority of customers for Collect are incremental to the delivery customers. Therefore, we can add growth and it's very inefficient way of serving that customer because you don't have the delivery infrastructure to support them. So you can hold your delivery business and then add business with new Collect customers. Core to that is the value proposition. And of course, the product and the product innovation, and we've been doing some of that. So small sized pizzas, for example, priced attractively are perfect for Collect. But for us, the biggest opportunity in Collect is that value proposition aligned to the core product quality that we have and then the addition of technology like in car collection, which we've now launched to 300 stores, which is a really convenient solution for customers. Okay? Yes. We have no further questions at this stage. Okay. So thank you very much. We appreciate all the questions. Thank you very much for listening today. We appreciate your time and your questions. Thank you.