Domino's Pizza Enterprises Limited

Thank you for joining the Domino's Pizza Enterprises limited half-year earnings call. I'm just going to wait a few moments while the attendees populate. Okay, well, thank you. I can now see the attendees are now on the call. My name is Nathan Scholes. I'm the Chief Communications and Investor Relations Officer for Domino's Pizza Enterprises. On the call today, Mark Van Dyke, Group CEO and Managing Director, and Richard Coney, Group CFO. At the end of today's presentation, we'll move to a Q&A, at which point we'll take questions in turn by unmuting and hearing from you directly. As previously, we'll take a question and a follow-up, and then you'll rejoin the queue. Thank you very much, and over to you, Mark.

Thank you, Nathan. Good morning, and thank you all for joining us today. The plans I outlined for you earlier this month have not changed. So today, in addition to a discussion on our first half results, I'll reiterate some of the key elements around our approach to our strategic review, and I'll outline how we intend to get value creation model back delivering returns for all stakeholders, particularly shareholders, and the work that will help us achieve that. Domino's is one of the world's great brands with decades of experience serving our customers, providing opportunities for franchise partners and delivering returns for shareholders. First, I'd like to run through our top line results and provide an update on the work that we're doing to return to sustainable growth. Let me assure you, this is not business as usual. Richard, our CFO, will then provide an update on our financial performance. I'll come back to summarize, and we'll open it up for Q&A. Less than three weeks ago, we announced we were closing 205 loss-making stores, mainly in Japan, and mostly opened during COVID-19. This was to sharpen focus on stores and regions with the greatest potential, improving profitability and support our broader turnaround. Because of disclosure obligations, we updated you then because we are moving at pace. I want to be clear that those recent closures in Japan do not reflect and should not be interpreted as a statement on our long-term opportunity to grow, including new store openings. The fact is, good stores create great value, and you can see that by the improvement in unit economics of our franchise partners we have achieved over the past 12 months. We'll provide a detailed update and a strategy day in Brisbane to be held in this fiscal half. Today, I'll outline a little more of how we intend to get back to the virtuous cycle that delivers for all stakeholders, particularly our shareholders and the work that will help us achieve that. You'll hear more on the financial results from Richard, but let me provide you with my key takeouts for our half. Firstly, network sales were 2.9% lower because of lower same-store sales, currency translation, and because of store closures that occurred in the half. When you look at same store sales, which shows the underlying performance, H1 same store sales was really a story of two quarters. We started the first half behind aspiration with Malaysia and Taiwan cycling some external factors and Germany, as we reported at the August update, cycling the incredibly successful Doner Kebab promotion in the prior year and lower than expected. At the August update, same-store sales were minus 1.3%, but we ended the half at minus 0.6% in the second quarter. Germany returned to growth in the flat, and Malaysia and Taiwan cycled those external factors. That means same-store sales for the half were mostly positive, but affected by France and Japan, two markets where we have shared our strong focus on turnaround actions. As you know, I started as CEO three months ago. What I share with you comes from visiting six countries, visiting dozens of stores, and speaking with hundreds of team members and franchise partners. Everything I've seen and heard tells me we have significant strengths to build upon. This is despite cost of living forcing consumers to make difficult choices regarding their spending, including on QSR. We operate in large, attractive markets for QSR and QSR Pizza. And in most of those markets, we are the leader with well-recognized and valued brand and with strong franchisee networks. We sell high quality food and the flexibility of our menu offering and our product development means that we can meet the times with great value for customers, whether individually, in families, or in other groups. For example, today in Australia, you can purchase a Domino's meal for your family with three value pizzas and three sides starting from $37 delivered. It's quality food, a great experience and great value that rivals anything in our industry. We have a terrific team of passionate dominoids, as we call them, more than 120,000 strong, including more than 1500 franchise partners who are invested in our shared success. We have a proven value creation model or flywheel as we call it. If we deliver for our customers, we grow sales and increase profits for our franchise partners and earnings for our shareholders. And the model leverages strongly once you get beyond threshold weekly sales levels. What is also clear is we have significant opportunities in front of us in both the short and the long term. I highlight again the attractive markets we're operating in, such as Germany, one of the largest pizza consumption markets in the world, worth more than 4 billion euros annually. And we have the leadership position with a share three times our nearest competitor and still cover just one third of the geography. Benelux has a track record of success with 95% brand awareness and a store footprint larger than McDonald's and any other QSR competitor. And of course, Australia, where we're more than half of the pizza category, but we're still less than 5% of total QSR. So the fundamentals are there and we do have room to grow. So to build out our long-term potential, we know we need to do things differently. We need to improve unit economics. We need to enable our franchise partners to build their wealth and reinvest in expanding their businesses. We need to simplify our business and reduce complexity. For example, the number of packaging SKUs we order will flow through to better operations and lower costs, boosting margins for our franchise partners and returns for shareholders. We're working with urgency on immediate top-line and bottom-line initiatives. We've already announced decisive actions we're taking to remove costs that would otherwise be barriers to returning to growth. For example, the closure of the unprofitable stores that were unlikely to reach profitability in the near term, delivering 15.5 million in network benefits on an annualized basis. refocusing our spend on IT, marketing, ingredients and packaging to deliver immediate and ongoing savings, including 18.6 million in network benefits annualised. There is no doubt consumers are under pressure globally with sustained cost of living pressures affecting QSR broadly and, of course, businesses generally. But where we're getting the customer proposition right, we're growing share, including in large markets such as Australia. We do have some short-term challenges post COVID in general, and with the addition of four new DPE markets, Taiwan, Malaysia, Singapore, and Cambodia, complexity crept into our business from support offices to the cut bench in our stores. Two of our markets, Japan and France, have been particularly challenged and require an individual and carefully considered response to each. We're working on those in parallel as a necessary part of reaching our long-term potential. So that's the environment that we're working in. So what is the plan? We have a proven value creation model. This flywheel has delivered phenomenal growth and strong returns for all of our stakeholders. But clearly, we need a better focus on execution. Things need to change. We need to get that flywheel back to being a strength for Domino's, where we consistently deliver for customers. Our franchise partners grow their sales and profits with high contribution margins after break-evens. Our franchise partners are then hungry for more, expanding their store network to reach more customers efficiently and profitably, which helps DPE leverage our supply chain, marketing teams, and other support services to grow earnings and margins. The work we are focused on, short-term and long-term, all comes back to this flywheel, starting with the customer at the center of the business. You'll see the benefits of this approach in our franchise partner profitability, which lifted across all major geographies, excluding France and Japan, as a result of the high contribution margins of additional sales. I've been frequently asked, are we saving enough to return to the sustainable growth we want to achieve? The simple answer is no. Cost reductions plus sales growth is the powerful formula for our growth in our business. And on a rolling 12 months, you can see that formula in action with average EBITDA plus 13.7% higher than the prior corresponding period. Those increases came from a reduction in costs as we pass through the benefits of earlier savings programs in the form of reduced ingredient and packaging costs, as well as an increase, of course, in sales. The further question I receive is how do you deliver the meaningful uplift to unit economics required? The nature of our model is that our sales have a very high contribution margin in excess of 30% once our stores have passed the break-even point. To achieve an additional 30,000 of profit, we need an additional 100,000 in sales. Talking averages, that's on a store likely to have a turnover of more than 1 million already. It's not a small task, but we understand the opportunity, what needs to change, and the need to focus on execution to deliver it. Let me talk about growth. And I don't mean short term sugar hits. I'm talking about sustainable growth. If I had to boil this down, it's not about a change in strategy, but a change in execution. Some of our markets simply aren't delivering at the same level as our top markets are showing is possible. We, of course, need to change that. What we're doing is creating a simpler, more consistent dominoes. It's not a window dressing, but a strategy to create sustainable shareholder value over the next three years, backed by a meticulous focus on execution. And it has two parts that contribute, cost efficiency and strategic growth. Let me start on the right-hand side of this slide. We're working at pace to define the strategy and growth plan that will allow us to build out the full opportunity for this great business and our franchise partners. While we will share the details of that at our strategy day to be scheduled in Brisbane later this fiscal half, it's my view we can make considered choices on where to prioritize capital to profitably rebuild our store footprint. Importantly, our share of QSR and the pizza category through building frequency and, of course, new occasions. Network growth is important for our future, but so is same-store sales growth that outperforms in contributing to our earnings. We need to deliver both because there is no point in growth that is not profitable. To reach that long-term potential, we will keep a single-minded focus on our goal. But we aren't waiting for that. We also need the venture capital, of course, to reinvest in growth. As we've shared, we've taken rapid action, including closing loss-making stores and driving other cost efficiencies. These are simply the first steps. what is required to simplify our business, our cost base, our operations in stores, and our customer proposition. For example, by simplifying the amount of packaging options, we make space in stores for our team members, reduce the amount of deliveries through our supply chain, and reduce costs at the manufacturer's end. We've worked with select expert advisors to help our teams look at our business with completely fresh eyes and to challenge our existing views. Simplifying does not mean a reduction of quality, quite the opposite. Simplification means we can focus on making every customer experience as positive as it can be. Think back to that packaging example. Simplification means a higher accuracy of stock deliveries to store. It means our team members spend less time trying to select the right package for each product. And it means it's easier for our delivery experts to ensure they have the correct items when heading to a customer's home. It's my first view that every great food business is built on quality, value and experience. The evidence is clear at Domino's, where we deliver for our customers with high product quality scores, as voted by our customers at the end of their order. We see higher net promoter scores. People then tell their friends and family how good Domino's is. They buy again, and this leads directly to higher same-store sales growth. We believe there's more that we can do in the short term to deliver on this commitment for our customers and franchise partners to give ourselves the lift in unit economics, coupled with reinvestment from savings initiatives to restart the virtuous cycle. To be clear, short-term initiatives are not about a silver bullet. It's about a focus on doing small and big things better. It's about execution and ensuring all of our markets raise their results to our leading markets, from product quality to digital conversion, for example. And for example, we can see a stark difference between conversion rates from store to store, whether it's because of our local pricing and promotions, their product quality and local NPS scores, or simply their opening hours aren't meeting the need of their customers. Again, with the same tools at the franchise partner's hand, the same brand recognition, the same menu, and yet the difference between our top performing stores and our bottom can be greater than 8% for same store sales growth. We have to close that gap with greater consistency. The measure of these initiatives will be higher profitable same-store sales growth across our markets, which will drive franchisee profitability and profitable network growth. At the same time, we're working to lower costs for our franchise partners while we work on the medium and long-term roadmap. Savings are only one side to the equations. We have to deliver top-line growth built on more customers more frequently in all markets. As I mentioned earlier, every great food business is built through value and experience, with quality food the capstone of this offering. If you don't deliver high quality food, value and experience are no substitute, which is why our teams are building out a pipeline of high quality menu items. These products need to be accretive and they need to be scalable. In short, we're developing products that customers and franchise partners love, lower cost of goods sold without overcomplicating store operations. It can be delivered. For example, we've recently brought back our highly popular thick shakes back to the menu in Australia. They're mixing well and accretive. But before we focus, and that's even before we focus our marketing efforts on them. But importantly, they're being delivered in a more operationally simple and more consistent method than previous iterations, which is a direct result of the engagement between Kerry Heyman's team and our franchise partners. In the Netherlands, our Honor the Crave campaign has delivered double-digit same-store sales focused on the great products we sell, including our pizzas, including the new Detroit pan and shakes, all designed to be delivered. These examples show there's headroom for us to grow order counts by reaching more customers on more occasions and higher margins in every one of our markets. Our team are working on delivering value without being in any way detrimental to customers. We know customers value transparency. What we see, what they see is what they get. As just one example, across the group, we're trialing menu pricing that more accurately reflects the average price paid without coupons. This allows us to remove the need for hundreds of coupons that make the ordering experience more daunting for new customers and more difficult, frankly, for loyal customers to know if they're really getting the best deal. I don't want us to get ahead of ourselves, but some of this testing has shown a small reduction in the menu price can deliver a larger basket because customers are getting great value without needing a coupon to secure it. We're working across the full customer experience from first entering our online ordering platforms to accelerating conversion thereafter. For example, our team already working on changing the order flow on our digital platforms to half the number of clicks required to place an order to lift conversion from our existing customer set. And in Germany, through the integration and improved system for customers to select their delivery address, we were able to lift conversion by more than 4%. When I joined the business in November, I set out five areas of focus. Rebuilding value, making operations as efficient and as simple as possible. Strengthening franchise partnerships. Delivering growth through customer value. Leveraging and building a high performance culture. And of course, taking decisive action. Where change is required, we will move quickly and transparently. Strong unit economics are at the core of our business. We have to make a meaningful change in the near term, finding the venture capital to reinvest in our business. The insights I've shared are being implemented in the immediate actions, and we understand the urgency of this task. Some of the early wins include, as you know, closing 205 loss-making stores, including 172 in Japan, to deliver an annualized benefit of $15.5 million, whilst also lifting surrounding stores by retaining some of those orders in the neighborhood. Additional annualized cost efficiencies of $18.6 million through initiatives such as simplifying and focusing our IT and marketing spend. As an example of that marketing work, we've already delivered savings and an improved use of our marketing spend in APAC through a partnership on media mix modeling. We're expanding that partnership to Europe in this half with the intention to deliver improved returns on a much more focused investment. This is not the end of the cost efficiencies, but some of these efficiencies will take time to secure and to translate to our earnings and those, of course, of our franchise partners. I will keep you updated as we proceed. In the first seven weeks of this half, we've achieved same-store sales of plus 1.5% versus the prior corresponding period of plus 3%. I'd like to return to my comments just a few weeks ago where the timing of seasonal holidays in Asia had flattered that update simply because those holidays fell in that short window in which we were reporting. Sales for those holidays can be extraordinary, providing 50 to 100% plus swings from week to week. So today's update of 1.5% more actively reflects how we started this half. When we look at the year to date, this represents a continuing improvement, given we started the year reporting in August that we were minus 1.3%, largely due to factors I mentioned, including Germany and Malaysia. It's worth noting these results are in an environment where QSR is under pressure. As I mentioned previously, we're generally outperforming the market. I'm pleased as we sit here today that the majority of our markets are reporting consistent same store sales growth, but we are certainly not resting on our laurels and we're working on the initiatives I've outlined here to improve the results. So in summary, before I hand over to Richard, This is a great brand and business, but we need to do things differently. We need to be better with our execution, and that work is underway. The first half showed we can improve our sales performance focusing on our product, experience, and value. Our plan is to reinvigorate Domino's, simplify the business, drive stronger financial returns, and create value for customers, franchise partners, team members, and most importantly, our shareholders. Let me assure you that we really understand the urgency of this task. Richard will now speak to this half's financial results.

Thank you, Mark. Moving to slide 13. As Mark mentioned, our network sales of 2077.9 million is 2.9% down on prior year, but 1.4% up on the preceding half. Our EBIT is also slightly ahead of the preceding half, up 0.7%, but negative 6.7% versus prior year. Our underlying net profit before tax came in at the higher end of the February trading update guidance of 85.6 million. We have declared an unfranked dividend of 55.5 cents per share with a fully underwritten DRP in place. Moving across to the geographic summary, as you can see here, ANZ was clearly the strongest performer with EBIT up 7.6% to 67.7 million, with margins of 17.1% versus 15.1% in the prior year. This was primarily due to a significantly stronger performance in our corporate stores this half. Europe was 11.1% down on prior year with trading conditions in France continuing to be challenging with Germany also rolling a very strong prior half performance as Mark alluded to. Asia was down 19% largely due to declining sales and margins in Japan. If we move across to slide 15, our non-recurring items, Here I provide a breakdown of our non-recurring costs totaling $115.6 million, of which $92.2 million relates to store closures and our franchise optimisation program. Also noting that we expect a further $16.5 million to come through in the second half. If we now move to slide 16, our free cash flow, you can see Our net operating cash flow remains strong at 95.4 million, noting the reduction versus prior year of 47.4 million is largely explained by tax paid normalizing from a 16.5 million inflow versus the current half outflow of 32.3 million. Net investing activities reduced by 9.8 million, predominantly due to significantly lower new store openings. Moving to slide 17, here we've got our CapEx. You can see our CapEx which recycles is now for the first time a net inflow of 1.5 million with investment in stores being more than offset by repayment of franchisee loans and sale of stores. We continue our investment in digital CapEx And although prioritised, it now makes up two thirds of our total capex spend and quite a large part of our investment moving forward will be in this space. If we move now to slide 18, our capital management. As highlighted on this slide, DPE maintained a robust liquidity position backed by $404 million in cash and underworn committed facilities. Our net leverage and interest coverage remains well inside covenants, however, noting that we are still targeting a net leverage of two times, and as such, we will continue with the plan fully underwritten DAP, along with other capital management initiatives. Thank you, and I'll now pass you over back to Mark to talk about the future outlook.

Thank you, Richard. And I know we'll have more opportunities this year, but can I say a massive thank you for your service to this business. 30 years is an extraordinary effort and achievement and DPE and our franchise partners have been great beneficiaries of your expertise and your focus. We look forward to you continuing to bring that and also helping transition George Soud as your successor when we know his transition date. As I mentioned in the trading update, our sales momentum in this half has continued to improve in AMZ Europe and Asia. This is a challenging QSR environment, but we've demonstrated where we deliver for the customers, we can win share and grow sales, which flows through to our franchise partners. Our continued same-store sales momentum relies on putting customers first with quality food, compelling offers, and a seamless ordering experience. We're working on each pillar in all of our markets. Looking ahead, we're not seeing material headwinds or tailwinds at a store level for quantity prices that make up our food basket. We do have some source price reductions offset by high cheese prices. But our goal, as we've shared, is to continue to deliver product innovation that continues to bring down store food costs as a percentage of sales. In the medium term, we intend to supplement these product development efforts with simplification of ingredients and packaging. That is a longer process that is effective as contracts change, but will help fuel the equation of cost reductions, plus, of course, sales growth. Prior to my appointment, management advised Domino's intended to grow FY25 earnings versus FY24 with this growth to be delivered in the second half. To deliver this outcome will rely on a number of key factors. Number one, ongoing improvement in the same store sales momentum, particularly in Japan, where a higher weight of corporate stores has a larger effect on TPE's earnings. Number two, the timing of some of the network savings we've identified in our recent update, included in honing our IT and marketing spend. And three, the timing of store closures, particularly in Japan, which I can advise is moving as quickly as possible. Turning to the longer term, DPE has a significant potential through combining growth in our existing network and expanding our network footprint. We've talked a lot, so let me conclude by giving you my elevator pitch about the business. This remains a business with significant opportunity for growth, and the team and I are really focused on realizing this in both the short and the longer term. For me, there are a number of key priorities, putting the consumer at the center and simplifying to deliver quality every time. Focusing on quality and cost efficiency will create the venture capital to grow and drive our flywheel. We've made early progress also on our full potential plan, but we're not waiting. We're taking decisive action on opportunities as evidenced by our recent trading update. So we're building a different Domino's, one based on simplicity, greater consistency, and a strong focus on execution. 30 days, but I believe the best for Domino's is yet to come. We'll now happily take questions.

Thank you, Mark. I'm going to open it up to questions now. The first question I can see is from Ben Gilbert. Ben, if you're able to unmute, you can go ahead with your question.

Thanks, Tim. Just this one for me, Mark, probably a bit of a bigger picture one, but When you're looking at the turnaround or trying to drive productivity, are you looking at any sort of specific case studies or experience globally? It seems you're going on a similar path to what Starbucks is going on, albeit again, early days in the process. Just interested in how you're thinking about the stages, if you're modeling it on any others previously. And I suppose some of the signposts we should be looking for in terms of moving forward with this strategy.

Yeah, look, I think, let me answer that as follows. I think that the commonality from what I've viewed at Starbucks is, one, going back to the basics that drive the business, and two, putting the consumer at the centre. I think in all of these exercises, what you want to make sure that you do is drive efficiency, but continue to enhance the experience. And keeping that as the true north is definitely the sort of principle that I've always followed. I think there are some kind of unique characteristics to our operating model. So it is a full review of operations and the model for us. But clearly, as we've identified to date where we've seen the greater opportunity for efficiency is firstly in the whole ingredients and kind of food procurement area. um secondly in i.t and then thirdly efficiency in marketing you know i gave the example earlier on about the marketing mix model which you know basically gets you to use the awful cliche a bigger bang for buck out of your marketing spend you know through the rights of empirical support but but then we'll continue to evolve it i do see it as a necessary feature of business in this current environment And I think the thing that gives me the most confidence for that continuity is actually the incredible collaboration that we've experienced so far from our supplier partners. It really has opened the door for our supplier partners to come in and understand our strategy and focus better. And really bring us ideas around, you know, one, how we can enhance the consumer experience, but to also, you know, how we can make kind of efficiency, efficiency trade-offs. I mean, I sat in a meeting the other day, very, you know, specifically to give you an example with some of our franchisees where we put two boxes on the table. did the test and the box that the franchisees thought performed better was actually a new box versus our current and saved somewhere in the region of about $350,000. So that just gives you a sense for some of these opportunities that we're able to uncap.

That's helpful. And just follow up, Mike, just then just on that comment you made around the previous sort of guidance around growing EBIT for this year. just obviously there's a lot of caveats there in in sort of looking reflecting on obviously trying to execute on this strategy how much of a priority is it delivering that number because you always got a decent chunk of cost saves that's coming through from closures in the second half it feels quite achievable but there's obviously a lot of caveats on there is it wanting to invest up front or what what was the reasoning behind that

No, look, I think it's a very strong focus for the team. And, you know, we remain very committed to focusing on optimizing the results in this year. I don't think that there is any, you know, kind of reticence on that. What I was trying to highlight, which is frankly a statement of fact, is it does depend upon those three things. But we are enormously focused on making that happen. I mean, I can tell you, for example... on the store closures. There's 172 stores in Japan that we've got to close. The team there is moving at an incredible pace. If I'm honest, faster than I actually anticipated. So I think that's a good sign around the commitment of the team to deliver and to take action.

Fantastic. Thank you.

The next question is from Brian Raymond. Brian, you should be able to unmute and go ahead.

Morning. Taking the question, just on franchisee profitability, it's clearly seen some good momentum year on year. I do note it's kind of flat sequentially versus what was reported in August last year. Just wanted to get a bit more colour around how comparable those numbers are looking between results. I understand it's based on the sample that you've got in each period, but are you still seeing, do you think you're seeing momentum sequentially or is it a function of just that baseline uh being a bit lower um in in the 12 months uh in the in the current denominator essentially yeah just be interested to know if that's a comparable figure and if so are you happy with a sort of broadly flat performance um sequentially if i just highlight that i mean

I mean, the way we've compared it, it is taking into account seasonality. And we do have, depending on the quarter, you do need to be comparing apples with apples. So I would say that that's a fairer representation that we have some traction. But your point is, it's fairly marginal, but we obviously need to improve significantly above these numbers moving forward.

Right. Just on that seasonality point, I mean, it is a 12 month rolling figure. So is there any reason to sort of not compare the two or do you think it's fair to do so?

It's just really the timing of, yeah, it's, I mean, as I say, it's relatively marginal, so I wouldn't. Yeah. I wouldn't be taking too much into the variances, but more importantly, it's, you know, we are comparing a true same store, same store position where we closed. Right.

Thank you. Yeah, just to follow up on that, is the closures that you've seen, obviously there's a lot of corporate stores in the closure set over the past sort of 12, 18 months. There's been a few rounds of store closures, but I'd assume there's been some unprofitable franchise stores that have exited that measure as well. Would that have been a benefit to that? If we had a sort of an overall picture, including those stores, would it look much different?

Yeah, that's a good question. I would say that we have benefited from the store closures, but relatively marginal and remembering that, you know, a lot of this information is in jet lag as well. So, you know, we're talking about historic numbers coming through here, but yeah, so good question, but marginal.

Right. Okay. And then just final one, just on this is just the, I think in the past you guys spoke to EBITDA on a per store basis for franchisees at 120,000 plus, if I'm correcting that figure, to be, to be back to a kind of normalized level of store rollout. Is that, do you have any views like under current management of where that number would, you would like it to be through the cycle?

So I'm not quite understanding the question.

Yeah, Brian, if I can speak to that, there's been no change in our view that $130,000 is really the interim target for us to get back to the level of payback that we're looking at. You know, that's across the group of three to five year payback. I mean, we're talking averages, but that gets us back to a three to five year payback, which is what we know gets back to that virtuous cycle that Mark's spoken to. where franchise partners are keen to expand their networks. So yes, to your question, we still believe that that $130,000 is the appropriate number. And as Mark spoke to just now, that requires something in the order of about a 10% volume increase, offset by other savings and reinvestments that we'll be intending to make.

And obviously it's dependent on the store build costs in each of the regions. So, yeah, it tends to be an average. So you just need to be careful with averages. Of course. And our Asian markets generally, you know, it's probably a higher multiple, specifically Japan, probably more Japan in terms of its lower cost of capital in those markets in terms of what a franchisee would see as a strong return in that market.

Okay, great. And then just the final one for me is just on the promotional mechanics.

Brian, sorry, I'm going to get in trouble from other analysts. They'll come and floor me.

Apologies. That's okay.

I'll hand over to Sean Cousins next, but Brian, we'll have time to come back to you.

Great. Good morning. Maybe just a question regarding France. Same-store sales remain in decline. While France isn't that material for the group i'm just curious why the french firm and fair plan which seems to be more franchisees on domino's pricing higher net promoter score uber eats deal and a new marketing campaign Why isn't this working? And I really want to dig into sort of how then Domino's thinks about its inability to date to get comp growth into positive in France. And then how do you think about how you execute in a much, much more important market like Japan? So why isn't France turning around? And what are the learnings you now take to Japan, please?

Yeah, let me try to answer that for you in a couple of parts. So number one, I think in France, there are two critical things that I believe we need to do to enable growth in France. The first one is broadening consideration. and address what research has told us. I've looked at research since I joined and basically consumers there have a concern that product is looking a little heavy. I think some of that's honestly the way that we have kind of advertised it and also not as high quality. And I think some of that is also about the level of discounting that we've historically done. So that's a very firm focus for us to resolve. There is, as you know, a kind of new campaign that's continuing to be rolled out. And the good news is we have franchisees and ourselves backing that with an extra 1% in the ad fund. I think that will take time. Shifting consumer perceptions does take some time. The second, I think, critical enabler is to get full alignment with our franchisees so that the plan is executed consistently everywhere. I think there's still more work, honestly, to be done on that. And we will keep working on that. But what also gives me some confidence, aside from the fact that obviously France is a huge QSR market, I mean, $31 billion, and QSR pizza is a good-sized market at $1.4 billion, is there are a load of other kind of key things that we can do. We under-index our aggregators, for example. I think we can simplify our promotions. and move away from this very high focus on which to the point i made before doesn't necessarily help the um product kind of imagery um and as you as you've seen us do resize and reshape the network i think the other unique characteristic of france is it's got a higher higher pickup characteristic and i think we've got some work still to do on on improving our stores for that experience So fair bit to do there. Focus on the team. But we recognize it's not where it needs to be. And there is a lot of effort going on. I can reassure you on that right now, despite, as you say, it's not the highest contributor to the group result overall. But every market is important to us. Japan, we were encouraged by January. I mean, January is a critical month, as you know, for Japan. and we actually saw a really good result then. So I think that proves that when we align the calendar, align the team, align franchisees, we can get really good results. And there is a fair bit of work going on on Japan right now. I mean, first and foremost, obviously, is we've got a new foundation for growth there. I mean, resizing the network is significant there. And as I said, the team is definitely getting on with that, but that's a fair body of work. I think for me, there are a couple of other really important things in Japan. we're working on and again they do take some time but we're making moves already we told you a while back that we had done quite significant outside in expert work on pricing and promotional strategy um we've done the first phase of that and that sort of played out as we expected and are continuing to evolve that but you have got to be know diligent i think as a brand owner when you bring consumers off quite sort of extreme high low pricing to more of a kind of everyday low price model you have got to do that sequentially and so we've got a plan on the way there but i think that's you know really important for us there um and then there's again some other opportunities in japan uh which is to you know look at occasions our full potential plan for japan does indicate that there is a massive lunch occasion in Japan that we don't have much of. And so I think there's some other headroom. I'm confident at present that we can do both of those. But I suppose to complete, apologies for a very thorough response, but it's a really important question. As part of the longer term full potential growth plan, nothing is off the table. And we are considering where is the right place for us to invest capital to make sure we get maximum shareholder returns. And obviously, France and Japan, as every market, are absolutely part of that review. And we look forward to sharing the outcome of that sometime in this fiscal half when we hold that investor day.

Great. Maybe just hopefully a very quick answer for this. ANZ, your comps have slowed in the first half. Is New Zealand negative? And the reason for the tough, for the slowing of the comps, is it just because you're cycling, you've had a lot of menu innovation and aggregator uptake and it's just not there? Maybe just what's driving the slowing in Australia, please, in ANZ, please.

Well, as you identified, New Zealand is probably the greater challenge right now. Very, very tough consumer environment. I mean, the research I've seen on New Zealand is actually quite disturbing. You've got consumers who are having to make really fundamental choices on what they spend on. That's not an excuse. We could do better. And we do have a plan in New Zealand right now to refocus promotion and product calendar and strategy, particularly to capitalize on that opportunity. Because as I said before, it is a context in which we should be able to shine. I think going forward, it's going to involve a more distinctive and bespoke strategy for New Zealand because it is a different market for Australia. And I think we need to make sure that we absolutely reflect that in what we do.

Fantastic. Thank you. Very detailed answers. Thank you, Sean. Moving across now to Craig Wolford.

Craig Wolfen. There we go. Mutes off. I'll give you the donation. Thanks, Nathan. Morning, Mark. Just a question about that second half outlook and the levers or the things that are going to create some variability. Two other things I thought that might have been in there. One would be how much you choose to share the savings with It still feels quite vague to me just generally as to how you think about that saving. And then also this extra marketing in France, that's going to be, that wasn't in the first half, I presume, and will be there in the second half as the extra 1%.

In reverse order, yes on that. And on the share thing, Look, I think we're encouraged by the progression that we're seeing in franchise EBITDA. That's a very high priority for us. We're driving the efficiency program to be very much venture capital for growth. So I'm not a great believer in necessarily just re-dividing the profit pie, cutting checks. where what we do want to do, I think, is incentivize franchisees to demonstrate the right behavior and put in place the enablers for growth. I've certainly in my limited time learned by talking to DPZ that the U.S. do that really well. In terms of the more fundamental kind of reinvestment, We are waiting, as I think is the right thing to do for the longer term growth plan, because I think we are going to honestly, Craig, make some really important choices in that where we put investment and the right way that the kind of system should be rewarded and investing in that. So we do expect to be able to give visibility of that then. But we really need, I think, to understand, have that exercise complete first before we round out on that reinvestment. We don't believe it will stay vague for too much longer. We are looking for a second half to share that in an investor day. But, you know, I think it's important work. And I think shareholders and investors would want us, given the critical importance of that for our future, to really do appropriate due diligence on that.

Great, that's understood. And I know there's a lot of store movements in the second half associated with the announced closures. What should we expect on organic growth store openings in the second half for Domino's?

Yeah, so maybe Craig, if I go back to our previous guidance, we previously said that we're expecting a flat number of stores and that was prior to the announcement of the 202 store closures. So you should expect that there'll be a net reduction in stores. And then in terms of the actual organic store openings, there will be a small number of them, but it will be lower than previously anticipated. So while I can't give you an exact number, Previously, people had backed out that it would be in the dozens of stores to be opened. And so it will be lower than originally anticipated at our previous update. Okay, great.

Thank you, Nathan. In our stronger markets, we are continuing to open stores. So the Netherlands, even in Malaysia, we're continuing to open where it makes sense.

I mean, look, I think, Craig, just to give you a sort of slightly wider answer. I mean, the store closures were a hard decision for us to make, but we honestly think it's about securing the foundation for future growth. It does not reflect a lack of confidence in future growth or indeed store openings for the business. You know, inevitably there's, you know,