Domino's Pizza Enterprises Limited

Morning all and thank you for joining Domino Pizza Enterprises' full year results. I'll just wait for a moment for all of the participants to populate the call and then we will start our presentation. Okay, thank you. I can see all of our participants are now on the call. My name is Nathan Scholes. I'm the Chief Communications and Investor Relations Officer for Domino's Pizza Enterprises. Today, you'll be hearing from Jack Cowan, our Executive Chairman, Richard Coney, our Group Chief Financial Officer, who is retiring, and George Sayoud, our Group Chief Financial Officer, who has just joined Domino's, and you'll be hearing from him today. With that, if I hand over to our Executive Chairman, Mr. Jack Cowan.

Good morning, everyone. I'd like to start with some introductory remarks before we get into the presentation. I'm pleased to speak to shareholders as your executive chairman on what is happening at DPE and announce our most recent results for the year ending 2025, after nearly 40 years of being associated with the company as a shareholder. DPE is a 4.1 billion network sales business in 12 countries operating from 3,500 restaurants. DPE has produced an underlying net profit after tax of $116.9 million. We sell more than 220 million pizzas a year, seven pizzas every second. We are the largest master franchisee of DPZ, which is the largest, most successful pizza business in the world. And DPE is their largest franchisee. So we are part of a very successful international business with large development potential. Over recent years, the business has changed with the advent of Uber and other delivery companies who now provide a delivery service to every commercial enterprise that wishes to deliver food and every corner restaurant. To have maintained our sales margins against these fundamentals is somewhat of an achievement when just a few years ago, the pizza business was the default option for customers wanting to use food delivery. now many alternatives. That's a testament to our franchisees and team members across the world who deliver our customers every day. With the change in the competitive landscape regarding delivery, we remain the largest pizza player in all our established markets. What advantage does being the market leader give us? An advertising and promotional edge in making contact with the customer with the right message. It also gives us a store network that puts our product close to customers with delivery times that means our meals are delivered hot and fresh, as measured by our customers who rate their meal quality and overall satisfaction. Accepting the fact that there have been flat network sales last year at 0.9% and underlying net profit after tax minus 2.8% from DPE this year, on the back of disappointing results in the past three years, the challenge is how to respond and introduce changes to improve the likelihood of success by increasing sales and profit for the system. Given the changes in our industry, we do need to make changes in our business with a new strategy we announced earlier this year, which we call our recipe for growth and operational plans in each of our markets. To reviewing every part of our cost base and how local countries are empowered, making sure decisions are made close to our customers. A key factor in future success will depend on management execution of the product sold. We have operated historically a business with head office providing direction and having accountability. Our expectation moving forward is country head offices will have responsibility and accountability for all of the activities in their markets. Coupled with that, because accountability and execution at store level is so important in delivering for our customers, franchisees, and for shareholders, we want to direct some of our resources from head office into the field. This is a project of fixing product quality, execution, and holding people responsible, requiring a reallocation of resources to where the results can be clearly measured. To support this, we're looking across the business to restructure our offices and reduce our SG&A costs. I've already shared that we are looking at IT and marketing, given these are large cost centers in our business, but we're looking top to bottom at everything we do with lots of activity underway to produce a more efficient business. The above changes will lead to reduction in personnel with funds being redirected into national advertising funds to give us more working media. We can make cost changes, which we believe will benefit the business, but the most significant factor in the company and franchisee success will be menu pricing. I'll speak more on this, but our goal needs to be clear and transparent pricing as we move away from higher menu price and high use of coupons to a lower menu price and fewer coupons. The goal is great value for customers and improved margin for franchisees. Our franchisees are excited by the changes we're proposing. I received an email from an Australian franchisee who said this approach was refreshing and went on to say, I believe in your ideas and the next chapter of Domino's is exciting. Our first priority is increasing franchise profitability, and I believe the management resources we have in our focus will ensure this happens. In summary, so as I turn to the presentation in front of you, let me be clear. We've embarked on an aggressive action plan to reduce costs in the business. This is underway and the savings will produce funding to enhance the marketing and operations in our business. We're also embarking on a significant change in direction in our advertising from a dominant discount price odd voucher business to an emphasis on selling higher quality premium products for good value, which we anticipate will help franchisee margins. There will be an enhanced investment in store execution and a conscious effort to put more control in the markets close to our customers. That includes operational trainers in the field to work with our franchisees and focus on product quality and execution. Now, if I turn to page three of our presentation. Domino's today and their position. You'll recall we shared this slide and the one that follows back in February. I wanted to bring it back today because, well, we've talked a lot about the changes underway. It's important to remember the fundamentals that haven't changed. First are strengths. As I noted, we remain the market leader in key countries supported by strong store teams and culture. We operate in large, attractive markets with significant growth potential. Our value proposition is built on quality food and customer experience, and we have a highly recognized brand with a proven flywheel. When franchisees do well, customers and shareholders do well. That model hasn't changed in four decades. We're cutting our opportunities. We're cutting out complexity, reinvesting in marketing, and focusing on customer conversion. Reducing costs is going to be a big driver, improving franchisee returns, and unlocking reinvestment in marketing and franchisee support. We have a longer-term growth plan to reach our full potential. Third are challenges. The post-COVID cost base has weighed on unit economics, and markets like Japan and France each require their own tailored responses. There's no one-size-fits-all solution. So while there are challenges, the fundamentals are solid. The issues are fixable. We've got strengths that set us apart and opportunities to seize. By staying focused on quality, value, and customer experience and changing how we operate, we can return to sustainable, profitable growth. If we deliver for our customers and franchisees succeed, then shareholders succeed as well. That is the heart of our strategy. But as I said, we are making deliberate, necessary changes to how we operate and grow. There are four key points that will frame today's discussion and give you a clear picture of where we are and where we're heading. One, business priorities. How we're focusing on the fundamentals, improving our customer value proposition and building sustainable franchise profitability. Two, financial highlights. The numbers that show the resilience of the business across the markets. Three, capital management. how we're taking a disciplined approach, paying down debt while balancing shareholder returns with reinvestment for the future. And four, leadership, the people guiding our business and the hundreds of franchise partners operating on three continents through this period of transition. But I also want to be clear, this is not business as usual. We're making necessary changes to ensure that Domino's can grow profitably again. Strategic strategy, We have a plan to reach our potential. That means sharpening our customer value proposition and making sure franchisee profitability is sustainable. We're reinvesting in working media funded by cost efficiencies we're creating in head office in the field. And we're changing the business, including IT and operations, so we can deliver more consistently for customers and franchisees. At the group level, network sales were $4.1 billion with flat same-source sales. Underlying EBIT of $198 million demonstrates margin stability in a changing competitive environment. Franchisee EBITDA averaged 95,000 per store in line with last year. Regionally, ANZ delivered strong performance EBIT up 5.2%, and Europe was positive overall, with Benelux and Germany driving momentum. Asia was more difficult, particularly Japan, which declined, but other Asian markets improved. Underlying markets The net profit after tax came in at $116.9 million, a steady result in tough conditions. Our executive sort of summary is, one, capital management. We're prioritizing reducing leverage. While leverage is currently above our target, it remains well within covenants. We're taking proactive steps to bring it below two times EBITDA. We're paying a dividend of 21.5 cents, equivalent to a payout of 35% for final dividend. We're retaining the dividend reinvestment plan, but without underwriting. We're also keeping a disciplined approach to capital expenditure, which means lower IT costs over time. Leadership. This year has seen important leadership changes. Recruitment for Japan and ANZ is advanced with experienced teams already driving day-to-day operations. So across the group, our financials are steady. The balance sheet is solid. Australia delivered record franchisee profitability, the best in three years. Benelux continues to show what can be done with strong marketing and partner alignment. Germany and Southeast Asia improved year on year, while Japan is undergoing a necessary reset and France is under new leadership with a mandate to simplify and grow. Our underlying net profit after tax of 116.9 shows this was a steady performance in tough conditions. It tells me two things. One, we're making progress on resetting some of our markets. And two, we have clear discipline strategy to improve profitability and drives long-term growth. After closing FY25 with same-store sales of 0.2%, we have started the new financial year with sales of 0.9%. The FY25 same-store sales trend improved throughout the year, ending the first half with minus 0.6% versus plus 0.5%. 1.9 in the previous year before closing the year with 0.4 same-store sales in the second half versus 1.6 in the previous year. It represents a range of trading performance across our group from strong growth in Germany, Benelux in Malaysia, offset by softer performance in ANZ, Japan, and France. The ANZ near-term trading performance had been weighed on by a weaker performance in New Zealand, where our stores and customers are facing a challenging economic environment. In Japan, we are rolling a prior corresponding period where we increased our working media in a period of lower customer demand. We made the strategic decision to to hold some powder dry and invest more of our working media in this market towards the important Christmas and special occasion periods. Importantly, we started this financial year with continued strength from the Benelux Germany and our Southeast Asian markets. What you're also seeing is less aggressive discounting across our group as we move more of our marketing from a high-low approach with lots of discounting coupons to a more everyday value approach, where price customers pay is more closely aligned with a more realistic headline price. In FY25, we completed a full strategic review. This gives us the framework and discipline to move back into growth, to build out the significant white space we have in large, attractive pizza markets. There are four priorities at the heart of this plan. One, reinforce the core. We're going back to basics, building on profitable stores, protecting margin through stronger procurement, and above all, putting pizza quality and customer value at the center of everything we do. We don't get the product right, nothing else matters. Simplifying for efficiency. Over time, too much complexity and cost has crept into this business. We're stripping that out. Simplifying operations, empowering decisions closer to the markets and reducing overheads. Endeavoring to drive marketing effectiveness, the savings we make are being reinvested into more working media that grows awareness, conversion, and sales. We selectively extend our proposition that will grow where it makes sense. That includes building our footprint in under-penetrated markets like Germany and France, getting our share of popular aggregator platforms where they add incremental customers, and launching new products when they support customer value and franchisee economics. All this is supported by strengthening our capabilities, menu pricing, promotions, procurement, and technology, and by refining our operating model with stronger accountability and leadership in market. This is not a tweak on the edges. It's a sharper, leaner plan, making changes to ensure execution and accountability. So we've completed our detailed plans to return to sustainable growth and the flywheel you see here shows that works, how that works in practice. Starts with a stronger customer proposition, less discounting and better value backed by food, That drives same-store sales growth, which improves unit economics, healthier stores, more sustainable returns. Stronger economics then give franchisee the confidence to expand the network, and as that happens, we create the capacity to lift profitability across the group. Our immediate focus is phase one, acting on our recipe for growth in stripping out costs in marketing and IT to improve the effectiveness. Redirecting the savings into higher working media and sharper offers that drive sales. Targeted market actions in Japan and France where transactions are already underway. Phase two, accelerate with local accountability, builds on this base. Sharing efficiency gains with franchisees so the resources are focused on high value activities. Reigniting network expansion by strengthening unit economics. Enhancing portfolio profitability through discipline execution of our strategic priorities. When we deliver on quality, value, and customer experience, everything else follows. With this model, we are confident we can execute with discipline and return dominoes to sustainable, profitable growth. Our shareholders should see this for what it is, a significant change in how we run the business, building on the approach we shared in February, but with sharper focus and more urgency. Now let me hand over to Richard Coney to present the financials. Richard.

Thank you, Jack. As highlighted, our network sales of $4.15 billion are down 0.9% on prior year, with underlying EBIT down $9.6 million, declining 4.6%. Both ANZ and Europe delivered growth, which was more than offset by a 32.6% decline in Asia. Our borrowing costs were materially lower, with a $7 million improvement over prior year. predominantly due to the lower yen and euro base rates we're currently getting and a 51 million repayment of debt in addition to a planned reduction in our committed debt facilities of 150 million and the resultant reduction in line fees. The business generated free cash flow of 47.4 million and this was after absorbing 58.1 million in non-recurring cash outflows. we will declare a final dividend of 21.5 cents per share with the DRP remaining in place as highlighted by Jack. Now, moving to our geographic summary, same-store sales for the group was slightly down to negative 0.2%, with positive 1.6% for Europe, offset by Asia at negative 3.2%, and ANZ of negative 0.4%, which actually faced a tough prior year rollover of 7.9%. EBIT for ANZ was up 6.5 million or positive 5.2%, with margins also lifting by 1.2%, primarily due to menu simplification and targeted promotions resulting in a strong lift in unit economics, blowing to our franchisees, but also more as importantly, our corporate stores. Europe's EBIT increased by 2.2 million, positive 3.1%, with strong results for Benelux and Germany, partially offset by France, which remains challenging, but now under new leadership. Asia was down 32.6%, with very tough trading conditions in Japan continuing, noting that we're now getting the full benefit of the 233 store closures in April, along with improved trading conditions in Malaysia, Singapore, and Taiwan. Moving to slide 12, this provides additional detail on our non-recurring costs of $162.3 million, of which $58.1 million being a cash outflow in the year. As you can see, the store optimization program made up the majority of the costs at $118.4 million which included the closure of 312 loss-making stores and some residual costs from the 80 stores closed in 2024. Remaining charges reflect streamlining and shared service transitions of 16.5 million, write-downs 15.6 million, and our deployment of our new finance and supply system, Microsoft Dynamics, which will allow us to leverage our global scale and optimize our shared services facilities in Malaysia and Poland. While significant, these charges underpin a leaner operating model, improved profitability, and a strong platform for growth. If we now move to the free cash flow slide, as you can see, excluding the non-recurring costs, the business actually generated 105.5 million in free cash flow on an ongoing basis. by 69.8 million. However, this was largely explained by a 48.9 million normalization of our tax payments and an additional higher and higher non-recurring costs of 17.1 million. Our net investing decreased by 7.8 million with a significant reduction in store-related capex, partially offset by lower refinancing of franchisee loans, particularly in Japan. Moving to some more detail on our investing activities. This slide really shows the detail on the makeup of our group net capex, which has reduced to 54.4 million from 62.3 million. As you can see, our capex, which recycles, which we talked about before, has provided a positive inflow this year. with a significantly lower number of new store openings and franchise acquisitions funded by DPE of $19 million versus prior year of $63.6 million. Cash inflows continue to be strong at $32.3 million, noting that franchisee loan refinancing has reduced significantly as a result of tougher trading conditions predominantly in Japan. Our digital capex has increased slightly to $44.8 million with continued investments in our online ordering platforms, including integration of new markets in Asia. Our stay in business capex has increased materially to $16.5 million with a focus on store refurbishments in Australia and Malaysia. I'll now pass you over to George to talk to you about our capital management strategy.

Thank you, Richard. Turning to slide 15, capital management. In relation to dividends, we are taking prudent action to improve capital allocation and support deleveraging of the balance sheet to achieve our net leverage ratio target of below two times. Our priority is to strengthen the balance sheet and reinvest in growth. As such, An unfranked dividend of $0.215 per share will be paid, equivalent to a payout ratio of 35% for the final dividend. Total dividends of $0.77 per share for the year. Record date being 3 September and paid on 3 October. The dividend reinvestment plan is maintained with the underwriting now removed. In relation to debt and leverage, as we've said, we have a net leverage ratio target of below two times. We ended the fiscal year 25 with net debt of $724.8 million and a leverage ratio of 2.57 times versus 2.35 times in fiscal year 24. Our interest coverage ratio is strong at 17.1 times in fiscal year 25 versus 12.5 times in fiscal year 24. It's important to note that in FY25, we had a net reduction of $51 million in debt, offset by a negative 85.8 million FX translation impact. In relation to capital optimisation, net capex is down 7.8 million versus FY24 as per Richard's presentation. We've had a reduction in bank committed facilities of 150 million during the year, lowering surplus debt facilities and saving on line fees. Domino's will continue to invest in our digital platform and store openings that will deliver sustainable returns. In terms of liquidity, we have good liquidity of $439.2 million, which comprises cash and undrawn committed facilities. And the majority of these facilities mature in FY27. We are preserving capacity to invest in growth opportunities. On our hand back to Jack for the final slide.

Thank you, George and Richard. Looking ahead, Domino's has been serving customers in this part of the world for more than 40 years. The appetite for pizza remains strong and the fundamentals of this business are sound. But to continue to compete in a competitive world, you got to be willing to change. It was about stepping back and asking, what do we have to do to get this business growing again? And that's exactly what we're doing. Here are five points that if you just took the essence of all that's been said, these are the most important points that I think we're trying to get across. First, we're improving pricing discipline. We're moving away from the old high-low, coupon, voucher-heavy approach. Customers want clear and transparent value, and franchisees need margin. We intend to deliver both. Second, we're putting more dollars into high-impact media, redirecting the cost savings into the markets wherever it lifts sales and sharpens the proposition. Third, we're reducing our overheads. We intend to deliver a permanent reduction in structural costs, pulling complexity out of the system so that franchisees can run better stores and the company can reinvest more into growth. Fourth, we're resetting the support model using savings to ensure we have people on the ground closer to the franchisees and empowering markets to ensure decisions can be made faster where they have the most impact. And finally, we've got a sharper focus in Japan and France. France has new leadership in place. Japan's been through a forensic review and the work's underway. These aren't quick fixes, but the direction is clear. This is what a better Domino's now looks like. One that delivers value to customers, increased profitability to franchisees, and long-term growth to shareholders. I look forward to taking your questions. And Richard, I'd like to just give a vote of thanks to you from the company for the many decades of support and work that you put into this business. Thank you.

Thanks, Jay. Thank you, Jack, and thank you to Richard and to George. We'll now turn to the Q&A. As in previous announcements, what I'm going to do is to turn to the analysts one in turn by order of those who've put up their hands. I again would ask you if you can have one question and a follow-up. There will be plenty of time to come back again for another round of questions if you've got them, but just to make sure it's fair to all. The first person I'm going to unmute is Peter Marks from Barranjoe. Peter, you should go ahead now.

Thanks, Nathan. My question is just on the ANZ trading update. Can you just let us, are you happy to comment on whether Australia is positive within that and it's New Zealand that's dragging it down? And I guess, when did you make the price changes in Australia? And are you sort of happy with how sales have held up post those changes? And then I guess the other one is just we were sort of expecting a bit of a bump from the British and Irish Lions Tour of Australia in July. So any comments you've got on whether that's been a positive?

Well, a series of questions there. One, I don't think anybody in this business got the bump from the Lions business. I know I've seen other food service companies also were expecting that. It didn't come. Maybe that's a higher income crowd. I don't know what it was, but that didn't seem to materialize. Second question. Can I jump in? Yeah, go ahead.

We get big bumps from state of origin because of the timing being on a Wednesday, which is a low sales point. So when the matches are on the weekend, it's less official.

Anyway, I think it's somewhat disappointing. But I don't think we're alone in that.

Yeah.

Second, the Australian result has definitely been influenced by New Zealand. We're going through a stage of looking at the New Zealand... You know, it's been run as kind of a sixth state of Australia, and we believe one of the changes that are coming down the pipeline is we're going to run it as a separate market because it thinks it needs that, and the results haven't been what we think they should be, and it has... diminish somewhat the Australian local law consult. Third question.

I think Peter has slipped in an extra couple of questions. Peter, if you're okay, I'm going to come back to you in a bit for follow-up questions. The next person to speak will be Sean Cousins. Sean, go ahead.

Great. Can you hear me?

We can hear you.

it's fantastic um i guess my question is just around cost savings um jack when you took on the executive chair role were very much around mark previously had a five-year turnaround plan you i think may be equipped that it was needed to be a five-minute plan um given you had a desire for a higher pace of cost savings i was surprised you have not uh provided cost-saving quantification of a new program. So I'm just curious on that part, why you didn't do that. And then maybe to help us size the opportunity that's out there, you've called out IT and marketing. What do you spend, OPEX and CAPEX, on those numbers? Just in that they're going to be the areas of opportunity for you. Maybe we can sort of, if we have the idea of what those broader spend areas, that can give us an idea of what the potential could be when you come out at a later date and talk about that, please.

First of all, your comment was... I came into this job, you know, six or eight weeks ago, something like that. Uh, I can give you 100% assurance that we're moving heaven and earth on the cost side of the business. And there are some very significant costs in it, in marketing, in overheads that are all in the process of being, uh, executed. Um, We will, you will see these start to appear and, but it's underway. And I can give you 100% certainty that this, these will, this isn't talk, these things are being actioned. And my five minutes sort of scenario was, was somewhat facetious in that I said we needed to take action. We had a longer-term plan, but we needed to take the action on the things that we have today, and it's happening. So you will see these results. Can I quantify, as I sit here today, a number? Probably not, in that there are some big numbers moving around, which we... cannot guarantee will be delivered one we got to keep the lights on in the business so you when you're dealing with something like it we have a program in which you're saying okay change is necessary but we can't disrupt the business by pulling the wrong lever and things like that so there's a lot of work that's underway to try and make some of these things effective and that's taking place um The other kind of significant thing that is coming down the pipeline but isn't here yet is a change in pricing. And if you said to me, what's the most significant thing that can affect this business going forward? It's getting out of the discounting voucher business. We have had, you know, unfortunately, a history of having offers in which, you know, people didn't make any money. And so the idea of moving to everyday low pricing to clarify that this is the most attractive deal you're going to get. You don't need a voucher. You don't need a discount to get there. We think can make a significant impact on the business. Where is this? It has to be tested and to be able to establish that what we're saying is true, but it is coming and we're very confident. The franchisee community is very confident that this is where what we're doing is the correct thing to do to, uh, give the customer better value and move the business ahead. Fantastic. Thank you, John. Oh, sorry. Pardon me. I'm not sure I answered your full. Was there anything else?

I'd love to ask more questions, but I think we get in trouble.

So I'll go back in the queue. I agree.

Feedback from the analyst community. But thank you, Sean, from UBS. So the next person to speak is Craig Wolford from MST. Craig, go ahead.

Thanks, Nathan, and morning, Jack. I think that comment you've made around pricing and pricing discipline is a powerful one, but I am interested in how you expect the balance or the nexus between reduced promotional, I guess, intensity and the potential impact on same-store sales growth. The reason I ask that is that franchisee profitability really hasn't moved. And I'm sure the network economics will benefit from more volume, but reducing discounting may result in less volume. So we are wrestling with that concept.

Okay. I think the reality is, is that in making this change, you may get a reduction in sales in that the customer that we have trained to buy at a discount, he may take a while to swing around to here is a better, more convenient price. The one thing that is clear is the franchisees will make more money by getting out of the discount business. And as I say, this is under active sort of with some very smart people working on making this change because we think it can have a dramatic influence on the business. We think the pricing change from giving the shop away on almost 50% of all orders have a price off. If we can get that price back to being better value for the customer, they will recognize this and there will be more profit built in for the franchisees and the company.

Another good, important point on this is it's not just our franchise stores. What will cut through to us is our corporates. especially in our Asian markets. So that benefits will flow through even further for us on that basis.

But it's a change, significant change.

Yeah. And just to clarify, you're saying you're going to test it first before you roll it out across all countries?

Yeah, well, I think we've done a lot of work on this to date. It's a matter of rolling it out into the market, and that's underway. And we're relatively confident that this will significantly change the business.

Thanks, Jack.

Thank you, Craig. Our next question is from Michael Sorensen.

Thank you. And thanks for taking my question. Can I just follow on from that conversation around reengineering the price architecture? I guess there are some examples of businesses around the world that have managed to do this quite effectively. There can be a bit of a transition period sort of following on from the conversation around the earlier question. Yeah. How important will balancing the near-term profitability be as you sort of move through this transition? And how do you communicate that offer to customers?

Hi, Michael. Well, how do we communicate it? We have to do a good job at making the customer understand this is a better value offer for them than what they're currently getting. I think some of the flow on of that is that it will be much easier to understand right now to order a pizza from Domino's is a complicated procedure. And if we can make in very simple terms, show that this is a better value offer was 12. Now it's $8 and you're going to pay a fee for delivery, but you're not going to pay that additional $4 on every other pizza. If you order four times, whatever the difference is, the customer will save money and there will be better value as a result of that. the franchisees will make more money. And as a result of that, now, you know, we have to, we have to, we got a responsibility to the franchisees to make sure that in implementing this, that it does work. And we will, we will, we got to be able to prove that theory. But, you know, that's what we're hoping to do. Okay.

And would you, would you tolerate, a decline in profitability as you're transitioning through that process?

Yeah, Michael, not in profitability, no, but we will tolerate a reduction in sales if it's more profitable. And that's the direction. This business, Michael, has been built on a sales, high volume mentality of sales at all costs and profit was somewhat not at the forefront where we think it should be. And this is a reversal of that.

Sorry, Michael, I just muted you temporarily just because we're getting some background chatter. So you can unmute if that's... I just said thank you.

Thank you. Thanks, Michael. Thanks.

That was Michael Simotas from Jefferies. Next, passing on to Billy Bolton from Morgan's. Billy, go ahead.

Good morning, guys. Thanks very much for your time. I was just wondering if you could address the trading update. It's down almost 1% for the first seven weeks and you've also called out that your marketing spends a lot lower in some of your key markets. Is the expectation that that trading update will improve towards, I mean, your same store sales number will improve towards your sort of 2% to 3% target that you outlined at the recent call in July as that marketing spend kicks in through the year?

I guess the answer is yes. We hope that is the case. And if we spend more money on advertising, then hopefully that will prove to be the case. I think in looking at same-store sales, I think you also have to look at the industry. And if we're flat... And we've been through a very competitive change in where we sit in the customer's position with regard to delivery. The advent of Uber, as I made in my comments, and the Uber lookalikes, that's a significant change to the business. And in my opinion, the fact that we've been able to maintain a flat position and readjust into the marketplace with the Ubers and DoorDashes and everyone else now being able to provide a service to every corner restaurant. which is a significant impact from a competitive position in the marketplace. If we've been able to maintain a flat position to me, that has been somewhat of a significant achievement. I think you also have to look at the rest of the industry and what's going on in the world with regard to how they are doing on same source sales. And again, a flat position is not all bad. If you look at the major players in the business and what their financial results are with regard to sales, And a lot of them would be pleased to be flat rather than negative. And I'm sure you're aware of what I'm talking about when I talk about the competitive companies and the recent results in the last 12 months that they've been experiencing. So I'm relatively happy where we sit today. with having gone through this year, delivering a flat, flat result and some significant changes that we hope will make some changes in the profitability of this business.

Yeah, thanks, Jack. Sorry, just a quick follow on. Like a lot of the big guys have been sort of reporting improving results, particularly in the last quarter, which I assume is potentially throwing through into this third quarter that we're in now of the year. I'm just worried that you're potentially losing market share. Is that something that we should be thinking about?

We don't think we're losing market share. If I look at, as I say, we have a very close handle on the results of the competitors in this industry, and we are not losing market share. Okay, thanks.

Thanks, Billy. The next question is from Richard Barrett from CLSA. Richard, you should go ahead.

Good morning, all. Jack, now that you've had a bit more time or more time right in the business, do you think the biggest sort of picture question, do you think the franchisee model is the best operating model for Domino's?

Frankly, I do. Franchisee is a wonderful thing if it works right. And when I say it works right, franchisees have to be profitable. If it's not, if they are not profitable, it is not the right model. You know, franchising per se, where The franchisee puts his own money up to be able to develop a business, and he pays you a royalty, and he pays you fees on being in business together. That's a pretty nice sort of, if you measure things on return on investment, return on equity, however you want to do it, it's a great model. And there are all kinds of examples which illustrate that. Where it becomes not so good is if the franchisee comes under pressure from a profitability point of view. And that may enhance the franchisee's profitability in the various markets we're in. That is a very high priority that we're working on to try and make sure. And that means... in some cases giving financial support to the franchisee to make sure that he's viable. In Japan, to give you an example, we're providing support, not just a financial handout, but rather money back into LSN, local store marketing and things like this. And that's the way to do it. And hopefully, as I say, we will see some benefits of more successful franchisees because that's where we're headed as far as how we see the future. More successful franchisees making better profits.

Just to clarify, though, Jack, I understand when everything's working well, that all makes sense. But obviously things are not working well as they stand. Could one of the solutions be increased store ownership, corporate stores as you roll forward, as opposed to just going back to the continuation of the existing model?

I don't think that's our plan. We think that we have enough ammunition and ideas here that we can work towards making the franchisee community more successful. And if we fail at that... I think I said on a previous call here, the past history of this company has been sales at all expense. It's been new markets, more volume, and the new emphasis where we're headed is to make the franchisee profitability a very important factor in everything we do. And that's what we're doing. And I'm confident we can. You know, and as I say, we're putting our money where our mouth is and giving support to those that can't make it. Yes, I have a history of operating company restaurants. So I know the benefit of being able to do that. And it's largely controlled. But we think that this is the largest pizza company in the world. There's nothing wrong with the base business. properly executed, properly executed. By the way, in this market and around the world, there's some hugely successful franchisees are doing well. Those aren't our worry. It's getting those that aren't doing so well to be able to be more profitable. And that's what we're working on. Thank you, Jack.

Appreciate that. Thank you, Richard. The next question is from Sam Haddad from Petro Capital. Sam, you should go ahead.

Good morning. Can you hear me? Yes. Just a question on stores in Japan. You closed those stores as flagged. You did call out that you were expecting to realise it's like a $15.5 million of savings to come through. I just wanted to see if that was realised. And did your neighbouring stores that weren't closed, that were next to those that were closed, did they get any benefit in any uptick of sales? I know it's still pretty early days since the closures, but are you seeing any evidence of that? Thank you.

Sam, I can't give you that level of detail. I think the principle certainly... is correct that if you have a store that's cannibalized an existing store, there should be some flow on to existing stores that, that remain in the market that was previously being shared. And you mentioned Japan, Japan, I think there had been a, Probably some overdevelopment whereby stores were built which cannibalized existing stores and it was a net-net bad loss. I cannot give you what the totality of the transfer of sales and things like that is. We can come back to you if you'd like.

I can.

Go ahead, Richard. Yeah, yeah.

The planned sales that we're expecting to get from the closures to the surrounding stores is her expectation. So we did get that flow through. And we've been tracking that monthly and it's to plan. So the problem is that the top line is still declining at a global. So those stores are performing better than the rest of the market. The ones that have got surrounding stores, but the full base is still challenging with the top line, which as we turn that around, you'll get a double, double benefit. so the 15 and a half billion of savings have been realized and how much will that flow through to the corporate p l versus the franchisees do you have any color around that as to what just as you look but we got the 26 yeah the majority of that the majority of that flow through to us um some a small portion to our franchisees who got the benefit but the majority is the closure of those corporate stores which which is delivering the benefits And now remembering that only happened in, you know, towards the end of March, April.

All right. So that should be a benefit to help support some growth in 26, I assume.

Correct.

Correct.

Okay. That's helpful. Thank you.

Okay. Thanks, Sam. The next question is from Hannah Mitchell from Bank of America. Hannah, can you go ahead?

Hi, can you hear me okay? Good morning. Thanks so much for taking my question. Are you able to please provide a little bit more color around franchisee profitability by region? I'm interested in your comments around New Zealand's profitability within the ANZ category, particularly in the context of the strongest profitability levels in ANZ in three years, as well as the soft macro environment in New Zealand that's ongoing. We'd love to hear any thoughts. Thank you.

Yeah, New Zealand has not shown successful results, and it is a market that requires more attention and change, which we're in the midst of doing. You said other markets, we've talked about Japan. Japan had some closures. France was the other market where franchisees were not getting the results. We have a new... CEO in that market who is in the midst of making some significant changes to enhance the profitability of the business by increasing sales, going down the path of what we talked about, less discounting. But those are the three markets that have had the most difficulty with regard to franchisees, i.e. New Zealand, Japan, and France, which we, France, we're hoping, you know, we're starting to see positive, same sort of stales in France, early days. But, you know, we're getting what we call these green shoots are starting to happen. We get the sales increased. We get a change in product mix that will flow through to franchisee profitability.

I can highlight the top line in New Zealand has been challenging, but in terms of our givebacks and supporting our franchisees and the fact that we're also focusing on their profitability as well, that New Zealand's stabilised, if not slightly increased over the prior year and

I think one other comment I'd make, Hannah, is that our procurement teams have done a really good job with the food theo, which is the cost of goods for franchisees. That's been improving and an improving trend. And there's plans to continue to achieve procurement savings in FY26 for the benefit of franchisees.

Perfect. Thank you.

Thank you, Ha. The next person will be James Lee from Goldman's. James, go ahead.

Hey, Tim, thanks for taking my question. My question's around the leverage ratio. So it's ticked up again to 2.57 from 2.44 at the half. Appreciate that you've lowered the payout ratio, but against the backdrop of lower likes for the first seven weeks, how confident are we with that covenant? And back towards that 2% target, like, how quickly do we think we can get there and what are some of the proactive steps we can do to get there in the short to medium term?

Yeah, good question. Largely that 2.57 reflects the translation position, that negative translation position of the 85.8 million that was recorded and increased our debt at the 30th of June. So that's the reality of why it's increased to that magnitude. We're confident all of our projections have it going in the right way. In terms of getting it to target ratio, it's going to take 12 to 24 months. That's the sort of position we're forecasting.

Also worth noting that the spot rate conversion at June and the Euro came off 11, sorry, strengthened 11%. But we didn't get that benefit in the translation of our profits because that was actually only lifted by 1% because it was an average over the period. And in effect, the currencies came off in the last quarter. So, you know, that could have just as easily been the other way around. So on a real core basis, we repaid 50 million in debt. It's just the Aussie dollar was translated in terms of our balance sheet, but our P&L didn't get a flow through benefit just from a timing perspective. Does that make sense?

Yeah, that makes sense. I guess the question then is like, clearly like the FX can be quite volatile. Like why not potentially look to de-risk this quicker rather than potentially 12 to 24 months?

That's definitely on our plans. So that is something of focus and priority for the next six months. Thank you.

James, my comment is that, you know, I think we're being relatively conservative on this. And, you know, we also want to reinvest money back into the business. And yes, you know, let's take it under 2% currency on Japanese debt, you know, something beyond our control. But I think, you know, this is a cash positive business. And so I think, you know, what we're doing is... is take a conservative approach, bring it back, target under two, which is probably okay, but also reinvesting back into the business with the funds that we have.

It's worth noting our interest coverage, as George highlighted, 13.9 to 17.1. And honestly, our banks are very, very comfortable with us. So it seems to be the market that's the concern about our banks.

James, you look at the counterparts, you know, like DPZ, they have like five times, you know, restaurant brands in the U.S., you know, six times. So we're on the conservative end of how we're managing this. Appreciate the call. Thank you.

Thank you, James. The next question is from the very patient, Sean Cousins. Sean, can you address this? Sean, go ahead.

Great, thanks. Jack, this is a broader question. You're outlining today a very significant change to pricing Moving away from high volume mentality, you've highlighted that the cost base is arguably too high in terms of in-housing IT, marketing. You've been on the board for quite a long time. And during that time, high volume mentality was deployed with many coupons. You had that pricing approach. You entered many markets. You've allowed IT and marketing costs to be very high. Did you have the concerns that you've got today today? in previous years and you were ineffective to sort of influence there, or has the weaker earnings or the external environment changed such that you believe a different approach is now required? Because what you're outlining is a very fundamental change in the way the business operates, please.

I think that's a valid comment, John. We are making some fundamental changes to this business. we don't believe that you know the the high volume mentality when you're going in acquiring new markets um you know going into germany acquiring 400 stores uh royalty income flowing from that you know this business had a good run of uh growth uh And but, you know, we went through COVID, you know, COVID was a bit of a free kick as far as volume and even profitability because of all the issues that kind of came with COVID. At the end of COVID, I think the reality emerged that a new strategy was required to make this business more profitable. And the idea of building a business based on discounting to a very high percentage of the business to try and bring in trade in the number... Number of cases where we're not making money on the sale was wrong. And I think it's that that penny has dropped. And we are now, as I say, actively in pursuit of some of changing this business as far as the way it's operated. I think the other thing that goes with that is that, and we've mentioned this, is the fact that we built up significant overheads in this business. That is being reduced. And the good news is a lot of that funding is going back into marketing, whereas previously we were spending that money on overhead. So that as well should significantly help the business.

And sorry, if I could just squeeze one, just given your stock's down about 18, 20% today, there's obviously some concerns there. You made these some quite explicit comments around the capital position of the business, not needing to raise capital. Can you just confirm it? There was a bit of confusion at the last call, but does the company believe you need to raise capital? And maybe further to James's question around the gearing and the like there, but just could you maybe be really explicit around that in that the last time it was a little inconsistent or... people got different perspectives sort of there as well, but just maybe where you are on the balance sheet and whether or not you feel as though you need to raise capital to address your gearing, but also what is quite a dramatic change that you're making in the business.

Sean, there is no need to raise capital for this business. I don't know where that kind of sentiment comes from. As I say, we are reducing the amount of debt that exists. And what we're endeavoring to do is... They will make a change which hopefully will impact the P&L, not the balance sheet. And balance sheet will eventually benefit, I guess, from it. But this is not something that requires a lot of capital to implement. This is a change in the operating procedures of what we sell at what price, which is pretty fundamental to the success of the business. But no, from my understanding, there is absolutely no...

need or or discussion of having to raise more capital great sorry thank you just wanted to get that on the record given your dramatic share price movement today thanks so much okay thank you sean uh the next question um comes from billy bolton again from morgan's who is back for his follow-ups um billy go ahead uh thanks guys again um

You haven't made a comment today on how you're thinking about earnings next year. You've obviously got a lot of initiatives in place. Should we be thinking about you able to be able to deliver profit growth in FY26 or should we think about another stable year of earnings in FY26?

I will be very disappointed if we do not show an increase in profitability beyond what has been budgeted and has been the history of the last three years. We think that we're going in the right direction and I'll be disappointed. Obviously a lot of water to go into the bridge here over the next, the balance of this year. But I think some of the triggers we're pulling in this business, reducing costs, putting more money into advertising, changing the proposition for the customer for a value point of view, enhancing franchisee profitability, Those are all positives which I'm hopeful will flow through to the bottom line and profitability. If not, you know, I'd be very disappointed.

That's great. And I just, I wanted to touch on something, Sean's earlier question about the level of cost savings. I understand you're still working through the exact number, but like, I think it's important the market potentially gets some sort of idea. And I guess if you do some back of the envelope maths and, Like each franchisee needs on average a $35,000 lift up in EBITDA to get to your 130K target. Timesing that across your 2,800 franchisee network implies, you know, a cost total benefit of a hundred million bucks of EBITDA. On your call in July, you also said that you could deliver that through cost savings and you didn't necessarily need sales to improve as well. I'm pretty sure. Are we thinking about that the right way? And you also said that a significant amount would go to the franchisees, not the majority, like that would imply gross cost outnumber north of 200 mil. Is that, am I thinking about that the right way? Broadly?

I'd have to probably get a better understanding of what you just finished saying. But I can say that there's a significant amount of money, which we are hopeful of being able to take out of this business and reinvest back into the franchisees. P&L and our own by operating the business more efficiently. We are not in a position whereby we can quantify that other than to give you an indication that it's a significant number. And that's what we are working towards with being able to enhance the franchisee's results and our own. With regard to franchisee profitability, you mentioned 130 from I think this last year was 95. That number should continue to improve. You also have to understand the real measure is what's the return on investment that a franchisee makes. If he's got a $400,000 investment and he makes... you know, a hundred thousand dollars a year. Most of them have multiple restaurants. So the a hundred becomes 200, but on the 400 investment, you know, he's making 25% return on his money. So we're not that we're new. It's not like, you know, we're more miles away from having franchisees that are profitable and get to the stage whereby they will reinvest more back into their existing business and We got franchisees that are making lots of money. It's those that aren't that we have to work on. But I mean, if you can make the real measure for a franchisee, what kind of return can they make on their investment? And at the end of the day, that's what's going to count. If you get that number up, the higher it goes, the more likelihood is these people will continue to reinvest, open more stores and will help us and help themselves.

I think the other key point is our focus isn't, you know, obviously Jack. where we're redirecting the resource back into operations so that we get those lower performing franchisees to more profitability. That in itself is a big one. Supply chain, logistics, working with our partners to get better outcomes, not just dropping their price, but actually working with them to get more efficient number of deliveries into stores. And then the pricing. And then... in terms of making sure that we're doing offers that really flow through to our franchisees bottom line, but still, and as I think everyone's highlighted, we still want to deliver a, um, a result where our, you know, that we keep those sales going because we still are, we still are a high volume model. So,

So anyway, I just want to highlight that. Yeah, thank you, Richard. And I wanted to just add in, sorry, all three of us are jumping on you, Billy, and that's not the intention. I just wanted to clarify, you referred to some commentary that the executive chairman had provided earlier this year. It wasn't the comment that all of the lift in franchise profitability would be through cost out. The chairman's response was that sales growth for franchisees is transformative given the high levels of contribution margin But I believe the exact quote was worth the effect of that sales can't be guaranteed, but cost can be. So sales are definitely a key contributor to lifting the franchise profitability, but the costs are an area that can be guaranteed, which is what he referred to at the time.

Yeah, unfortunately, we cannot guarantee sales. You know, we're doing everything that you can imagine to work on a more effective way of producing higher sales for the company and the franchisees. And we're confident that that will make a big change in the company. But, you know... The jury is out and we've got to deliver. And we're working our butts off to endeavor to get there. So hopefully it'll happen. as Nathan just said, the cost, we have control over those levers and that's happening. That's a given. We have some very, what we believe are game changing things coming down in pricing, which I think is the most important aspect of this business as far as profitability goes. And that's in the process of coming down the pipeline. Can we deliver it today? And so here, here, here's ABC and the results. No, but, but we're giving this a good shot.

No. Okay. That's great color. Do you mind if I ask one more quick one, Nathan, or should I jump back in the queue? You just keep calling out SG&A. I was just, you know, we can't really see that number in your accounts. Is that possible to be quantified just so we're able to compare that to your peers or something?

Yes, we do this all the time, and we are at the top end of SG&A. And I don't think we probably – it's not in the account, is it? No. So, you know, we do not declare that, but I can tell you it is at the absolute top, and there is lots of room for being able to make this business more efficient, and we're doing that. And it's underway. Okay. Thank you. Appreciate it.

Thank you, Billy. So I'm just going to remove, I know we've got a number of questions we've obviously gone through now on the call, and I know it's a busy trading day. So I'm going to just refer to a couple of questions we've had submitted online as analysts are also on other calls. So a couple of questions from Sam Tigger from Citi. Are further store closures required in Japan or France?

We can never say never because we don't know the answer to that. But as we sit here today, there's no immediate plans to close stores in either of those two markets. There will be onesies, twosies, things where guys aren't successful, but there's no master plan to be able to close a significant number of stores.

Follow-up question from Sam is how easy do you think it will be to get consumers to stop buying on promotions and coupons?

Well, time will tell. We don't know the answer to that, but the value button is what we're pressing. And I have enough confidence that the consumer, if we can translate that he's going to get a better buy and a better value proposition from Domino's, that will increase sales. Can I guarantee that? No.

Next question from Philip Kimber submitted from EMP. Net worth of sales growth is basically been flat for four years. Is there a risk that moving to a more everyday price or less promotions coupons will see another period of flat or declining sales?

I think we've covered that on the basis that the aspect of sales could come down as those that have been trained on discounting But what the plan that we are endeavoring to execute is that profits will go up. This business has had a history of being sales driven at all costs. And the change or the emphasis that we are endeavoring to bring to the business is profitability for the franchisees and for ourselves is our primary objective.

Thank you. And then the final question, it's both from Philip from EMP and also from Salman from Ausbill, is that when you cut costs, are all of the costs reinvested back into the business slash marketing or shareholders get any benefit to group profitability?

I think the current plan is that, you know, we want to put this money into marketing. And, you know, if the sales are positive, then we'll get a flow on of that. There will, you know, we obviously... will be handling the cost savings on an overall basis. And the company should benefit from this if we have a more competitive model. We talked about G&A. Our objective is to operate this business more efficiently than it has in the past. And we see lots of examples whereby this is going to happen. The company will benefit from that. The flow on then is, can some of these dollars be translated into marketing? Yes. Will that impact the company as well? Yes. So I think it's a double-edged sword here. We'll get it both ways, hopefully.

Okay, thank you. Now that is all of the questions that we've received online. So thank you all those who've attended today. The recording and transcript of this will go onto the investor website, dominoesdetaenterprises.com. We look forward to seeing you at today's lunch and also on the roadshow the week ahead. Thank you all for joining us.

Done.

We're just ending now. So thank you all.