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.