Good morning, and welcome to the Domino's Pizza Enterprises Full Year 2024 Financial Results. I can see the attendees are now inside of the meeting, and so we will get started. My name is Nathan Scholz. I'm the Head of Investor Relations and Communications. Joining us on the call today, our Group CEO, Managing Director, Mr. Don Meij, our Group CFO, Richard Coney, our CEO of Europe, André ten Wolde, our CEO of Asia, Josh Kilimnik. And I'm also very delighted to welcome other guests from overseas, our CEO of France, Joël Tissier, who's dialing in very early hours for us, Martin Steenks, our CEO of Japan, who is joining us in Australia on the roadshow at this time, and a very warm welcome to our new ANZ CEO, Kerri Hayman.
So I'm sure everyone will get the opportunity to ask your questions today. So with that, I'm going to hand over to our Group CEO, Managing Director, Mr. Don Meij.
Thank you, Nathan, and thank you for everybody who's made this call today. I'm gonna start on slide three of the investor presentation, and, hopefully, for all of you who have seen our videos online or attended an Investor Day, that this is not a new slide to you, and it's actually a slide that we start in really every important meeting within inside DPE, and this is our strategy slide. We make it clear inside our business that we're our mission is to be the dominant sustainable delivery QSR in every market, and how we define that is that we're not in the restaurant business, we're not in the drive-through business.
We're clearly our meals are consumed at home, and so whether it's the more premium service, where we deliver your order, or in the odd occasion, it could even be a third-party delivery, or whether the customer chooses to be the driver, we're really obsessed about the food and the way that it performs when it makes it to your home. So the strategy is that in all cases, the meals are designed to be delivered, that we're very focused on sustainability improvements as we reinvent our products and reinvent our stores, and that there's also a Domino's X Factor, the pizzaness that we can attribute and differentiate back to these meals as they make it into our consumers' homes or offices. We measure our operational performance under the value equation that we've had now for multi-decades.
For us, value is the product, the service, and the image that we offer the customer, divided by the price, and one of the two ways that we can define that most consistently is our delivery times. We know that there's a magic point at around eighteen minutes, where, you know, when we get below that, the investment is, there's really not as much gain, and as you draw away from that, then it can be, you know, less attractive to customers. And we're obsessed with 4.5 product, that anything as you venture over a four star, as rated by our customers inside our app and web, it all relates, and that product is the highest weighting to driving a Net P romoter Score.
We also talk a lot, and you'll see this in his presentations today, in the markets that are getting significant growth right now, is that it's coming from segmentation growth. You know, this is a business that largely with the dinner multi pizza or multi-side meal occasion with families and team sport and so on. But you're gonna see that we've been very focused on other day parts and getting some great traction, and then it's all delivered by the 120,000 team members in this business, that there's a path to success. You start as a team member, you grow your way through this business. You may become a store manager, a franchise partner, or even an executive in this company, that we have a pathway, and it's the great people of this business that drive it on it every day.
In fact, on this call, there's about 180 years of Domino's experience. If you come with me again to the next slide. So the key outcomes from the last financial year, we saw our Europe EBIT up AUD 17.9 million and 80 basis points. A larger influence, when we exited the Danish market, where the Australian and New Zealand business have a record profit year, up AUD 11.7 million, an EBIT level, up 20 basis points of margin, and our Asian business was actually down AUD 17.3 million, which reduced our margins by 150 basis points.
If I specifically talk to the elements, you know, we've projected all through the year and communicated through the year, the success of the Australian and New Zealand business, having its best same store sales in seven years, the strength of the German business, and more recently, in the last quarter, the strength of the Benelux business as it had rolled through significant wage inflations and coming out positively at the other end of that, and quite successful, and little old Singapore, we also highlight, be it, it's not a big contributor, but it's been a stellar performer in our business.
Our underperforming businesses, this last financial year, were France and largely Japan, and that slices through the numbers here, and today you're gonna hear from the CEOs, who are gonna share their plans and how that's going to change in this financial year. Our franchise partner profitability grew 6.7%. You know, this is the turnaround in our business in this last year. Very, very focused on unit economics, and we're gonna talk a lot about that today, and a lot of that growth came in the last quarter. We're able to deliver some restructuring program costs of AUD 50 million. We put 1/3 of those back, or a little bit over 1/3 of those back to our franchise partners.
Some of those savings also appear in marketing, or in our IT, capitalizable savings, which means not all of it may, the remaining 2/3 make it through to the bottom line, but a portion of it does. We're really happy with the fact that we were able to produce so much cash this year and deleverage the business to 2.35 times. I know there's been all sorts of noise in the market about capital raising. I think that's very clear. That is not the case, and we're gonna continue to make great progress against that this year, and our EBIT was up 3%.
By and large, our focus has been on driving unit economics, because that's what's gonna lead to the strength and growth, and those that are driving unit economics are going back to growth in this financial year. Nathan, next slide. You know, one of the things that we talk about our business is that we're a common platform business. That is, that we have the next Generation One Digital in almost every market in the world, and behind that, there are a number of tools that we can aggregate to apply to all businesses with a local nuance. Today, we work with many global media platforms with our global digital platform, and what we did this year is that we restructured our business to put some of our best and brightest into our Centers of Expertise.
And you see some of those results on this slide, on slide five, where you see our online sales were up 7.5%, where our digital team outperformed in many parts of our digital platform, and we expect strength in this area to continue into the coming year. Also, you know, delivered network sales up 4.6%, and the underlying impact was AUD 120 million. If you come with me onto slide six, this is where we highlight our restructuring savings for the year. You know, we set out this year to make the business more efficient, to benefit from our global scale, and as I mentioned, you know, leverage centers of expertise, but make sure we're still applying the brand at a local level.
Product and the brand imagery, our store development programs, and working with our franchisees is all at a local level. You can see here we came in on the lower end of our restructuring program. There was some delays in optimizing our network. It took us a little longer in parts of our business with government legislation, as it did also, with some of the restructuring of our overhead. It just took us longer, largely in Europe, as we worked through legislation in those markets. But we're still, you know, proud that we delivered AUD 50 million savings to business. We're forecasting that we're gonna deliver another AUD 30 million into the network.
Once again, I want to highlight that, you know, not all of that makes it through to our shareholder bottom line, in that some of that goes, 1/3 of that, to our franchise partners, some of that goes into our advertising savings, and then also into the capitalization of our software development costs, and so on, but yeah, we are expecting to deliver another AUD 30 million this year. There will be some headwinds of inflation in our support offices, including this year, we expect to achieve our numbers, and therefore, deliver those, the cost of the business of LTI and STI that weren't paid in the past year.
Yeah, as I said, you know, we've really been investing in our franchise partners and making sure that many of those savings make it both through to themselves, but also into our advertising. I talk a lot about how much our media spend is increasing in this financial year, not because it's a higher cost base, but to our business, but it's just, as we'll talk about, how we're being more efficient in passing our savings through into this area. If you come with me onto slide seven, it highlights our franchise partner profitability. You can see that we grew in this half. We began the journey on our way to 130,000 , which is ultimately where we accelerate this business.
We're delivering with inspired new products that have higher margins, only available at Domino's, creating new segment growth, things like the My Domino's Box, Melts, the Cheese Volcano. You know, these products are not discounted products. They're launched at a price, they've got great margin, and they're gaining new customers, as well as delivering stronger profitability. We've improved our pricing on an everyday basis, and we've also been getting great growth inside the aggregators, and I'm gonna talk specifically about that in more detail to come. Slide eight is a really significant slide. If we're quite honest and clear with ourselves, we didn't handle the first phase of inflation very well. It was quite stunning how significant it was in various parts of our business.
The model of just simply endlessly putting up price without necessarily giving the consumer any benefit in some of our businesses, you know, was not a winning strategy. We also had to rebuild some of our our expertise in the business, for example, our product innovation. You know, for a decade of digital innovation and through the two years of COVID, we had lost a lot of the talent and the skill in our business to rebuild our product innovation. That's a skill that we've regained in the last year, and you're gonna see the benefits of it this year, and you're already seeing the benefits in some of the thriving businesses.
We also, you know, this is a year where we've hopefully, we can illustrate that we are not victims to inflation, but we can take control. We have levers that we can control, and that's all about levers that drive sales with inspired new products, new segmentation, whether it's about going and deeper into the marketplace of aggregators, which are the largest delivery platforms, and that's where we, you know, want to dominate. Our optimization of our media spend, now that's working with getting proper attribution partners, so that we're really focused on the real ROI and backing the proper attribution to customer growth. And then, of course, everyday value, making sure that we have consistent always-on value for our customers, especially through our technology platforms, where we still want to dominate most of our transactions.
And then we are in control of our costs. That through inspired products, we're delivering better margins, that we've actually got smarter scheduling systems that we've been delivering in the last financial year, and we'll continue to deliver over the next two years. One of them includes the new live labor tracking, which is performing really well in Australia, New Zealand, and the Benelux region, and we'll continue to expand for the rest of the business. And then we also want to unlock a smart scheduling system over the next 12 months - 24 months as well throughout our business, once again, to improve our efficiencies and help our store managers execute better. We're also unlocking third-party delivery models, and I'm gonna go into more details on the next slide, and then passing through savings also to our franchise partners.
When we put those against also a store build cost, which over the last two years, coming out of COVID, we've worked really hard to make sure that there's been very little growth in those build costs. Why? Well, we were building stores pre-COVID of 100 sq m-150 sq m . Today, also motivated by ESG and efficiency, we're largely 70 sq m-100 sq m . We're targeting, you know, we're opening brand new stores as we speak, that have 70 sq m, 71 sq m, 72 sq m. We reviewed our equipment packages, and we've also been able to be more efficient over the last couple of years.
That, you know, because we're just refitting out a rectangle in a small strip shopping center, you know, equipment is a large part of the cost of the store, and we've actually been able to, you know, beat inflation in our equipment packages. So smaller footprint stores, driving up the efficiency of the operating cost of those stores, plus the build cost of those stores, and then, you know, driving sales and lowering costs. We think we've got a really good plan that we're gonna deliver over the next 12 months - 24 months.... If you come specifically at the last half, and we talk about our trading performance, the Australian, New Zealand business, we talked at the beginning of this year would be a petri dish.
I came back in and double-hatted for a little while just to get involved, to look at all the plumbing in the network with our COEs and how we were delivering the new structure. I'm really happy to be able to hand over the reins to Kerri now in the ANZ business, so that I can get back out and make sure that the progress and learning throughout the business is being applied, using the global centers of expertise, but you know, allowing the local management to thrive and use those tools. In the Japanese business, the same-store sales were negative, but we were pleasing in the second half with our customer counts were up.
The Malaysia business, we're rolling with, you know, some geopolitical events that will roll by October, so that's still going to have a drag on our same-store sales, and that particular market's earning on a like-for-like basis in the first quarter. All of Singapore has been a star performer, and it's the things that we did in Singapore, we also did in Malaysia, that has delivered a better than expected result, at least from an earnings point of view, than might possibly have happened with the deleveraging of sales in the Malaysian business.
You know, that team has done an exceptional job of implementing our new technologies, going to back of house, both in back of house dough, back of house vegetables, less deliveries to store, all of this improving also our ESG footprint and delivering better margins at a store level. Over in Europe, our same-store sales in the second half were flat. Germany was positive, delivering with delivery and carryout, but that was offset by France, and the Benelux came through in the final quarter, but there it was largely through ticket, as we, you know, consumed some significant two levels of wage inflation in that business. But really impressed with how André and Misja and Anke and the team have delivered there in the Benelux.
If I come out now onto slide 10 and just talk about the trading update. In the first seven weeks, we were - 1.3%, rolling a + 2.8% for last year. You know, there is obviously a significant drag there from Malaysia, which we'll be rolling that through. But what we wanna highlight is, it's seven weeks, and there was some bumpiness in that first seven weeks last year. We had the fantastic performance from the Matildas, which gave us record sales in the ANZ business on separate days, which we've rolled through. In Germany, we had the best promotion in the history of that business with Doner Kebab, and it was really an exceptional performance.
From an Asian business, we're still rolling. We still have negative same-store sales, largely from Malaysia and Japan, but on the other side of it, we have strong performance in Singapore and Taiwan, and we are starting to see customer count growth performance out of Japanese business. At this point in time, I'm going to hand it over to Richard Coney to talk to our group's financials. Thank you.
Thank you, Don. As you can see on this slide, our revenue is up 2%, consistent with our network sales growth. EBIT is up 3% versus last year, which in constant currency is up 2.2%. Also, you can see our interest costs are up 56% or AUD 12.6 million, predominantly due to central bank rate increases in Europe and ANZ impacting our debt funding costs. Important to note, we are seeing... We have seen these rates stabilize in the second half. Moving to slide 13, Nathan. As you can see, ANZ and Europe are up 10.4% and 33.8%, partially offset by Asia, which is down 28.7% versus last year.
Margin improvements in ANZ is predominantly due to a significant improvement in our corporate store performance in the second half, which is a combination of refranchising lower performing corporate stores and improved food and labor management. Europe margins have improved by 2.2%, largely due to store closures from the restructure, including the Denmark market closure. Moving to slide 14, Nathan. This slide provides a summary of the non-recurring costs, totaling AUD 44.2 million, with store closures and write-downs of AUD 29.6 million, and employee-related costs associated with the restructure and move to shared services of AUD 23.1 million. Worth noting now, both our Malaysia and Poland centers are now stood up and operational, with Poland coming on in recent months.
In addition, we had an earn-out release relating to the acquisition of Malaysia, Singapore, and Cambodia of AUD 18.8 million. Next slide, Nate. Now moving to group free cash flow. Free cash flow, excluding acquisitions, has improved by AUD 65.4 million, and a whopping AUD 390.6 million after acquisitions. With significant reductions in net CapEx of AUD 96.8 million, and tax paid of AUD 54.7 million, which has been partially offset by an increasing non-recurring payments of AUD 21.4 million from the restructure, and working capital movement of AUD 46.1 million, noting we are rolling over a reduction in working capital of AUD 36.5 million in the prior period. Next slide, Nate.
A key highlight from this slide is that our CapEx, which recycles, is almost neutral for the year, with gross CapEx of AUD 63.6 million, the store-related investments offset by cash inflows from franchisee loan repayments and sale of stores of AUD 63 million. Some of the benefits of not growing at the rapid rate we have in the past are now starting to benefit from these loans, loan sources, sale of corporate stores, that's pushing cash back into the business. Digital spend has been maintained with material reductions in same business and other investments, reflecting our disciplined approach to capital management. Moving to slide 17.
As foreshadowed at the FY 2023 market presentation, DPE has successfully deployed capital management initiatives, which has resulted in AUD 148.6 million reduction in net debt, and our net leverage ratio dropping to 2.35 x versus our current covenant of 3.5 x. Just confirming and reiterating, DPE is still targeting a leverage ratio of 2 x, with our capital management initiatives planned to continue until this target is delivered. I'll now pass you back to Don.
Thank you, Richard. If you come with me onto slide 19 and talk about some of the detail of the pieces to our global strategy with the local nuance that we talk about. We're working really hard, and we really do believe we're in control of unit economic growth. The first thing is, and I'm gonna talk specifically, as I said earlier, with aggregator partnerships. You know, we've got a global strategy there. We're seeking incremental orders, but we're also getting some efficiencies, as I'll highlight, through third-party delivery in the fringes. Doesn't take away from our core, but is actually adding. The menu development is a big driver of our business, will continue to be a driver of our business. We're increasing and maximizing our media spend.
You'll see that not only are we delivering savings, as we highlighted, into our ad funds with global efficiencies, but we're also with our global support centers, but we're also very COE focused, and targeted on yielding better return. We've got a great third party in Australian business that we're now starting to leverage in each of our markets around the world, which is giving us a better return on investment as we target our customers. But we're also increasing the contributions, and that's often either our franchisees are getting inspired, as they are in places like France and Australia, where they've increased the net advertising contributions, or DPE is allocating an incentive, where we may have incentivized something else, and we reallocated across. You'll hear that specifically from the CEOs as they talk.
But the overall view of that is that we're gonna have a lot more media spend, and not because it's cost the company more this year, it's through efficiencies and inspiration that's delivering results. We've also increased alignment to our proven promotions. You'll hear more about that with the engaging franchise partners. We're executing better, the individual CEOs. You know, one of the things that that Kerri's brought back into the business is a really great focus on core operations and individual specific areas, so that we can. We have some stores that do exceptional volumes in the Australian and New Zealand business, and how do they go to the next level? How do they get even more efficient? So, you know, pioneering many, many tools, which I'm sure you'll get to hear about. And then dynamic everyday value pricing.
We talked about flex pricing a couple of years ago. It's well entrenched in our business. It's a high-performing part of value and giving customers choice, and it reflects the customer's needs. So when we talk about this business, we've got global strategies that then are tailored by local CEOs and management teams, and that's what's driving our results as a business. If you come with me onto slide 20, I want to specifically talk about the aggregator business. I remember, you know, over the last decade, there was a time when there was a view: would this be the demise of DMP because of the aggregators being a competitor? Andre led the leadership globally within Domino's with a view, "No, aggregators are not our competitors.
They're actually another marketplace, no different to other what we would call frenemies, of other, you know, companies that have algorithms that can also market against your own customers. But there's, you know, virtual shopping malls you need to compete in. And so we've got better and better at finding our ways to win and play to win, and we have a play to win platform book for each of our aggregators and other digital, third-party media providers. And so, you know, we see the aggregators as doing two really good things for us at the moment.
They're helping us to increase our sales, as we're getting incremental sales in established markets, whether it's adding a new aggregator to the business, as Uber's launch in the Netherlands or thriving now in Japan, or whether it's using a third-party delivery for typically non-trading hours. Our French business, as Joël will talk about, the great leverage he's getting there. The Australian and New Zealand business, we're extending our trading hours to significant, you know, earlier trading parts, later trading parts. If you're a Sydney-sider, as I know most of our analysts are, you know, after 1:00 A.M. in the morning, Thursday to Sunday, the Sydney CBD store delivers to the Pyrmont area when the Pyrmont store isn't trading, which just delivers greater efficiencies, and we use third- party to do that.
We're also using the centers of expertise for pricing. We have, you know, global pricing on these platforms. We have, best-in-class, with support of, our parent, DPZ in the U.S., in some cases, that we're delivering really, really great margins to our franchisees to make ourselves competitive. Sorry, competitor, competitive in this space. And then we're driving down costs. The incremental sales from the third-party orders, additional orders drive better leverage in the business. We're also getting those better rates. And then, because we're extending and getting extra spillovers, that we can also, in the middle of peak, we can actually pass through some orders. If we're doing more sales in a store's forecast, they can spill over and continue to perform well from a service point of view.
And we can also use them in quieter periods or in lower-yielding periods, with orders, for just getting a better yield out of our business. One thing we want to make really clear is that Domino's will still make sure that we own our core competency of delivery, and so Domino's drivers will dominate the peak periods of our business. We don't want to ever sacrifice that. Our well-trained team members that give us a competitive advantage is in their uniforms, their training, their vehicles, their branding in the streets, and we'll continue to make sure that happens.
But, you know, one of the other points to highlight, just for example, in Australia, there's 113 Australia and New Zealand stores that are trading with extended trading maps, which just gives you an idea of when we go into this half, how we think we can continue to grow our same store sales as another growth area. At this point in time, I'm going to hand over to our newest CEO, a 36-year veteran of our business, Kerri, to talk about the Australia and New Zealand performance.
Thank you, Don. It's very exciting for me to be starting out in this company 36 years ago as a pizza maker, and really humbled to now step into the CEO role and go full circle. So it's great to be back home and being a part of this. And, yeah, what's really exciting about the ANZ business is that together with our franchise partners, we've really focused in on that execution that Don was talking about, and we've been able to deliver the best product quality scores and NPS scores out to our customers, which is our ultimate win that we want to continue to be focused on.
We absolutely had a rockstar campaign in the MORE campaign, which is the brainchild of Allan Collins, and it's delivered us our most successful sales in seven years, reaching more customers and in more occasions as well. And just to give you an idea of what that looks like at a store level, we had 380 store managers last year break actual record sales week, which is incredible. And then already, just in the first seven weeks of this year, we've already had 179 stores break their sales records. So really, really exciting when you get a fantastic campaign, like the MORE campaign, come together with improved product quality and execution to deliver a win for our customer and for also our franchise partners.
Domino's Australia has outperformed the pizza category in FY 2024, growing spend fastest and also by the largest amount. At the same time that that's been happening, we've been able to reduce our costs to our franchise partners as well, through focusing on labor efficiencies, through new technology, great new products that have launched with a reduced cost of goods, and also reinvesting our savings back into lower food margins and support with additional media. As we're looking forward, you know, my focus and where we're going to be with the ANZ team is that we have 27,000 team members that we're taking on this fantastic journey to keep being better. We want to invest in them. Don mentioned our strategy about People-Powered Pizza.
We're very focused on making sure every team member is trained well and has the tools that they need to deliver what's best for our customers. And also, an absolute obsession at store level with product quality, down to even things like, you know, you might think it's pretty simple to source a pizza. With the tools that we use, we're creating new things that have so much extra things built in there for training for the teams, make it easier to execute. And then also, you know, making sure that we're 100% focused on increasing that bottom line for our franchise partners. They are the heart of our business. They're what keeps us moving.
To that note, I actually do want to say a very big thank you to them for coming on this journey with us this year and creating such an amazing result, and also a thank you to our customers for continuing to buy from us. I'd like to hand over now to André, our European CEO. Thank you.
Thanks, Kerri, and good morning, everyone. Let me take you to slide 22, commenting on Germany and the Benelux before I hand over to Joël to talk more about France. As highlighted during the recent investor strategy days in Europe, we are focusing on these three major initiatives, starting with growing the aggregator marketplace. As Don mentioned, during my 19 years with Domino's, we've always had a very successful relationship with aggregators in Europe, but recently, we're even maximizing that even more. Adding Uber and Wolt, as Don mentioned, but even though they're still very small, what we've seen in other markets, that they have the potential to take market share quite quickly.
And in the next months, we will even start trials with using Uber Delivery in Benelux and Germany. We haven't started that yet, but based on what we've seen in France and in Australia, we expect big things of that. At the same time, we're optimizing our media spend based on learnings out of ANZ, but also helped by, as Don mentioned, extensive media mix modeling using AI and using an external party partner who's helping us quite a bit. Finally, helping the effectiveness of media even more, we're launching some great new products that extend our range and extend the occasions.
And we're finding that the launch of Pizza Dogs, for instance, in the Benelux about a month ago, helps us in day parts that we always had very little traction in, because we were supposed to be a meal supplier, and not necessarily a more snacking supplier. So all these major strategies are resulting in seen early in the pack and improved franchise profitability in Germany, and offsetting of considerable labor increases in the Benelux, even resulting in our last quarter improving the franchisee results despite a 15% increase in labor. At this point, I'm handing over to Joël to talk about France.
. Hi, everyone. I'm Joël Tissier, the CEO for France, and I've been with the business for almost a decade. Those who attended the strategy day in May, some of this will sound familiar as we're following the path that we showed back then. The first item, which is essential to us, was listing our franchise partners' engagement and having more alignment within the market. This has brought trust, and it has been key to strengthen our system in order to accelerate further in the next 12 months. For instance, our initiatives on pricing were linked to this engagement. We nationally launched in May, the Flex Bundles, Les Menus, as we call them in French, and they've been replacing some discounting. They proved to improve unit economics with a lower food cost.
To give you some numbers, we speak of an improvement of 3% of the food cost, which is really significant. France being a very, like, heavy offline market, still around, like, 40% of our customers, it's not the case in all the DPE markets. We also made them available offline since July. Also from September, we'll be launching a national lunch offer, as well, that will enable to communicate wider, with a greater exposure on the lunch experience, and all of this is preparing us for our main goal. While we work closely on monitoring costs, we know that in France, we really need to increase sales in order to comp store, and for this, we have, like, three strong leverages.
We will be refocused at launch initiatives that will directly impact the top line. First one will be reinforced still our presence in the aggregators, where we still have plenty of room to grow. We have almost 300 stores in Uber Eats, like three third-party delivery, and we'll expand this to Deliveroo from September. And as well, we will do this together with an increasing visibility within Uber Eats and Deliveroo. The second one is product development. This is also key to our customers and to our franchise partners, and we know this aspect will grow our brand consideration and sales. The third one, which is also very important, I know, like, Don has been talking about this already in the first slide. It's our marketing.
We really want to develop sales on our own channels, and we developed a, like, a new brand platform with a communication agency, and we'll extend it into the market by investing more in working media, including mass media, like TV. Over the past two years, the unique economics in France have pushed the franchise partners to decrease the marketing spend. We will reverse this, first, from October on an opt-in basis, and afterwards, from January with the annual vote. In both cases, DPE will reallocate part of our existing budget into media. This will enable us to move from 4% to 6% marketing spends, and the smartest thing to this is that all that incremental budget will be dedicating to working media.
To conclude and say that overall, while we are, like, committed and embedded within the global strategy, our approach is really, like, tailored to match the expectations of the French customers and our franchise partners in France. We trust that these three focuses, that they will give us more visibility, and that this will lift our sales and profit for both the franchise partners and for DP through the next 12 months. With this, I'm handing over to Josh. Thank you.
Yeah. Good morning, everyone. And just before I hand to Martin, I just wanted to take you through the past three to four years and really what we've learned. You know, it's clear we have grown rapidly, especially as it relates to COVID, and that was really due to a number of factors that gave us confidence. You know, simply put, we had availability of sites. We had trained supplementary managers, which is part of our original growth before COVID. We were getting ready to scale. We also had elevated sales, and these were favorable, and this led our model to suggest that we should grow. And grow, we did, because that's simply what the data suggested.
What we also estimated in our model is that we would retain up all the customers, but in our business, but we'd also retain the frequency of the customers in our business that were coming to us. Because we got confidence, even within our own network in DP, that when COVID restrictions came off, that we saw those customers stay within the business. This was not really the case in Japan. You know, this coupled with, you know, the high inflationary costs that we had, accelerated by depreciated, depreciating Yen, is where we reacted, and this actually de-leveraged our business during this time. You know, we didn't forecast the rapid move in food.
We didn't forecast the inflation in our utilities, and we certainly didn't forecast the inflation in wages, which is something we hadn't previously budgeted for to a great extent. Our mistake was really that we reacted by chasing customer traffic, by over-discounting or by high discount rates, but in hindsight, in a low-frequency market, you know, this was really a road to nowhere, and it didn't drive traffic enough to counter the costs in the business, and it was a little bit heavier because of those inflation that hit the business.
You know, I'll hand over shortly to Martin to talk about the benefits of these learnings and what we're doing and the actions, but I want to assure everyone that, you know, the fundamentals that underpin this business, you know, really haven't changed, in that we've been a business that, prior to all this, that only really made money a couple of times a year, and that was through Christmas and Golden Week.
B ut it's because of our consistent approach to our strategies, like the Barbell strategy, that has meant profitability is achieved across the whole year, and that's because we're accessing more customers through more occasions. With that, I'm gonna hand over to Martin to show how we're gonna build on this for our future in Japan. Over to you, Martin.
Thank you, Josh, and good morning, everybody. For the ones who haven't seen me before, let me introduce myself quickly. My name is Martin Steenks. Almost 30 or three decades in the business, and currently responsible for the Japanese market as CEO. So for today, I would like to give you three takeaways for this presentation for Japan. It's store optimization, pricing strategy, and the positive growth in store profitability. As we had announced earlier, we have identified 79 stores to be closed within the next few months. We already were able to close 17 stores last May, and the remaining 62 stores will be closed by the end or before the end of this quarter.
The reason why we identified these stores were not only because they were loss-making, but also they were dragging away the profits from surrounding stores as well. So with closing these stores, we are able to bring back the sales to the surrounding stores to gain their profitability even more. The savings we have seen and we are implementing for the upcoming months will be reinvested back into the market, which will result in lower food, and at the same time, we are incentivizing stores, plus our franchise partners in operational excellence and sales-driven activities. In the future, so with these store closures, we are not expecting any further store closures to be taken.
I have to say this as well, because with these store closures, it doesn't mean that there's still a huge appetite from our franchisees as well to grow in certain areas. We keep promoting that, we keep motivating that, and also for the upcoming year, we are still doing that. On the pricing, here's what we do there on the pricing strategy. We still see that offline carryout remains affected. The good news is that delivery is growing, and in the past six months, we see a trend line of positive growth in the business. Where we in the past were growing through a ticket, we are now growing through customers, which is a healthy thing for the Japanese market.
We are also very disciplined in genuine pricing, because with those disciplined technical discounting, we were able to actually lower the food and grow the customers. That all results with the lower food incentives as well into a huge improvement in franchise profitability in H2. Continuing on this or forwarding towards this, we are still keep working with a third- party who is consulting us on strategic pricing. We keep doing that, and we already see some green lights in test areas where they were outperforming the control group. On marketing, I would like to announce that we have finally found our Japanese CMO, with a strong QSR background, who is effectively starting from September 1st, and with him in place, we keep continuing growing on launching inspired products, but also maintaining in our core menu.
In the past few months, you have seen that we have launched a couple of great inspired products, and we will keep continuing doing that. The same thing happens with My Domino's. We renamed that My Domino's into Pizza Bento, which resonates much better with our local consumers. The final two parts I would like to highlight from this presentation is that our continued journey with aggregators has taken a positive flow there, where we're extending hours is something we are definitely going to develop further into that growth. And then with the right media mix modeling in place, we are now knowing effectively where we can in which channels to spend with a much higher return on investment.
So looking forward to talk to all of you more in detail about this process and what you can expect from us in the upcoming months, in the upcoming one-on-ones. And that said, I would like to give it back to Don Meij.
Thank you, Martin. If you come with me now, everybody, onto slide 26, and give an outlook. For this year, we're still saying that we believe, or going forward, we still believe as a group, that the milestones of seven thousand one hundred stores is still intact, and that we're committed to these long-term opportunities in each business. We anticipate that we will grow with store openings, and that's where we accelerate in the businesses that are performing, 3% of the network, but that will be negated largely by the store closures that we'd already shared with shareholders, predominantly in France and Japan.
So there'll be still a slightly small step up in our store count, but then we will expect that to progress into financial year 2026, with at least 3%-4%, as other markets come online with more stores, and with the lower store openings, our CapEx is down, which means that we'll be continuing to pay down debt or continue to review our balance sheet on how, you know, with all the free cash flow that we're starting to generate, and we recycle off our previous expenditure, as we also look at our loan book with our franchise partners, we look at previous IT spends and so on, so you can expect us to continue to be quite aggressive internally there. We still look at a 3 year-5 year outlook of 3%-6%.
In this year, it is dependent on delivering on our plans in our plans in France and Japan, the key markets, and so I'm confident in the plans that we're putting forward today with Martin and Joël and André, and Josh, and they need to also contribute to this, and will then define how the difference is between the 3% and 6%. If you come with me now onto number 27, page 27, I wanna reinforce that it is our expectation that we will operate with lower food and labor margins across this business this year. How are we doing that? Well, if we look at soft commodities, almost across the globe, without exception, we've seen soft commodities starting to drop. Big standouts in wheat, tomatoes, tomatoes goes into our sauce.
The one exception of the decreases is the potential for an increase in ANZ and Japan, Taiwan, in cheese. And we say it's, we're looking at futures and we're looking at currency, the two biggest defining deciders for that for the next half. Whatever's happening in currency and milk prices in this half is what we will pay in the next half. If we look at the last half, it showed you how volatile the futures are, in that at one part in the first quarter, we were running at near lows for the last five years in cheese prices, and then we saw a big spike in the final quarter.
The net result of that is we're actually paying lower cheese prices, as example, in Australia and New Zealand in this half, but it was really volatile throughout that half. If you just look at futures, we would say that we will see an increase in cheese prices in ANZ, and Japan, and Taiwan, and we're already making plans to negate those with the actions that we're doing, as we talked about earlier, with inspired products, with our better pricing in the business. If we looked at cost, at the labor costs in the business, that we are seeing now labor starting to moderate more towards the CPI, but still increasing. We're negating those and very clearly highlighted earlier, through three core strategies.
Number one, through smarter scheduling, live scheduling, to keep our managers more informed, as well as smart scheduling, which we plan to implement over the next 12 months - 24 months. We're really utilizing the 3P partner network for low yielding periods, where it's inefficient for us to have a driver on, or maybe it's a spillover, so we might. For example, it's not effective to have three drivers, and you can go with two and spill over into three drivers. Our peak periods and how we schedule, the extra trading hours that we talked about earlier, and using third parties with really competitive rates that are globally negotiated.
So these are negotiated for all of the DPE markets, which means that we're you know, in each country, we're leveraging our global network, and that's part of the benefit of, A, our COEs, having specialists in this area, but also leveraging the Domino's global network as a whole, as we are a master franchisee in a much larger network. So we do believe that we will run lower food costs and lower labor costs, which will deliver better margins, and these are levers we are in control of. It didn't appear that way in the first year of inflation, and we didn't handle it as well, but we now have a lot greater confidence in the business that we are in the driving seat, and, and we know where we're going. So if we look at slide 28, conclusion on performance.
Japan and France have locally specific turnaround plans. There's been an immense amount of learning in both those businesses. I have great confidence in our leadership and our ability to execute against those plans. The initiatives that we've implemented in our most successful businesses of Australia, New Zealand, Germany, Singapore, and the Benelux have broad application, but they still need to have local nuances with franchise partners and how we engage our franchise partners, market by market leadership, and also the product innovation and execution with the local nuances of the brand, that the brand isn't exactly the same in every market.
The consumers do reflect on the pizza consumption and our competitive nature in the QSR industry as a whole, that often, as a base of the brand, needs to get localized, but there are some global learnings we can apply. We're returning to a sustainable network expansion, which relies on reducing store paybacks on our road to 130,000. While we, you know, unlike a lot in the industry, the big box retailers with their drive-throughs and their large capital spends, the DPE model is a really efficient model, and we're actually getting better at smaller footprint stores. As I said, 70 sq m-100 sq m instead of 120 sq m-150 sq m, which also improves the operating costs and a better carbon footprint.
We have the strategies in place to deliver a higher EBITDA through growing sales and reducing costs, particularly in the food and labor. Therefore, we can invest in our store network. We can deliver for our customers, our franchise partners, and ultimately, our shareholders, and many times in that order. If we now go to slide 29, and I give a conclusion before we go to Q&A. We do expect to deliver profitable growth in this financial year. Be it, that will be largely delivered in the second half. I want to make it clear that there is momentum into the first half, which shows that we make more profit in the first half versus H2 last year, so that continues the momentum.
There is some headwinds in that first half performance, be it that we do expect to deliver our results, and so our LTI and STI is layered over the business as expenses through the business. But also in this early phase, as we shift some of our food margin, largely in Japan, parts of Europe, we shift that into advertising and investment in our network. So that is, you know, that starts in the first half and then propels us into the second half from a like-for-like rollover. We continue to improve our continual cost reduction as a business. We're still targeting that AUD 30 million + this year, and we have other initiatives to make sure that we can safety net that number so that it's not left just as the AUD 30 million.
Management's continued to grow and learn and get more efficient as a business. Finally, our earnings expectations do rely on our same-store sales, and we do need to make sure that we have France and Japan contributing this year. From an Asian perspective, savings in Japan will be reinvested, as I said, into that additional marketing. If I look at ANZ, you know, we are rolling very strong comps, but we have a strong product plan. We have much more media.
Our franchisees have not only we've got our advertising funds lifted from 5.3% to 6%, but also franchisees voluntarily, based on the performance that we can show them with the return on investments with our third-party attribution model. Markets are opting quarter by quarter to actually contribute 7%, where they shift allocating local store marketing to a much more efficient digital assets, and we can illustrate higher performance. So with more media, expanded trading hours, a deeper dive into our menu, a continual focus on more, which resonates with consumers in this environment, because at Domino's, we give you more with quality, we're giving you more with choice, variety, more day parts, and more, in that we're delivering better quality execution and better service, which is the strategy globally.
In Europe, you know, management is continuing to invest in unit economics, reducing food costs, you know, we're enjoying some of the lowest food cost percentages that we've enjoyed since during that peak of COVID. A margin improvement is expected in Europe, but it is reliant also that France needs to contribute. When I look at the business, our corporate store network is also enjoying the unit economic improvement. That is where we're also seeing flow through to our own business. When we look at from an investor's point of view, if you look at Domino's Pizza Enterprises, there's been four major earning businesses in the history of this business. France should be the fifth, and we're looking forward to it contributing.
And when we sit here today, the Australian, New Zealand business has strong performance, the German business has strong performance, the Benelux business has strong performance, and we're looking forward to Japan contributing, and then adding France as well. And of course, all of the smaller markets, Malaysia, rolling off a cycle of one year, Singapore continuing well, Taiwan, you know, showing growth, they all still add up and contribute to the greater business. Finally, I'd like to thank all of our franchise partners for their partnership as we've together worked on our strategic plans and engagement, for our customers and for our team members. I'd like to thank all of our store managers for how well they've been executing this year, improving our product quality, our Net Promoter Scores, our delivery times. I'd like to thank our customers.
It's really exciting when you're at, in a team of inspired product development, you create something from the ground up, and then our customers love it, and buy from us, and deliver great margins for our stores and give us those extra sales and order counts. And finally, all of the 120,000+ team members around the world, many of them who have the opportunity that we provide to become a franchise partner, or maybe even an executive or CEO one day in this business. So at this point in time, I'm gonna hand back to Nathan to answer all of your questions.
Thank you, Don, and thank you to all of our speakers, particularly those who've dialed in. It's currently 3:22 A.M. in Europe, so it's very much appreciated. And I'm hoping that André and Joël have plenty of coffee. Now, we are going to make a minor change to the presentation, the Q&A, this for this full year. I've consulted widely with our shareholders and also with our analysts, and some have asked for us to change back from a written submission to verbal Q&A, which is what we're going to do.
Now, I have shared with our analysts, and I have asked, we have 220 people on the call, that to make sure that everyone gets a fair go and that it's not monopolized, I've asked for two questions per analyst, with any follow-ups to clarify any of the questions, and I have also said that anyone who submits 16-part questions to try and monopolize that time will be required to make a donation to Domino's registered charity, Minds & Meals, so I will be liberal with the ban hammer, but you will have plenty of opportunity to ask all of your questions, and for that, I'm gonna hand over first to Michael Simotas from Jefferies.
Good morning, and thanks for the opportunity to ask the questions live. I think that's a much better way to do it. My first question is on franchisee profitability. Can you give us some indication of whether, and how much, if it's true, second half of 2024 was higher than first half? Because if I look at your commentary around ANZ being up, and then Japan much stronger in the second half, Benelux much stronger in fourth quarter, France much stronger in second half, it seems to imply you exited with a much stronger run rate. Can you just give us some detail on that, please?
Yes, thank you, Michael.
If you look at our business, it is true that our third quarter, for various reasons, as we were learning and working through, we weren't as strong, and it was really fourth quarter that we started to see all these savings and the initiatives starting to work through the business as we took more control, and you know, businesses started to pass through the efficiency. So when you look at our business, it was really the fourth quarter that really highlighted the progress in the business, and many of those things which are food and labor related have continued into this half.
Can you give us some indication of what the numbers look like to give us a little bit of confidence that you are getting closer to where you need to be?
Yes, we don't break out by market, each individual business, but it is material from a food and labor perspective. So you've heard each of the CEOs talk about how that they're yielding a better food and labor. Food is the most obvious in the business. That's where it's the clearest, that we've been much smarter in the way that we're pricing, and these new products that we're launching have better margins in them, as they're creating also new leverage, but yeah, look, there were some stellar businesses. It was great to see the Benelux come in so strong in the last quarter. They really were hurt in the first quarter by a 15% wage increase in the Netherlands, and we had to consume that, and so that meant that that was part of the third quarter.
There were some pricing initiatives that we were running in the ANZ business, that we got smarter about, and we were able to perform much better in the fourth quarter. The ANZ business also was part of, and the Benelux, were both pioneers in the labor of live rostering, and now they're also pioneers in the smart rostering. They also, especially we saw in late May and June into July, we took even further wage increases in Australia and in the Netherlands, further wage increases in July, and we're running lower wage rates. As Martin talked about, in Japan, we saw a much stronger second half overall, and so forth. Germany continued to show strong performance.
Yeah, so Taiwan, France, yeah, I mean, we don't really break out each individual number, but that gives you some idea. France, despite our earnings not being so strong, we did protect our franchise partners, and their margins were strong, throughout the year in France.
And Michael, your second topic, and then afterwards, I'll hand over to Richard Barwick from CLSA. Michael?
Yep, so the second one I've got is on the outlook, and just trying to interpret a few of the bits and pieces you've given us. Do you need to deliver 3%-6% same-store sales growth at a group level to achieve your objective of earnings growth for the 2025 year? And if that is the case, what gives you confidence that you can get there?
Yeah. So management do have additional levers that they can work with, with their own corporate store network, with you know, the better we can work on food and margin, food and labor margins with our franchise partners, then there's less support. We're winding back in different markets, so that's a lever that's, as an example, a positive, but you know, the best tailwind is same-store sales, followed by future store growth, so in our plan, we are planning to deliver more than 3% same-store sales, but we do have additional levers that we talk about, is our opportunities in the business, and we're pursuing those levers regardless, because they help our corporate stores, and they you know, they improve our franchisee margins regardless.
So yeah, that's probably the best way I can explain it to you.
Thank you.
Thank you, Michael.
Don, can I just clarify there? Just from Michael's question, he asked specifically in terms of whether the 3%-6% was to deliver earnings growth.
Mm-hmm.
Obviously, we've said to reach our expectations, it's 3%-6%. I'm not sure whether you had any additional comment whether growth itself relies on 3%-6%.
Yeah, so because we're seeing improvement in our corporate store network, because we're seeing improvement in our franchisee margins, as a rule, corporates contributing and franchisees are also, you know, getting less support in certain markets that are performing well, and so in that nature, that should deliver some earnings growth, because we're also carving AUD 30 million out of the business, don't forget, this year, plus, and some of that comes to us as well. So those, by nature, deliver growth in our earnings. But I wanna be really clear, this has historically been a growth business.
We didn't deliver that same sort of growth in the last two years, but it is, you know, our intention and our plans to deliver same-store sales growth as we have in Germany, in the Benelux, and Australia, New Zealand and Singapore, now in Taiwan, customer count growth in Japan currently, that, you know, we are going to be foot to the floor to make sure that we've still gonna get the sales growth in this business overall, to make it the business shareholders want to invest in. But we will get earnings growth even without some of that same-store sales.
Thank you for the clarification. I'm now just passing over to Richard Barwick from CLSA for your questions. You're unmuted, Richard.
Yeah. Thanks, Nathan and team. Can I just question or just clarify this, the cost program? So you commented that, you know, 1/3 of the savings goes to franchisees, so implying 2/3 through to Domino's in the P&L. But you also pointed out that the total pool includes savings in the ad fund, which would not benefit the Domino's P&L. So with that, maybe some clarification, the AUD 50 million that was saved in FY 2024, how much of that actually fell to Domino's? And then equally, obviously, you're targeting the 30 million in FY 2025. How much of that 2/3 actually will go to Domino's as well?
Yeah, it's a good question, Richard, and we did highlight that in that page when we announced those savings last year, and we worded it exactly the same way. But while we don't get a direct P&L saving when we save something like an overhead or an efficiency in the advertising fund, it does lead to more working media, and with more working media, it's obviously gonna support the network, but it's not a net saving into our direct P&L.
As is, when we are building software for our network, and then we charge it back to the network, if we're spending less capital in that area, then that's, you know, 'cause we've got less people in that, whilst it benefits the network, it's not a direct saving, saves our corporate stores, it improves our advertising funds, but it, you know, it's going back into the network. Richard, I'm not sure if you can give any other color. We didn't break out how much was a direct saving of the AUD 50 million and of what we're forecasting for the AUD 30 million. I don't think we gave any guidance on that.
No, I guess, well, that's where I'm sort of going. I know it's less than... So arguably, it's less than 2/3 of 30 is what we should be expecting.
That is absolutely correct. You know, it'd be, it'd be a little bit better than half.
Yeah.
But yeah, that is correct.
Okay, thank you.
And then the other.
Just confirming that we haven't broken that out?
Yeah, understood. Thank you, Richard. The other question I had was around the non-recurring costs associated, particularly with the restructure in France and Japan. Obviously, you've broken that out for FY 2024. Is there more to come in FY 2025?
Yeah, I'll hand over to Richard for that.
Yeah, I can answer that. So, for Japan, for example, probably a key one tip for you to understand is that we, as we've highlighted to the market, we've got this, the additional store closures. And we've provided, we've provisioned for the corporate stores, but we've also got closures relating to our franchise stores that we technically can't provision for, so those costs will come through as we support those franchisees doing those store closures. So we will have still some costs relating to the closures that we've advised the market. But not.
Can you give us a sense of what that would be, Richard? Because, I mean, this obviously, they look like mostly cash costs.
Mm.
So it is important for us to think about cash flow and ultimately the balance sheet.
Yeah. We haven't provided a breakdown of that, but it's gonna be significantly less than what we've incurred in 2024.
Okay. Right. That's helpful. Thank you.
Thank you, Richard Barwick and Richard Coney. I will now hand over to Shaun Cousins.
Good morning. Maybe just a question on franchisee EBITDA, if you can hear me? I'm just curious around what the variance of franchisee EBITDA. It's AUD 97,000 now. You wanna get it to AUD 130,000. How does that vary by market? I recall maybe Australia might, or ANZ, might have been 150. We're sort of curious around how we think about the path to improving franchisee EBITDA, and particularly how we compare it to historic periods, given you've added a lot of lower EBITDA regions, i.e., sort of Taiwan, and Japan has also performed, you know, it is generating lower profitability pre-closures today.
Yeah, I can confirm that Australia is in 150, although we have many stores over that, but no, that isn't the average. And as I was saying, Shaun, a little earlier to Michael, is we haven't broken it out by market. There is quite a variable amount both in Australian AUD and from a percentage margin by market. You know, clearly a much lower performance in the last 12 months out of Taiwan and Japan, which was a bigger drag on the numbers over a full year. You know, as our earnings are low, you can see that into our franchise earnings, and that's partly also why we did some of the restructuring that we did. So.
But there are even inside a market, as you go down through all this change, there's some really significant variability where we're, you know, we see some really strong performers that are benefiting from all of the execution operationally and the food and labor, you know, they're very active in these new tools and how we're driving those products. And, you know, we're seeing EBITDA numbers in parts of our business of Germany, Australia, the Benelux, that we haven't seen at the top end, because those stores are maximizing. And what our job as CEOs is now to get more people up the chain to benefit from these initiatives. So, but yeah, I'm not sure. I know there's been the odd verbalization from analysts that they think Australian, but it isn't.
It's not 150 , it's a reasonable bit less than that, be it that it's growing.
Like, I guess at the basis of the question is trying to understand the historical EBITDA that you've provided by franchisees. When we think about franchisee EBITDA historically being up to AUD 160,000 or AUD 157,000, there's no country mix shift that we should be thinking about, that, that's not something that you could emulate again. Okay, pardon me, that's the basis for the question.
Yeah, that's a good question. Yeah, so now I appreciate that, Shaun. The biggest overweighting of those numbers during COVID came out of Japan and later years, Taiwan. That Japan really accelerated to earning levels at a store level that we may not emulate in the next two to three years. On the other side, you know, you're seeing really strong store performance out of Germany and the Benelux. Even France actually has strong margins at a store level, be it not the quantum of euro EBITDA that Joël would expect for his franchise partners. And Kerri has far greater ambitions knowing what the top end looks like. I must say the top third of the network, the high-performing part of the network, of where the other 2/3 of the network should travel for Australia and New Zealand.
Great, thanks. My second question is just on constant currency. The way the results are presented is you've called out constant currency results are based on fiscal 2023 FY-- FX rates. This seems inconsistent with the way you've disclosed your fiscal 2023 result, where what you did was you translated the fiscal 2022 results using the fiscal 2023 currency. Why are you presenting constant currency using last year's currency? Wouldn't you, you know, restate the 2023 earnings using 2024? Why, why have you adopted a different approach now? Or is there something around, you know, was there a mistake in the slides? And I guess to confirm that, is there any currency impact in the same-store sales growth numbers that you provide in your dashboards there when you talk about constant currency? Just seems an uncommon approach that you've taken.
Yeah. It's a good question, Shaun, and thank you for highlighting this. There is no variability to our same-store sales as a result of currency. They are same-store sales as, you know, measured by market to their local currency. It is not my understanding of any policy change, but maybe Richard can highlight.
Shaun, I'm... You picked up a detailed point in my footnote. Let me come back to you on that one. I don't believe there was a change, and it's just should be just apples with apples, but let me just double-check that with my team.
Great. Thank you, Richard. Thank you, Don.
Thank you, Shaun.
Thank you, Shaun. The next question is going to come from Bryan Raymond from JPMorgan. Bryan.
Sorry. Yes.
Just on the second half uptick in growth, I'm just keen to explore that a little further, given there's a lot of moving parts here year-on-year, in terms of the cost out and the performance of the business. The consensus has got roughly AUD 30 million of year-on-year growth in FY 2025. You're saying first half will be broadly flat. Just trying to understand the rough magnitude you're describing in terms of some of these factors relative to that 236 or so million of EBIT in consensus. Is there a skew in the cost out for the second half, for example, in terms of the realization of those benefits? Is the ramp up in same-store sales growth very back-end weighted?
Obviously, we've seen the trading update, but just keen to explore that second half growth rate.
Yeah.
If you could help us with that. Thanks.
Yes. No, thank you, Bryan, and I wanna be really clear, we don't give guidance, so I've gotta be careful that I'm not trapping us into a guidance with the nature of that question, but what I can say is that in the first half, we have the headwinds, the whole year has the headwinds. We intend to hit our targets, and therefore, management will pay their LTI and STI, so that's a cost to business over the whole year, but in the first half, there is a real cost to the network, largely in Japan, a little bit in the rest of the business and in Europe, in warehouses, so we had a reset in our warehouse in Germany, for example, just the cost of distribution.
We just as a way of passing through the savings to our franchisee, we've taken that cost increase to us. That's our one way of passing 1/3 of the savings through. So if you can imagine, as the year goes on, we've got the annualized savings from last year of the work we did with the restructure of the business, and then more continues through the year as we migrate the targeted roles into the global support center shared services in Malaysia and Poland. And then the continued progress of the businesses as they kick in with their media spend. So, you know, Joël highlighted that he's got a step-up in media, of working media in October, and then a material step up in January.
To put it into perspective, when Joël said that he's expecting a 6% NAF advertising contribution, that which is a two over four, that's a more than 100% increase in the working media. Because you can imagine an advertising fund has operating costs to produce media, you know, the artworks, some of the technology, the individuals working in the advertising fund, like the CMO and their key team members. So once you get the additional NAF, which we're seeing in Australia and New Zealand, we're seeing in the France forecast, in Japan's forecast, that's all going into working media drive. And with those significant investments in working media, there is some shift in the same store sales expectations, also rolling softer comps.
And then finally, it's our corporate store performance continuing to momentum forward. I think what's really important is, if you have a look at what we've said, H1 earnings do progress against H2. Some of these original costs come in, and then the savings and the, and the growth continues into the, into the second half. Also consuming the restructuring costs in, in some, you know, just Japan and France in this first phase. But that's, that's likely gives you the picture that, you know, the overall earnings, and the, the way that I think shareholders have looked at our business isn't inaccurate in a sense. We're just highlighting the movements in the business. But I wanna be clear, I'm not giving any sort of guidance to that, but just more giving you an indication of how the plan comes together.
Okay. That's, that's helpful color. Thanks. Thanks, Don. And just on Japan, with the store closures, just keen to explore if there's any more, any risk that does expand over time. If you could give us some color around which prefectures have got a particularly low level of store density, for example, after these store closures, is there anywhere, you know, some are very materially under-penetrated or potentially need addressing over time? I would imagine the major cities that have better performance than some of the out of prefecture. So just keen to sort of understand why you're so confident that you won't need more than the 79 that are planned to be closed over time.
Yeah. I'll hand over to Martin, but the two biggest changes that happened in the last six months was the wind back from the depth of discounting, when we were, you know, rebounding in the inflationary period, as Martin said, and Josh said, we made the mistake of taking the customer with price. In a low-frequency market, that was a big mistake. And what we've done a lot better in the last half, you know, Martin highlighted that our franchise partners nearly made as much in the second half as they made in the full corresponding 12 months before that. So that improved unit economics, and that will, you know, as long as that continues, then that strengthens our franchise network. And so, yes, it is not expectations to add any more stores to that.
With positive, today's customer count is healthy, sales growth in our perspective, and we're now in a positive mode there, but maybe Martin, you can add more detail.
Yeah, Don, thank you. Bryan, the amount of stores we closed were actually scattered all over the market. So, there was actually one prefecture we withdraw from, there was a prefecture in Iwate, where we had only two stores there, but they were really underperforming, and we decided to withdraw from there. Potentially, we can open there again in the future, but for now, we didn't see any reasons to open those stores or keep those stores open. But the rest of the areas were all. Of the stores were all scattered. So as I mentioned before, one store was not only loss-making, but also taking away the profit from surrounding stores.
So by closing those stores, strategically and tactically, we were able to see that the surrounding stores should grow in their profit again.
. And probably, Brian, one thing I'd add, too, from what Martin said earlier, we actually grew market share in the last year as well in the pizza category. So we are the healthier performer out of the networks of pizza operators. All pizza was de-leveraged post-COVID as people returned to restaurants, so the pizza category was a post-COVID loser in that sense. But of that, we've still gained the most market share of what's happened in our own category. And for the initiatives that we've you know, not just stores, but also our product innovation and our execution.
Excellent. Thanks. Thanks, everyone.
Thank you, Bryan.
Okay, the next question is from Lisa Deng from Goldman Sachs, and then following that will be Craig Woolford. Lisa, go ahead.
Can you hear me?
We can indeed.
Yes. Hi, just, thanks for all the details. Two questions. One is on the same-store sales trend, more specifically for Japan and France. Because I think we're all targeting to close most of the stores by first quarter 2025, so then when should we expect same-store sales to actually turn positive for each of these regions, please?
Yeah. I'll hand over to, once again, Joël first and then Martin. But the first thing I can say is that when a store footprint closes, it's also removed from same-store sales. So we don't... If you remember in history when, as someone says, "Well, you're cannibalizing your business and we can't see it in your same-store sales," it reverses the other way. You know, the network could actually show better numbers in same-store sales when a store, like Martin said, closes and 75% of that business traffic goes to an existing store. But that then doesn't become a like for like for that store, because it's now got a territory change, and that's not an apples with apples. So we're consistent in both ways.
Um.
We manage that. So I think that's really important. But overall, it's still, you'll see it in our network sales, you'll see it in our total sales. But the second part of your question, I'll hand over first to Joël and then to Martin.
Hi, Lisa. The second question's like, in France, we do want some movement within the next 12 months. We do expect that the additional media that we will have, again, like, that's, that will bring a massive change. And we do expect that from, in the second half, that it moves in a much, like, clearer way. You know, like, we will have more media from October. We need to see the, you know, like, the momentum taking, but we do expect much stronger results in H2 on that, in that regard. Does that answer your question for France?
Mm-hmm. Yes, and Martin?
Yes. Thank you, Lisa. First of all, it's not only... The first green shoot we're seeing is a positive customer growth, as mentioned before. That starts if that starts rolling into the right direction, you should see, in the near future, some increase in SS as well. And in line with what Joël is saying about extra media spend, also Japan has extra media to spend this year as well, but also that needs to build. Based on our media mix modeling, we are seeing that our channels to invest in is predominantly TV and video, closely followed by aggregators and social channels. So we are building up our spend there, but that needs to build as well. So, yeah.
I guess if I simply look at sales per store, so not or AWUS, not same store definition, we should start to see improvement in same sales per store from second quarter and then on to second half. Do I, do I? Okay.
That is correct, yep.
Okay. Then the second question is, I am a little confused about all the puts and takes of the costs into 2025. So if I just simply look at page 12 in the preso and take away EBITDA less revenue, which is about AUD 2 billion in terms of our operating costs, that increased by about 1.6% in FY 2024. How should I think about this going into 2025, just with all the puts and takes of cost savings, but reinvestment that we talked about? Page 12.
Page 12. Richard.
Yeah.
Did you get that? I didn't quite. I was scrambling to get to the page, so maybe just restate that, Lisa, one more time, unless Richard, are you with me?
Yeah.
Yeah.
I just want it to be, like, really simple. So if I go page 12, and I go EBITDA less revenue, right? Which is basically all your costs. I get to about AUD 2.014 billion of costs that we've cut in the business, including all the food costs and labor costs, and all of that, and all the cost savings that have come through. That represents 1.6% year on year, if I do exactly the same on FY 2023.
Yeah.
Right?
That's a good question. Yeah. So, a couple of things to note.
So what... Yeah.
Yeah.
Yeah. What do I think, how do I think about 2025 with all the puts and takes that we've gone through?
Yeah. So we always try to give an outlook of EBIT to network rather than revenue and EBITDA, and there's a very significant reason behind that, is that-
Okay
D epending on the market moves and what we do with our food, so for example, today in France and the Benelux, we book revenue or food through our commissaries. Whereas we unwound in the last year, the Asian business was operating the same, and then we just went to a straight rebate model from third-party warehouses and as we produce dough in store. So that changes the revenue line quite significantly when those things happen. The other significant revenue change is what we do with our corporate stores. And we, as you saw in the Australia, New Zealand business, and it is that, you know, we shared with shareholders last year, that the recovery happens in three phases. First, it is a customer recovery, and as customers get excited by our business, if it is profitable growth, our franchisees improve their balance sheets.
They then look to buy stores in the network with existing corporate stores or other franchisees who may have lost interest in the previous window, and that's what you've seen in us reducing our corporate store network, and then the third phase is you go into network growth with new stores. So when you're de-leveraging your corporate store sale size of your network, that has a quite significant impact on revenue. So it's a very bumpy place to look just clearly at EBITDA to revenue, and it is still more clear to look at EBIT to network sales. So I'm not sure if you wanna refine the question around EBIT to network sales, so if we can help you in any way?
I mean, just dollar-wise, right? Net, net, we're saving AUD 30 million, and more than half of that is flowing back to DPE.
Yes.
Is our reinvestment going to be higher than that? Like, call it AUD 15 million.
No.
Is our reinvestment going to be higher than AUD 15 million?
No, it's not.
Okay, so it's a net positive?
Yeah.
All things considered?
Yeah.
Okay. Thank you.
Yeah. Now, the big picture perspective, there is inflation in the business. So, you know, we've got wage inflation in our offices, and then don't forget, you add back the fact that we intend to hit our targets this year or exceed our targets, and that means that LTI and STI get put back in. So that's something that's really important just to note against that. But yes, when you're looking at the underlying, that what you just said is accurate. And then also, the corporate stores as the network improves, so do our corporate store performances as well, just in that as an apples to apples.
How much is the LTI, STI? As my last little bit.
The weighted number of that, I think you've broken out, Richard, if you have a look. Richard, are you able to share that? I think you broke that out in the 4E or where did you?
Yeah. Look, I mean, yes, if you go to the... I mean, I can't go into all of the detail, but in the REM report, you can see how much, I guess.
It was the quantum, Richard? It was the basic. Do you remember the numbers? It's roughly?
Yeah, it's a couple of million. Including timing on bonuses and... But we haven't really... Yeah.
At least in the REM reports, you can see all of that, where we've missed, and then, you know, the forecast when we talk about internally is that we'll be adding that back at the cost of the business.
Going to move on to Craig Woolford from MST for his next question.
Thanks, thanks, Nathan, and morning, everyone. Great to.
Morning
Be having this type of questioning. So just on the marketing expenses, this is more of a P&L question that I'm observing.
Yeah
Or quoting to you here.
Yeah.
The marketing expense in the second half fell quite dramatically compared with the first half. Is that the new trend for, for.
No.
Or is it just a timing issue?
It is partly a timing issue and the way the outcomes work. But Richard, if you could answer that in more detail. What I can say, Craig, 'cause I note some commentary today, is that I want to be really clear: there's three reasons why we're gonna be spending more advertising this year, and significantly. One is our franchisees are electing to spend more in advertising. Two, it's not a new cost to DPE, but we're actually, well, sorry, that is not—in Japan, it's a new cost, but in places like France, it's an allocation from an incentive with franchisees to move over into advertising. And then we're also yielding the savings in the overhead in our advertising as we, you know, move some people into the global support center.
Then finally, this isn't from a quantum point of view, but we've got a lot smarter with our Media Mix Modeling, and we're getting a better ROI in the platforms that we're targeting. So, Richard, can you be more specific on last year's numbers?
Yeah, so I think, I mean, look, it does move around when we specifically spend our advertising dollars, but there is some seasonality in there in the first half, and we just did, you know, from a timing perspective, we spent a little more. You've got seasonality in Japan, obviously, with December, and in the Japanese market, they're spending, you know, that's their biggest sales period, so they're spending ahead of the curve in terms of the December period. And then it's just timing of when promotions are happening and how they fall across that December, January, February period. So I wouldn't read too much into it.
Yeah. One of the things, Craig, as an example of that, is the Dutch business and the French business are relaunching their brand. So the Dutch business is in September. They withheld spend in, for example, July and August. So just in that one window, they withheld spend because they've got a huge launch of the brand, rebranding in September. So that, you know, when you see the timing changes, that's what happens inside the business. The CMOs and CEOs work together and say, "I'm onto something significant here, and I'm gonna allocate and save and allocate the fund and then do a big push." That can cross over from half to half, or other times, it's just business as usual with the core digital spends that we just spend as business as usual for our digital platform.
Okay, great. Thank you. And then secondly, you know, we've noticed in a lot of developed markets that the focus on value meals by QSR operators has really stepped up in the last couple of months, mainly talking about McDonald's and KFC here. Have you seen any implications on your business in the markets where, you know, those two brands have a significant presence, and how are you responding?
Yeah. So both those players have been doing that for more than six months in most markets. And our same store sales are as you see them, so the Australian and New Zealand business has been experiencing that step up, but starting earlier this calendar year. And so, you know, we do live in the ecosystem of all QSR, and as I highlighted earlier, and I've said this previously, second to nobody, the burger business is the category that can be the most competitive against Domino's in the scale of, like, say, for example, in Australia and parts of our business. There is some parts of the world where pizza part, competitors can be quite competitive.
It does all exist in the ecosystem, but as those partners have shared, they're still experiencing negative customer counts or being positive customer counts against that.
But it's been more of what actions we're doing in any given market that's defining that. André, you've experienced it the longest in Europe. Do you have anything to add to that for Europe?
Not really, to be honest. Sorry, I missed a part of the question.
That's all right. I'm just more that we're seeing a step up from the burger and chicken players, purveyors into these, like, five euro meals, four [audio distortion].
Yeah.
All these sort of things.
Yeah.
You know, have they the effect on our business?
Yeah, absolutely, and that's why we've introduced things like Melts and the Pizza Dogs. The My Box, we don't talk about that anymore, but it's an additional layer that really helps us combat the EUR 5-EUR 6 meals that we're seeing in all European markets. So, yeah, now it's mainly on the product side of things, and the good thing for us is that these products still deliver really good margins to our franchise partners.
We are able, not as far as media spend, to compete with the burger brands and the chicken brands, but with our products, we definitely are competing more than we used to be when we just considered a full meal option.
Great. An example of new activity for us is we've never had in the Australian business a AUD 3 small meal occasion product, and as we just launched with Pizza Dogs. But that's a new meal occasion, 'cause that's not somebody who would come to Domino's, because the starting price at Domino's a number of years ago was AUD 5 for a more shared meal. But we're literally targeting, you know... That's a pretty sharp price point, with really good margin for our franchise partners and the way that's being built. So we're still very competitive in these now new areas with some of our menu development.
Thanks, Don.
Thank you, Craig. I'm just going to hand over to Ben Gilbert. Just to let you know that while we do have a stop at 12 o'clock, what I'm going to do is continue the Q&A, 'cause I have a couple more questions in here. But Don and Martin need to drop off the call. They have some other obligations, including Don has some journalists who get very cranky if he doesn't turn up. Ben, over to you, and then I've got Phillip Kimber.
Thank you. Just first question from me should be nice and quick. Just Richard, just in terms of view on whether you're gonna keep the DRP underwrite going into fiscal 2025?
Well, we're doing the one for the last half to June, and that will be dependent on how our cash flows roll over the coming 12 months. As I said, we wanna hit our goal is to hit two times, and so if we can hit that without undertaking a DRP, then we won't do it. But if we feel that that's at risk, we'll continue the DRP, I think is probably the answer.
Thank you. And then, and just to confirm for me, sorry, I'm just still a bit confused on the media side. So you're talking both gross and net media spend for Domino's is gonna be materially up through fiscal 2025, led by first half. Does this suggest that there's gonna be a bit more of a pivot around building brand, as opposed to focus on value? I know Don just touched on the success that you've had in Australia and some of these meal boxes, but is this gonna be met with a push to try and drive pricing up? I'm just trying to understand that balance, because obviously you got into some challenges a couple of years ago, pulling off the value lever, and it's taken you sort of 12 months, 18 months to get back on that track.
Perhaps if I can throw to Josh first, and then to André. And I know that Joël was biting to answer that one as well. So Josh first.
So I just missed the first part. I think it was around the media spend and how we're gonna be spending it across the group, more.
Given that it'll be materially up in the first half, and we're obviously guiding that we will be spending more on media this year, is it changing more to a brand?
Yeah, look.
Media?
Yeah, okay. Look, Ben, we build our brand through retailing of our products. So look, I don't think there's gonna be a material shift, where we come up with, you know, fluffy commercials that are 30 seconds long, that talk about, you know, the air and these types of things. We are really about our products, the inspired products, and we build our brand that way, through across our whole business. You know, one thing we're doing with our product is not only just the inspired food at the top end to bring in the new customers, but we're actually inspiring the core, because we wanna be known for our pizza, across and very high quality pizza in our core as well.
So you're gonna see building of, you know, rewarding customers who are already with us by improving quality and the options available. But then also inspiring through new products, and Pizza Dogs is a great example in Australia of inspiring and building new occasions through new offerings with new price points and different ways of looking at it. So I don't know if Joël wants to answer on behalf of, you know, France and Europe or André, but that's the way we view the media spend.
So.
Let me take it before, and then I can hand over to Joël, specifically on France. But we talk about the new layers and occasions, and what we are trying to do in most markets, at least in Europe, is to explain that to the customer better, and that asks for a different brand image, because we used to be the meal business, but we still are very retail-y in our communication. You'll see later this year, a new brand campaign in Netherlands, that is filled with product, and filled with deals for customers. So we would not get away from being that really retaily marketing, but we need to position it.
We need to make the customer understand why they should go to Domino's still for the pizzaness and the entertainment as we do, but for a lot more occasions than they used to. So, Joël, anything to add?
Yeah, no, I wanted to say that we shall not oppose, you know, like, brand and value. Actually, like, the way, like, what we oppose, you know, is brand and cheap, and that's what we are not. And actually, value is also a core part of our DNA, you know, like, there is many things in regard of, like, our product, our firm, like, within the DNA, and value is part of it. And again, you know, it's how we address it market to market. But like, for us, and the way we see the communication out of the next 12 months, is that we will stick brand, but again, value is still part of it. It's just how you are able to address it to make it great for the customer.
You know, so that's, that was just a small detail, at least about France.
So sorry, one quick thought. Does this allow you, do you think, to take price? You obviously haven't really taken price the last couple of years. Does it provide scope to take price looking forward, or you don't think you can in this environment?
In a way, it provides the opportunity to have more occasions, and it might from a ticket perspective not necessarily be a higher ticket, but because you have more of those snacking, smaller occasions, it will decrease your ticket. But yes, new products, like we've seen with the My Box and the meals, they have no anchor price, right? Everybody sort of knows what a pizza price is. So we're doing way more rigorous testing, price testing, than we used to.
We used to be a bit of a cost plus business, where now we're actually asking consumers, "What would you be willing to pay for it, if it was part of your staple menu?" So yes, we think that there is more margin to take, and we have different products that will have a bigger margin. For instance, in the drinks in Europe, we're seeing thick shakes still continuing to grow year on year on year, and they are materially more expensive than a regular milkshake, but they're also a lot more quality at delivering great margins for our customers.
Great. Thank you.
Well, so also, what's worth noting, is when we really execute products well, then we're discounting less, so in effect, you're getting a higher price point. So as we, you know, roll out these new and inspired products, and those campaigns execute and we're spending more of those dollars, we're not having to, you know, discount the product. So it's a sort of a reverse way of saying it.
Easy. Thanks, appreciate it.
Mm-hmm.
I'm going to now pass over to Phillip Kimber. So you, Philip, you're okay to go ahead. I think Phillip's still on mute. So I'm going to just wrap up with one last question just from Chris Capardo, who's asked, and this is one probably for Richard: Why not hold or reduce the dividend and initiate a share buyback, providing the group with more optionality around capital management?
That's a good, that's a good question, and sort of, probably, quite offbeat with our current strategy of reducing our leverage and reducing our debt levels. So, you know, we could consider that, but that would involve a whole relook at our whole debt and capital structure. So we always consider capital structure opportunities, and but right at the moment, that's not one of them.
Thanks, Richard. Just gonna give one more chance to see if Phillip is... Phillip, you're off mute now, just to see if you're still there, otherwise, we will wrap up. Nope, appears not. Okay, I'd want to thank all of our attendees today. As I said, we had more than 200 people on the call today. I particularly want to thank those people dialing in from our executive team from Europe, and also those attending in person for their first time. We look forward to seeing all of you on our roadshow. Thank you, and have a great day.
Thanks, everyone.