Collins Foods Limited

Thank you for standing by and welcome to the Collins Foods Limited HY26 Results Conference Call and Webcast. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Xavier Simonet, Managing Director and Chief Executive Officer. Please go ahead.

Thanks very much, Harmony. Good morning, everyone. I'm Xavier Simonet, the Chief Executive Officer of Collins Foods. With me on the call here in Brisbane, I've got Group Financial Officer Andrew, General Manager of Australian Operations, Crystal, and General Manager of Europe, Chris Johnson. We're presenting the first half 26 results announced to the ESX earlier this morning, as well as providing a trading update and refreshed outlook. As always, we will go through the presentation and then we will take questions. Slide two, executive summary. I joined the business just over one year ago and to start today, I would like to touch on the main highlights of the past year and what our priorities have been. We have a strong focus on operational excellence across our businesses and the results we are presenting today show the progress we are making. We are sustaining both momentum and achieved record revenues this first half with earnings and margins up on last year. We are delivering strong cash flow resulting in a significant reduction in net debts compared to prior year and broadly in line with the position at the end of FY25. Together with the debt refinancing we announced a few months ago, this means we have significant capacity to fund future growth initiatives. We continued to invest in our core businesses, both in our restaurants and in technology to enhance customer experience. Our focus on operational execution has resulted in a strong underlying performance in HY26 in a challenging market demonstrated by our results today. We are therefore pleased to announce a favorable upgrade to our full year outlook, and I will come back to this in more detail towards the end of the presentation. With strong cash flows and a robust balance sheet, we remain open to organic and inorganic growth opportunities, particularly in Germany. Moving on to slide three, I would like on this slide to give an update on our growth priorities. If we first look at Australia, we are showing strong same-store sales growth in KFC in Australia, outperforming the overall QSR market due to product innovation and strong execution. We made good progress on productivity and waste improvement, which has contributed to margins improving, and we remain disciplined on costs while continuing to invest both in our restaurants, our brand, and our digital channels. On the Taco Bell exit process, discussions continue, but we have no firm update to give you yet. Looking at Europe, Germany is our second growth pillar and is now coming to life. We opened our 17th restaurant in Karlsruhe during the period and have several sites approved for development with a pipeline building. We also encourage Jan's approach to building the brand in the German market, people capabilities lifting, and purposeful investment in brand initiatives is benefiting KFC. Finally, on operational excellence, we are laser focused on driving same-store sales, margins, and customer service levels. We have new operational leadership in place for both Australia and Europe, and their deep market experience is helping us execute on our plans. Portfolio optimization in the Netherlands has commenced with two new restaurants opening since half year end, replacing restaurants which are underperforming from a profitability perspective. There has been one closure in November and a further planned closure in January. Moving on to the financial highlights on slide four. So slide four provides an overview of HY26 performance. Financials are presented on a post-ASB16 basis unless stated otherwise. For those of you more accustomed to pre-ASB16 numbers, we have made them available in the appendices to the investor presentation. will shortly take you through more detail financial. So I will focus on some of the highlights for the first half. In summary, Collins Foods delivered record level of revenues and strong improvements in profits and margins. This was achieved despite a consumer environment that in particular for our target demographic remains challenging. The results highlights from my perspective are First, we recorded the highest first half year revenue in the company's history, up 6.6% compared to last year. Second, underlying EBITDA grew by 11% and our underlying NPAT by 29.5%. Pleasingly, our return on equity increased by 190 basis points to 14.1%, which is good news for our shareholders. As a result of strong cash flows and balance sheet, the board declared a fully franked interim dividend of 13 cents per ordinary share. Moving on to slide five, ESG, our progress on sustainability is highlighted on slide five. We're on track with preparing for our first mandatory ASB S2 climate report this year, having recently completed our risk and opportunities assessment. While recent developments in Europe have resulted in our entities there being out of scope for mandatory reporting, we will continue with our voluntary disclosures beyond climate. Actions across our ESG agenda are tracking well with some first-half highlights including our food waste reduction program is tracking well with an 8% reduction delivered in Australia and 25% in Europe compared to FY25. We installed our largest solar installation yet in our new German restaurant in Karlsruhe. We launched a pilot to support restaurant leaders' career development with certified leadership and management diplomas. Our First Nations pre-employment program was launched, enabling unemployed youths to obtain hospitality skills experience and job opportunities. Investments in safety culture resulted in a 12% drop in recordable injury frequency versus FY25. And we participated in the inaugural QSI industry roundtable on modern slavery. It's pleasing to report on progress with respect to our sustainability agenda. And with that, I'll now hand over to Andrew Leyden, our group CFO, to take you through our results for the first half.

Thanks, Xavier, and good morning, everyone. Let's move to our group results overview on slide seven. Revenue in the first half of financial year 26 was up 6.6% over the prior period to $750.3 million. That's a record for Collins, as Xavier stated earlier. This was driven by growth in both Europe and Australia. In addition, the result benefited from favourable currency translation relative to prior year, which contributed $12.7 million to the current year. Our revenue performance overall underlies the benefits of operational execution, of the investment being made in our networks and in technology, the advantages of healthy brand equity, and also the resilience of our business at a time where consumers, and especially our consumers, are still grappling with cost of living pressures. Underlying EBITDA was up 11% to $113.9 million. with margins up 59 basis points. This was the result of a return to same-store sales growth in addition to productivity gains. Underlying EBIT was $63 million, up 20%, reflecting the growth in EBITDA and stable depreciation compared to the half-year in financial year 25. An underlying NPAT was $30.8 million, up 29.5% on the prior period, Underlying EPS was 26.1 cents per share, up from 20.2 cents per share in the prior period. As Xavier highlighted earlier, we are now publishing return on equity measures on an underlying basis, and this measures the quality of shareholder returns. Return on equity was 14.1% on a trailing 13 period basis, up 190 basis points on the prior corresponding period. Statutory impact was $27.2 million, and that compares with $24.1 million in the half-year financial year 25. In HY26, total restaurant impairments were $3.1 million, as well as a $1.3 million provision top-up for potential wage underpayments relating to prior years to $10.5 million. With respect to the provision for potential wage underpayments, Collins is committed to meeting its obligations under the Fair Work Act and takes wage compliance very seriously. The company has been reviewing historical employment and wage data to determine whether employees may have been entitled to additional payments. We are constructively and proactively liaising with the Fair Work Ombudsman in relation to these matters and are committed to fully remediating any impacted team members. The process of remediation commenced in November 2025. In September, we announced that we had successfully refinanced our debt facilities, where we also adjusted the blend of Australian dollar and euro borrowings to further support our growth strategy in Australia and moreover, in Europe with more euro denominated facilities. Net operating cash flows were $69.1 million, down on the prior period due to higher tax payments in the period. Net debt was reduced by $20 million to $138.9 million compared with the half-year 25, with strong cash flows funding capital investment, dividend payments for shareholders, and also debt reduction, further adding to the group's investment capacity for the future. As referenced earlier, as a result of a strong fiscal position, the Board declared a fully franked interim dividend of 13 cents per share which is an increase of two cents per share on the prior corresponding period. The dividend record date will be the 8th of December, 2025 with a payment date of the 5th of January, 2026. Now moving to the income statement on slide eight, which outlines the reconciling items between statutory and underlying results. The most material item impacting the difference between statutory and underlying performance was a $3.1 million impairment on previously impaired restaurants. The group also provided an additional $1.3 million for potential wage underpayments relating to prior years, as referred to earlier. Other reconciling items include a small gain on the previous debt refinancing modification and a small gain on the settlement of a Taco Bell lease liability. Underlying EPS was 26.1 cents per share, whilst basic statutory EPS was 23 cents per share. Now, turning to the cash flow on slide nine, strong cash generation remains a highly attractive feature of the Collins Foods business. In the half year of 26, net operating cash flows were very strong, a little lower than the prior year by $6.2 million to $69.1 million. with the reduction due to higher tax payments in the first half compared with the first half in the prior year, a result of timing impacts relating to capital expenditure and other deductions which differed for accounting and tax purposes. Cash conversion was again very strong at 92%. Operating cash flows were applied to fund discipline investment, dividend payments and net debt reduction. Investing cash outflows were $26.9 million, mainly reflecting capital investment in the store network and digital technology. New restaurant investment was $5.1 million. Remodels, including supercharged remodels, were $7.3 million, and digital and sustainability investments were $1.6 million. Asset renewal spend was $8.9 million. Additionally, contingent consideration of $2.9 million was paid as a result of the acquisition of eight restaurants in the Netherlands in May 2023. Financing cash outflows with $59.9 million, which included $17.9 million in bank debt repayments, dividend payments of $17 million, and lease principal payments of $27.1 million. Net cash movement was an outflow of $17.7 million for the half year, compared with a $4.6 million inflow in the half year 25, most of which reflected debt repayment. Now moving to the balance sheet on slide 10. Collins Foods' balance sheet is in exceptional shape and provides capacity for investment in growth opportunities. Net debt was broadly unchanged from the end of financial year 25. at $138.9 million, with cash generation strong and allocation of capital disciplined. Cash balances were down $17.5 million to $101.6 million due to paying down debt since the end of the last financial year. Bank debt fell from $257.2 million at the end of financial year 25 to $238.9 million at the end of the half. a reduction of $18.3 million in the period. Property, plants and equipment was down $7.4 million from financial year 25 to $240 million, due to impairment, net of additions and depreciation. Rights of use assets, $516.1 million, and total lease liabilities of $643.3 million, both increased on three net restaurant additions and lease renewals. The net leverage ratio ended the period at a very comfortable 0.89, down from 0.93 at the end of financial year 25. And now having covered the financials, I will hand over to Crystal, who will take you through the results and the commentary for KFC Australia.