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Edited Transcript of JE.L earnings conference call or presentation 31-Jul-19 10:00am GMT

Half Year 2019 Just Eat PLC Earnings Call

London Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Just Eat PLC earnings conference call or presentation Wednesday, July 31, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Evans

Just Eat plc - Independent Non-Executive Chair

* Paul Scott Harrison

Just Eat plc - CFO & Executive Director

* Peter Bernard Duffy

Just Eat plc - Interim CEO, Chief Customer Officer & Director

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Conference Call Participants

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* Andrew Geoffrey Ross

Barclays Bank PLC, Research Division - Research Analyst

* David J. Gardner

Morgan Stanley, Research Division - Equity Analyst

* Giles Thorne

Jefferies LLC, Research Division - Equity Analyst

* Marcus Diebel

JP Morgan Chase & Co, Research Division - Research Analyst

* Monique Pollard

Citigroup Inc, Research Division - VP

* Richard Paul Stuber

Numis Securities Limited, Research Division - Analyst

* Robert Joyce

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [1]

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Welcome to our half year 2019 results presentation. I think we're going to start off with a bit of a video. Can we play a film?

(presentation)

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [2]

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So my name is Peter Duffy. I'm the Interim CEO at Just Eat. This morning I'm joined by Paul Harrison, our CFO; by Mike Evans, our Chairman on the front row; and by Chris and Natalia Dyett, who run our Investor Relations team. Paul and I are going to spend the next half hour or so going through the first half results, and after that we'll be happy to answer any questions that you may have.

But perhaps I should be clear right up front. Unfortunately, we're not going to be able to answer any questions about the proposed combination between Takeaway.com and Just Eat today. We don't have anything else to add to what has already been published.

So in keeping with the usual format, I'm going to start by giving an overview on numbers. Paul will then take you through a more detailed update of our financial performance in the first half before I'm going to return and take you through some of the key operational highlights. And at that point, we'll then be happy to take questions. So let's get into it.

I'm pleased to report that we've delivered a solid performance for the first half and that we are reconfirming guidance for the year. When I spoke to you in March, I promised you pace. And to this end, you'll be hearing about how we built strong leadership position -- built on our strong leadership positions in the marketplace with acquisitions that are going to deepen our restaurant relationships, enable us to enter new segments of the market.

We'll be talking about how we've aggressively scaled our delivery capabilities so it now covers 95% of the addressable population in Canada, 70% in Australia and 50% in the U.K. And you'll be hearing about how we've replatformed and integrated our data product and marketing environments which now tailor the experience to individual customers based on their different and individual behaviors. And how we've relaunched the brand globally, putting us front of mind in this ever more competitive and exciting market. This is a strong platform for success.

So moving on to our numbers. Revenue has gone up or grown by 30% to GBP 364.5 million (sic) [GBP 464.5 million]. And we've served over 123 million orders to 27 million customers. That's 21% more orders than a year ago. We've added over 2 million customers in the half and we continue to build on our position as the preferred food delivery app in many of our markets.

As a result of our investment in delivery and therefore as expected, underlying EBITDA declined 16% in the period to GBP 72.4 million. And for clarity, with the exception of the revenue number, all these numbers on the screen exclude our LATAM operations.

So after that will be more from me in a minute, but I'm now going to have over to Paul, who's going to take you through the financial performance in greater detail.

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [3]

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Thank you, Peter, and good morning. In my section of the presentation today, as usual I'm going to look back on our first half, share with you my reflections on the key drivers of our performance both at a group level and at an individual market level.

I think we've delivered a solid first half. Orders excluding Mexico increased by 21% to 123.8 million and revenues grew 30% to GBP 464.5 million. As we expected, our underlying EBITDA decreased by 16%, and that reflects the rollout of delivery which of course is most costly at launch. On the back of this, our underlying EBITDA margin therefore contracted 850 basis points year-over-year.

So we continued rolling out delivery at a fast pace. We've established new partnerships with a wide range of restaurant partners, branded restaurant partners across all of our markets. Most of these relationships are nonexclusive, which allows for greater flexibility and a more selective approach to zone coverage.

So if I take each market in turn. In Canada, our estate now exceeds -- restaurant estate now exceeds 20,500 partners by the end of the first half. And we're working with 29 of the top 30 food service brands during the period, and that includes McDonald's. Our national delivery footprint in the U.K. has already reached a similar size to that of our main competitors. And we continue to roll out delivery and backfill existing zones.

In Australia, we added some 3,000 delivery restaurants to the platform in the first 6 months of the year alone. And as we flagged at the time of our full year results in March, we continue to explore delivery opportunities in other markets. And there'll be a launch of our next Skip-delivered enabled market in Europe scheduled for Q3 of this year.

In our early delivery markets, we focus on reaching gross profitability as soon as possible. So these next 3 slides I'm going to show you are an analysis of the zone cohorts, tracking their development and performance since we launched them. So as many of you know, a typical playbook seizes a zone launch with a QSR anchor, with independent restaurant partners and chains added to raise average revenue per order and courier utilization.

Now whilst there are clearly differences in delivery market maturity and zones, our analysis demonstrates that the economics have trended positively across Canada, Australia and the U.K., albeit from different start points.

In our more established delivery zones, we see the transition to overall EBITDA profitability. So examples of this in our portfolio include Denmark, Switzerland and most recently Canada. And we're particularly pleased to reach overall EBITDA profitability in Canada in this first half of 2019. Clearly, this is the most advanced of our Skip-enabled delivery markets.

The chart here shows a stable and profitable zone cohort profile in Canada as delivery becomes more established. You're going to note there some of the lower gross profitability in some of the more recent zone cohorts. And that includes markets such as Montreal and Vancouver, which are inherently more competitive but where growth has nonetheless been strong.

Okay, similar slide. If we look now to Australia, where delivery really is rapidly becoming part of our business as usual. We've now made over 2 million deliveries, just 13 months since we launched the service from over 50 zones in Australia. In gross profit terms, we can see that the more recent cohorts are reaching profitability faster. And moreover, 47 out of our 53 zones were gross profitable in June of this year.

And then as I move to the U.K., we're running a newer in-house delivery operation, which is why I've shown a monthly analysis here on the slide. We're seeing encouraging trends both in terms of profitability and frequency with both new and existing customers offering more once they've tried delivery -- ordering more once they've tried delivery. And as you can see from the table, we've seen some impact on the profit performance from a period of increased promotional activity, which leveled out as we entered a more normalized pattern. And this really reflects [some] broader market dynamics in the U.K. Just Eat each restaurant count is now a significant proportion of competitor delivery restaurant count with significant headroom for growth in the U.K.

So let me now take you through the segmental performance, and again I'll start with the U.K. The first 6 months were characterized as you know by a slow start, primarily on the back of unseasonable weather in quarter 1. But that was followed by a recovery in our U.K. business in the second quarter which saw order growth of 11.2% year-over-year. That improvement was driven by more targeted and personalized communications, a greater contribution as you've seen from our delivery initiatives and the hungryhouse inorganic effect dropping away as we proceeded into the period.

Total first half U.K. revenues increased by 13% while orders grew 9.3%, as delivery continued to drive revenue performance. Underlying EBITDA declined by 19% to GBP 72.5 million, reflecting that investment in delivery.

If I step back from it, overall the U.K. is in good health. Over 1.4 million customers joined our platform in the past year with existing customers continuing to place orders with us on average about 10 times a year.

If I turn now to Canada, the first of the year saw good progress at SkipTheDishes. We've seen particularly strong momentum in revenue and order growth. Revenue increased 79% to GBP 133.4 million on a constant currency basis and order has grown by 83% to 23.3 million in the period.

Increased density continued to drive improved economics, Skip ending the month with positive -- ended the period with positive underlying EBITDA as the business optimization phase continued to gain traction. The margin you see here therefore -- EBITDA margin therefore at 0.7% compared to the minus 11.5% at constant currency for the first half of 2018.

1.4 million customers joined Skip since the first half of last year, with over 800,000 of those joining in the last 6 months. And we've continued to add occasions to the platform, such as breakfast. And that's really reflected in that lower average order value number that you see here, which is a trend I talked to first at the full year results back in March. So all in all a very strong first half for our Canadian business.

Okay. The second quarter saw a welcome return of order and revenue growth in Australia as we continue to scale our delivery business. And encouragingly, April was our first full month of gross profit in delivery. We have successfully returned to order growth in Canberra, Perth, Brisbane and Adelaide and our -- as our teams reached out and visited some -- and optimized indeed some 820 marketplace restaurants whilst also signing up delivery restaurants to the platform.

So overall, we've ended up with 13,000 restaurants at the end of the period which is up 28% year-on-year. Revenues increased 29% to GBP 27.3 million, with a negative EBITDA of GBP 2.1 million recorded in the period.

And I should add that whilst orders contracted 1.5% in the period, much of this reflects the winding down of the much smaller Eat Now platform which we plan to close in the second half of this year. So the Menulog brand showed order growth in the period of around about -- of over 10%. So really encouraging progress in Australia for those of you who have followed the story for some time.

So the first half of 2019 saw good performance in our 7 European markets. Particularly strong performances were seen in Italy and Switzerland, with Ireland also delivering strong order growth. Italy incidentally now our third largest market by orders. France remains an attractive but fiercely competitive market. We see a strong performance in the Tier 2, Tier 3 cities, but Paris does remain highly competitive. And finally Spain, very solid performance in the period.

It's not often I write stellar on a slide, but I think I can claim it for iFood. If I move on to iFood, the slide shows that yet again iFood has delivered a good set of results, triple-digit order growth achieved in the first 6 months, the business fulfilling nearly 19 million orders in the month of June alone. So the increase in losses here was attributable to iFood pursuing a range of initiatives focused on seizing a mass-market opportunity, catering for a wider range of occasions and price points.

So this includes the mass market's so-called loop initiative, driving multi-drop lunchtime business by using virtual kitchens to mass-produce specified dishes at a highly competitive price. This combined with the ability to order ahead, to have subscription offers on multi-drop delivery to economically address mass-market demand. So really quite innovative approach to mass market lunchtime occasions.

Another great example of innovation in this vein was iFood's Express, an economic delivery pricing experiment. So this enables customers to choose delivery pricing with the economic option batched with other orders for cost-effective delivery.

So overall, iFood is progressing very well, with the business retaining a strong market share despite well-funded competition. Indeed the business was nearly 17x bigger than its largest competitor at the end of last month according to our estimates. As you know, we've invested GBP 73.2 million in cash to support the growth plans in Brazil for the first half -- in the first half of this year.

Okay. So if I move on now to our cash reconciliation. As this slide shows, we've made a number of investments in the first half which are nonrecurring in nature. For example, settling the residual deferred consideration on hungryhouse and Skip. In addition to my previous slide, you see the investment in LATAM reflecting the plan that we outlined in March to follow our money and invest in what I've described as exciting expansion plans. And the investment cash wise in '19 very much first half weighted. The combination of all these investments in [that first] meant that we ended the half with net debt of GBP 117.6 million pre-IFRS 16 and a comfortable net debt/EBITDA position of 0.7x.

Overall, Just Eat remains an inherently cash-generative business. We expect net debt in the second half to reduce given the second half EBITDA weighting and lower cash LATAM investment and the non-repeat of those one-off deferred consideration payments.

So if I move now to my final slide. We remain confident in delivering our 2019 revenue in the range of GBP 1 billion to GBP 1.1 billion and underlying EBITDA of between GBP 185 million to GBP 205 million. And as a reminder, this is before the impact of the GBP 80 million to GBP 100 million EBITDA losses in LATAM. So we're reiterating that guidance we talked about in March.

For the second half, we expect to see a significant increase in EBITDA. So this is going to be driven by the lower delivery rollout costs, targeted cost control and an increase in profits in Canada. We expect the recent -- the impact of recent acquisitions of Flyt, Practi and City Pantry most recently to impact underlying EBITDA by between GBP 10 million and GBP 12 million in 2019. But despite this, we're reconfirming that underlying EBITDA guidance range.

So with that, I'll pass back to Peter.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [4]

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Why thank you, Paul. So now we've gone through our performance on a country-by-country basis, I'm going to draw out 3 underpinning themes which I think are at the heart of our strategy, which is all about building the leading hybrid marketplace. And that's how we're driving marketplace growth and leverage; how we're accelerating delivery rollout; and finally, how we're step-changing the customer, the restaurant and the courier experience.

So let's begin with marketplace growth. And we continue to expand the number of marketplace restaurants in many of our markets, and particularly in Europe where there is still a substantial supply headroom outside of our biggest cities.

Additionally, one of the more interesting initiatives we've rolled out across multiple geographies is driving activation in these local marketplace restaurants, which has been particularly successful in Australia and in the U.K.

Typically, we send out a small SWAT team of a dozen or so individuals to help our marketplace restaurants not only understand the profile of the delivery competitors that we're introducing onto the platform, but how they respond to that. And we help them remerchandise their stores, we advise them on minimum order values, on delivery fees as well as attempting to sign up new partners that we don't already have on the platform. And we then additionally supplement this with local advertising and PR.

And the whole impact has been really very successful. For example in Canberra, which is our first activation city, we saw more than a 20% growth in marketplace orders at the half as a result of that activity.

In May, we also relaunched the brand globally under the "Did Somebody Say Just Eat" platform. And whilst early days, this creative has been really, really well received by our customers. And once it's adopted consistently across all our markets and used over time, we should only expect this to begin to improve. Brand consideration, where it's played out, has risen significantly.

Our media has also been centralized, and we've unlocked many, many millions of value for the next 3 years by buying it in a much more centralized way. And the combination of these 2 activities then combine with our one-to-one communication is really driving a step change in how we begin to market to our customers.

I've spoken to you previously about the progress that we've made on data, which is now all stored in one data lake for all the countries in the group. And in the last 3 months, we have now launched our CRM toolkit which essentially sits on top of that, which means we're now able to deliver personalized messages and campaigns both in and outside the app into multiple markets at really very limited costs.

And we're rolling out the capability for seamless customer journeys, which means that you're going to be able to target a customer, for example, with a voucher. They're going to be able to click on that voucher, go through in the app to that restaurant, they're going to fulfill that very simply as kind of one journey all the way through. And whilst that isn't radical for a number of industries, that is something that Just Eat wasn't doing previously.

So personalized one-to-one communication is or has been rolled out across all our markets and started May this year. And we're really optimistic about the early results that we're starting to see.

Now I talked before about the wealth of opportunity from data and advanced analytics. So I'd just also like to share another example, which is small today but illustrative about the opportunity that we're going to have tomorrow, and that's dynamic pricing.

Dynamic pricing means that we can change the delivery fee based on what we call live demand signals. And for example there, the volumes of orders made by our customers, the weather, events, delivery distances and so forth. For the last few weeks, we've been trialing this in Denmark where we've rolled out to 400 restaurants nationally; in the U.K. where we've rolled out to 40 restaurants across 3 cities; and Australia where we've rolled out to just one city at the moment, but we can ramp that very quickly.

And the system enables us to understand the relationship between delivery fee pricing and order volume at a hyper local level. And the objective is for us to be able to flex delivery fees real time based on live demand signals so we not only optimize the delivery revenue but we can also begin to optimize overall order volume as well.

The platform is being developed so we can offer it to our marketplace restaurants as well as a managed service, which in turn is going to be able to help them optimize their own delivery economics. And I think it's probably easy for you to see how this sort of thinking can then be extended into other areas like dynamic minimum order values, time-based vouchering, flexible delivery zones. It's very exciting.

I'd also like to just touch on City Pantry, which is an initiative that I am very -- personally very excited about. Because it's the first time that we've gone into the B2B catering market. City Pantry not only allows us to increase the meal occasions we cater for but it also importantly opens up a GBP 10 billion a year corporate market for us and our partners.

With an average order value of GBP 300, City Pantry generates high-value, placed-in-advanced orders that are going to be incremental for many of our restaurants. And the business already has 1,000 corporate customers and has significant U.K. and international growth opportunities. Today, it only operates really in London.

Now moving on to delivery and drawing together a number of the points Paul has already touched on. We've talked in the past about expanding our delivery offering and this now is really ramping up.

So the U.K., let's look at that first, because if we go back to the start of the year, we really needed to build scale around delivery quickly. I think at the end of 2018 we were in too few locations. We had zone densities that were subscale. That led to poorer delivery economics, inefficient driver [calls], and in turn that hurt the customer experience.

So over the last 6 months, we've scaled our delivery footprint from 94 to 166 cities which, as Paul has said, is now in line with our 2 main delivery competitors in the U.K. And this is covering 50% of the addressable population.

But importantly, we've also grown our own Skip-based delivery service from 3 cities at the start of the year, Glasgow, Aberdeen and Edinburgh, to 64 cities by the end of quarter 2. And we now have 5,200 delivery restaurants on the platform, which we're aiming to grow to over 8,000 by the end of the year. And we've doubled the number of KFC, Subway, Burger King restaurants on the platform since the start of 2019. So with marketplace, this now takes us to over 34,000 restaurants, which in total is just way ahead of any other competitor.

And I'm also very excited about our trials with Greggs and Asda, and also our trials on lunch collection, all of which are enabling us to enter new segments of the market and to new occasions. So this means our customers can order from Just Eat whenever and however they want. Whether that's a Greggs breakfast, a midweek lunch collected from their local favorite or a catered event delivered directly into the office, as well as of course the traditional Friday night treat.

So now moving on to Canada, which is perhaps our most competitive market globally. And in the half we've grown our restaurant state to over 20,500 restaurants, completed the rollout to all geographies that we intend to cover and we're now serving 95% of the addressable population. As Paul said, we have 29 out of the top 30 major chains, of which 16 are exclusively available on Skip. Unlike in other markets, we're able to simply integrate restaurants' EPOS environments by using our newly acquired Flyt platform, which for example has enabled us to roll out to almost 800 McDonald's restaurants nationwide in the last few months.

In Australia, the story is similar. And at the end of June, we covered 70% of the addressable population through our 13,000 restaurants on the Menulog platform. We've added 3,000 delivery restaurants in the half, taking the delivery straight to 5,007 restaurants. And we now provide delivery to 7 out of the 9 largest domestic brands, including Hungry Jack's, who we have exclusively; and of course KFC. And we've just added Guzman & Gomez and Nando's, which we're in the process of rolling out.

In Europe, we already work with many of the leading chains, including McDonald's and KFC. We've signed up Domino's in France, Burger King in Ireland and Denmark during H1. Over the next couple of weeks, we're planning to roll out [Skip Delco] to another European market, which again we're very, very excited about.

Now at the same time as growing this delivery footprint in each of our markets, we've also been reengineering our back office capabilities in Winnipeg, which is our global delivery hub. So in the last 6 months, we've automated a number of our processes across customer operations and network logistics to provide a better experience for our customers but also to do that at lower costs.

So now moving on to experience. We've made substantial -- we had a substantial investment in our app moving on significantly in the last 6 months. And the updates have not only included improving its look and feel but also enhancing its functionality and addressing some of the historic tech debt issues that we faced.

Not very long ago everybody had the same experience, which was based on your postcode. Now personalized offers and restaurant recommendations are based on individual customers' behaviors and we're rolling out a more visual approach with far better food imagery to help us provide an even better user experience.

Customers can now search for their favorites by dish, follow the courier's ETA on a live map. And these features, while simple and intuitive, they're essential really to providing a seamless customer journey. We're very excited by the progress we've made.

I'm particularly pleased that we now display the official FSA food hygiene ratings for all restaurants in the U.K. This is a hugely important step for our customers and this update enables them to make more informed choices about the food they eat. We've also committed GBP 1 million to our food safety improvement program for our restaurant partners and we've removed all 0-rated restaurants from the platform. I don't really believe that any other competitor or company in the sector is doing more than we are in terms of raising food standards.

And for our Restaurant Partners, we believe we have a compelling offer, which is an important component of our defensible market position. However, we really can't stand still here. So our acquisition of Practi in April is an example of how we're going to be strengthening this through a software solution that puts us right at the heart of our restaurant's online and offline operations, and this in turn is going to drive greater engagement and loyalty between Just Eat and our partners. We're currently trying this with 27 U.K. partners, and this is going to ramp up significantly in 2020.

So in summary, we are executing at pace across all our markets, we've seen an improved U.K. trading performance in quarter 2, Australia has returned to growth and delivery has broken even at the gross profit level, momentum is continuing in Canada, Europe is performing well and we're seeing stellar iFood growth. And importantly, we're reiterating our full year guidance.

Thanks for your time, and now to Q&A.

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Questions and Answers

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [1]

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Great. I think -- yes, somebody with a microphone rather than the microphones on the seat. Gentleman on the front row.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [2]

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It's Giles Thorne here from Jefferies. I had 3 questions. The first one was actually for Mike just to get the latest message on the CEO replacement. And then 2 questions on the business. The first one was on U.K. gross profit per delivered order, it'd be good to get a sense of the delta that you're seeing between occasions where it's being delivered by the courier and occasions where you're delivering it yourself on your proprietary platform. Presumably it's better on your proprietary platform, but any color there will be useful.

And then on the commercial partnership with Asda, obviously appreciate it couldn't really be more early days. But if you speak to the average multi-vertical evangelist, they will call out basket size and impact on order frequency as 2 of the killer things that multi-vertical can bring you and actually support overall better economics. So do you concur with that? And is there -- I mean, again, very early days, but is there any evidence of that?

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [3]

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Okay. So we'll go to Mike, Paul and then I'll pick up the last one if that's okay. Mike? Mike the mic.

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Michael Evans, Just Eat plc - Independent Non-Executive Chair [4]

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For those who don't know me, I'm Mike Evans, I'm the Chairman. Really, I mean given the news that broke earlier this week, you can understand that we've put the CEO search on hold at this stage given that breaking news. And we'll be able to update further once we get to the next stage in that process. In the meantime, Peter continues as Interim CEO and continues to drive the business forward at pace.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [5]

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(inaudible).

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Michael Evans, Just Eat plc - Independent Non-Executive Chair [6]

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Well, it's on hold because clearly things may or may not happen. So we'll have to just -- so I'm working -- we'll bring you more news when we can.

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [7]

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Yes. Gross profit and delivery, you're quite right. There's a distinction between the 2, the use of outsourced partners versus the Skip solution. And over time, as we leverage the Skip capability across the market, that will be not only the most profitable solution we believe but also the best customer experience with its deeper integration into our core platform. Having broken out the separate economics of the 2, of course the -- because we started with those third-party couriers, Giles, we did so in the larger cities which have the characteristics of sort of often higher order values and order density. But nonetheless, inherently, the Skip experience of profitability will be -- is the only -- the only way we're expanding now in the U.K. is using that model.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [8]

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On Asda, it really is very early doors, very, very small trials. I think there's a lot of theory, there's not a lot of facts around this at the moment and that's what we want to begin to just investigate. So your hypothesis is right, it's all about supporting drops per hour. It's how that begins to help with our unit economics on delivery and it's beginning to look what the consumer does in practice and how that adds to the overall proposition.

So I think it's really kind of interesting. You're going to see us with more and more sort of trials where we just begin to test different things at different markets, understand how that begins to work. So we'll probably do this in other markets internationally as well as the U.K. But fundamentally, it's a phase to begin to understand what the opportunity really looks like.

Chap on the front row here.

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Marcus Diebel, JP Morgan Chase & Co, Research Division - Research Analyst [9]

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It's Marcus Diebel from JPMorgan. Three questions on the U.K. The first one is, clearly very strong performance in delivery. Could you talk a bit more about the marketplace business? We've seen there's a slowdown about 4% now. How should we think about this from here? I mean you discussed this previously. Is there a risk of some cannibalization on the platform with consumers basically moving to the new delivery restaurants before getting about the marketplace restaurants? Is there any change in your view on this one?

Then if you can help us to understand -- at least as of now -- the strategy might really change in the next coming months, but as of now, would you say the investment levels will come down in the U.K? Are we at the tipping point still in the U.K? And then lastly, if you can help me on the McDonald's contract, when does it actually end here with Uber? I hear different messages in the industry. What's your view and would you be interested? And if so, is it also about cherry-picking locations or would that be potentially across the U.K? How do you see that?

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [10]

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So let me have a go at those and then I'll hand over to Paul to kind of add. So certainly, let's talk about the impact of delivery on marketplace and the 4% you touched on. So we've gone through a phase where we've aggressively rolled out delivery into the U.K. and essentially we are setting up zones with delivery restaurants where we have never had them before. So one of the things that we have absolutely done is to artificially begin to boost those delivery restaurants in our listings to make sure that customers are aware that, that offering is there, and that is part of our launch strategy.

We're now concluding that phase and we are going back to a more balanced approach, the hybrid approach which we've spoken about previously, where marketplace restaurants will begin to feature as well as delivery restaurants. And importantly, we've changed our product interface so we can show multiple choices to customers, kind of at the point of time. So whilst absolutely the customer -- the growth in the market, the exciting growth in the market is with branded restaurant groups and the delivery part, we do think there will be a rebalancing back to more marketplace restaurants in the coming quarters as our delivery growth matures, essentially as we kind of go through this very early launch phase.

In terms of cannibalization, I don't think there's any new news on what we shared with you at the year-end presentation. So that means that it can (inaudible). In terms of investment levels, I mean we've said that this is peak year of investments. And what we mean by that is that when we roll out into new zones, that is a period of maximum unprofitability. That's what we mean by the investment. So as you roll out to more of the zones you're going to go to, essentially the job tomorrow becomes more one of infilling additional restaurants, which in turn begins to improve the unit economics overall. So we're confident we can say that it's [done behind], this will be a peak year of investment.

And in terms of McDonald's now, I'm not going to tell you too much about that unfortunately. Yes, forgive me for that. That's the individual commercial negotiations. But of course it's very, very interesting contracts and it's an organization who we serve in multiple markets. Rob?

I'm sorry. Paul, did you want to say -- did you want to add something?

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [11]

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No, go ahead.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [12]

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I'm sorry.

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Robert Joyce, Goldman Sachs Group Inc., Research Division - Equity Analyst [13]

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It's Rob Joyce, Goldman Sachs. Three from me. Firstly on the U.K., you've previously spoken about targeting a U.K. order growth for full year '19 of low to mid-teens. I think given what you did in the first half, that implies 15%-ish in the second half. Are you still confident with that guidance? Secondly, again on the U.K., in terms of delivery, given the experience you have now, do you see a path to being effectively GMV margin agnostic versus the marketplace and the delivery options? And thirdly, you touched on Canada being the most competitive market you're in. Why not step up investment there? Why are you happy to make profits there rather than put more money into that market?

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [14]

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Okay. I'll kick off there. I think the comment about U.K. and order growth, we've said enough new about it today and you should read that positively. I mean certainly as we went into Q2, we look to certainly the performances -- 7 months performance in Q2 was very much consistent with that trajectory. We had a slower start to the year, as you know well. But there's no sort of update to that view today, no change to that view today. The -- your second point, sorry, was about EBITDA...

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Robert Joyce, Goldman Sachs Group Inc., Research Division - Equity Analyst [15]

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On delivery, are you going to be happy? Or are you going to be agnostic in terms of EBITDA per order on some...

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [16]

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No, absolutely not. I mean market -- we will -- we have a goal and I think pointing to sort of a trajectory that says that we'll get delivery to profitability. But in our opinion, it will never be as profitable as the marketplace model. It will complement the marketplace model. It'll offer the maximum choice to customers. It is essential that we do it or we can make it economically sensible. We're driving towards that but it will not be as profitable as the standard end marketplace where we're [operating].

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Robert Joyce, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

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Even if you move entirely to Skip-type model...

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [18]

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Even if we move entirely to Skip. So put differently, if you look at the Skip business and its sort of potential profitability, it's going to be strong we think in due course and it's heading in the right direction. But it's not going to be up there with an established marketplace model such as the U.K.

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Robert Joyce, Goldman Sachs Group Inc., Research Division - Equity Analyst [19]

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And just on Canada, sorry. Any -- why would you put more...

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [20]

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Yes. Canada's performed today really well. I think what we've seen is very, very significant growth. 83% order growth despite very stiff competition particularly in the main metropolitan areas, in Toronto, in Montreal, in Vancouver and increased competition. Look, at any point in time, we sort of look at where begin to invest and where we don't invest. And we will begin to make tactical decisions based on what we think the priorities should be at any point in time. We're very happy with the strategy at the moment with Canada breaking even, and it's growing at a very, very strong rate. But that's something that we will always keep in review and just decide how much do we need to invest in any market individually. There's no news there, yes.

All right. Gentleman on the front with the white shirt.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [21]

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It's Andrew Ross from Barclays. Two from me. First one back on Canada, you mentioned that 16 of the top 30 chains are exclusive with you. Is that a number that's going kind of up or down and how long do those contracts go on for? I guess are you seeing more competition in particular from DoorDash and some of those big chains now? And then second question is on Brazil, obviously the growth is super impressive. Can you give us a sense as to how much of that grew in June? You've given the 19 million orders, is the growth getting more as you go through the period?

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [22]

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So I'll do the first, Paul will do the second. So we're not going to share how long those contracts' exclusivity periods would last. I think you'd expect that, that will be the case. But undoubtedly, Canada is a very competitive market and DoorDash is a very fierce competitor. But I think people don't realize, we've competed with DoorDash in Canada since 2015 and we have had very significant growth in that market despite what are very competitive environments.

So we're very confident in the team we have there. They're hugely experienced. They understand their market really, really well. And they are demonstrating that they can win despite all of the headwinds that they are facing into with the growth that you see and the profitability that they're delivering. So yes, I think it's a really, really exciting story coming out of there and a story that we actually want to learn from in other markets. So as competitors begin to move elsewhere and follow similar strategies in different markets, we can begin to share actually the tactics and the approaches that we've taken to drive success.

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [23]

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In Brazil, the order growth did accelerate over the period and that really is a consequence of some of those new initiatives I referred to taking hold. Very excited about the -- some of the mass-market initiatives they've got, lunchtime occasions and the sort of multi-drop options that we talked about. And we talk about Brazil sometimes as a sort of 33% investment in almost a slightly abstract fashion. But the truth is there's actually quite a lot of innovation going down there that we believe holds great potential for the rest of the Just Eat Group. So the resonance of Brazil goes beyond that territory.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [24]

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Just back on the first question about the 16 exclusives, maybe you could share if that is a higher number today than it was a year ago or do you have a way just to get a sense as to how that's evolving?

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [25]

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It's broadly consistent.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [26]

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A couple of seats behind. Yes.

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David J. Gardner, Morgan Stanley, Research Division - Equity Analyst [27]

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It's David Gardner from Morgan Stanley. Just on -- I mean the gross profit for delivery is very helpful. Can you just give us of or a bit more detail on what exactly you include in your gross profit calculations for delivery? Because all the competitors define that very, very differently. And secondly, you've talked a lot about improving the customer proposition in the U.K. Can you give a sense of where you think you're still behind competitors or where you think -- you've obviously done a lot, but where you still think there's work to be done?

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [28]

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So it's very simple, driver cost. So it's either the check that we write for the third party where we use a third party or it's the direct conversations with the driver. So by influence, there are other costs below gross profit around sort of career recruitment, et cetera. Which is why I sort of characterized the evolution as moving from initially a gross profit goal ultimately to an EBITDA level goal.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [29]

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And on the product, we've really made very big step changes. So we're just in the process of rolling out our global menu system now which is -- [actually] in the next few weeks will be shifting. And that becomes a facilitator to do lots more things. So I think we are at parity in a lot of areas. I think where we need to really push is on restaurant -- is on food imagery, restaurant and food imagery, so just making that a more visual experience. I think we have a very efficient way of taking orders that kind of works at volume. But I think how we then begin to get [upsell], working how to begin to make that a more immersive experience for customers, I think that's our next area that we're focusing on.

The lady in the second row.

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Monique Pollard, Citigroup Inc, Research Division - VP [30]

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It's Monique Pollard here from Citi. Three questions from me if I might. The first one just on the U.K. I know it's difficult to get a sense of exactly what's going on in the market, but do you think you're taking market share in the U.K. or is the acceleration very much a market-wide phenomenon? And then secondly, you mentioned also in the U.K. that you'd had your first month of 1 million delivery orders. Can we expect that to be the sort of run rate from here? Was that impacted by bank holidays or anything like that? And then finally, the EBITDA guidance for the year, this might be more a question for (inaudible), is this -- does that include IFRS 16? And what was the IFRS 16 impact in the first half numbers on EBITDA? I'm imagining it's quite small, but just...

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [31]

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Okay. So let me do 1 and 2 and then hand over to Paul for 3. So in terms of market share in the U.K., there's lots of ways that you can begin to measure this. But fundamentally, the market is growing enormously, I think as everybody understands. And some of our competitors at the moment have exclusive relationships, Uber for example with Deliveroo and -- sorry, Uber with McDonald's, which obviously puts massive kind of components into that where we are not kind of currently competing. So in terms of marketplace, that's growing, but in terms of the consumer actually having access to a broader range of restaurants, that's growing faster at the moment. And so we're at 5,000-odd delivery restaurants. If you take delivery, there are 20,000 restaurants. We've kind of got to begin to close that gap over the next 12 months.

So in terms of market share, I am very confident that we are doing the right things to get the market share into the position where it needs to be. But we shouldn't be too literal I think around looking at those numbers when you consider the dynamics in the industry and how we as an organization are shifting. In terms of 1 million orders, yes, we sort of say that so you kind of get your head around the scale of it in terms of where it is. So going from the number of delivery zones in restaurants we have to kind of where we are, it is a step change. And so you should be expecting that to be a big number kind of going forward. Paul, on...

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [32]

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You're going to give me IFRS 16?

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [33]

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Yes, right. Because it...

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [34]

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Yes. So our EBITDA numbers do reflect IFRS 16, meaning that the depreciation and interest cost that were once previously rent in arriving at EBITDA and are now below the EBITDA level. So we talked and quantified this at the full year. We said that the benefit if you look back on 2018 to EBITDA of IFRS 16 was GBP 7.4 million. So you can pretty much broadly half that for its impact on the first half.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [35]

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I think there weren't many more hands. So are there any more? One? One more. So we'll just do one more. Gentleman on the end.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [36]

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Richard Stuber from Numis. Just one please. In terms of the U.K., could you give us a split in -- from the delivery in terms of what -- how much is courier and how much is using sort of -- using Skip? Just to get an idea how quickly the Skip is ramping up.

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [37]

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Richard, we don't disclose that. All of the new rollout deliveries is Skip-based, so the relationship with third parties, principally people like Stuart, is concentrated in the largest of cities. But all of the incremental kind of growth and footprint growth has been Skip. But we haven't broken out the (inaudible).

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [38]

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Brilliant. Everybody, thanks very much for your time. Really appreciate you coming this morning. Hope you enjoy the rest of your day.

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Paul Scott Harrison, Just Eat plc - CFO & Executive Director [39]

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Thank you.

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Peter Bernard Duffy, Just Eat plc - Interim CEO, Chief Customer Officer & Director [40]

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Take care.