Thank you for standing by, and welcome to the Collins Foods Limited HY 2024 results call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Drew O’Malley, Managing Director and CEO. Please go ahead.
Yeah, thanks, Lexi, and good morning, everyone. I am Drew O'Malley. I'm the CEO for Collins Foods, and with me on the call, today is our Group CFO, Andrew Leyden. I am pleased to take you through Collins Foods' results for the 2024 half year, which was the 24-week period to the 15th of October 2023. Please note, as we take you through today's results, the financials are presented on a post-AASB 16 basis, unless stated otherwise. For those of you more accustomed to pre-AASB 16 numbers, we have made them available in the appendix to the investor presentation, which I will be referring to on the call. In a challenging consumer environment, Collins Foods has demonstrated the resilience of its world-class brands, delivering growth in overall revenue, same-store sales, and earnings across the group.
Key first half result highlights include: revenue increased 14.3% to $ 696.5 million , with strong growth across all business units. Underlying EBITDA increased 16.7% to $ 109.9 million . Underlying NPAT was up 28.7% to $ 31.2 million . Net operating cash flow increased $ 25.1 million to $ 82.2 million, reflecting strong organic performance and proceeds from the sale of Sizzler Asia. Net debt reduced by $ 18.2 million to $ 173 million at the end of the half, with a comfortable gearing position and net leverage ratio of 1.12. Underlying basic earnings per share from continuing operations amounted to $ 0.265 per share.
Given our strong performance and balance sheet position, the directors have declared a fully franked final dividend of $ 0.125 per share, slightly ahead of the prior year. Turning to operational highlights on the investor deck, slide two. Solid group performance was underpinned by the brand strength and value credentials of KFC and Taco Bell, as well as robust e-commerce growth across all three business units. We continue to increase our store count, adding five new restaurants to our Australian network in the half. KFC Australia same-store sales increased 6.6%, supported by growing adoption of digital and delivery channels and improved operational efficiency. The KFC brand is strong, and it continues to lead the key QSR market on key value and consideration metrics. E-commerce remains a growth driver, increasing over the period to account for 28.1% of sales.
While cost pressures remain a factor, we've slightly increased margins through a range of mitigation initiatives across multiple lines on the P&L. We opened four new restaurants during the period and remain on track to build nine to 12 new restaurants for the full financial year. KFC Europe maintained its growth trajectory with positive same-store sales of 8.8%, including Netherlands same-store sales growth of 7.9% and Germany up 11.7%. Value marketing, digital expansion, and operational efficiencies have all been important levers to offset considerable margin headwinds. Overall, our European network now stands at 72 restaurants, inclusive of our acquisition of eight restaurants in the Netherlands at the start of this year. Taco Bell Australia had a strong start to FY 2024, with same-store sales growth of 7.9% in the half.
Growth was driven by improved product quality, value marketing campaigns, and delivery expansion. Media investment in collaboration with Yum! is lifting brand awareness, engagement, and consumer trial, and we are encouraged by the customer response to these initiatives. We opened one new restaurant and closed two in Queensland, bringing Collins Foods network to 27 across Queensland, Victoria, and Western Australia. Moving to slide four and a deeper look at KFC Australia. Our biggest business unit continues to deliver year-over-year growth, with revenue increasing 9% over the prior corresponding period to $ 522.9 million. Higher revenue was driven by same-store sales growth of 6.6% and the addition of 11 new restaurants over the prior year, inclusive of four opened this half. Collins Foods' Australian KFC network now stands at 275 restaurants.
Underlying EBITDA increased 11.1% to $ 105.5 million, with margin up 37 basis points to 20.2%. Again, that's post AASB 16. Turning to slide five and a focus on the brand. In the current challenging economic environment, KFC's brand strength and value credentials demonstrate remarkable resilience as consumers prioritize quality and affordability. KFC brand remains strong, leading the Australian QSR market on critical value, quality, and consideration metrics, as shown in the YouGov graphs comparing KFC to the broader QSR market in the deck. While taste is still the primary feature of the brand, the value and attractive price points continue to feature heavily in KFC's marketing and media efforts, and a conservative approach to menu pricing has maintained affordability for the brand.
Successful brand and culture initiatives, such as Fried Side Club and KFC Weddings, have further enhanced the emotional engagement with consumers. Supply chain cost pressures have begun to ease, though most commodity prices remain historically high. We will need to continue to operate efficiently to allow our customers to continue to benefit from affordable prices. On to Slide six. Convenience remains a growth driver, with e-commerce representing 28.1% of sales in the first half, up 5.9 percentage points on the prior year. We're continuing to invest in these channels, rolling out kiosks across the network and new digital menu technology to improve the customer experience. KFC's personalized app-only offers are achieving high conversion rates, providing customers with the right offer at the right time. We remodeled 30 restaurants during the half, featuring more kiosks, streamlined kitchen efficiency, and modernized customer areas.
Supercharged Kitchen Remodels, which include dual-lane drive-throughs and new back-of-house operational layouts, have significantly improved production capacity and are outperforming expectations. Rooftop Solar is leading our sustainability efforts to date, now installed in all 167 available drive-throughs, with additional energy initiatives now in trial. And now, turning to our KFC Europe business on Slide eight. The continued strong performance of our European operation has reaffirmed its potential to be a growth engine for Collins. KFC Europe generated strong growth in overall revenue, same-store sales, and earnings, despite pronounced inflationary pressures in the region. Revenue of $ 148.5 million is up 36.5% over the prior year and has more than doubled in three years, with growth supported by our expanding footprint and an overall same-store sales increase of 8.8%.
Netherlands same-store sales increased 7.9%, while Germany was up 11.7%, with both markets cycling strong same-store sales growth in the prior comparable period. Underlying European EBITDA of $ 20.2 million was up 53% on prior year, while margins improved 146 basis points to 13.6%, as initiatives across supply chain, energy, and labor partially offset inflationary pressures. The next slide highlights strengthening brand fundamentals in the region. Marketing and operational control in the Netherlands under our corporate franchise agreement, or CFA, continues, continue to improve brand fundamentals and product quality perceptions. Brand awareness and consideration are both up over the prior period, and we are outperforming competitors and gaining focus on core and everyday value resonates with price-conscious consumers.
As in Australia, digital and delivery are a key pillar of our growth strategy, with more than half of all sales in the Netherlands now coming through digital channels. Our newly launched menu, app, and digital platform will further improve engagement and personalization capability, enhancing the customer experience and accelerating click-and-collect sales. And finally, our veggie range continues to lead the way globally as a KFC market for plant-based alternatives. Turning now to Slide 10. During the half, we successfully integrated our eight acquired KFCs in the Netherlands, increasing that market's restaurant footprint to 56. Investment in resources and capability is driving our long-term development pipeline in Europe, with the three new Netherlands restaurants highlighted here, all expected to open in the coming months. This includes a battery-supported in-line restaurant in Den Bosch, which will help us counter energy grid challenges and reflects our global leadership on innovative energy solutions.
In Germany, an experienced operator has been appointed master franchisee for KFC, which will help this market develop and scale. Given our performance in Europe and ability to invest, Collins will be a key growth partner in this market. Our development team continues to monitor the landscape for expansion opportunities in existing and new European geographies, and with the continent still underpenetrated, it remains a growth opportunity for Collins. Turning now to Taco Bell Australia on Slide 12. We are encouraged by Taco Bell's return to positive same-store sales in the first half of FY 2024. Revenue increased 18.9% to $ 25.1 million, driven by same-store sales growth at 7.9%, and the addition of three new restaurants over the prior year.
We opened one new integrated Taco Bell in Underwood, close to Brisbane, bringing our network to 27 restaurants across three metro clusters in Southeast Queensland, Victoria, and Western Australia. Our nine Victorian restaurants are performing the strongest of the group. EBITDA profitability at restaurant level, excluding new restaurant opening costs and brand G&A, is trending positively at $1 .4 million. Moving to Slide 13, Taco Bell's growth is being driven by improved product quality, successful marketing campaigns, and a relentless focus on value. Higher quality and innovative new products are now meeting and exceeding consumer expectations on taste and value. Newly launched products include the $ 5 Jalapeno Crunch Burrito and the Crispy Chicken Range, which features the Lava Crispy Chicken Burrito meal at an attractive $ 10 price point.
Chips are now accounting for a greater proportion of our sales mix, following the national launch of McCain's Super Premium Sure Crisp French Fries. Value and new product innovation are central to Taco Bell's enhanced marketing campaigns, which are being supported by strong media investment in collaboration with Yum! We are also leveraging collaborations with popular Aussie brands, such as Vegemite with the Mighty G Taco, to introduce Taco Bell to new consumers. This collaboration achieved Taco Bell's highest ever reach and engagement on social media in Australia. Taco Bell's performance has been encouraging, and we continue to focus on brand awareness, engagement, and trial. I will now hand over to Andrew to provide an overview of Collins first half financial performance.
Thank you, Drew, and it's a pleasure to be here this morning or this afternoon, depending on where you are, and I look forward to meeting many of our shareholders over the coming days. Turning to Slide 15, which reconciles underlying and statutory profit and loss results. As Drew mentioned earlier, the group delivered growth in revenues, same-store sales, absolute earnings, margins, and cash flow in a market where conditions remain challenging. Group revenue grew 14.3% to $ 696.5 million, and underlying EBITDA from continuing operations of $ 109.9 million was up 16.7% on the prior year, with margins improving 32 basis points.
Underlying EBIT of $ 61.5 million was up 23.1% over the prior year, while underlying NPAT increased 28.7% over the same period to $ 31.2 million. Underlying basic earnings per share was also up on prior year, increasing 28.3% to $ 0.265 per share. On a statutory basis, net profit after tax for the half year was $ 50.5 million, with basic earnings per share of $ 0.43 per share, up from $ 0.094 in the prior year. The major reconciling items between underlying and statutory results are outlined on the slide as follows: $ 21.1 million of NPAT relating to discontinued operations and primarily reflecting the gain on the sale of Sizzler Asia.
Non-trading items amounting to $ 1.8 million, reflecting acquisition and refinancing costs, with write-backs of onerous leases and impairment charges offsetting each other, and $ 1.3 million of revenue classified as other income in the statutory accounts. So moving to Slide 16, the cash flow statement. The business remained highly cash generative in the half year, with net operating cash flow up $ 25.1 million on the prior year to $ 82.2 million, representing a significant lift, and these strong cash flows facilitated investment in new restaurants, remodels, in debt reduction, and dividend payments. Investing cash flows were a $ 6.6 million dollar outflow. Capital expenditure was $ 32.8 million, up 6% on the prior year, primarily reflecting investments in new and remodeled restaurants and in digital technology.
This investment was offset by $ 22.8 million of proceeds from the sale of Sizzler Asia. Financing cash flows were an outflow of $ 57.2 million. $ 22 million was applied to reduce debt, which will cushion the business to some extent from higher interest rates moving forward. $ 18.7 million was used to repay lease principals, and $ 16.4 million in dividends were paid to shareholders. Despite material debt reduction and dividend payments, net cash inflows were at $1 8.3 million, against an outflow of $ 4.8 million in the prior year. As Drew reported earlier, a fully franked interim dividend of $ 0.125 per share has been declared by the board, a slight increase on prior year, which reflects a strong half year result and balance sheet. Dividends will be fully franked.
Turning to the balance sheet on Slide 17, strong trading performance, cash generation, and the sale of Sizzler Asia all played a role in strengthening Collins Foods' balance sheet in the period. Cash balances increased to $ 98.1 million. Other current assets were $ 24.7 million lower due to $ 12.2 million of Sizzler Asia assets held for sale and $ 13.3 million of acquisition deposits being discharged. The remaining balance consists of working capital and tax assets. Property, plant, and equipment increased by $ 10.6 million on the prior period to $ 235.1 million, reflecting new restaurant builds and remodels and acquisitions in H2 financial year 2023, less depreciation.
Right-of-Use Assets of $ 469.3 million, and lease liabilities of $ 563.5 million, both rose on restaurant additions, as did other non-current assets, consisting mainly of movements in intangibles. A key balance sheet feature was the reduction in bank debt, which was $ 270.4 million at the period end, down $ 21.5 million on the prior corresponding period. Net debt was reduced to $ 173 million, with the net leverage ratio sitting at a very comfortable 1.12. The Collins Foods balance sheet remains strong as we head into the second half of the year. And with that, I'll now hand back to Drew to talk through the outlook for the second half of financial year 2024.
Good. Thank you, Andrew. Turning to slide 19 on the deck and our outlook for the second half. Sales continued to grow in the first six weeks of the second half, despite consumer pressures remaining challenging in both Australia and Europe. We continue to manage this business for the long term and are executing on our growth plans despite short-term headwinds. We continue to prioritize brand health by keeping value on the menu, harnessing the resilience of our world-class brands. In addition, margin support initiatives are in place for all three business units across energy, supply chain, and operations. KFC Australia same-store sales increased 2.9% for the first six weeks of the year, and we are on track to open another five to eight restaurants before year-end.
Given cost of living pressures for consumers, we will continue to prioritize value, digital expansion, and supercharge remodels to drive revenue. Procurement and operational efficiency initiatives will remain in place to help manage margin headwinds, and we continue to target FY 2024 EBITDA margins broadly neutral to prior year, with improvement from FY 2025 coming closer to historical levels. KFC Europe had same-store sales growth of 8.1% in the Netherlands and 8.6% in Germany in the first six weeks of the half, and we expect to open three new restaurants in coming months as we work to expand our long-term pipeline. We are continuing to focus on everyday value and digital innovation to support sales in the region.
Margins will continue to be impacted by a higher cost environment, including a 9.5% minimum wage increase coming into effect from the first of January in the Netherlands. There were a range of initiatives, and supply chain, energy, and operations should help to offset some of that pressure. We also continue to monitor the European landscape for additional M&A opportunities, as well as potential new geographies. Taco Bell Australia has maintained sales momentum so far in the second half, with same-store sales growth of 8.7% in the first six weeks. It should be noted that we are about to cycle the Uber Eats launch this time last year, which will impact the same-store sales result in the second half. However, sales will continue to benefit from product quality, digital, and marketing initiatives.
We do expect margin pressure for Taco Bell in the same areas as the other business units, although we remain on track for profitability at restaurant level. As we have previously communicated, restaurant development is currently paused. However, we are encouraged by recent results and will continue to review our development plans over the coming second half. Moving to slide 21. Lastly, a reminder that Collins Foods, as ever, is well positioned to navigate challenging market conditions, operating world-class brands within the remarkably resilient QSR sector. We have a proven track record of performance, a strong balance sheet, and deep operational capability to deliver our long-term plans. We remain confident that our best days are ahead of us and appreciate the support of all of our shareholders along the way. That concludes the presentation. I'm happy now to open up 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 speakerphone, please pick up the handset to ask your question. Your first question comes from Tim Plumbe from UBS. Please go ahead.
Hi, guys. Just two questions from me, and I'll jump back into the queue. Drew, the first question, if that's all right, just around the KFC Europe operations. At the FY 2023 result, you were guiding to minimal margin contraction. Obviously, the first half margins were quite strong. Then my tracking suggests some pretty material pricing increases have been implemented in both August and September in the Netherlands. I was hoping you might be able to confirm those pricing increases. And then, given the price increases, the wage headwinds, and the margin performance in the first half, how are you thinking about European EBITDA margins in the second half of 2024, please?
Yeah, look, I'd say very similar to the way we think about the brand and broad strokes. Some menu pricing, Tim, is certainly unavoidable, you know, in any of the markets. We've tried to maintain the same strategy of keeping affordability strong. But in that environment, certainly where cost input pressures have been even more acute than in Australia, you know, some menu pricing has been necessary. We will continue to keep a very close eye on that. We do expect that some of the supply chain pressures and COGS pressures should certainly begin to ease, which will help. But we also called out, you know, the 9.5% increase in the minimum wage in Europe, in Netherlands at the beginning of the year.
So look, you know, we're gonna continue to stay close to the consumer and be consumer-driven in Europe. You know, broadly speaking, you can see some of that pressure is still there, and it's going to continue to be acute. And we always like to think of menu pricing as our last resort option. What was your second question, Tim? I'm sorry.
Yeah, sure. So the second question is around debt, so maybe a question for Andrew. You paid down some debt. Looks like the bank interest was quite a bit lower than my expectations and kind of the guidance that Nigel had talked to at the FY 2023 results. Can you maybe talk to, you know, the hedging that's in place at the moment? How should we think about bank interest expense for FY 2024, and then also the ramp up as that fixed hedging starts to come off?
Yeah. So our hedges run for another 11 or 12 months. So we've got that in place till now for that period of time. So but as they roll off, obviously, we'll be exposed to the market. So, you know, the interest costs will increase really pending where we're at with cash flows. So, you know, we are focusing very much on maintaining debt at a level that allows us to cushion interest in the overall and its impact in the P&L.
Got you. So, I mean, is it fair to kind of just double the first half bank interest expense?
I'll have to take that on notice. So probably have to do a little bit more work on the cash flows as well, in terms of our projections, Tim, but I'll take that on notice.
Understood. Thanks, guys.
Thanks, Tim.
Thank you. Your next question comes from James Ferrier from Wilsons Advisory. Please go ahead.
Good morning, Drew and Andrew. Thanks for your time, and Andrew, welcome to the business. First question is around the KFC Australia EBITDA margin. So it's a pretty impressive result there in the first half, certainly sequentially relative to second half 2023, and notwithstanding some of the typical first half, second half seasonality that you do see, it was a strong result. So, just mindful, Drew, that the guidance for FY 2024 margins hasn't changed. So what is it in the Australian market that you're anticipating that might see margins regress in second half of 2024?
Sure. Thanks, James. Always good to hear from you. Yeah, so the question on margins, yeah, look, we were pleased, certainly with the first half result. I think as we look forward, there's probably a few dynamics to call out. One is energy prices. So we are rolling off of some favorable pricing on electricity at the end of this year. We're happy with the new contracts, but there's certainly an increase given that we had a multiyear very favorable rate for our restaurants primarily in Queensland.
The other thing I think that is our call out and our caution is, you know, same store sales, as we've seen, you know, certainly, is something we want to keep a very close eye on, you know, 2.9% so far, just out of the gate. And I think with the consumer under the pressure that they are, I think it's probable we might have to, you know, continue to be even more aggressive in terms of value offers in the market to make sure that, you know, we're keeping transactions at a healthy level. So I think those are two dynamics that we'd probably call out. Labor pressures, I think you're aware of, you know, is tended to be what it's been. The next increase would probably be sort of mid-next year.
But I think energy and certainly the need for value in a tough consumer environment, James, are probably the two of the big ones I would point to.
Yeah, okay, that makes sense. That's probably a nice segue into my second question then. You sort of touched on the same-store sales growth there for KFC Australia, just that it's probably moderated about 5 percentage points since June. And obviously, menu prices have done what they've done. So just some color, if you could help us here around what's driving that slowdown. Is it competitive intensity? Are there some, you know, effectiveness of KFC promotional schedule type issues, or have they been great? Is it just a tightening in the underlying consumer environment? Any extra color you could give us on what you're observing around that slowdown in the growth?
Yeah, thanks. It's look, a few thoughts. We're certainly pleased with the overall results for the half. As you sort of point out, the increase is indeed largely coming from ticket and a greater proportion of e-commerce sales. It's clear coming into the fourth quarter of the calendar year that the consumer is under enormous pressure. You know, so overall, it signals that a value, the value and affordability are more critical now than ever, and KFC has a strong proposition in the category in those dimensions. So it is a good place to be in a challenging environment.
As you'd note, and I think it's fair to point out, you know, transactions overall are broadly flat for Collins, but on a same-store basis, transactions have been slightly down, you know, in the first half and for this recent six-week period. Though we do believe that to be consistent with the category. We're also lapping strong tourism levels in the prior year, following the borders reopening post-COVID. That may play into the numbers a little bit. But overall, our numbers have shown KFC continuing to either hold or increase share, which we think is a positive.
So we've been pleased in recent weeks to the consumer response to some additional value offers we've put out, and we do believe that those types of efforts are going to be very important, you know, in the next six to 12 months or more.
Great. Thank you, Drew. Thanks, Suzanne.
Thanks, James.
Thank you. Your next question comes from Ross Curran from Macquarie. Please go ahead.
Good day, team. Can I just ask a question? You talked about in Germany the master franchise that you're partnering with there, and you yourselves have a master franchise in place in the Netherlands. In your discussions with Yum! Are they warming to the concept of country-level master franchises, and is that something that potentially is an option for Australia?
So there are now, you've pointed out the master franchise in Germany, which is broadly similar to the corporate franchise agreement on our CFA, as which we have in Netherlands. Yum! the franchisor has now done three of these in Europe. So there's one in Italy, there's one in Netherlands, and now there's one in Germany. So I think it's fair to say that, you know, Yum! has certainly done a number of those structures and, you know, is certainly keeping an eye on whether that arrangement may be a good way to go forward in Europe. I'd say in Australia, that's really not been something under any kind of active discussion. Yum! Australia is one of the five equity markets for Yum!, where they maintain an equity presence.
They have strong capability and strong support for the brand here, so we don't anticipate any dramatic changes to that structure in Australia on the horizon.
Thanks. While we're talking about Yum!, can you just help us understand what capabilities they've brought to Australia to help with Taco Bell, and how long that's expected to run for?
Yeah. So, it's been certainly one of the areas that we've been really pleased with the partnership and, the way they've responded to some of the challenges we've had in the brand. So, the Chief Marketing Officer for Taco Bell, by the name of Andrew Howie, he's Australian. He, he's been fantastic, and he's been in place for, I guess, just over a year and has done a really good job of bringing some fresh thinking to the brand. So Taco Bell has been supporting his, you know, him being in the market. They've added some additional marketing capability, and they've also supported out of Irvine, California, which is our headquarters, with expertise in, product quality, supply chain, et cetera.
So those would be, some of the resources we'd call out, and I think it's really helped to just bring, you know, some real, some real, clarity and some real forward direction to the brand. And the last thing I'd point out is they have a, a global marketing agency that's under their, under their structure, which is called Collider. And they funded, fully funded a, a very deep consumer research project over the last, six months, which really helped us, I think, in terms of positioning the brand and thinking about the brand from a consumer perspective. So that'll give you a flavor for the type of support and investment that they've put so far, and we do expect that, support to continue as we move forward.
Thanks very much.
Thanks, Ross.
Thank you. Your next question comes from Ben Gilbert from Jarden Group. Please go ahead.
Good afternoon, team. Just the first question from me, and so I know you had a question on this already, Drew, but just on the margin in Australia, for the last couple of results, you've sort of continued to surprise on the upside, for margin. And historically, there hasn't been a lot of seasonality aside from last year for margin in Australia. And appreciate comments around energy, but I think energy is what, a few percent, and then Queensland, obviously, a smaller portion of sales. So I think, are you just trying to sort of be cautious in your comments around margin?
Because to get to flat, it implies a decline year-on-year into the second half, and given pricing, given the benefits you're getting around kiosk, you're obviously starting to cycle through the rates, which I would have thought it's gonna be modestly dulling to margin. I would have thought you've probably got a few tailwinds in the second half as you, as you work through some of those initiatives.
Yeah, but, look, yeah, I appreciate the question, Ben. Look, we take margins, you know, quite seriously within Collins, and we try to maintain a pretty consistent track record in that regard. It is fair to say that while you look at commodities and a lot, a lot of them are off their peaks, there are quite a few that are still high by historical standards, right? So even when you think about areas like chicken, you know, most of our contracts, at this point, are kind of locked in for the next year or two, but you're still in the short term. You know, you're still in a lot of the inputs are still under short-term pressure. You think about some of the...
While you're seeing some relief in areas like canola, and I think we've called out before as being, you know, an area that we see actually seeing price decrease, you also see areas in the P&L, like, French fries, where the global potato market is still under enormous pressure, and we think that there's gonna be continuing headwinds in that regard. So we're certainly not out of the woods from a supply chain perspective. We are seeing relief in certain areas, but we are still seeing pressure in a number of other areas. So are we being cautious? I mean, to some degree, yes, but we also need to make sure that we're keeping very focused on the consumer and that, transactions for us on brand health is always our number one priority.
That's the area that I think we need to, as we go into the second half, is gonna be where our primary efforts lie.
Thanks for that. You talked about, I think, the work you've done largely around some of the brand research and put some good stats in the deck around perception. In terms of your value perception in market, has that been a function, do you think, of just around how you position the menu? Or do you think you've increased prices at a slower rate than your peer group? And I suppose, is that where you're really focused on not pushing price too much again in the next sort of three, six, nine months to close that gap on peers? Or just how do you think about the pricing as well?
Yeah, look, I give Yum! a lot of credit. And remember, you know, the marketing is done out of Sydney for KFC and the team there, you know, Christine and Tami, the new CMO for Yum!, has done a remarkable job on some very broad thinking about the brand. Look, I don't think we've seen the consumer under this much pressure in Australia for quite some time. You know, given you know everything from interest rate increases to energy price increases to you know just an extraordinary level of low consumer confidence. So, you know, our ability to maintain affordability has always been the you know the most critical for us, and those metrics continue to stay strong, which we think is good.
So overall, there's different ways to approach value, from entry-level value to affordable value, and there's a very sophisticated, nuanced approach to the way we think about willingness to pay from our customers in Australia. So that will absolutely continue to be our focus for the second half, and I think Yum!'s done a good job on that so far. But it is certainly an area that, you know, we recognize the sensitivity on, and menu pricing for us as always tends to be the last resort, in terms of the way we maintain margin.
Then the only thing that-
I'm sorry. The only thing I'd add to that is, I think Drew took you through some of the issues impacting product costs, but clearly labor inflation remains elevated in all markets, but including Australia. So that remains a feature, and that, you know, continues to put a little bit of pressure on margins.
And just one more from me, just on Europe and Germany with the new master franchise there. As I understand, you've got some pretty aggressive ambitions around stores. To what extent, I think, have you guys been sort of participating and engaging with them? And again, I understand, like, sort of concentration with their sub-franchisees. Does that position you, and what's the appetite to accelerate your rollout plans in Germany?
Yeah, look, I, I was up in Europe, just a few weeks ago and met with, İlkem Şahin. He's the new master franchisee, for Germany, and he's out of Turkey. The company's called IS Holdings. And look, you know, he's a, he's a dynamic, ambitious guy, and they certainly have big growth ambitions for, for Germany. So look, overall, we think it's good news for the market. You know, one of the biggest challenges in Germany over the past few decades has just been a lack of scale, and if we can work together with somebody who's willing to, you know, invest, you know, deeply in that market, I think it's a good thing for us.
So there's still some questions, I think, to be answered and still some, you know, sort of territorial and regional structures that we wanna make sure we have clarity on, specifically the role we play. But overall, we're encouraged, and we think that, you know, Germany is gonna be a good market for us, and a rising tide lifts all boats, so I think additional scale for the brand, in whatever form, can only be a good thing.
Fantastic. Thanks, guys.
Thank you.
Thank you. The next question comes from Peter Marks from Barrenjoey. Please go ahead.
Well, morning, guys. Just a quick follow-up on Europe there. I noticed you talking about the potential for new acquisitions, or I guess, acquisitions into new markets as well as Netherlands and Germany. Can you just talk us through your high-level thinking there, like what you're looking for in terms of new markets? And I guess the size of the potential acquisition that you might do. Is it gonna be pretty incremental, or could you put a big chunk of capital to work in a new market over there?
Yeah, look, I think it's one that, you know, we've got a good relationship with Yum!, and we continue to keep an eye on the landscape. I will say, as Collins, you know, we're not flag planters, where we need to be in a dozen different countries at the same time. We wanna be quite intentional if we're gonna consider new geographies, and that will continue to be the case. Most of the M&As at this stage, I think it's fair to say, would broadly be incremental in nature. But, you know, geographies, given the challenge that we've had in Netherlands, and I think we called out in the deck that, you know, the energy grid is a continuing challenge in Netherlands and has made it harder for us to build new stores.
And that's something we, you know, obviously see as a, as a headwind for our development in Netherlands. So the importance of, you know, ensuring that we've got adequate room to grow organically is, is definitely our number one priority. So we are very bullish on, on Europe. We're gonna be quite intentional in the way we think about geographic opportunities. But if there's M&As that suit us and we think we can pick up along the way that support our strategy, we'll certainly be open to doing so.
Great, that makes sense. And then maybe just coming back to Australia, one of the things Yum!'s talking about in its quarterly results is the growth in kiosk sales in Australia. Could you just talk us through where you're up to in terms of rolling those digital kiosks out across your restaurants? Be interested in, like, how you think about the incrementality of those sales and the cost savings that you're getting from those kiosks. And I also noticed, like, the Netherlands business, the digital sales are well ahead of Australia. So do you think, like, Australia is heading towards that level of digitalization?
Yeah, it's a great question. Kiosks are certainly quite top of mind. When it comes to Australia, we have kiosks in about a quarter of our restaurants, so just over 60 of our restaurants have kiosks today. We have been expanding that. We have a very rigorous process when it comes to capital allocation. And what we've typically seen to be true in the past in Australia is that you will tend to see a higher ticket out of kiosks. But what we've noticed is also that often you see a corresponding decrease in transactions that are going through the front counter that sort of offsets it. So we've been keeping a close eye on that, and I think more recently we've seen encouraging results on net ticket through the overall front counter channel, so or dine-in channel.
So I think we're relooking at the numbers on that and seeing if it supports a more aggressive rollout for kiosks. So that's something right now that is under active consideration. We're certainly speaking a lot with Yum, but overall, we think it's a good channel for consumers. You know, the more digital channels and the more the consumer can gravitate towards the channels that they feel most comfortable ordering in, we think the better for the brand and the experience. So that's for us, you know, certainly under active consideration.
Right. Thanks a lot.
Thanks.
Thank you. Your next question comes from Alexander Mees from Morgans . Please go ahead.
Thanks so much, hi, Drew, Andrew. Just on comments you made around the challenging cost of living pressures in your outlook comments around KFC Australia. I'm just wondering, given your value credentials and where you sit in the market, do you see that as a help or a hindrance?
Sorry, Alex, I missed that. Can you-- the, is what a help or a hindrance?
The fact that we're expected to see challenging consumer conditions in Australia.
Oh, excuse me. Yeah, sorry. Look, it, it's a bit of both. So certainly we do believe the category benefits from some trade down. It's hard to put a number on that. I don't have any data I could share with you in terms of the scale and quantum of the trade down. Nonetheless, you also need to consider that there are a fair chunk of our consumers, you know, largely blue collar in nature, that may simply decrease frequency or drop out of going out altogether. So you do see different shifts within consumer behavior. Some benefit, some, you know, some don't benefit at the bottom end.
Nonetheless, overall, I think it's fair to say that, you know, the category itself is attractive from a value standpoint, but it's certainly not immune to some severe pressures that a consumer's under right now. You know, we've seen consumers have spent down a lot of their savings from COVID. We recognize that was gonna be the case this year. We do think that is impacting their ability to dine out. And regardless of affordability, you know, some of those consumers just may opt not to dine out at all. So those are the dynamics we keep an eye on. It doesn't change our strategy in terms of accessibility, affordability for the consumer and providing great taste. But it is something that, you know, we see as more acute in terms of pressure than we've seen in quite some time.
Thanks, Drew, and one for Andrew. Just wondering if you can quantify the effect of FX movements on the income statement?
We haven't had material foreign exchange impacts on the income statement in the period, so, so relatively neutral.
Great, thank you. As that was a quick answer, maybe one more. Just, with regard to Taco Bell, you referred to reviewing the development pause during the current half. I'm just wondering what you need to see to be confident that you want to resume development?
So we certainly would want to see a continuation of some of the trends that we've seen. So we, we do think that on the back of the Collider research, that, again, working with Yum, we've gotten a number of things right or improved for the brand that has enhanced the consumer proposition, and that, we think, has supported, you know, the numbers that we, we shared in the deck. From a development perspective, you know, look, we just impaired the entire Taco Bell network on the full year. So I think it's fair to say we want to be, you know, certainly very thoughtful around putting new capital into the brand. But we are encouraged.
You know, we have a close eye on Melbourne and just Victoria more broadly, as a market that's been performing well, especially from a freestanding drive-thru perspective. If we feel like the sales volumes that we're seeing and the margins that we're seeing would support a business case for investment, we would certainly actively consider it. So that's where we are on the brand right now. Ultimately, we do believe scale is necessary to really bring the brand to its full potential, and we'd like to do that as soon as we think it's financially sensible to do so. So that's behind our thinking right now.
Thanks, Drew. Well done on a great result.
Yeah. Thanks so much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Mitchell Hawker from Bank of America. Please go ahead.
Hi, guys. Just wondering if you could talk to the initiative you have around cost. You talked to supply chain, energy, and operations. I was wondering if you could provide some color there and just the magnitude of savings that you're expecting to see. Thanks.
And the question is around Australia, Mitchell, is that correct?
Yes, Australia.
Yeah. So look, it's when it comes to supply chain, I don't think we've left any stone unturned. You know, certainly there's been, as we called out a bit earlier, some positive movement in areas like canola, which is certainly, you know, one of the leading items in our SKUs in our supply chain. But we've gotten to an incredible level of granularity, and again, I give Yum credit for this as we're on the supply council. But the job Michael Clark and his team have done, I think, has been exemplary.
To give you, I guess, a bit of color, as you've asked for, you know, one of the initiatives, to give you a sense of the detail that we get into, was around the stickers that we put on our delivery bags. You know, it doesn't sound like a big item, but there was some reasonable, you know, chunk of savings that came out of that from just shifting, you know, and retendering delivery stickers, that at the same time allowed us, will allow us to actually put handles on the bag, which is a consumer convenience win. So that's the way we think about this brand, that we don't want to get so aggressive on just looking for cost savings, that we compromise on quality and customer experience.
And in areas like that, where we can do both, we'll certainly take the win. So look, overall, you know, the COGS for KFC is, you know, obviously the big categories in areas like chicken and chips and oil, you know, have varying degrees of pressure on it. But, you know, certainly having a fourth chicken supplier in the network for KFC has been a good thing. Golden Cockerel, they're a Queensland-based supplier. We've been extremely impressed with their performance so far. It's close to home for us, which we think is a good thing, and it should just bring, you know, additional capacity to the supply chain, which we think can help, you know, in the longer term.
So look, net-net, there's not a lot of categories outside of canola that I could point to you and say we're seeing dramatic decreases in. There are still so significant headwinds in multiple areas, but anything that we can do without compromising on customer experience, as in some of the areas I mentioned, are gonna be the ones that we're gonna continue to go after.
Great, thank you. Just a follow-up question on the new KFC app and digital platform, the menu platform. How does that differ to what's currently in place, and what kind of benefits are you expecting to see from it?
So, yeah, it's a different menu provider. Typically, KFC has done a lot of work with Cognizant globally. You know, Netherlands is a relatively small market, and we had an app. It was doing okay. It was just we found there was a lot of friction and a lot of failures from a consumer perspective. So, you know, we went and we discussed that with Yum, and have pioneered work with a bit of a white label vendor in Europe called Menu, and we've been pretty pleased with the performance so far.
It's been only in recent months that we've launched it, but it's a more stable platform, and nothing's worse in that space than a customer that's ordering, and the order doesn't go through, or God forbid, you know, they, their money goes through and the order doesn't. So this platform has been much more encouraging, and we think it's a good grounding for more work that we can do, similar to Australia, in space, like personalization of offers, a more seamless experience for the customer. So that's the platform. Again, early days, but encouraging results so far.
Great. Thank you.
Thank you. You have a follow-up question from James Ferrier from Wilsons Advisory. Please go ahead.
Thanks, Drew. I wasn't sure if we'd have time for this, but the store openings in Europe looks like it's tracking just a little behind the previous target, and just conscious of what impact that has, if any, on how Collins is performing relative to the CFA targets and expectations from Yum?
Yeah, it's a great question, James. So this has been an area, you know, when we think about Europe, expanding our development capability has been our biggest priority. So we've, you know, greatly increased the capacity of that team. We have, I think, 15 people now on the development team, up from about three or five a year or two ago. It does take time to build pipeline in Netherlands, and as we shared a little bit earlier, the energy grid challenges that we face in Netherlands has really come into play in the last 12 months and has made expanding our pipeline more challenging. Not impossible, but more challenging.
So I'd say it's, you know, for the target for this year in the CFA, the development target that is, we're likely to come a bit short of the full number, reached by December. The full stores will still open in the next couple of months, so it won't necessarily impact our long-term development targets, but it will likely impact the incentive that we receive for 2023. I just wanted to call that out. Overall, however, you know, we do think that in partnership with Yum and with a lot of support that we're putting into the market, we believe that our long-term development commitments in Netherlands are still quite achievable.
Thanks, Drew. And maybe one for Andrew. The AASB 16 impact on NPAT, relative to where it's been in the last few results, shrunk quite significantly in this first half of 2024 period. Any color you could give us on what the delta is gonna look like going forward from here?
Yeah, the delta between pre and post tends to depend on the tenure of the leases that apply and how they impact the P&L. I think it's fair to say, just after the time I've been in the business, it's hard for me to predict that moving forward at this stage. I could probably add a bit more color once I've had a look at the lease book. But it does tend to be impacted by tenure, so that's probably the major issue that impacts the movements between pre and post AASB 16. So again, I'll take your question on notice and have a look at that moving forward.
Yeah, and James, just you know, because you and I have talked about that before, it's so important for us that our investors do understand our financial results, which is why we have made pre available for now in the appendix. You know, it's certainly becoming more stable in terms of the deltas that we see year-on-year. And I think as long as that continues to be the case, you know, that bodes well for post, which is where the market has gone. But we do wanna make sure that investors are clear on the results and what's underlying it. So, that's probably the most critical thing for us.
Yep, understood. Thanks, Drew. Thanks, Andrew.
Thanks, James.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.