Domino's Pizza Enterprises Limited

Good morning all. I'll just wait for all of the attendance to populate the Zoom call and then we'll start our presentation. Good morning. I can see our attendees have now been able to join our Zoom call. My name is Nathan Scholz. I'm the Chief Communications and Investor Relations Officer for Domino's Peace Enterprises. I will welcome you this morning to our half-year results presentation. Joining you today is our Group CEO and Managing Director, Mr. Don May, our Group Chief Financial Officer, Richard Coney, Andre Tenwald, our Europe CEO, Josh Kalimnik, our Asia CEO, and introducing you for the first time, Michael Gillespie, our Chief Commercial Officer. And with that, I will hand you over to our Group CEO and Managing Director, Mr. Don May. Now, also a reminder that today we will, of course, have our Q&A session. I can see people are already populating their questions in the Q&A chat. For those people for compliance reasons who cannot enter into the Q&A, please just feel free to send me an email. We'll attempt to get to as many of those questions as possible. With that, I'll hand over to Don. Thanks very much.

Thank you, Nathan, and welcome, everybody, to our half-year market update. Today I intend to, with the leadership team, tend to walk through three core areas. Firstly, in the first half, where did we make missteps and what were they? In parts of business, what did we get right? And then how are we going to apply what's working to the rest of the business? If I start with this first slide, which is slide number two, what hasn't changed is fundamentally we're still very mission focused in that we want to be the dominant sustainable delivery QSR in every market by 2030, and that guides us in more refer to the references of that throughout our presentation. We also want to continue to, once we do get a business unit economics up with strong sales and franchise profitability growth, we still want to make sure that we're fortressing markets with being a competitive advantage to get closer to the customer with hotter and fresher pizza. And fundamentally, since the early 90s, we've been a business driven with a high volume mentality, and that is through scale and leverage, One of some of the benefits of fast food businesses is that we're able to make sure that we can pass those savings through and be better value than most of our competitors. If you come with me now onto slide three, We talk a lot about the value equation at Domino's and the value equation at Domino's is product, service and image divided by price to equal value. In the last two presentations we've given to the market, we talked a lot about price because in many cases we weren't getting the price right. But at Domino's, we want to talk a lot today about the whole value equation. What do you get for that price because it's what's driving our business or where we're making missteps in some of the underperforming units. So we talked about it the full year that the way that our business rebuilds is it always starts with the customer. When customers are excited that they're paying the fair price for our product, that our franchise partners then benefit from the better margins and the sales growth, and then ultimately our shareholders also succeed. So it's the whole ecosystem starting with the customer that we're focused on everybody getting a better slice When we think about what happened in the first half, the missteps happened when we didn't get that value equation right. So what have we been focusing on in the first half? The first thing that we talked about at the full year and leading into the full year was that after two decades of international growth outside the Australian market, we'd built up a number of business units. at that start to have their own independent leadership teams with lots of disparate systems from businesses that we'd acquired before, and we weren't getting the proper leverage of our scale. So in the last half, and it's continuing into this half, we've been very focused on restructuring the business, removing inefficiencies, and focusing on building some new business units, which we now call our Centres of Expertise. are very much largely driven around things like technology, around marketing, media, strategy, data and insights, finance, where we're able to support by building centres of expertise, we're able to achieve best practice and then apply that best practice through the rest of the business, often benchmarking different things like conversion inside our apps, what's performing in new media, like the new entertainment platforms and so on. Once We've been building these. We've been proving them out in originally our home market, Australia and New Zealand, going back to how we operated the business for most of our life, where ANZ has been the petri dish of the business, and then we're exporting that knowledge like One Digital and our data and insights platforms and so forth. And so we've been proving those strategies, and you can see the results of that in Australia, New Zealand and Germany. And now we've been in the phase, as you're seeing in this half, we're applying those learnings through the rest of the business. And we're going to continue to focus on applying these centres of expertise as we build out the knowledge and learning throughout the business, noting that this started in Australia and then it's been migrating through Asia and into Europe. If you come with me onto slide four, what is leading the results that we're getting in Australia, New Zealand and Germany that we think is applicable to other businesses? First of all, we've been focused very heavily on day partying. So when you look at the Australian New Zealand business, we've had very strong lunch and early morning growth. And then when we think about occasions, we think about single eaters. We think about families and groups. And the creation of the My Domino's box and more recently our melts have been very successful in driving new occasions. And I'll talk about that in more detail specifically in Australia and New Zealand. We've also been focused on new media, testing out things like X and Reddit. And it means creating new creative as well. These new entertainment platforms like TikTok and the Meta products and the Google products and so forth align in Asia. They perform in a very different way. And so when we're creating creative, we have to create creative for this new media and test and learn. And that's part of what the centres of expertise do. And then finally, if we're going to be the dominant media sustainable delivery QSR in every market, we need to dominate some of the biggest delivery platforms. And so we've been early adapters. And with our new agreement, we'd like to thank our partners in DPZ in the US for assisting us in getting the new Uber agreement, which is benefiting many of our markets. We're really leaning in and making sure that we're getting new learning and dominating in these spaces as well. And that's where we're seeing growth and performance. If you come with me now onto slide five, You can see our key metrics for the first half. Our network sales were up 8.8%. We gave a trading update that we thought we'd be between 87 and 90. In January, we came in at 89.6, and our underlying EBIT was down 5.3. That was largely affected by Japan, Taiwan, and France. From a half-to-half, when we're rolling from the second half, we can see there that we are up 22.8%. in the underlying EBIT, and that's largely as we were forecasting around the AGM and at the full year, that a lot of that has been the savings from the $21 million, or at least the two-thirds of the $21 million that we've been able to bring through with the restructure in the first half. If you come with me now onto slide six, and just look at our trading update for the first seven weeks, we're going to talk in more detail, so I'll just go to the height later in the presentation. So I'll just go through to just the high-level numbers. The network sales are 3.78, rolling 4.2% last year. While we're happy with the same store sales for the first seven weeks, it should be noted that they are rolling softer comps. So, you know, still more to be delivered and get a track record in some of the markets that are starting to perform better. Still not a trend yet in those markets. And we've opened seven new stores. And as we highlight the full year, that this year we would be within the three to five year view of our store openings as we're rebuilding markets. As they rebuild, we can then go into store growth into the next year as we get a track record. If you come with me now onto slide seven, the first thing to note about these is obviously they're always averages. And so inside these results, we have had stronger performance in Australia, New Zealand, Germany, even the unit economics in parts of where we're more corporate based like in Singapore. Believe it or not, even France has had some good growth with the franchise partners' performances as we've supported that and worked hard as one of the early phases of rebuilding our business. But those results have been diluted by the Japan and Taiwan franchise partner results. What I can say is that when we reported in August, we were reporting 93.5K Aussie dollars. and we were slightly up on that at the 94.5%, but what is showing better results is in the last quarter that we were up 11% in these numbers that are being added. So we're constantly focused. It's all about rebuilding our franchise unit economics through strong customer growth and good margins from our customer with the products that we're creating that will deliver our future growth. So if we come on now onto slide eight, You can see there that we believe we're on track to deliver circa $50 million in savings for the full financial year. We've already delivered around approximately $21 million back into the system, a third of those being shared back to our franchise partners. There are some important footnotes to just notice there that some of the ways that things are flowing through is, for example, the supply chain changes in Asia. When we moved to a back-of-house model, it brought some efficiencies through directly to the stores, whether they be corporate or franchised. But also, some of these savings are also coming through to the advertising funds, so where we're being more efficient with the people, the centres of expertise and so on, and that's partly how we're bringing those benefits through to the system. But it should also be noted that despite these cost savings, what excluded from this is to note that there are still some cost increases with natural wage inflations for our team members and some CPI costs that are natural in the business. At this point I'm now going to hand over to Richard Kane.

Thank you, Richard. Thank you, Don. If we just move to the next slide, you can see here the key points to note on this slide is that although our NPAT is down $9.3 million or 13% on prior year, a large part of this is related to increasing in financing costs which are up $9.6 million. predominantly due to increases in Euro and AUD base rates, with average interest rates moving from 1.9% to 3.15%. In addition, we had lower profit on sales stores, which were down 4.1 million, which we expect to recover as unit economics improve. We have announced a half-year dividend of 55.5 cents per share, which although is down 17.7% on prior year, it is up 30% on the last half. If you now just move to slide 11, the geographic summary, revenue is up 10.2% in line with network sales growth and with the largest increase coming out of Asia from the recent acquisition of Malaysia and Singapore and Cambodia. Margins are down 1.4% this prior year, predominantly due to very tough trading conditions in Asia. partially offset by Europe, which has benefited from the Denmark closure and the improvement performance in the Benelux and German region. When comparing to the half just gone, you will see that the results have improved considerably, with margins up 1.3%, with a large improvement in ANZ moving from 12.3% to 14.2%. Coming to the next slide, non-recurring costs. The group restructuring cost to date of $10.8 million are largely in line with expectations, noting that we still have not finalised any of the store closures and redundancies in France due to longer than expected negotiations with the workers' council in the region. We have also adjusted down the contingent consideration by $7.3 million relating to the earn-out for the Malaysia, Singapore and Cambodia acquisitions. Now moving to our group free cash flow, you can see that our free cash flow has improved by $47.7 million predominantly due to a large tax refund as a result, predominantly a result of the restructure and more importantly a reduction in capex of $24 million while maintaining the sell down of our corporate stores and our loan book continuing to recycle. If we now move to slide 14, some more detail on our capex. You can see our net capex has reduced by $22.9 million, or 35%, with store-related capex down $18.1 million, and our digital capex largely maintained, noting that this included the incremental investment to convert the online ordering platform for Singapore, which is now operational, and Malaysia, which is expected to go live in the fourth quarter. We saw the benefits of implementing this system in Singapore with higher conversions and we expect a similar benefit when One Digital is implemented in Taiwan and Malaysia. Noting when Taiwan is completed, this will be the first time that we'll have all of our 12 markets on the same global platform, which will deliver additional scale and synergies for our group. Turning to slide 15, capital management. As we foreshadowed at the full year results, we have been successful in executing our capital management initiatives, which included reducing our net capex, improving operating profits and reinstating the DRP. As a result, our net leverage ratio has improved materially, dropping from 2.92 times to 2.76 times for the half. Our banks have also been very supportive, providing additional headroom and formally agreeing to increase our leverage covenants to 3.5 times, which although unlikely to be required, it highlights the strength of their commitment and our strong partnership. Our liquidity and funding capacity remains robust and has increased by a further $65 million with undrawn facilities and cash of $482 million. With that, I will now pass you over to Josh to talk about current trading conditions in Asia. Thank you.