Domino's Pizza Enterprises Limited

Good morning and welcome to the Domino's Pizza Enterprises full year 2024 financial results. I can see the attendees are now inside of the meeting and so we will get started. My name is Nathan Scholes. I'm the head of investor and relations and communications. Joining us on the call today, our group CEO and managing director, Mr. Don May, our group CFO, Richard Coney, our CEO of Europe, Andre Tenwald, our CEO of Asia, Josh Kalimnik, And I'm also very delighted to welcome other guests from overseas. Our CEO of France, Joel Tissier, who's dialing in very early hours for us. Martin Stinks, our CEO of Japan, who is joining us in Australia on the Roadshow at this time. And a very warm welcome to our new ANZ CEO, Kerry Hayman. So I'm sure everyone will get the opportunity to ask your questions today. So with that, I'm going to hand over to our Group CEO and Managing Director, Mr. Don Lane.

Thank you, Nathan, and thank you for everybody who's made this call today. I'm going to start on slide three of the investor presentation. And hopefully for all of you who have seen our videos online or attended an investor day, that this is not a new slide to you. And it's actually a slide that we start in every important meeting with inside DPE. And this is our strategy slide. We make it clear inside our business that our mission is to be the dominant sustainable delivery QSR in every market. And how we define that is that we're not in the restaurant business. We're not in the drive-through business. We're clearly, our meals are consumed at home. And so whether it's the more premium service where we deliver your order or in the odd occasion, it could even be a third party delivery or whether the customer chooses to be the driver, we're really obsessed about the food and the way that it performs when it makes it to your home. So the strategy is that in all cases, the meals are designed to be delivered that we're very focused on the sustainability improvements as we reinvent our products and reinvent our stores, and that there's also a dominoes X factor, the pizza-ness that we can attribute and differentiate back to these meals as they make it into our consumers' homes or offices. We measure our operational performance under the value equation that we've had now for multi-decades. For us, value is the product, the service, and the image that we offer the customer divided by the price. And one of the two ways that we can define that most consistently is our delivery times. We know that there's a magic point at around 18 minutes where when we get below that, the investment is really not as much gain. And as you draw away from that, then it can be less attractive to customers. And we're obsessed with 4.5 product, that anything as you venture over a four star is rated by our customers inside our app and web. It all relates, in fact, product is the highest weighting to driving a net promoter score. We also talk a lot, and you'll see this in this presentation today, in the markets that are getting significant growth right now, is that it's coming from segmentation growth. This is a business largely with a dinner, multi-pizza or multi-side meal occasion with families and team sport and so on. But you're going to see that we've been very focused on other day parts and getting some great traction. And then it's all delivered by the 120,000 team members in this business, that there's a path to success. You start as a team member. You grow your way through this business. You may become a store manager, a franchise partner, or even an executive in this company, that we have a pathway. And it's the great people of this business that drive it on every day. In fact, on this call, there's about 180 years of Domino's experience. If you come with me again to the next slide. So the key outcomes from the last financial year, we saw our Europe EBIT up 17.9 million and 80 basis points, a larger influence when we exited the Danish market. We had the Australian New Zealand business have a record profit year up 11.7 million and EBIT level up 20 basis points of margin. And our Asian business was actually down 17.3 million, which reduced our margins by 150 basis points. And if I specifically talk to the elements, You know, we've projected all through the year and communicated through years the success of the Australian Zealand business, having its best aim for sales in seven years, the strength of the German business, and more recently in the last quarter, the strength of the Benelux business as it has rolled through significant wage inflations and coming out positively at the other end of that and quite successful. And little old Singapore, we also highlight, be it it's not a big contributor, but it's been a stellar performer in our business. Our performing businesses this last financial year were France and largely Japan. And that slides through the numbers here. And today, you're going to hear from the CEOs who are going to share their plans and how that's going to change in this financial year. Our franchise partner profitability grew 6.7%. This is the turnaround in our business in this last year. Very, very focused on unit economics. We're going to talk a lot about that today. And a lot of that growth came in the last quarter. We're able to deliver some restructuring program costs of $50 million. We put a third of those back or a little bit over a third of those back to our franchise partners. Some of those savings also appear in marketing or in our IT capitalizable savings, which means not all of it makes the remaining two-thirds make it to the bottom line, but a proportion of it does. We're really happy with the fact that we were able to produce so much cash this year and deleverage the business to 2.35 times. I know there's been all sorts of noise in the market about capital raising. I think that's very clear. That is not the case. And we're going to continue to make great progress against that this year. And our EBIT was up 3%. But by and large, our focus has been on driving unit economics because that's what's going to lead to the strength and growth. And those that are driving unit economics are going back to growth in this financial year. Nathan, next slide. One of the things that we talk about our business is that we're a common platform business. That is that we have the next generation one digital in almost every market in the world. And behind that, there are a number of tools that we can aggregate to apply to all businesses with a local nuance. Today, we work with many global media platforms with our global digital platform. And what we did this year is that we We restructured our business to put some of our best and brightest into our centers of expertise. And you see some of those results on this slide, on slide five, where you see our online sales were up 7.5%, where our digital team outperformed in many parts of our digital platform. And we expect strength in this area to continue into the coming year. Also, you know, delivered network sales are 4.6%, and the underlying impact was 120 million. If you come with me onto slide six, This is where we highlight our restructuring savings for the year. We set out this year to make the business more efficient, to benefit from our global scale. As I mentioned, leverage centres of expertise, but make sure we're still applying the brand at a local level. Product and the brand imagery, our store development programs and working with our franchisees is all at a local level. You can see here we came in on the lower end of our restructuring program. There was some delays in optimising our network. It took us a little longer in parts of our business with government legislation, as it did also with some of the restructuring of our overhead. It just took us longer, largely in Europe, as we worked through legislation in those markets. But we're still proud that we delivered a $50 million savings to business. We're forecasting that we're going to deliver another $30 million into the network. Once again, I want to highlight that not all of that makes it through to our shareholder bottom line, in that some of that goes to our franchise partners, some of that goes into our advertising savings, and also into the capitalisation of our software development costs and so on. But we are expecting to deliver another $30 million this year. There will be some headwinds of inflation in our support offices, including this year we expect to achieve our numbers and therefore deliver the cost of the business of LTI and STI that weren't paid in the past year. And yeah, as I said, we've really been investing in our franchise partners and making sure that many of those savings make it both through to themselves, but also into advertising. I talk a lot about how much our media spend is increasing in this financial year, not because it's a higher cost base to our business, but it's just as we'll talk about how we're being more efficient and passing our savings through into this area. If you come with me onto slide seven, it highlights our franchise partner profitability. You can see that we grew in this half. We began the journey on our way to 130K, which is ultimately where we accelerate this business. We're delivering with inspired new products that have higher margins, only available at Domino's, creating new segment growth, things like the My Domino's box, Melts, the Cheese Volcano. These products are not discounted products. They're launched at a price. They've got great margin, and they're gaining new customers as well as delivering stronger profitability results. We've improved our pricing on an everyday basis, and we've also been getting great growth inside the aggregators. I'm going to talk specifically about that in more detail to come. Slide eight is a really significant slide. If we're quite honest and clear with ourselves, we didn't handle the first phase of inflation very well. It was quite stunning how significant it was in various parts of our business. And the model of just simply endlessly putting up price without necessarily giving the consumer any benefit in some of our businesses was not a winning strategy. We also had to rebuild some of our expertise in the business. For example, our product innovation. For a decade of digital innovation and Through the two years of COVID, we had lost a lot of the talent and the skill in our business to rebuild our product innovation. That's a skill that we've regained in the last year, and you're going to see the benefits in this year, and you're already seeing the benefits in some of the thriving businesses. We also, you know, this is a year where hopefully we can illustrate that we are not victims to inflation, but we can take control. We have levers that we can control. And that's all about levers that drive sales, which inspire new products, new segmentation, whether it's about going and deeper into the marketplace of aggregators, which are the largest delivery platforms, and that's where we want to dominate. Our optimization of our media spend, now that's working with getting proper attribution partners so that we're really focused on the real ROI and backing the proper attribution to customer growth. And then, of course, everyday value, making sure that we have consistent, always-on value for our customers, especially for our technology platforms. where we still want to dominate most of our transactions. And then we are in control of our costs, that through inspired products, we're delivering better margins, that we've actually got smarter scheduling systems that we've been delivering in the last financial year, and we'll continue to deliver over the next two years. One of them includes the new labor tracking, which is performing really well in the Australian New Zealand and the Benelux region, and will continue to expand for the rest of business. And then we also want to unlock a smart scheduling system over the next 12 to 24 months as well throughout our business, once again, to improve our efficiencies and help our store managers execute better. We're also unlocking third-party delivery models, and I'm going to go into more details on the next slide, and then passing through savings also to our franchise partners. When we put those against also a store build cost, which over the last two years coming out of COVID, we've worked really hard to make sure that there's been very little growth in those build costs, Why? Well, we were building stores pre-COVID of 120 to 150 square meters today, also motivated by ESG and efficiency. We're largely 70 to 100 square meters. We're targeting You know, we're opening brand new stores as we speak that have 70 square metres, 71, 72 square metres. We reviewed our equipment packages and we've also been able to be more efficient over the last couple of years that, you know, because we're just refitting out a rectangle in a small strip shopping centre, you know, equipment is a large part of the cost of a store and we've actually been able to, you know, beat inflation in our equipment packages. So smaller footprint stores driving up the efficiency of the operating cost of those stores, plus the build cost of those stores, and then driving sales and lowering costs, we think we've got a really good plan that we're going to deliver over the next 12 to 24 months. If you come specifically at the last half, and we talk about our trading performance, the Australian New Zealand business, we talked at the beginning this year would be a petri dish. I came back in and double-hatted for a little while just to get involved, to look at all the plumbing in the network with our COEs and how we were delivering the new structure. I'm really happy to be able to hand over the reins to Kerry now in the aims of business so that I can get back out and make sure that the progress and learning throughout the business is being applied using the global centres expertise, but allowing the local management to thrive and use those tools. In the Japanese business, the essential sales were negative, but we were pleasing in the second half with our customer counts were up. The Malaysia business, we're rolling some geopolitical events that will roll by October, so that's still going to have a drag on our sales, and that particular market's earning on a like-for-like basis in the first quarter. A little of Singapore has been a star performer, and it's the things that we did in Singapore we also did in Malaysia that has delivered a better-than-expected result, at least from an earnings point of view, than might possibly would have happened with the deliveraging of sales in the Malaysian business. So, you know, that team has done an exceptional job of implementing our new technologies, going to back a house, both in back-of-house dough, back-of-house vegetables, less deliveries to store, all of this improving also our ESG footprint and delivering better margins at a store level. Over in Europe, our central sales in the second half were flat. Germany was positive, delivering with delivery and carry-out, but that was offset by France. And the Benelux came through in the final quarter, but it was largely through tickets, as we consumed some significant two levels of wage inflation in that business but really impressed with how Andre and Misha and Annika and the team have delivered there in the Benelux. So if I come out now onto slide 10 and just talk about the trading update, in the first seven weeks, we were minus 1.3%, rolling a plus 2.8% for last year. There is obviously a significant drag there from Malaysia, which we'll be rolling that through. But what we want to highlight is it's seven weeks, and there was some bumpiness in that first seven weeks last year. We had the fantastic performance from the Matildas, which gave us record sales in the A&M business on separate days, which we've rolled through. And in Germany, we had the best promotion in the history of that business with Donna Kebab, and it was really an exceptional performance. From an Asian business, we still have a negative sales largely from Malaysia and Japan. But on the other side, we have strong performance in Singapore and Taiwan, and we are starting to see customer count grow performance out of the Japanese business. At this point in time, I'm going to hand it over to Richie Coney to talk to our group's financials. Thank you.

Thank you, Don. As you can see on this slide, our revenue is up 2%, consistent with our network sales growth. EBIT is up 3% versus last year, which in constant currency is up 2.2%. Also, you can see our interest costs are up 56%, or $12.6 million, predominantly due to central bank rate increases in Europe and ANZ impacting our debt funding costs. Important to note, we have seen these rates stabilised in the second half. Moving to slide 13, Nathan. As you can see, ANZ and Europe are up 10.4% and 33.8% partially offset by Asia, which is down 28.7% versus last year. Margin improvements in A and Z is predominantly due to a significant improvement in our corporate store performance in the second half, which is a combination of re-franchising lower-performing corporate stores and improved food and labour management. Europe margins have improved by 2.2%, largely due to store closures from the restructure, including the Denmark market closure. Moving to slide 14, Nathan. This slide provides a summary of the non-recurring costs totaling $44.2 million with store closures and write-downs of $29.6 million and employee-related costs associated with the restructure and move to shared services of $23.1 million. Worth noting now both our Malaysia and Poland centres are now stood up and operational with coming on in recent months. In addition, we had an earn-out release relating to the acquisition of Malaysia, Singapore and Cambodia of $18.8 million. Next slide, mate. Now moving to group free cash flow. Free cash flow excluding acquisitions has improved by $65.4 million. and a whopping 390.6 million after acquisitions, with significant reductions in net capex of 96.8 million and tax pay to 54.7 million, which has been partially offset by increasing non-recurring payments of 21.4 million from the restructure and working capital movement of 46.1 million noting we are rolling over a reduction in working capital of $36.5 million in the prior period. Next slide, Matt. A key highlight from this slide is that our CapEx, which recycles, is almost neutral for the year, with gross CapEx of $63.6 million for store-related investments. offset by cash inflows from franchisee loan repayments and sale of stores of 63 million. Obviously, this is some of the benefits of not growing at the rapid rate we had in the past and now starting to benefit from these loans, loan stores and sale of corporate stores that's pushing cash back into the business. Digital spend has been maintained with material reductions in stay in business and other investments reflecting our disciplined approach to capital management. Moving to slide 17. As foreshadowed at the FY23 market presentation, DPE has successfully deployed capital management initiatives, which has resulted in a $148.6 million reduction in net debt and our net leverage ratio dropping to 2.35 times versus our current cover of 3.5 times. Just confirming and reiterating, ZPE is still targeting a leverage ratio of two times with our capital management initiatives plan to continue until this target is delivered. I'll now pass you back to Don.