I would now like to hand the conference over to Mr. Xavier Simonet, Managing Director and CEO. Please go ahead.
Thank you, Ashley. Good morning, everyone. My name is Xavier Simonet. I'm the new Chief Executive Officer of Collins Foods, and with me on the call today is our Group Chief Financial Officer, Andrew Leyden, and our Chief Operating Officer of KFC Australia, Helen Moore. To slide one, please. So, I joined Collins Foods less than a month ago, and before we start the presentation, I would like to take a moment to introduce myself. I have more than 30 years of experience in business in Europe, Australia, Asia, and the U.S., working for public companies, privately owned businesses, and a couple of times with private equity in Europe. I do not come from a QSR background, but I have relevant experience in retail, franchising, brand development, large team management, consumer goods, international growth, digital transformation, and M&A.
My last two roles in business were CEO of Kathmandu Holdings, an ASX-listed company between 2015 and 2021, and CEO of a private equity-owned retailer and brand in the U.K. with operations in continental Europe. I'm delighted to have joined Collins Foods. Collins is a proven, strong, and resilient business operating world-class QSR brands. I look forward to working with the Collins team, the board, Yum!, and other stakeholders to drive growth, improve profitability, and shareholder value. Andrew Leyden, our Group CFO, will now take you through Collins Foods' results for the 2025 half-year, which was the 24-week period to the 13th of October, 2024. Good morning, Andrew.
Thanks, Xavier. Good morning, everyone, and welcome to the presentation today. Please note, as we take you through today's results, financials are presented on a post AASB 16 basis, unless stated otherwise. For those of you more accustomed to pre AASB 16 numbers, we've made them available in the appendices to the investor presentation. In addition, please note that the first half consists of six four-week periods, while the second half is seven four-week periods. Collins Foods has demonstrated over time the resilience of its world-class brands and strong fundamentals. In the first half of financial year 2025, Collins Foods delivered higher revenues against the backdrop of a challenging consumer environment, which impacted same-store sales, while persistent inflation weighed on margins. Key first-half results: the highlights include revenue from continuing operations were up 1.2% to just under AUD 704 million, with modest growth in KFC Australia, offset by softness in KFC Europe.
Underlying EBITDA from continuing operations was down 6.6% to AUD 102.7 million, with margins impacted by a combination of flat same-store sales and ongoing inflationary pressure. Underlying net profit after tax from continuing operations was down 23.8% to AUD 23.7 million due to lower EBITDA and higher depreciation on an increasing store footprint. Statutory impact was AUD 24.1 million, down from AUD 50.5 million in HY 2024, reflecting the AUD 20.2 million gain on the sale of the Sizzler Asia business in the prior corresponding period, and, of course, underlying performance. Net debt was reduced to AUD 158.9 million, and the net leverage ratio was 1.09, compared with 1.12 in the prior corresponding period, reflecting strong cash generation in the first half. The portfolio was 386 restaurants strong at period end.
As a result of strong cash flows, the board has declared a fully franked interim dividend of 0.11 per share against 12.5 cents per share in the prior period. The record date of the dividend will be the 9th of December 2024, with a payment date of 6th of January 2025. Moving over to slide two, to the segment highlights. The group's performance this half was underpinned by strong brand metrics in a resilient QSR category. KFC Australia posted sales growth of 2.7%, while same-store sales were down very slightly at 0.1%. This same-store sales measure includes the cannibalization impact on our existing portfolio, which we expect from the opening of new restaurants, and which we estimate represents around about 1% of network sales. KFC maintained brand share in a challenging consumer landscape.
The brand renewed its marketing strategy to focus on delivering everyday value and innovation to KFC customers. Digital revenues continued to grow at 33.7% of sales, compared with 28.1% in the same period last year. Margins were lower than the prior corresponding period, with sales growth insufficient currently to offset continued wage, energy, and cost of sales inflation. KFC ended the period with a network of 285 restaurants, with six new restaurants opened in the half and 22 remodels completed. The pipeline for new store openings remains healthy. KFC Europe posted a sales decline of 3.4%, with same-store sales down 3.8% after cycling two very strong years of growth in the half year 2024 and 2023. Netherlands' same-store sales were lower by 3.3%, and Germany 5.5%. Despite sales softness, the brand maintained market share, confirming that QSR sales overall in these markets were soft, with consumers struggling with cost-of-living challenges.
However, KFC brand health metrics improved in the period, with both brand awareness and consideration, a measure of willingness to buy, rising in the period. Digital channels remain key to growth in Europe, now accounting for more than 60% of sales. Overall, our European portfolio now stands at 74 restaurants, with a stronger development pipeline in place. Taco Bell Australia reported a relatively flat same-store sales performance. Digital channels represented just under 30% of sales. The BrandI ndex rose, driven by effective marketing execution and Taco Bell's increasing focus on everyday value at $5 and $10 price points. The brand continued to deliver a pipeline of innovation and a series of brand collaborations with other iconic brands, including Doritos and Red Bull. Taco Bell's freestanding drive-through format continued to outperform the network, particularly in Victoria, providing more insights into the successful formats that we see for the brand moving forward.
At period end, the portfolio remained unchanged at 27 restaurants across Queensland, Victoria, and Western Australia. Now moving on to our group financial results on slide four. Revenue was up 1.2% to AUD 703.5 million, with modest growth in Australia, offset by softness in Europe, with performance overall resilient in the face of challenging consumer pressures alluded to earlier. Underlying EBITDA was down 6.6% to AUD 102.1 million, with margins impacted by a combination of same-store sales softness and inflation, primarily in labor and energy. Underlying EBIT was AUD 52.5 million, down 14.7%, reflecting lower EBITDA and higher depreciation relating to new builds and remodels. Despite short-term economic pressure, Collins continues to invest in a disciplined way in its portfolio, in digital technology, and in new restaurants. This will benefit our business over the medium to long term.
Accordingly, underlying net profit after tax was AUD 23.7 million, down 23.8%, and EPS was AUD 0.22 per share, down from AUD 0.26 per share in the prior corresponding period. Statutory impact was AUD 24.1 million against AUD 50.5 million in the first half of 2024, with the prior corresponding period including AUD 20.2 million of impact relating to the gain on the sale of Sizzler Asia. Net debt was AUD 158.9 million, down AUD 14.1 million, with strong cash flows enabling net debt reduction, further adding to the group's investment capacity. As referred to earlier, the directors declared a fully franked interim dividend of AUD 0.11 per share against AUD 12.50 per share in the prior corresponding period. Now turning to slide five, which is the income statements. This draws attention to the reconciling items between statutory and underlying results.
Key differences between statutory and underlying results were relatively small but included net profit after tax of a loss of AUD 0.6 million due to the release of a Taco Bell lease liability upon settlement following a closure in financial year 2024, and AUD 0.2 million of impact relating to the write-off of a make-good asset. Basic statutory EPS was AUD 0.25 per share, with underlying EPS at AUD 0.22 per share. Now moving on to cash flow on slide six. Cash generation was again strong in the first half of 2025, and it's a recurring and attractive feature of the Collins Foods business. Net operating cash flows were strong again at AUD 75.3 million. And whilst EBITDA was lower than the prior period, cash conversion was very strong at 108%. Investing cash flows were higher by AUD 28.3 million, with CapEx up AUD 1.3 million to AUD 34.1 million, reflecting investment in the network and in technology.
New restaurant investment was AUD 9.1 million. Remodels absorbed AUD 14.9 million, and digital technology and sustainability investments were AUD 3 million. Asset renewal investment was AUD 7.1 million. Financing cash outflows were lower by AUD 21.4 million to AUD 35.8 million, with no debt repayments made in the half. Lease principal payments were AUD 18.9 million. Collins' strong cash flows continue to support significant business reinvestment and full-year dividend payments. Now moving on to the balance sheet on slide seven. Our strong balance sheet gives a significant investment capacity for growth. Net debt was reduced by AUD 6.6 million in the half to AUD 158.9 million, driven by strong cash generation and disciplined allocation of capital. Cash balance has increased to AUD 88.6 million. Other current assets were down AUD 3.9 million, with a AUD 3.6 million reduction in sundry receivables.
Property, plant, and equipment increased by AUD 1 million to AUD 256 million, reflecting new restaurant builds and remodels, of course, less depreciation. Right- of-u se assets of AUD 490.8 million and total lease liabilities of AUD 591 million, both rose as we added restaurants to the portfolio, as did other non-current assets consisting mainly of movements in intangibles. The Net Leverage Ratio ended the period at a very comfortable 1.09. The Collins Foods balance sheet remains strong as we head into the second half of the year. I'll now hand over to Helen to take you through KFC Australia results.
Thanks Andrew, onto slide nine and our KFC Australia business. Our performance during the half reflected tough consumer market conditions, but pleasingly these appear to be showing signs of leveling out. Our most material business unit posted a 2.7% increase in revenue to AUD 536.8 million.
Same-store sales growth was broadly flat at negative 0.1%, cycling two years of strong same-store sales growth and trending up during the period. The gradual improvement in same-store sales performance has continued into the second half, improving to + 0.8% for the first seven weeks of the second half. EBITDA was down 3.1% to AUD 102.2 million, with margins down 114 basis points on the prior corresponding period to 19%. This is due to a combination of flattish same-store sales and cost inflation on labor, energy, and product input. Turning to slide ten and a focus on brand health. KFC Australia has maintained market share during the half and continues to outperform competitors on key brand health metrics. As highlighted on the YouGov charts displayed on the slide, KFC retained the number one position for BrandI ndex, taste, buzz, and recommendation compared to other major QSR players.
Brand health is absolutely essential in advance of a consumer-led recovery. KFC Australia's brand and culture marketing activations, such as Christmas in July, Colonel's Spice House, and our sponsorships of the BBL and NRL leagues, plus AFL teams, are all driving solid customer engagement. Our everyday value launch lifted value perceptions and trust by creating accessible category entry points with new bundles such as the AUD 9.95 pack lunch and the AUD 24.95 boneless dinner. We also ramped up our innovation with consumer favorites such as Cookie Dough, Hot and Spicy, and The Slab. Digital sales continued to grow to 33.7%, up 5.6 percentage points on the prior corresponding period. This was driven by growth in app sales and also kiosk rollouts. Meanwhile, new restaurants were added and investments in capacity continued with six new stores and 22 remodeled restaurants during the period.
We also supercharged seven of those remodeled restaurants during the half. I'll now hand back to Andrew to cover KFC Europe.
Thank you, Helen. Now turning to KFC Europe on slide twelve. Performance continued to reflect a challenged economic environment in Europe. Revenue was 3.4% lower at AUD 142.1 million, driven by affordability issues arising from cost- of- living pressures. Same-store sales were down 3.8%, cycling a very strong HY 2024 and HY 2023, with Netherlands' same-store sales lower by 3.3% and Germany 5.5%. EBITDA was down 15.2% to AUD 17.1 million, with margins down 168 basis points to 12% due to same-store sales softness and elevated labor and other costs. Moving to slide thirteen, this slide highlights the key brand metrics for KFC Europe. KFC Europe maintained market share driven by value, innovation, and taste, but in a QSR category which overall continued to reflect cost-of-living challenges.
Digital sales grew again, contributing 60.4% and 64.5% of sales in the Netherlands and Germany, respectively. Brand metrics improved during the half, with awareness up 2.4 percentage points on the prior corresponding period to 23% and consideration up 2.8 percentage points to 17.6%. New products launched during the half included a Beter Leven Boneless Zinger, a product with higher welfare standards, delivering on our value and innovation promises. Collins Foods was also awarded for leadership in construction efficiency and sustainability innovation. While the overall QSR category has been impacted by challenging consumer economics in the short term, we expect the category will be resilient over time, with KFC in particular continuing to benefit from strong brand health and consumer preferences for ease, convenience, faster service, and of course, great tasting products which offer great value for money.
Now turning to Taco Bell on slide 15, revenue was down 2% to AUD 24.6 million and same-store sales growth marginally lower at 0.3% down, cycling a significant Uber campaign investment in the prior corresponding period. Targeted geographic marketing investments are benefiting in restaurant transactions, and Victorian freestanding drive-through restaurants once again outperformed the network, confirming the strength of this format for the brand. There was a modest reduction in profitability due to elevated marketing investment and persistent cost inflation. Now moving to slide 16, Taco Bell's brand health continued to benefit from marketing, quality, innovation, and consumer experience. Focus on everyday value at AUD 5 and AUD 10 price points has driven value perceptions higher. BrandI ndex continued to grow, driven by quality, value, and brand awareness, is now the highest in the Mexican QSR category. Consumers' top reasons for repurchase were great tasting food and also good value for money.
Improvements in brand metrics were supported by a pipeline of innovation, including successful collaborations with well-known iconic brands such as Red Bull for International Taco Day and Doritos, as well as the launch of a new beverages range. Now moving on to slide eighteen and our outlook. KFC Australia's total sales increased 3.9% in the first seven weeks of the second half, with same-store sales up 0.8%, continuing the trend of improving same-store sales performance over the first half and now into the second half. Economic sentiment appears to be leveling out and should continue to support this trend. Margins will, however, remain under pressure, with improvement not expected until financial year twenty-six. Some product inputs are expected to see slight deflation in 2025, although labor and energy remain elevated.
KFC Europe sales were lower in an overall soft QSR sector, down 1.6% in the first seven weeks, with same-store sales lower by 3.5% in the Netherlands and 0.4% in Germany. Of note, the business continues to cycle very strong growth in the prior corresponding period. The cost environment is expected to be stable over the next twelve months. Taco Bell's overall performance was flat, with same-store sales down 1.4%. Collins expects to add a further seven net new restaurants to the portfolio before the end of financial year 2025, with three in Australia and four in the Netherlands. Now moving on to slide nineteen, Collins Foods provides the following guidance for full-year financial year 2025.
Financial year 2025 group underlying EBITDA full-year margins on a post-AASB 16 basis are expected to be in the range of 14.2%- 14.7%, compared with financial year 2024 at 15.4%, with underlying EBIT margins expected to be in the range of 6.8%- 7.3%, which compares to 8.3% in the prior year. Full-year financial year 2025 interest, which includes interest on borrowings and on leases, is estimated to be around AUD 42 million for the full year, compared to AUD 38 million underlying in financial year 2024. This primarily reflects new and renewed leases, reflecting growth in the group's restaurant portfolio. The group's effective tax rate for financial year 2025 is expected to be in line with the half-year number at around 33%, compared with financial year 2024 underlying of 30.3%.
This primarily reflects the effective tax rate in Australia and the non-recognition of a deferred tax asset on statutory tax losses in the Netherlands in financial year 2025. We expect the tax rate will normalize as European profitability improves, and with that, I'll now pass back to Xavier for his comments on the longer-term outlook.
Thank you, Andrew, and moving on to slide 20. To conclude, Collins Foods is a proven, strong, and resilient business operating world-class QSR brands in attractive markets. Our company is well-positioned to benefit as consumer confidence returns, and I am excited about its future potential. Looking ahead, as I become familiar with the business and engage with our teams in Australia and Europe, my priorities will be, firstly, to be laser-focused on operational excellence.
We will continue to leverage the existing store network to deliver great customer experience, to be a world-class operator, and to drive same-store sales growth and margins. Second, to continue creating scale via profitable new restaurant development, complemented by discipline and M&A as the right opportunities emerge. Our strong cash generation and balance sheet will enable us to invest in profitable growth. Last, to review our growth strategy in a timely manner. Our objective is to deliver scale and profitable growth, which in turn will drive shareholder value. From a more personal perspective, I have deeply enjoyed my first week at Collins Foods. We have a great team, a culture of collaboration, and a passion for performance and customer service. I enjoyed a warm welcome from the Collins board and team and the Yum! stakeholders I have managed to meet.
I look forward to working with the team more broadly and creating value for our shareholders. I will now open the call for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Peter Marks with Barrenjoey. Please go ahead.
Oh, hi, guys. Just a question on the improvement in the Australian sales growth. Interested in what you're seeing in terms of overall promotional intensity in the market, and it sounds like you might have benefited from getting your value meals right recently.
So just wondering if that's come at the expense of margins in the half and, yeah, just overall promotional intensity, how you're seeing that play out.
Thanks, Peter. It's a really good question, and you can probably see the changes we've made in our marketing strategy during the half, which have obviously had benefits to both top-line sales and margins. I think what we were all seeing is that, and this is my personal opinion, I think the QSR category was playing a different game to where the customers were. So this time, a year ago, we were all deep discounting through the app to try and get customers into the app as part of a loyalty program. What we've effectively seen is that as the cost-of-living crisis hits, customers were trading into value at the expense of core.
So you will have seen a lot of activity in the market from a value perspective, but it wasn't necessarily sticking in the way we wanted it to in our business. So the transition for KFC into everyday value, which is still supported by some of those value promotions and innovations, has been actually very successful for us during the half. So I think that answers your question, but the competitive intensity is obviously still out there, but we're very confident in our strategy and that it's working for us.
Okay. That's helpful. And then just one on the Netherlands, if I can as well, and the mild issues there. It looks like you might have closed one restaurant in the half. I guess, is that related to the mild issues you're seeing there?
Is it possible to get a sense of the restaurants that aren't being impacted by those issues of the performance of those? I guess a bigger picture question, if this persists, do you need to reassess your restaurant growth outlook in the Netherlands?
Yeah, Peter, I'll take that. And hi. Yeah. So the impact, of course, is driven by consumers that are, I guess, sympathetic to a certain cause, not attending our restaurants, and also demonstrations that impact and disrupt the ability of our restaurants to operate. It doesn't affect every restaurant. It affects some of the portfolio, particularly where the Muslim population is more pronounced. We think the impact on overall network sales is approaching 1%. So it is material, but it doesn't fundamentally affect the way that we think about that business moving forward. But it's a challenge.
There are clearly other markets around the world that are affected much more than we're seeing in the Netherlands. We have impacts everywhere, but I'd say that the Netherlands is more pronounced for us. In terms of the closure of that restaurant, no, it's not related to the conflict in the Middle East. It was related to other matters, but yeah, certainly not related to the Middle East.
Right. Thanks, guys.
Your next question comes from Caleb Wheatley with Macquarie. Please go ahead.
Hi, Xavier and team. And Xavier, congratulations on the new role. First question, sorry, just on the longer-term outlook around KFC Australia. So you spoke to those customer reviews, leading competitors pretty much across the board, fairly strong penetration within the Aussie market.
How do you think about driving additional growth in KFC Australia in the medium to longer term in this business, given it seems like you're pretty well penetrated already, please?
Yeah, I think there's quite a few opportunities we have. So firstly, I mean, relative to our competitors, we really doubled down on the lunch and dinner day part. So I think there's an opportunity for us to expand in the medium to long term into broader category occasions for customers. So I think that would be the first one in terms of our existing boxes. The second thing that we have disclosed to the market in our last couple of updates has been our Supercharged remodel program.
So in stores where they perhaps weren't built for the sort of volumes that they're now doing today, being able to unlock that capacity to drive same-store sales growth, which we will have done by the end of this year in 20 restaurants. So that's a very strong program. And then finally, new store growth. And I mean, we perpetually worry that we're running out of room, but in reality, we always find another 7-10 stores to open each year for KFC. And certainly, our new store openings this year are performing very strongly. So we always have to balance off the cannibalization impacts. But as populations grow and also appetite for KFC grows, we tend to continue to find compelling opportunities. So yeah, I think that probably answers the quest ion.
Yeah. And on that store remodeling program, how many years or how much line of sight do you have in terms of continuing to grow the same-store sales in those stores that may be a little bit undercapitalized at the moment?
So we typically see in a store that we Supercharged remodel, we'll see the uplift very quickly within the first year, and then that new sales level will hold for that restaurant. We're currently working through our five-year plan for Supercharged remodels, mapping it alongside our new store growth opportunities to decide how many stores will be eligible for that program over the five-year period.
Okay. Thank you. And then my second question just on cost inflation, food, labor, energy, and product inputs as key drivers of the EBITDA margin decline.
Can you just provide an update on what you're seeing in current markets on those cost inputs and any thoughts on the outlook from here?
Yeah, Caleb, different in different markets, I think, is the short answer. But if you look at Australia, we think cost of sales will be in a period of deflation into 2025. 1%-2% is probably our estimate at the moment, but that's a material improvement on where we've been. If you think about labor, we've seen some inflated labor increases over the last couple of years, but that's going to move with minimum wages now at a much more moderate level, which is great to see. Energy is still problematic. We still have elevated rates of energy across the states of Australia in which we compete.
So I don't think that's going to moderate anytime soon, but certainly, the cost of sales change is really welcome. The market in Europe is a little bit different. Energy has settled down. Labor rates are now. We've had two consecutive years of rate increases, double-digit rates, 10%. That's going to come down to something that's much more moderate and close to Australia. We think it's going to be that 3%-4% range in the markets of the Netherlands and Germany. Cost of sales. We've had a period of deflation in 2024. I think that'll move back to sort of very low single-digit rates of inflation for financial year 2025. So I think you could characterize the cost environment as improving, particularly given our exposure to KFC Australia business, which is, of course, our largest profit contributor.
Great. That's very clear. Thanks very much. Thank you.
Your next question comes from Sean Xu with CLSA. Please go ahead.
Thanks, Xavier, Andrew, and Helen. Thank you so much for taking my question. My first question is around the M&A opportunities. I think it has been a while since it was first backed by management. I'm hoping to get a bit more idea on what kind of M&A assessment criteria are you considering? Are they small build-out acquisition or a large transaction in one go? Are they mainly using KFC brand? Just a bit more clarity would be really helpful. Thank you.
Yeah, Sean, thanks for your question. I think, first of all, the first thing I would say is that any M&A has to deliver value for our shareholders. And so we're fairly disciplined in the way that we assess them.
And we want to make sure that when we're adding assets to the portfolio, they're going to pay their way. Australia, of course, is a very penetrated market. So when we look at opportunities here, I wouldn't say they're super easy to find, but when you look at opportunities in the domestic market, they're likely to be bolt-on that just add value to our portfolio. Likewise, in the Netherlands and Germany, they're likely to be relatively small clusters of assets because that's the way the market's structured. If we were to make a decision to penetrate a new market, that would likely be larger because you'd want to generate some scale early. So it really depends on the nature of the opportunity. So we've got our eyes open, but I think it's only right that we address those opportunities with a fair degree of discipline.
All right. Thank you. Is there anything you would definitely not consider throughout Australia?
Well, there are things that we wouldn't consider because of the categories that we're in, I guess, is probably my first answer to that. I guess always with M&A, you want to play close to your core capabilities. That for us is important. So whatever we choose to entertain, we want that to be close to our core capabilities of running successful restaurants on a sustained basis. So those are the things that we're interested in. That's what we like doing as a business. So yeah, that's what we'll be looking for.
Cool. Thanks, Andrew. My next question is just for Xavier. I think given your experience outside of QSR, I'm just very interested in how did you assess KFC's brand health in your first four weeks into your job, and how did you intend to maybe leverage your background to address the challenge faced by Collins at the moment? Thank you.
Sure. KFC is a very strong brand. And as Helen mentioned before, we've got strong brand recognition, and brand metrics are very strong, as well as the market share in Australia and actually in parts of Europe where we operate. So it's a very good starting point.
To come back to the second part of your question around how I plan to leverage my expertise and experience, yes, I don't come from a QSR background, but I believe I've got lots of transferable skills that I can transfer to the business or use in the business, like my retail experience in Australia and internationally, particularly in Europe, large team management, brand management, international development, particularly in Europe where I run businesses, digitization, M&A, and also leading public companies, and also franchising as well.
Thank you. That's helpful.
Thank you for your question.
Your next question comes from Tim Plumbe with UBS. Please go ahead.
Hi, guys. Just two questions from me, if possible, please. Just following on from Caleb's question around food deflation, maybe for Andrew or for Helen, given that it's mainly around the Australian business.
Can you talk a little bit about. I know that you said 1%-2% food deflation. I'm assuming that's across your business. But when you look across the industry, is it down by more than that? And will you get an ongoing benefit as your contracts roll through and you start to reset at market pricing, or are you saying the market's down 1%-2%?
So the comment Andrew made, Tim, was on the KFC Australian business around our expectations on cost of sales reductions. We manage cost of sales very, very closely. We have an excellent team that do that, and they're constantly looking at the appropriate price bars for each category of product. So it's not necessarily relevant to compare our cost of sales base with a beef provider, for example.
But for each of the individual categories that we're buying, whether that's chicken, oil, bread, etc., we have a very clear line of sight on what the prices should be in those categories. And then we work through, obviously, the appropriate negotiations with our suppliers and partnerships in that space. So we, at this stage, have a reasonably clear line of sight on cost of goods. But of course, as the environment changes, we would, of course, renegotiate our positions as needed as well.
Okay. So I guess what? Yeah. Sorry.
The only thing I was going to add to that is that that estimate reflects the basket of goods that we buy, the mix of product inputs that affect our business, wouldn't necessarily be directly comparable with other categories.
Yeah. I guess I was trying to ask on a like-for-like basis with the idea that you guys have got contracts that will be rolling off throughout the course of the year. So as those contracts roll off, does that 1%-2% become a more significant number given what you're seeing in terms of chicken, for example, what the market's down versus what your effective benefit's going to be?
So our outlook does take into account the timing of any contract changes, and that's where the guidance that Andrew provided has come from. That's probably all we can say at this stage, given the confidential nature of the contract.
Yeah.
Okay. Last question, just thinking about the like-for-like movements in the second half of last year, we saw a pretty material deterioration in the last kind of 20 weeks of second half 2024 versus the first six weeks of the second half of 2024. Given that all else equal, the run rates that you're seeing at the moment for the first seven weeks of the second half of 2025, is it fair to assume that we could expect an acceleration for the remainder of the second half of 2025, all else equal?
Yeah. I'll tell that one, Tim. I mean, we're definitely cycling softer comps. There's no doubt about that. We'd like to see that. That's clearly what we're targeting, is an improvement in same-store sales.
I think, as you and I have discussed on prior occasions, we want that to be in the low to mid-single-digit range because then it gives us a lot more confidence that we're going to expand our margins when we're at that level. So too early to call in terms of where we see it, but we are cycling softer comps, that's for sure.
Great. Thanks, guys.
Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Good afternoon, everyone. Just first one from me, just around where the discussions are at with your new master franchise operating in Germany, because I understand they had some pretty ambitious targets for Pizza Hut, KFC, and Krispy Kreme, and it just feels like not a lot has progressed since they've taken over. I appreciate it takes time, but how are those discussions going?
Do you see yourselves in a position to sort of re-accelerate that rollout in Germany in the not-too-distant future?
Thanks, Ben. Yeah. Look, first of all, Germany is an attractive market for us. We like it. It's under-penetrated from a brand point of view, and we think it has a lot of long-term potential. So that's not changed. In terms of our relationship with the master franchise holder, look, it's taken some time for that business to set its stall out, I guess, in terms of how they want to run the market, which franchisees are playing a prominent role when it comes to development. Those sorts of things are just taking longer than we'd like, frankly, to clarify. But we're working very hard to get clarity so that we can start to prepare for investment decisions. So can't really put a timeline on it.
Can't really talk too much more about it other than what I've mentioned. But we really like the market, and we're keen to develop in that market.
How's the discussion sort of at a board level at the moment or even at an executive level just around rollout? Because I think, as Helen you alluded to, you always find stores in Australia that it's tough. Germany sounds like it could take a little bit longer. Netherlands obviously got some other issues. You've obviously talked more proactively around looking at M&A, which from our perspective seemed like it was something maybe more imminent. But how much of a priority is it to really try and find markets where you can actually accelerate that growth, drive some more top line through the business? Because it just felt like nine or 12 months ago you started more actively talking about it.
It was something more imminent coming on the M&A front.
Yeah. Look, I think by our own admission, we'd like to have a few more runs on the board when it comes to development and new restaurants. If you look at the markets we're in, we're developing fairly aggressively given the penetration in Australia. The Netherlands, as you know, is a difficult place to develop restaurants given energy constraints and given permitting challenges. But we've lifted our game in both respects there. I think we're somewhere between seven and ten restaurants in Australia. In the Netherlands, we've got four going in before Christmas. There'll be more next year. The pipeline's building, and Germany, I've explained, we're keen to develop, and we want to roll out more restaurants.
I think beyond that, I don't think we've clearly. We have conversations about other markets, but it's probably too early to talk with any great clarity about what that means in the market. So yeah, we're looking at development opportunities in all of our key markets. We'd like to accelerate it, but we need to do that properly and with discipline.
That's helpful. Sorry, just follow-up from me, Helen. Just that comment you made before, and you think the market's sort of started to get it right now in terms of not just pushing and the consumer now sort of aware of more so where they're at, and there's an opportunity around margins for obviously value and add-ons, etc.
So do you think sort of the market's, and I appreciate it's a tough question, but has hit a baseline now in terms of profitability, and there's just a greater understanding around not doing blanket promotions and actually trying to drive a more margin-accretive basket? Do you think that's an industry phenomenon now? Because obviously, it's competitive, and you want to see your competitors probably taking a more rational approach as well, which will allow you to lift or hopefully see margin growth into next year as well.
Yeah. Look, I agree with your perspective on that. I mean, we want to see our competitors succeed. And I think some of the bigger players in the market struggled with value perception around the time that we were pushing our market promotions through the app and then not offering that value in stores.
So I think the everyday value approach KFC's taken is really about rebuilding trust, but also rebuilding a more sustainable basket. I can't comment on other competitors, but you can certainly see some of those types of themes coming through. And yeah, I agree with your view. I mean, the entire category benefits when everybody's performing well, so we wish our competitors well with that.
Thank you.
Your next question comes from Sam Teeger with Citi. Please go ahead.
Thank you. Hi, Xavier, Andrew, and Helen. There's been a desire for the company to expand in Europe for some time. Realistically, how much time do you need, Xavier, to get your feet under the desk before you're comfortable making an acquisition into a new market?
When entering a new country, is the preference to get a large number of stores immediately or perhaps buy a few, test and learn, and then have an option to buy more stores later if it goes well?
Thanks, Sam, for your question. As you will appreciate, I only started in my new job four weeks ago, so it's been very short. I'm going to travel to Europe in January and spend time with the team, visiting stores, but also engaging with key stakeholders, franchisees, franchise partner, and Yum! in the market. As I mentioned before, I plan to review our growth strategy in a timely manner and come back to the board with the objective to deliver scale and profitable growth.
And I think in that context, we will organize when we can next year in the first half an investor day to be able to share our plans based on my review and the discussions we have had with the board and the management team on that.
Sure. And in terms of Australia, the outlook, specifically the comments around labor to remain elevated, to what extent do you think too much labor has been taken out of stores in recent times, and what's the potential for sales to improve with increased labor leading to faster queues and quicker service for customers?
Yeah. I'll take that question. We have been very disciplined around our labor investment in restaurants. So from my perspective, there's an absolute laser focus on operational excellence, and that's everything from our operating standards through to our customer experience.
So what you're seeing in our labor numbers is predominantly rate increases that have come through over recent years. We expect those rate increases to remain somewhat elevated in the next round of increases, and we don't expect to be removing labor hours that we need to drive sales from our restaurants. So hopefully, that gives you some comfort from that perspective.
I was more asking to what extent has too much labor been taken out of stores in recent years and the potential if you put labor back into stores, could that potentially drive a better sales outcome?
Yeah. Sorry. Perhaps I wasn't clear enough in my answer. We haven't taken labor out in recent years. So despite the top-line challenges, we've retained our labor model.
So relative to the sales levels of the stores and the channels that they have available to them, we have the right labor model for those stores. There are always opportunities for us to try adding extra labor and to see if it drives sales, and that's certainly something that we do on a trial basis. And if it works, we'll continue to increase labor. But yeah, it's sort of a day-to-day part of our operations here at Collins Foods.
Got it. That's clear. And then last question, just any color you can provide in terms of what's driven their relatively better performance in Germany compared to the Netherlands over the first seven weeks of the second half?
I don't think there are any major trends that sort of determine that Germany's performance should improve to the level it has. We have a handful of restaurants in Germany.
It's not a large portfolio, and we do see higher variability for that reason. So yeah, it's more to do with that than it is anything else, to be honest with you. It's a relatively small portfolio impacted by local conditions, local market trends, consumer demand at that time. Clearly, when you've got portfolios as big as the ones that we have in the Netherlands and Australia, you probably have more generic trends that you can look at. But in that market, we run a relatively small portfolio.
Okay. Thank you.
Your next question comes from Elijah Mayr with Goldman Sachs. Please go ahead.
Good afternoon, team. Just a couple of questions for me. Maybe just firstly on the full-year guidance for margins. It seems like you guys have a pretty good handle on costs sort of going forward.
Could you maybe give us some color on what same-store sales growth you'd need to get to the top end of that margin guidance range?
Elijah, I'm not going to give that guidance because we haven't. I mean, we've sort of laid out there for analysts to form their own views about what they want to think same-store sales will be. Our intention, though, is to keep growing same-store sales and to see that trend improve. So I think you've seen the trend move from -0.6% in the first six weeks of the period. When we put our trading update out, we were -0.3%. At the half-year, we're -0.1%, which means that we're in growth for the period between the trading results and the half-year end. And then for the first seven weeks of the year, we're at 0.7% up.
So given that we're comping softer numbers, we'd like to see that improve. Clearly, we've got our own internal targets that have allowed us to deliver some guidance to the market. The range that we put out there is relatively narrow, but I thought it was appropriate that we put a range out there. The other two elements that we're giving guidance on, of course, are areas where there's a fair degree of variability in analyst estimates. So depreciation, sorry, interest, where AUD 9.5 million of our interest bill is on bank debt and the balance is on leases, which should, that should give analysts enough to project where lease interest will be. And obviously, the changes to our tax rate that I've explained on the call. So yeah, we'd expect it to improve. We're starting to comp softer same-store numbers from the prior year.
Yeah, I think the momentum's looking positive in Australia.
Perhaps just to add a tiny bit more context on that, the ABS data for October, which many of you will have seen, had takeaway sales growing at 1.4%, whereas restaurants, cafés, etc., were down 0.3%. You're starting to see that consumer movement into Christmas, which is positive. On the data we've got, which is to September, the KFC brand has consistently outperformed the QSR market in terms of its growth. I'd like to think we'll see a category recovery, and the KFC is very well placed to benefit from that.
No problem. Appreciate the color there. Is there any scheduled price increases for the second half or into 2025?
Well, that would be really letting the cat out of the bag, wouldn't it?
We can't share commercially sensitive information, of course, but we'll always take an approach around affordability. And I think it's really, really important at the moment while consumer sentiment and cost-of-living pressures remain that we're very disciplined about our approach to taking price. But we certainly do have a focus on building bigger bundles and on how the basket's constructed. So you'll start to see that coming through in terms of the retail strategies that we're employing in our business in the coming months.
Understand the commerciality there. Maybe just one last one on Europe and sort of potential M&A over there. Are you seeing an improvement, I guess, from a valuation perspective given the softer conditions and the impact on margins for a lot of the QSR operators across Europe? Is this now a more favorable environment for you to partake in some M&A over in Europe?
Elijah, I mean, clearly, valuations are based upon future expectations. I think based on where markets are at, yeah, there's probably been a softening of valuations, but they're primarily based upon where they're heading in terms of cash flow projections. So yeah, I don't really want to comment too much about what we're seeing and what sort of targets we're entertaining. But yeah, generally, I'd like to think generally that profitability is bottoming out in our sector, and if you think about where same-store sales are heading, particularly in our largest market, that bodes well for profitability overall.
Perfect. Thanks for answering the question.
Your next question comes from James Ferrier with Wilsons. Please go ahead.
Hi, guys. Thanks for your time. First question is in relation to KFC Europe. So there was a net decline of one store in the first half period relative to the end of FY 2024.
Were there any openings there, or was it just a single closure?
Hi, James. Yeah, single closure and an isolated restaurant. You shouldn't read anything into that in terms of impacts across the portfolio. Our intention is to add another four restaurants to the portfolio before the end of this calendar year, and we've got a nice pipeline developing of restaurant development beyond that, so yeah, just a restaurant that wasn't earning its keep, if you like, and it's no longer in the portfolio.
And just to follow up then on the franchise side of things in the Netherlands, what was the movement, gross, and net in franchise store count in the period?
Relatively flat because we're the primary developers in the Netherlands, so relatively flat. Collins is by far the largest contributor to the portfolio in terms of change.
Yeah, I was more talking about so within the corporate franchise agreement, there were minimal changes to the overall number of stores that Collins Foods is responsible for or governing.
Yeah. So we're sitting at 74. The other franchisees haven't really been developing. So the numbers have stayed relatively flat outside of the Collins portfolio.
Yeah. Understood. Thanks. And then probably a question for Helen. When you look at the KFC Australia business, so we've seen a sequential improvement in same-store sales growth, and noting the fact that you're probably cycling some residual menu price increase that were implemented around the middle of calendar 2023. So as you move through first half FY 2025, that menu price increase benefit drifted away. So this sequential improvement in underlying same-store sales growth is probably even stronger than the reported numbers would suggest.
Can you add some color to whether or not that's more customer count-driven or ticket-driven or something else?
Thanks, James. Very insightful question, and yes, you're right. We haven't had the benefit of pricing in the half, which probably does mean those numbers are a little bit stronger than it might seem. What I would say is, as we've changed our marketing strategy during the half to really focus on everyday value, we've certainly seen the benefit flowing through into ticket and basket size, and then we've seen a slower recovery in transactions within that number, so hopefully, that gives you a little bit more color on what we're seeing, but certainly, we're quite pleased with the improvements in tickets, and we're very pleased with the uptake of our new everyday value offers, which are providing really great category entry points into the KFC business.
And then, of course, consumers can choose to trade up into the innovations or more premium bundles that we offer from that point.
Thanks, Helen. That's great color.
Actually, I think there are one or two more questions, and then we'll need to wrap up.
Okay. Sure. Your next question comes from James Bales with Morgan Stanley. Please go ahead.
Morning, James.
Hi, guys. Just a couple of questions for me. Firstly, limited time offers, they're obviously a great lead indicator of consumer health and ultimately same-store sales. How has your sort of latest efforts gone with the consumer, and have they responded in terms of changing their behavior and trading up instead of down?
Yeah. It's a great question. I assume you're asking about Australia as well. Respond that way. And if you've got a further question about Europe, please let us know.
It's been a really interesting journey, to be honest, because we did see coming into the full-year results that our innovations were really flying off the shelves and going very well, and what you will have seen from KFC in this half, therefore, is a much more innovation-heavy marketing plan. And those innovations have typically performed either in line with our expectations or well ahead of them, so there have been some products, for example, Cookie Dough, where we've actually run out of product before the end of the promotion because, based on the trial results, we expected it to perform at a certain level. And actually, consumers have really gotten behind the promotion and wanted to try it, so yes, we're certainly seeing that appetite for something new and interesting and different in challenging times for consumers, so you'll see more of that to come.
Perfect. And then one more on digital, maybe. Can you just remind us of the benefit that you see with a higher online sales penetration? Is it basket size, cost to serve, loyalty, and frequency? How should we think abo ut that?
All of the above is the answer. So yeah, we'll always see, on average, bigger basket sizes in our digital channels. Part of it's the consumer psychology that they've got the time to browse the menus. So we also see that phenomenon in a kiosk, for example, where the customer's in restaurant but using a digital channel. And then that typically does drive all of the other benefits that you've talked about around frequency and, of course, our ability to then communicate with those consumers. So we have a reasonably comprehensive personalized value program, which seeks to re-engage and drive frequency in our known customer base as well.
Great. Thanks for the color.
Your final question today comes from Billy Boulton with Morgans. Please go ahead.
Hi, guys. I was just interested in how you guys are thinking about CapEx for the full year at this stage.
Yeah, Billy, our CapEx really is determined by the timing of remodels, to be honest with you. So that's what dictates where we're going to be in our range. We've guided sort of AUD 75 million-AUD 90 million a year on CapEx across the group. We'll probably be in the midpoint of that range for this year. But yeah, as I say, it's really driven by the timing of remodels rather than new builds.
Perfect. Thanks. And just also, on your group EBITDA margin, I think you came in slightly ahead of your guidance for the first half. I was just interested in what drove that.
Yeah. In relative terms, the performance of KFC Australia. So that allowed us to come in. I think we were 0.1% above the better end of the range that we put out in the market. So we're fairly happy with that. Clearly, we've got a lot of work to do second half, but yeah, that's where it came from, KFC Australia.
And from your perspective, was that more sales-driven or cost-driven?
I'll respond on this one. It's probably more mix-driven than anything else. So just seeing that sort of slightly nicer trend on sales, but also the mix of what our consumers are putting in their baskets, which was driven by our marketing strategy, as I discussed earlier .
Awesome. Thank you.
There are no further questions at this time. I'll now hand back to Mr. Simonet for closing remarks.
Thank you, Ashley. And thank you all for joining the call. Have a great afternoon.
That does conclude our conference for today. Thank you for participating. You may now disconnect.