Good morning. The time is now 10:30 A.M., so we're going to start the Domino's Pizza Enterprises full year results for the period ending of the 2nd of July, 2023. My name, for those who have not met me before, is Nathan Scholz, and I'm the Chief Communications and Investor Relations Officer for Domino's Pizza Enterprises. Joining us on the call today is our Group CEO and Managing Director, Mr. Don Meij, our Group CFO, Richard Coney. Don and Richard will be doing the presentation today, and joining us for the Q&A session is Asia CEO, Josh Kilimnik, and Europe CEO, Andre Ten Wolde. With that, I'm going to hand over to our Group CEO and Managing Director, Mr. Don Meij.
Thank you, Nathan, and thank you for everybody who's coming on the call today. I'm gonna start with our mission, because I'm gonna refer to this a number of times throughout the presentation as it's You know, as a mission-led company, it's so clear with the products that we're winning in and where we're winning. I'll refer to elements that we are and we want to be the dominant, sustainable delivery QSR. It's what helps to differentiate us and break away in the market. Next slide, Nathan. One of the things that we've talked about forever is that we're in the value business. If you can just go next slide, Nathan. We're in the In the value business.
One of the things that we want to take you through today is when we get the value equation right, it flows through to our results. Clearly, last year, we didn't get the value equation right. It always starts with the customer. You can't make more money out of less customers, and we always say at Domino's that today's customer count is tomorrow's sales and profits. What we saw last year was a very challenging year, as we took inflation, and we didn't get the value equation right. we if you looked at the left-hand side of the page there, we responded really quickly to try and protect franchisees' margins.
In some cases, we even took some of the soft commodity hits in the very earliest phases, because there were prices in the marketplace, for our franchise partners. They couldn't profitably take or survive the, the pass-through of some of those ingredient prices, so we took some of that. We then responded without as much testing as we're used to, with increased prices, and in examples like the delivery service fee, we got it wrong. It took us some time to rebalance that. What we hope we can show you today, and we're going to talk to you today, is why we think that in, in 10 of the 12 markets today, we've got that mostly right. We'll be passing through to the other 2 markets that, that we're still building on that.
It always starts with the customers. You know, immediately, when you see our same-store sales that we're reporting today in Europe and ANZ, that's actually off the back of positive customer counts. I mean, it's this time last year that we were taking some of those big increases, and so whilst we still are ahead in our ticket, we're also really proud of the customer count growth that we're getting in our stores. Then with great, strong customer count, we're seeing that flow through to our franchisee sales and profitability, and I'll refer a little bit to that on what's happening right now. Then ultimately, it flows through to us. That's the right chain, and that's the right order, from customer to our franchise partners or our corporate stores, and then through to our shareholders.
Next slide, Nathan. If we look at, at last year, and I hope that this isn't a surprise today when you look at these numbers, because I think we updated relatively clearly in June, is that you basically had a flat year in same-store sales. You know, inside that, we saw some great recovery in Europe towards the end of the last quarter and some recovery in ANZ, which you've seen that continue through and, and build in the last 7 weeks. But we did have weakness in Japan and Taiwan, which dragged that down. Taiwan specifically, still rolling COVID numbers until October. Japan, good customer count growth in carry out, but not in delivery, and that's where we need to do some work in Japan. We'll talk to that today.
We added 205 organic stores last year. We acquired the markets of Malaysia, Singapore, and Cambodia. We spent more on our CapEx than our normal 3-5-year outlook because of the acquisition, also, we didn't get the proceeds of sales through a number of our corporate stores, which is a traditional income line for us. That literally came from a lower appetite with lower earnings at our store level for last year. Next slide, Nathan. Now, if you have a look at our trading update today, we're really proud to be able to share that our network sales are up 12.6%. Now, that does include Malaysia, Singapore, and Cambodia. It does actually include some benefit of FX right now.
It also includes the core operating sales of the business are growing, and Europe and ANZ by about 6.6%. Some of that has been negated by Japan and Taiwan, and to net out of 2.8. We'll talk in more detail about what we're doing in Japan and Taiwan, and what's driving the Europe and ANZ business, because it's the same things that will flow through. We've already opened nine stores, although we do anticipate that when we look at this year's earnings, we're being cautiously optimistic in that margin recovery we believe is there. However, a lot of this year's profit growth will come from what we're doing with the restructure, and noting that a third of that is passed through to our franchise partners. Next slide.
You can see where the numbers flow through in our business, is that our network sales were only up 2.2, and online sales up 2.4. That was 4.3 if you take into account FX. Our store count net was up 11.7. You know, with the poor trading that we experienced and our, and our franchise partners experienced, our own EBIT was down in core operating earnings by 23.3%, and as a result, also, our EPS was down 26.9%. Unfortunately, for our, our franchise partners, it was also an equally challenging year. You can see that, whilst our franchise scale is growing, so the number of franchisees per store on slide 7, is now at 2.7.
Clearly, we're disappointed with the profitability of our stores. I want to highlight, however, this goes through to March. Nathan, if you can make that the next slide. This goes through to March, and I'm going to be proud to be able to report what's already happening in this quarter. For example, the Australian franchisees are up 18% in the first seven weeks this year as profitability, rolling last year's numbers, which actually was our strongest period of the whole Australian year when we rolled the burger range out last year. It's, it's good comps on good comps, but we have much bigger ambition to deliver for our franchise partners in that area. You know, clearly our results are out beyond four times, which that's why you've seen the slow in organic store growth.
There is still, still stores opening because these are averages, and averages still hide that there's obviously stores that are weaker than this on the bottom and stores that are stronger than this on the top. Right now, with the recovery that we're seeing in Europe and Australia, New Zealand, we're already starting to see some, for example, appetite in the Australian business to get more stores open. In summary, if you come and we reflect on last year, on slide 8, in the face of extraordinary inflation we moved, first of all, to protect our franchise partners. In some cases, we overcompensated with our menu prices, and particularly with the delivery service fee.
Today, we're proud that in some markets, we're the only operator, and hence why we're seeing good delivery growth again without a delivery service fee. Scale of inflation meant that we, we didn't use our normal testing models. We literally rushed many ideas through the market. Some of them we got right. In fact, the carryout business grew quite healthily, but in delivery, we clearly got it wrong. As a result of that, we lost some frequency in our customers and, and, and even some of our, our, of our light users. We saw then in the second half, around the February, March, we started to recover, in many cases with our flex, then unwinding the DSF.
What you're seeing now is also the benefits of our new product launch, launches, which are very, very focused on our mission. I'll take you through that as we go through that. Our franchisees have been extremely resilient through this period. Together, it's we stood side by side, incredibly challenging period, but it feels great that we're rebuilding the business together, and we're both benefiting from that today. What I'm going to now talk about is the restructuring the business in two pieces. First of all, on slide nine we announced in June that we were departing the Danish business.
For those, just reminding that, that we bought a brand damage business, we just felt that in a public environment, it was just going to take too many years to repair the brand, the losses were too deep, we decided we'd exit that small business. We also made an announcement that we were going to be closing 56 of our existing stores, and our corporate stores, which were ones that we'd taken back that were structurally broken. Our habit was not to close stores typically, but these may have had rents that over years, somehow structurally were wrong. Maybe the position of where the store was for their house counts was wrong.
They were a lag in our earnings, and we still got we provisioned already in these, this announcement for another 18 stores that will close. Most of those, because we have been able to close some of the stores in France, as we've got to go through a process there, that's where there's a bit of lag in those numbers. Predominantly, what's happened in Australia and New Zealand has already happened, and most of Asia. We're also franchising, where we've taken an impairment on some of our stores, where we think that they were for whatever reason, the price was sitting on our balance sheet wasn't appropriate to make them profitable, for our franchise partner to operate in the market. We're, we're in transition with those.
Some of them already happened, and some more to come. We're also closing all the commissaries throughout Southeast Asia. By the end of this financial year, the whole of the Asia and Australia, New Zealand businesses will be back of house. That passes around 2%-2.5% of savings through to the stores. Already in Germany, we're fully back of house, and we review the rest of the business. Finally, we've already written off some of the legacy assets as we've gone to new assets with the, for example, the OneD igital platform, the next-gen, that's already rolled. By and large, just in this area, there's around AUD 30 million-AUD 31 million of savings.
A lot of it is already being realized, and so it's gonna fall through throughout the year. Where it has been realized, we're already passing through a third of the savings to our franchise partners. Australia, where it was the fastest to act, our franchisees are enjoying some of those savings already. The non-recurring cost is around about AUD 105 million from this area. If we go to slide 10, the second part, that takes a little bit longer, although we're very active already, is streamlining and restructuring the operations. We're realigning reporting lines, in many cases, making it getting rid of some layers in the business where we duplicate.
In fact, many parts of the business, it's returning to what we were doing for most of our public life, where many of the group roles were also on the tools. The problem in recent years is group roles, like myself, were often consulting to the business, not in the business as much as far as, like, literally working on projects. We've rechanged that and the example, is that I'm now the ANZ CEO and Group CEO, and loving every moment, and having a lot of fun at the moment with our franchise partners. We're realigning. We're also establishing centers of expertise, where often we were duplicating things. We roll it all up in areas of marketing and digital and aggregators, and many of our specialist areas in our platform, of our business.
These centers of expertise service each of the markets, then it allows our CEOs to be able to leverage all of this expertise, then focus in market with the franchise partners on operations, on the marketing calendar itself, on profitability and development specific to that market. If you look at that also, as I mentioned earlier, we're establishing centers of expertise. We're also moving some of our business to a shared service.... The marketing segment of our business is really rolling up many of these centers of expertise. CMOs are still very driven in their markets, applying the day-to-day, but leveraging through a more global CMO, the tools.
The savings in this year, just in this financial year, will be around AUD 20 million-AUD 29 million. Once again, one-third of that is, as soon as it's being realized, is being passed back to franchisees. Roughly, when you look at just this year, when you aggregate these things together, it's around AUD 50 million-AUD 60 million of savings, then one-third goes to franchisees. This year, when it's fully realized into next year, the run rate would be between AUD 80 million-AUD 94 million. That steps up an extra AUD 30 million-AUD 34 million next year as we complete the full restructure. That will continue, once again, to be shared in one-third.
We do the like-for-like comparison on page 15, which we will take you through that, of what we announced in June, and how, in fact, these numbers are now more significant as we work through it, both also, in the non-recurring, but, in the actual pass-through to the system and to our shareholders. At this point in time, I'm gonna hand over to Richard Coney to take us through the financial results. Thank you, Richard.
Thank you, Don. Nathan, could you go to slide 12? Okay. As you can see, our revenue is in line with network sales growth of positive 3.4%, noting we had a slight FX headwind with an impact decline of 23.5% on a constant currency basis. Our full year dividend this year is AUD 1.10 per share, consistent with an 80% underlying payout ratio, with a final franked dividend of AUD 0.426. Sorry, a final unfranked dividend of AUD 0.426 per share. In addition, we have activated our DRP, which is fully underwritten. Nath, if you could go to slide 13. On this slide, you can see revenue is consistently up in all regions, noting Japan had a significant FX headwind, offsetting the acquisition benefit of Singapore and Malaysia.
Our total EBIT is down 23.3%, predominantly due to large declines in Europe and Asia, with margins below, as you can see, below our historic averages. Moving to slide 14, Nath. Total non-recurring costs of $116.6 million with, as Don mentioned, $105 million relating to restructuring and discontinued operations, in line with what we updated the market in, on the 13th of June. In addition, we had $11.6 million related to ongoing legal fees for the class action, which has continued from last year. Pizza Sprint, along with the Malaysia, Singapore acquisition and integration costs, getting to the majority of that number. Nath, if you could go to slide 15. This is the slide Don referred to a lot of detail here.
Basically, we've got restructure and closure costs have come in at AUD 105 million, versus our estimate on 13th of June announcement of AUD 80 million-AUD 93 million. This is largely due to an additional 31 store closures, with 18 provisioned to happen in 2024. As a result, we expect to get an EBIT improvement in FY24 for DPE of AUD 33 million-AUD 40 million, the DPE itself in 2024, and AUD 53 million-AUD 62 million in FY25, which compares very favorably to the original forecast in June. More non-recurring costs, but bigger benefits in the latter years. Moving over to slide 16.
Generally, a pretty good result here for our cash flow, with net operating cash flow up 37.2%, largely due to a positive AUD 36.5 million change in working capital, due to a timing and one-off benefit from the Singapore and Malaysian acquisition. Also worth noting that the cash impact of the restructuring is relatively minimal, with non-recurring cash costs, you can see, of AUD 19.4 million versus the AUD 116.6 million expensed. Nath, if you could move to Slide 17. Our net CapEx has slightly exceeded our three to five-year outlook, predominantly due to the additional investments in Malaysia and Singapore, and lower cash inflows from store sales and the refinancing of our franchisees.
We expect this to rebalance in the coming year, in line with the planned improvement in store unit economics, with our franchisees able to get financing in, in a more... when their, when their unit economics are, are, are stronger. Moving to Slide 18, Nath. I guess the key points to note on this slide is our net debt has increased by AUD 252 million to AUD 819 million as a result of the acquisitions and high net CapEx. Other movements in the balance sheet predominantly relate to the Malaysia, Singapore acquisition and the settlement of the Germany minority interest. Now, Nath, if you could moving to Slide 19.
I know one question from a capital management perspective is how we plan to deal with our elevated gearing and the resultant net leverage ratio of 2.9 times. As you can see, we have taken a three-pronged strategy to accelerate a reduction in gearing levels to our targeted range of closer to 2 times. These include tighter management of our CapEx, as highlighted, a fully underwritten DRP. Most importantly, the immediate closure of 83 underperforming stores in our Denmark and across the group, as we've highlighted. Noting that these alone would have reduced our net leverage ratio in the 2023 year to 2.6 times on a pro forma basis. As a result, I'm very confident I won't come close to breaking our covenant in the coming year.
Also worth noting that we do have significant headroom from a debt servicing perspective, with interest coverage at 15.7 times versus our covenant of 3 times. Also noting that we've locked in AUD 328 million of our debt, which is fixed out to 2027 at an interest rate of close to 1%. That's, that's a good outcome for us that we delivered over year. Nate, moving to slide 20. This is our normal key financial ratios slide. Probably just the highlights here is our return on equity is still relatively strong at 26.5%, and also noting cash conversion per the benefits in working capital have lifted from 86%- 102%. I'll now pass you back to Don, mate.
Thank you, Richard, and also thank you, Nathan, on slide 22. Let's break it out into the three segments of the business. You know, clearly in the results today, the area of the business that we're still looking to, to deliver all the learning is in Japan and Taiwan. It's worth noting that in both those markets, we're still enjoying good carryout growth. It's really been the delivery recovery and the order frequency is just so much longer than it, it, it bounces in Europe and Australia, New Zealand. Similar initiatives through the aggregators and delivery focus, removing DSF has happened. We expect that we're going to recover to positive substantial sales in this year. We're still investing in the Malaysia, Singapore, and Cambodia businesses and Taiwan.
Taiwan, because of the you know, we couldn't access the business in the first 18 months of ownership, with COVID, and so we still got to build all of our technology platforms and all of our BI stacks, and data and so on, to, to be leveraging all the knowledge that we have in our business. Especially with the centers of expertise, that they're gonna really need to have those technology stacks to, to aid. If we look at Europe, Europe was already seeing some strong recovery in the last quarter and has continued this quarter, this first 7 weeks. The rock star in our whole business for the whole year was the Benelux, led by the Netherlands, particularly.
The Netherlands, which is just very consistent, it was an inspiration for the rest of the group with its product development and its more consistent approach to pricing. It didn't roll a DSF, so it came in stronger into the period and therefore was slower and that paid off in what they did in their markets and was inspiring for the rest of us. We've seen France has delivered recent growth with a more consistent national approach, and Germany is experiencing some of the strongest same-store sales. In fact, in the last seven weeks, we've had four of our biggest weeks, or four of our 10 biggest weeks in the history of the German business. That does not happen in summer, where typically summer is our quietest times of the year.
A very strong product launch there and also strong aggregator engagement. We come to the ANZ business. We're seeing once again, really strong aggregator growth here, I'm gonna talk about that in the next slide. The launch of the My Domino's Box has been fantastic for segment growth. You know, we've never really had a single eater product. We've been predominantly a dinner-driven business with shared meals. My Domino's Box has been a real star, high margin for our franchisees. It's not a product we discount. On a Thursday, we might give away a free 600 ml Pepsi product or, occasionally we might take AUD 2 off on a Thursday, but otherwise it is its price, and it's been really successful. The More campaign has just launched, answering a lot of questions for this particular era.
You know, customers are wanting more. The hero, the The Lot in the first week, where it's our most top pizza in history of 15 toppings, became the number 1 selling premium pizza straight off the bat. Which is just rare when you think of the maturity of our menu. Also the Crispy Chips that are launching, and you'll see more of that to come. Very mission-focused, both My Domino's Box and the Crispy Chips are designed to be delivered. You know, a really robust, robust product that's to be consumed at home. In fact, Crispy Fries in Europe was the biggest selling side item in our history because fries is the number 1 food eaten in QSRs.
Not really made for delivery, we've now designed a fry to deliver, and we couldn't be more excited of what's gonna happen in the Australian and New Zealand business in the coming weeks. I'm also launching in New Zealand next week. It's actually a Kiwi product. As a result of this, our franchisee profitability just in the ANZ business, the Australian business alone, is up 18% in the first 7 weeks, rolling stronger numbers. Europe's also seeing high double-digit growth. When we look at the numbers, they are the numbers for last year, they're the epicenter of the worst for both our business and for our franchise partners, now we're in the recovery. Still lots more to do.
We're-- we, we wanna make sure that's really clear, that there's big ambitions in our strategy, very product-focused and very margin-focused for our business partners. If you come on to slide 23, I want to talk about the aggregators. 'Cause I-- you know, for many years when the aggregators were launching throughout our network, there was a fear that they were a competitor, and we were-- we, our strategy 5 or 6 years ago, led through Andre ten Wolde, was that they're not a competitor, it's another marketplace, and it's just another place for us to go and win. I'm really proud to say right now that it's inside the aggregators, that in places like Australia and New Zealand and Germany and imminently in some of the other markets, where we're getting actually our fastest growth. We're seeing significant double-digit growth inside the aggregator platforms.
Part of what spurred that is that we've got a new deal with Uber that's global. We wanna thank the parent company in DPZ and Ann Arbor, who actually delivered this contract for us. It's, it's great how we're working just closer and closer together, and, and it's a, a little insight of what's more to come on global buying. This is really material. I mean, to our franchisees, it's significantly better margin. We haven't realized them yet. It, it's days away, because whilst we have the global deal, it's got to be implemented by each individual market by contract. Franchisees are running our franchise partners are running at it really hard, and we're seeing great growth across the business. As I said, it's more of what's to come.
You see, in our business, media buying and platform buying, just say 3 to 4 years ago, if you're sitting in Australia, we would go to Nine Network, Network 10, Seven Network. We buy a lot of television, we buy a lot of, letterbox drops through Australia Post. We do a bit of News Corp. Today, by far, the biggest growth is through the big global platforms of Meta, and Google, and TikTok, and Line. We're looking, in partnership to bring aggregated savings to our franchisees, like this contract, through doing global sourcing, global buying, which is a whole new place. It's not just only about the price, but it's also being at the cutting edge of how these tools work.
Just like in the old days of TV, where no 15-second ad is the same, time of day, but also is the first 15-second ad break or the last 15-second ad break, a lot of the algorithms or the aggregators are exactly the same, and how do you dominate by doing global buys and get the best position? You not only have a better price, but you get a better yield out of the platform as well. That's one of the things we're hoping to deliver with our new structure. Once again, thanks to our partnership with DPZ on getting this fantastic deal across the line. By the way, it's mostly helps Japan, France, Taiwan, Australia, and New Zealand. That's where we get most of the gains from the Uber contract.
If you come with me now to slide 24. Our business has always been about a high volume mentality. It's the leverage through more order count growth that, that our franchise partners win, and we ultimately win if they're winning. That's where we lost it last year. We lost order counts. You can't make more money out of less customers, and that created a lot of pain in the business. What you're seeing now is that because we've balanced our pricing, in fact, we're even saying in this announcement that in this financial year, because we're now getting strong benefits through soft commodities and with lower energy and transport costs, that's negating the increases we're seeing in wages around the world, which we expect to continue throughout this financial year.
As a result of that, we're pretty confident we're gonna be able to stick to the menu prices that we have today, and then we'll be launching new products into that basket, as we retire also old products. You know, now every product has a, has a job to do in our menu, and if it doesn't, then it needs to move on and be replaced with more profitable and new products, which is what we're doing. If you come with me onto slide 25. We mentioned earlier, it's all about value. Value to us is not just the price, it's the product, it's the service, it's the image that you get for that price. I want to give you an example of our living our mission.
You know, Domino's Pizza invented the corrugated pizza box some 50-odd years ago, and for the most intents and purposes, it's been the same product copied by competitors all over the world. What we're really, really proud about in the last few weeks, is we've launched the D-Box in Australia, we've gone and reinvented the box. The D-Box is not only signature D, Domino's, but it also holds our pizza tighter in place. It's a structurally more rigid packaging, so it's less likely to get crushed when customers buy multi-pizzas and drinks on top of the hot bag. It's more likely to come better to the customer, which delivers a better product experience. Fully recyclable and made from recycled materials in most of our markets around the world.
I think Nathan's got a little bit of a video he wants to play here, just as this will be in the market this week in Australia.
I absolutely do.
Thank you, Nathan. Couldn't wait to share that video. All right, if you come with me now onto the next slide. There has been some adjustments with the inflation that we've experienced last year, and as we're now rebuilding the business, this year. We feel that we lost the year in that, and so our 5,000 store outlet look is shifting to 2027-2028. The same with Australia, that we're saying that's now going to be 2027-2028 to achieve the 1,200 stores. You know, this is a big year of chasing AWUS growth. Just in Australia alone, in the last two, three months, we've taken the AWUS, which is average weekly unit sales, from 29,000 to 34,000.
That's very material for our franchisees, and we've got big ambitions to go harder after that and get that up, so we can leverage our fixed and semi-fixed costs, and get our returns on capital employed down to less than three years. Get those stores open, as we still have many places around Australia and New Zealand where we could do a, a better job servicing the customer. We still have a milestone of 7,100 stores by 2030. We think that we can well and truly achieve that.
If we come onto slide 27, we are making one adjustment, another adjustment here today, in that we believe that, whilst this year we won't hit the 3-5-year outlook for our store count as we're rebuilding those unit economics, we do think we will recover to that in 2025. We're saying that the run rate to get to the 7,100 stores by 2033 means that we'll open approximately 7-9% of our stores per year. We are reconfirming, though, that we believe that we're gonna be able to achieve the 3-5%, sorry, the 3-6% same-store sales over the next 3-5 years. We, we feel quite confident about that.
You know, in the, in the near term, this is not giving guidance as such, but it's giving outlook. All right, if we come on to the next slide, Nathan. I'm gonna jump straight to slide 29, and just for conclusion, because we know that there's a ton of questions and we've got 268 people online. The first thing is that we're very, very focused on winning more customers for our, our business partners. We're working through the value equation to make sure. This is on slide 29, Nathan. We're making sure that, that we're gonna get those pricing structures properly delivered through our Taiwan and Japan business. It's clearly just executional there right now.
We know what we've got to do, and we've just got to get that back into delivery. High-volume mentality lives in the business. That is I want to get the myth off the table that I've read in the marketplace, from some of our analysts that: "Oh, they took away the, the 7%, and therefore franchisees' margins have dropped." Franchisees' margins, I can assure you, have increased since we've done that, as we level set the menu. The other reason margins have increased, because we've launched more profitable products. Some of these products, like the My Domino's Boxes, are the most profitable products we've launched in, in our history, if not in recent history....
We're really confident that we are going to grow franchisee unit economic margins, and ultimately that will grow through more order count growth, which will flow through to us in more in-increased profitability to ourselves as well. We're back, winning share. We maintained a 51% share in the pizza category in a market like Australia. We're recovering some of our orders from other categories. Similar approaches are being applied throughout the Europe business and through Australia and New Zealand. I mean, Europe business has been very inspiring with their product development. The product in Germany, the kebab pizza, very much like the burger range in Australia, just been an absolute rock star. My Domino's B ox launches in France this week.
It's already in Taiwan, Japan, Malaysia. We're going to see it throughout our business in the coming six months. It's just a really good product, it resonates with consumers. This year, we're delivering AUD 50 million-AUD 60 million of savings to the network, and next year will be AUD 80 million-AUD 94 million. One third of that will go to our franchise partners. That's already underway. Do you go on to the last slide? We're quite optimistic about the short term and resolute on the medium to long term, that, yes, the last 18 months was incredibly challenging. In my 36 years in the business, I hadn't faced with the team, take full responsibility for some of the initiatives, many of them are very well entrenched in, many of them didn't work, that's evident in our results.
Apologize to our franchise partners that we couldn't do things faster. That's the past. We're now in the future. We're already in that mode of recovery in the business. We're going to be passing through those savings, and we're going to deliver the results for our franchise partners and for you, our shareholders. Yeah, at this particular time, I'm now going to hand back over. There's many items in the, in the appendices, which we can go through more detail, but at this time, I'm going to pass back through to Nathan for Q&A. Thank you very much, everybody.
Thank you, Don. Thank you, Richard, as well, for your presentation. I'm now, as Don said, I'm now going to pass on to the Q&A. For those, for this-- if this is your first call, please, enter your Q&A question in the Q&A box at the bottom. I know there are a couple of our analysts that, for compliance reasons, are not able to enter questions into Zoom. For those of you able to just send me a quick email, for analysts and investors, then I'll be able to ask those on the call as well. I'll start with the first question from Michael Simotas, which is on the balance sheet. It looks like, if not for the payables timing benefit, you would have breached the covenant. Is this correct?
Richard, one for you.
Yeah. That's, that I guess is a theoretical sort of, statement. You know, look, we have things moving both ways. Payables obviously was a benefit to us in our cash flow, but on the other side, we had a lot of CapEx in the last couple of months as well, which was a negative. You know, if we needed to, we could have pulled back some of that. Look, we obviously it was tighter than we would have liked, but, yeah, it wasn't, it wasn't really a payables as such, strategy. It was us managing our cash flow, and we do that reasonably well.
Yeah, and I, I just want to reinforce that, so you can hear it from me as well as the Group CEO, is that I'm quite confident that we're not going to come close to breaching that covenant this year. I feel that with the DRP, the DRP that we've implemented and just the savings that we're immediately bringing through to the business and the momentum that we're seeing, we've started the year strong, and I can't see any reason why that won't continue, and, and therefore, I think we're in a pretty good place.
Just a follow-up question from Michael Simotas. If you take out that adjustment, that leverage falls to 2.6 times for discounted operations and the cost out that Richard Coney mentioned. He's saying that if we annualize the weaker second half 2023 trend, Now, I know, Don Meij, you've said that that's not expected. We're growing from that second half, but it looks very tight when the covenant's tested. Why not just raise equity to fix the problem, and why pay a dividend at all?
Should
Sorry. Why be dilutive to shareholders? That doesn't make any sense when we don't think we need to, and we feel we're in a very good place.
The other, the other position, Michael, we've really that 83 store closures, which is closing the Denmark, and, and the 88, well, 83 corporate stores in total that's a loss we're not carrying forward. We're not going to have that, and, and that was a big part of the last half trading. We, we expect that's just a, a free kick, we will call it now into, into the first half, and then hopefully we'll get more further upside from that. Then obviously with the DRP, which is underwritten, that's another AUD 35 million savings. Yeah, we're, we're reasonably confident, very confident.
The other thing, the other thing is that, often I know, companies announce delivered savings that they're going to intend to deliver, and then they may come back in 2 years and adjust that. What I can say is the savings on Slide 9 have predominantly already been executed. You know, other than there's a few more stores to sell, and we've just got some stores to close in France and 1 or 2 here and there, by and large, and then executing against the back of house, but that is rolling at rapid pace, throughout the Asian businesses.
These savings have already been delivered, and then even when you go to savings on Slide 10, in the Asia Pacific region, where we're able to do that at a, a more, effective pace, than parts of Europe, we're also already delivering a lot of these savings coming in to these couple of months and, and, and right now. I'm, I'm highly confident we're going to, deliver those through, and, and we're immediately passing those through, through to franchisees, which I'm sure our, our Australian franchisees will be able to share that with you if you ever ask them. They're getting those savings.
Thanks, Don. A question from Craig Woolford: "Now, can the company provide some commentary on July trading update with respect to transaction count growth, are Europe and Australia, New Zealand, in positive territory on transaction growth?
Yes, they're in positive territory for transaction growth. Yes. Because you remember that we're rolling now, the, the price increases last year. So, yes, we have positive customer count growth. I'm not sure if Andre, you want to add to that for Europe?
No, it's, it's, it could be more, but it's we're, we're very happy to be in a positive, territory again.
Then a question from Shaun Cous- Cousins on Asia. Josh, what are the plans to grow order frequency, and how easy is this to achieve, given a lot of other markets there's less of a history with the pizza category?
Yeah, I mean, the pizza is growing in Japan still. I mean, we're adopting all the learnings out of Australia, out of Europe, and it just takes a little bit longer to put that in place for Asia. You know, we're gonna be leading through inspired products, we're gonna be growing orders, we're gonna be investing against aggregators. All the things that you've heard Don talk about will flow through. It's just a lower frequency. Remember that, last year, we introduced a like many other markets, a delivery service fee. It wasn't just a delivery service fee, it was also on our carryout orders as well. We introduced that in October. We only got rid of that in April, and we're still rebuilding out of that.
It's a lower frequency market, takes a little bit longer to get those, those customers back. We are seeing the green shoots of that. We overlay inspired products and services, which is all the stuff we're learning globally now, which is why this structure is so important, to share these learnings. We can r- then we build out of that, all the way in. Remember also, I've said this many times on, on these, on these calls, is we test out everything. We've tested out everything again, all the way out to Christmas and beyond. We're feeling confident about what we have to do.
Then the investments we're gonna make and it's gonna be around aggregators, around paid search, paid media, being a little bit less traditional in, in, in TV, and sort of blowing up what, what we, what we thought was where we had to go for marketing spend, and, and really putting in the places where the customers are. We're fishing in some pretty big ponds right now, and you're gonna see that unfold over the next 3 to 6 months.
Thanks, Josh. Don, I mentioned at the start of this presentation that obviously, strong and sustainable franchisee partners is really key to our business growth. Perhaps if I dig into a few questions that we've received on franchisee profitability.
Yeah.
Shaun Cousins has asked: You know, "What EBITDA per franchisee does Domino's require to see franchisees open stores? Obviously, noting it's an average, as the current AUD 93,000 seems insufficient. Is it AUD 120,000 or more at an average? How quickly can franchisee profitability increase with this getting to a recovery in store growth to 7%-9%?
Yeah, look, it's, it's a very good question. 93 is absolutely not sufficient. The most realistic way to look at that is it's a, if you get towards a 3-year or better, and so that, and why I'm putting that out there, not to be gray, is that it's also what's happening with the build cost. We are building smaller, more efficient stores at the moment, as we're very, very focused on delivery and carryout. There was a moment in our history where we're building much larger stores with, dine-in. That's reduced significantly to bring the build cost down. Fortunately, we've been able to deliver some savings there, but ultimately, it's about getting to 3 years or less.
For example, in Australia, if you're building a store, I've just signed off on a store that was less than AUD 500,000, but if we use AUD 500,000, then divide that by 3, and that's the number that we've got to hit to see strong growth in store openings, and that's relative around the world. That's a good question.
Ross Curran has asked, He's mentioned that we've previously shared that our, our view on the share of the profit pool is that we would like franchisees to be able to make an 8%-12% of the profit pool. Given funding costs have increased significantly, is that target still viable? Do we need to change the profit share between our support offices and franchisee partners to improve the franchisee EBITDA margins? Does the target range need to lift to reflect higher funding costs?
Very transparently today, and we've communicated this right around the world, that we're passing through one-third of the savings to our franchise partners, and that is happening and will continue to happen. I want to make that really clear, that's exactly what we're doing. Indirectly, we could have kept those savings, but we're not. We're passing them through. That's what I expect we need to do, and that's what I expect we only need to do for our business. First other question, sorry, Nathan, was.
Yeah, I guess.
Around the percentages. Percentages, yes. The 8%-12% is exactly where we need to be, but more importantly, it's the quantum of euros, dollars, yens, and so on, in the business. That's what really matters. The higher we take the AWUS, average weekly unit sales, then the lower that margin needs to be. You know, the nirvana place is when you're at about 12% on an increased AWUS, because in that mode, chances are franchisees are highly profitable, and they will want to invest. They'll want to invest in old portfolio relocating, they'll want to invest in new equipment, they'll want to invest in their people, and they'll want to invest in many cases, to open new stores.
That's what we're building right now, and in elements of our business, we're already seeing the early green shoots of that, including Australia.
Also, it's also worth remembering that that's an average, and we still have stores that are very profitable, who will be opening stores anyway because they in whichever geographic location or just that specific franchisee is getting great results and great profits. It's not. You don't have to have all of the franchisees it's an average, you need for average.
I'm just interested in the speed of profitability and that flowing through to organic store... 3-5 months reduced. It's now the second time that's happened. How confident are you? Obviously, we mentioned the previous time we've reduced it, was because of a larger base of acquisitions, but Don, how confident are you in that, that outlook?
Yeah. You know, the facts are the facts. We've just had a terrible 18 months, now we're building out of that in this year. That's put a lag, because it's, it's still everything we just said about franchising profitability. I'm highly confident that we're gonna return, both through the margins we're passing back through in the one-third savings, the new products we're rolling out, the initiatives that we've got, in, in tracing the order counts we have right now, that we will return to that 7%-9% next year.
The reality was, we're just rebuilding out of this, and, and we just wanna give certainty and confidence and, and remove any of the naysayers around the target that, whilst we probably still could push out to those more extremes, let's give something that everybody can, build their models around and have great confidence in.
Now, just in terms of operating cost inflation, that we've, we've just mentioned, that we're intending to share a third of those savings back to their franchisee partners. Is there anything else you can do to offset, in particular, wages and rent? What does cost growth look like into FY24 versus FY23? Perhaps, Don, if we start with you, then we move on to Europe and then Asia.
Yeah. If you look at the bigger picture, wages are still climbing, particularly in Europe, at a significant rate, but even relative in Asia, relative to anything in history. Wages are still climbing, we're getting the tailwinds from new soft commodities, which are coming down, particularly our cheese contract, which is just coming out of... It's tender right now and looking very attractive for our business partners, our franchisees. You know, the other savings in wheat and so on, and most of our transport and energy costs have come down. You know, that's what's negating the wages, we've got all the order count growth that's coming off the back of that. What's really significant for the markets with Uber, it's material savings. Material savings.
It's, it's half to a third, because there's two parts to that, of what we were paying, paying previously as margins for our franchisees. It's really material, and our franchisees are benefiting from that. Then the same thing will happen as we leverage these other global contracts with these global buying initiatives, which are newer initiatives because they're newer platforms, they're newer spaces, and therefore we bring in newer skill sets to negotiate within them. Josh?
Josh, then.
Yeah, sure. Just same, same issues. We've got some contracts that are still flowing through. There are some softer commodities hitting. Obviously, we, Don just said it, we, we buy cheese globally. We're starting to stitch together, some bigger buy, buys across the region as for example, pepperoni, we, we use Australian pepperoni in Taiwan, and we'll most likely use it in some of the other markets. We are still seeing some costs go up in the market, quite honestly. We've got, quite a, quite a weak yen. We do, a lot of buying in obviously, importing, quite a few items. We do have hedging strategies in place, that just means that we just have to be smarter about how we buy.
You know, it really comes down to how we create products and inspires these, these products to hit the market at that time. Whilst things are going up, we're going to be creating products that hit the market in pricing and, and value for our consumers.
Andre?
Yeah. Then for Europe, like Don said, we are expecting some pretty significant wage increases. The good thing now is that we, we see them coming now, and we have a lot more experience on how to deal with them than we had in the initial big inflationary period. We, we have our learnings. We've got a lot smarter on, on how to, how to deal with them. I'm, I'm quite optimistic that we that we can deal with them and not have to raise consumer pricing at the same time.
Thank you, team. Alexander Mees has asked: What's the outlook for operating margins in FY24, excluding the benefit of cost initiatives? Are you seeing any respite in input cost inflation?
Yes. We do. We are getting that respite. As we just said, we're balancing things out. We in this particular year, because of the way that we're managing all of this, we're saying that right now, if you just put in the savings directly, we will be comfortable with that. Hopefully, we can bring you better news in November or February, based on these sales continuing and the recovery in Taiwan and Japan. For a conservative outlook, we're saying just pass through the savings that we implemented this year to... And we feel comfortable with that. We have every intention that once our franchisees are delivering on their margins, we should be, we should be getting the same leverage for the order count growth of the business.
That's how we make our money as well, and including in our corporate stores. You know, our corporate stores were a big drag with Denmark and then some of the legacy of failed franchise partner stores, and we've been doing a lot of cleaning up there. I'm really proud of some of the work that these corporate stores are doing in Asia and here in Australia. I mean, we're leading in product quality, in our food safety measures, in our single deliveries, in our service times, and in our total sales growth. That, that feels really, really good that our own stores are leading the averages.
You can pick it out and say that there's other parts of, of Melbourne and Sydney right now that are just unbelievable how good the sales growth and, and margin improvements are taking place, which have, which have been laggards in more recent years. I think the, the approach that we're taking Queensland, WA have always been very strong markets, as an example, right now, really, really good growth in some of the bigger markets.
Thanks, Don.
I think the key is last half, especially in the half before, we traversed everything going negative for us. It was almost a perfect storm of utilities, food, and labor. Now we've predominantly, as Don mentioned, we're having to deal with we don't have that big, yeah, massive impact of everything, and now it's stabilization. As Andre mentioned, the pricing, we can start to deal more effectively with those types of impacts.
A question just in terms of that cost, disinflation. Michael Simotas has asked: How significant will it be? Then also, as it then comes back, how does that then flow through to franchisee partners, corporate stores, or food supply? Really, what, how much of that profit pool gets shared back to franchisee partners?
Yeah, the way our soft commodities are purchased in any typical year, and I believe we're back to a typical cadence, is that if prices go up, they pass through, if prices come down, they pass through. That's exactly what I expect. I expect that we will pass them through immediately. Where, where have we passed through savings from the restructure? They've come through by also reducing a food margin, where we've just said straight out, "Here's some savings. This is the cleanest, easiest way to give it back to a franchise partner in food." Once we get through this 2 years of savings, then we'll just be a regular cadence. That won't happen again. As far as the raw ingredient coming in, up or down, it goes straight through to a partner.
I expect the most significant soft commodity in the Asia, Australia, New Zealand area of the world, will get some material savings this year and beyond.
A question from Mitchell Hawker from Bank of America. Maybe this, pivots us into some of the regional commentary. What's the Benelux region doing that can be replicated in in ANZ and Asia? Andre, for you.
Yeah, what is, what is it? It's obviously a, a highly penetrated market, for us, and it's been, it's been, quite stable and, had a massive aggregator share already. It's the birthplace of, of, Takeaway.com, and, and we've always played our part in that. I, I, I think the learnings is that we, we, we never really overreacted in, in some of the things. We didn't introduce the delivery service fee. We tested it in corporate stores. Didn't do well for our margins in corporate stores, we didn't roll it out because we, we, we saw the, the impact it had on the, on the frequency, in a, in a period where, there's low consumer confidence.
This is not a plea for not acting quickly. It is, it is exactly reinstating what Don says, that we've done things early in this period without having real data and not going through the motions. We were fortunate enough that we could do that in the Netherlands, and I think that's the learning that Don shared earlier, is that we now have so much data, we, we now see some of the, the increases that we have, particularly in, in Europe with, with labor and there's still some, some food increases because of the war in Ukraine and some of the, the harvest issues in the south, southern part of Europe with tomatoes, for instance. There will be a bad crop. We can...
We see them coming now. That was the case before this whole inflationary period. We saw it coming. It's now the same. In short, it's what we're used to, just running on data and really good research.
Thanks, Andre. A question from Ben Gilbert. In terms of what you're seeing, for... Because obviously we called out Germany as performing well. What are you seeing in terms of carry out versus delivery transaction changes in Australia, sorry, in Germany, and then I'll pass to Don for Australia.
Yeah. The, the big growth currently is still in carryout. Germany is a heavy delivery market. It's 85% of our business is, is, is delivery. We're growing the carryout market. We, we're fortunate that, our deals with, aggregators, we used to have only one, which was Takeaway.com. Fortunately, Uber and Wolt and others have entered the market who really are keen to having us as as launching partners. We, we grew our delivery share through aggregators as well. Currently in Europe in general, the, the, we see that, carryout is still growing. Delivery is either neutral or lightly negative.
Talking about Australia, New Zealand?
Yeah, we're seeing. We've had a, a strong carryout growth, and delivery really suffered the most last year. We had a project, we were very focused on how many orders we had to recover. That started in April, and we've well exceeded that now. We've not only recovered it, we're net positive against those periods. Carryout remains healthy, delivery remains healthy. Again, one of the big focuses of this business, I, I touched on earlier, was segmentation with our menu, and this is a business that's lived for far too long, just on the dinner occasion and the shared meal dinner occasion. You know, what we're doing now is our highest segment of the day is now currently lunch.
We're testing and, and almost completed all the tests of a product we're launching before Christmas, where Domino's has, hasn't done well in snacking, and that's another important part of QSR afternoons, late night, pre-lunch. We've got a real rockstar product that we're gonna be launching in various markets around the world in the next six to nine months as well, and going after the snacking. Very much looking at the segmentation and saying: How does Domino's get more share? That's done very well for us in the aggregators. It's done very well for us in the single eater, with the My Domino's Box, both delivery and carryout. then we'll see even extensions. The number one food sold by fast food company specialized in...
You know, Andre led a side item in Europe, then was with Loaded Fries. We're mirroring that with a different product that comes out of New Zealand, but it's designed to be delivered and then will become Loaded Fries and fun, fun, right on target to our mission.
Just in terms of how we're thinking about, this is from Sam Teeger. How are we thinking about same-store sales over FY24 in the first half versus the second half? Maybe if we start in ANZ, Don.
... Yeah, I, I think that we're, we're confident that we're gonna sit in that that three to five-year outlook. You know, we are rolling incredibly weak comps in the second half. In the first half last year, the Burger Range, which distorted some of the price changes, and we talked about that, that the Australian, New Zealand, really was a canary in the coal mine, but we couldn't see that originally as we were running away from our long models. First quarter, we've got good same-store sales growth now, and we're rolling our strongest campaign. Our, our worst period of sales was that sort of December. It started to, to kick in December into March. That's when we should really roll some good comps.
I'm proud of the comps that the team are delivering, the ANZ team are delivering against the strongest campaign last year. Josh?
Yeah, sort of, sort of the same commentary, really. I mean, we, we expect to come back to more normalized rates. We've got some weaker comps coming in for the, for the first half and, and the second half. We expect to roll those out fairly positively. You know, with all the, all the stuff I've been speaking about before, with the, all the products and the learnings, we do have to. It takes a little bit longer because we have a lower frequency, but we are very focused on, on the execution side. I mean, we're, we're operating at a very high standards, but some of the highest product quality scores in the world. You know, quite often, you, you, you sometimes, you have to work out where, where your weakness is.
We don't have that. We just need to build volume, through value in, in those markets, and that'll see the return to same-store sales.
Yeah, and then, and then for Europe, as you can see in the deck, we had a 3.3% same-store sales over the last six months, which was better than the six months before that. Now that are now our comps. I look at it from an initiative standpoint, and I see the initiatives with aggregators, initiatives with new products, more occasions. I'm quite positive that we that we'll despite of the comps are good or bad, that we will exceed them over the next 12 months.
Thank you for that. If I just pass across to Asia, a question from Ben Gilbert, and that is that... Sorry, he's just asking, sorry, the question is not now in front of me, but just he was saying that we're seeing some stronger performance, for example, from McDonald's and other QSR. Is this adversely impacting demand for new stores? What's the level of price that Domino's has taken in Japan?
Yeah, I mean, we've taken quite a, quite a bit. I mean, we've had to we had all the same problems as the rest of the world, where we were getting increases coming out of sort of right on us. We, we took a decision to take a price increase in our core menu and some of our sides, and then we topped it up with a service fee, and that was for delivery and carryout. If you look at that, it's probably about a 15%-25%, depending on the product you look at and which basket you look at, because remember, we run we look at different baskets and occasions and segmentations. Yeah, that's, that's what we've taken in the business.
Now, we obviously need to find ways to have, you know. Our product journey is all about some more value items, and priced to attract people to our category again. McDonald's is enjoying aggregator growth from what I can understand, and there is. That's where we'll be investing. It's a marketplace, like we've said in our, in our slides. We're gonna be going after those, those incremental customers quite heavily, as well as in our owned media channels. We've got quite large databases. We're just gonna be activating those quite differently, and we're gonna be investing behind them to entice people back to our brand. That's why we're confident about where we're heading in the future months and, and 12 months, really.
Thank you, Josh. A question from Sam Haddad regarding the longevity benefit of some of the promotions. For example, he notes that My Domino's Box was initially launched in Japan, but Japan's weaker now. Was that mainly a carry-out benefit only? Maybe Josh, if I start with you, and then to Don, your confidence on the longevity benefit of keeping promotions driving ANZ Europe SSS. We'll go around the grounds. Maybe start with Josh.
Yeah, sure. My Box is still a significant part of our menu. It's a lower ticket, that is showing in some of the, the same-store sales as well, but still a significant part. We're actually gonna be on our 3rd phase of My Box, and it's gonna be a category that we just keep investing behind. That coupled with... We see that as one occasion in a whole host of occasions that customers use us for. It's almost like a gateway. You actually have to have that lower sort of price point, and then you then, as you, you, you obviously get the data of that customer, then you can transition them through other occasions that you have and can answer their needs for.
I might pass to, to Don or Andre for commentary around that.
Yeah, I, I think the My Domino's Box, we believe, is a platform now, and you're gonna see extensions, as Josh has said. All new pizzas get launched in the My Domino's Box now. We've got new sides. You know, the new crispy chips are available, so it's a very low-risk way to try those. There's gonna be constant investment, and our franchise partners love it. Slightly more complicated in operation, but because the margins are so high, they're prepared to live with that little bit more of complication, because, yeah, it, it, it delivers. If you look at what we're doing here, we're going after segmentation. The My Domino's Box is segmentation. We've got another product coming, and we continue to work in that space. We've still got to keep exciting the core.
That's an example with the six new pizzas that launched in the ANZ business. Australia this week, New Zealand next week. Last week, sorry, in Australia. Looking through this, we also will deliver some in-and-out products that are designed for the new media. We call it entertainment, and you would have seen that with the pasta- packed pizzas. Huge commentary gets a lot of attention. In the new media platforms, we're capturing imaginations with our audiences in six and nine and 15-second captions. There will be some in-and-out products as well that will be part of entertainment. You know, segment core, a little bit of fun to excite the brand about what we can do with this brand. Andre?
Yeah, Andre, if we hand over to you in terms of the longevity, I mean, how, how sticky are these, same-store sales growth initiatives?
Yeah. The, the, the good thing is that if, if your product's really good, you don't have to promote it as deeply as. Some of the products are just so amazing that we're rolling out. We saw it with the, the fries and the Loaded Fries. We actually today, Wednesday, we're launching the MyBox in, in France. The tests that are that we've done are very exciting. We hope to have that category in France from today as well. We still are. We're a value business, but we, we have many levers to pull. Currently, we see that there's high demand for more quality, more indulgent food, and that's what we're delivering.
The Loaded Fries are just blowing the doors off because it's so, so, so good, and it's so good delivered as well. It's not the so, some soggy fries with some toppings on top of it. It is, it is really moreish and good. The better your products, the, the, the, the less you have to discount them, and that's, that's, that's, that's what we're doing. Together with building more day parts, more, more occasions, and that, that mix delivers the central sales that we've reported.
Thanks, Andre. Don, Richard Barwick from CLSA has asked more of a long-term question: looking back, it feels that as an organization, you were well and equipped to deal with such strong cost inflation. Do you believe you've now built this capability, or is it a case of dealing with it as each new scenario as it unfolds?
Yeah. I mean, I'd like to say that we're smarter and wiser, and the restructuring builds more strength into the bench. You know, learning from how the Dutch dealt with it versus the rest of our business is inspiring. I also are a realist, that it feels the last 3 or 4 years that each of the new events that took place in the world were a new crisis for us. I'd give us a 9 out of 10, 10 out of 10 for our management of COVID, and I'd give us less than a 5 for how we dealt with the first phase of inflation as an average in the business. Hats off to what the Dutch business did, did. Also, hats off to what the German business did.
I mean, they took the most inflation in our business, like extraordinary numbers, twice what Australia took, have come out so strong and resilient as a business, and, and enjoying some of the highest same-store sales growth and, and records in our history. Look, I think we're wiser, but I'm not going to be naive to say that we. You know, you've got to have management that's agile and, and adjust to the new circumstances, because it doesn't seem like every crisis is exactly the same.
Thank you. Moving to restructuring and the financial performance. Richard, the question, very clearly, from Peter Marks: Has your debt now peaked?
Yes. Very clearly.
I love it. I love a quick answer. Okay. In terms of then, earnings improvements, what's the expected first half, second half, split for the savings from the restructuring initiatives? That's from Peter Drew.
Yeah. No, that's a very good question because a much of what's taking place in Europe really is much more weighted to the second half. Whereas in Asia, we at least get a good quarter out of it. In the case of Australia, maybe even a little bit better than that, because we were able to act on parts of the business sooner. It is. You know, we would have the majority of it in place in the second half, where we're delivering upon that in the first half. That's put into the restructure of the people side of our business. The actual more asset side, you see that already taking place with the closed stores in Denmark and so on. That's already happened, those savings are already there.
Yeah, you, you will see more benefit in the second half for sure from our results, and that's a really important thing to note. It's also, when you look at the two halves, the second half by results is weaker. You know, let's, let's try to impress you with results in November and February and, and, and then that will be good tailwinds into the second half.
A question from Richard Barwick: Should we consider FY23 EBIT as the base to which we can add the net cost savings in FY24, or will Japan be a drag still?
There's a little bit of a drag, in, in the, in what's happening in Asia. More than likely compensated by what's taking place in Europe and Australia, New Zealand. From a conservative perspective, we're saying, "Yes, just take 23 and add the savings," and that puts you in a good place. Hopefully then we can illustrate a, a faster recovery in Taiwan and Japan, and the rest of the business has contributed along the way. You know, we want to make it really clear, we're very committed with our franchise partners in our strategic plan, of how we're going to deliver them more through more growth and get this third to them as well, as soon as it takes place. That's all alive and happening. And that's the biggest indicator.
When we report what's happening now, when you see that in 6 months time, I think you'll see why, if we continue that, we'll see stores open. That's, that's what it's all about: customer, franchise partners, the company.
... Ben Gilbert has asked a question, I'm just gonna be careful with how I ask this question, because I want to make sure that we're staying away from giving guidance here. How should we interpret the comment re material improvement on the second half of 2023? Material sales and earnings improvement based on the current second half momentum, what does this mean?
Yeah, well, you, you can see that that was by far the toughest. I mean, the epicenter for our. We thought we'd, we'd recovered a lot of the work in October, and we shared that in November, and then we, we fell in a hole in December, January, February. We had to share that with shareholders at that window, and that was a we, we had a false start. What we're seeing now has got a lot more legs behind it. We still use the word cautiously optimistic, because 3 months is still only 3 months or 4 months in Europe. I'm not sure if I'm answering that question, Nathan, have I? Maybe I've got it upside in my head.
That's okay. There's a few different questions of we'll come at it from a few different perspectives. Craig Woolford similarly asked that the company comments it expects material improvement in FY24, is that referenced from the base in the second half, which was AUD 88 million in EBIT, and lower than the first half of 2023. H1 2023 was AUD 114 million, H2 was AUD 88 million. When we're saying material improvement, what are we looking at?
From the whole year, it's over the whole 2023, 2024. There's no question, for all the reasons we've just shared, we've got a stronger second half. We're still gonna deliver a. You know, when you look at how we've just come out of 2022 and go into, sorry, 2023 and go into 2024, when you do those numbers, you will see a jump. The savings are coming through, and we're getting better network growth. You know, in the first half last year, we took some hits with ingredients we just couldn't pass through to franchisees. We just had to take those hits, and that's not taking place right now. This half versus the half just finished, we see growth, the scalability against the second half is higher because the results were so weak.
we've passed through more of the structural savings, by that point.
I mean, the key here is we don't have these closed stores from most of them from 1 July. Most of them are closed, and Denmark's closed, so you've got that, as I said, a bit of a free kick from that perspective. Then, as Don mentioned, we've got the additional savings coming through in terms of the synergies and restructure and warehouse restructuring and commissary, back of house lots of initiatives that are gonna take a little time to implement.
A couple of questions from Shaun Cousins. In terms of the cost savings and the restructuring, what drove the uplift in FY24 estimated realized savings? We'd initially said AUD 25 million-AUD 30 million as a Domino's benefit after sharing with franchisee partners, and that's now up to AUD 33 million-AUD 40 million. Firstly, what drove the uplift? When will we share those savings with franchisee partners? Let's go to the first half. What drove the uplift, Don?
Yeah. We pass them through almost as soon as we get them. That's a commitment with our board. Our board is very committed to our franchise partners, and our chairman's made it absolutely crystal clear to management that you need to pass it through and get that, those unit economics healthier, because that's the success of this business. I want to make that very clear. It's at the same time, pretty well. We went a little bit more aggressive in our structure as we started to lift elements of it. Josh and I got more on the tools, and it just reminded us Andre's been in a different place. You know, you saw that in Australia and New Zealand, Josh stepped in, and I stepped in.
It just reminded us that as consultants, with the business had become too layered and in our first few weeks in the ANZ business, for all best intent, the team was spinning up projects that already existed globally, and the left hand didn't know what the right hand was doing. By getting us more entrenched in the structure, that has allowed more significant savings. Someone would say, "Well, geez how, how is that sustainable?" It feels a lot more sustainable to me because there's a lot less work when you're part of implementing and sharing, rather than constantly trying to consult and inspire.
You know, as a job of a leader, it's, it's, it's better when you walk in with credibility because you're part of it, and you can physically explain how things work. It means the global issue team does a little less travel, because they're implementers, but I think we're going to see more robust and strong results as a result of that, and there lies some of the increased savings that flow through to the business.
A question from Michael Simotas: Will there be more restructuring charges in FY25?
There'll be some minor ones, but most of them happen in this particular year. Yes, there will be some the move to some of the shared service work in the business does not happen in a day. We've got to build the strength of our shared service team. So that, that takes a little bit longer, and with that, there will come some non-recurring costs in 2025, but, but it'll be much more material this year.
Most, most of the streamlining costs haven't. We, we haven't calculated the some complexity, especially in Europe. Yeah, there will be some re- restructuring costs into the second, into the first and, and maybe some into the second half of next year. Hopefully, most of them will be out of the way in the first half. Also, as you know, we've already we have provisioned for some of the, the closure costs for stores that haven't closed yet as well, but that's already provisioned, so that won't be coming through. It's, it's really relating to the streamlining of operations and restructuring with respect to our team members.
Richard, a question from Shaun: What's the outlook for franchisee loan repayments, as this was almost nil in the second half of 2023? Is that run rate expected in FY24?
Yes. you know, with, with, the challenging unit economics, especially in that-
... you know, flowing into that second half, then the amount of refinancing that we did, was significantly below our normal, and we expect that to lift. And hence why we're our net CapEx position, we're pretty confident that it's gonna be at the lower end of our three to five-year outlook, which is based on slightly lower capital expenditure and funding of franchise stores, but also that we're expecting to get some of those loans refinanced that we didn't have coming in the last half, should push through into the first and second half. Japan's a big opportunity as well, as that business starts to improve. That's, that's sort of maybe a bit of a summary.
Just from Shaun on cash conversion: What's the expectation if payables can remain elevated, and how will Domino's manage working capital to ensure we don't breach our debt covenant?
Yeah. Just to get some clarity there, when you say they're elevated, I think I've highlighted that there's, there's timing of our, our work, our Let's call it, our total working capital does move around, depending on the, on when we close the year. You know, you, you've also we also had the acquisition of Malaysia and Singapore, which added another AUD 30 million, that in their working capital benefit that we in just in total creditors, debtors, and, and that was a positive to our business. Yeah, it isn't sort of just a one-off that was, that, that's locked. We'll continue to have that benefit for going forward. Yes, yeah, I'm not, I'm not seeing any, any challenge in terms of our working capital.
We manage that day to day, and it moves up and down, depending on the flows and ebbs of our business. I think I've also highlighted, Japan has some peaks and troughs in terms of the seasonality. In December, we should get quite a significant benefit as their sales uplift per normal.
Thank you. Just in terms of margins, we've obviously noted in the pack that at this stage, earnings improvements are anticipated to come from the structural savings, and margin recovery is starting in Europe and ANZ, but management's cautiously optimistic, and will provide further updates. Andre, a question from you, from Peter Marks: "The margin outlook for Europe, has it troughed now?
Yes. Obviously, there's a, there's a, there's a couple of things in there that brought, brought the margins down, from a support and, and food perspective, we, we see improvement. There's some of the corporate stores that are, that, that are closed now, which will improve our margins. We see that the store refinancing, we, we do book profit on, on, on stores that we sell, we see that coming back, which is adding margin. We believe that margins will improve, both from operations and from all the initiatives that we're that we're undertaking.
A question regarding similar margins in Asia. "Was Singapore, Malaysia, Taiwan profitable in the second half, given that the 4% margin down from 10% in the prior corresponding period? Or was the driver of that lower margin for Asia, Japan?
Yeah, predominantly, Japan. Yeah, but to answer the first part, we don't break it out, but they, the, the businesses we did buy, were profitable. So no concerns there. All our business were profitable, just, margins were compressed. Remembering also, that we actually own the majority of these stores, in these markets, so they directly hit us. You know, as we cycle even in Japan, we out of the 1,500 stores we have across Asia, we have 790, that are, that are corporate, or 760 that are corporate. So we're taking, taking, some of those, some of that pain last year, and then we're rebuilding out of that.
Which means, the upside is we get the benefit as well, once we've rebuilt out of that.
It's worth adding to that, that we will begin that franchising in the Malaysia business as well. That will be some return of capital in the following the Japan model, that hasn't.
Yeah.
implemented yet, that's imminent.
Yeah, that's a good point. It's not just Malaysia, but we, we are also looking at Singapore as a, as franchising as well. Then considering Cambodia and how do we de-scale that business, considering the trading conditions there. It's... We should see that kick off quite heavily this year.
Just on that, corporate stores, Richard Barwick has asked: "Where do you think corporate store numbers will settle in Europe and ANZ, once all the closure and onselling is completed?
From an ANZ point of view, we've said that our cadence would be, we'd like to sustain around a 50 to 60 store base. That doesn't change as a long-term outlook. That's we'd like to get there. Over to Andre?
Exactly the same for Europe, 50-60 corporate stores.
Yeah.
Over the 3 markets, yeah.
Don, a question from Ben Gilbert: "Given that you'll now be dual holding the roles of Group CEO and ANZ CEO, we previously advised that we were going to consolidate ANZ and Asia, reporting into just APAC and Europe reporting. What's our plans from a reporting perspective?
Yeah, no, with the, the restructure, we now have three clear segments, we will continue to report the three segments. Yeah, that's a good point, Ben. We should have highlighted that earlier. Yes, ANZ, Asia, Europe. The way our business works is that Andre, Josh, and I said, and two of the three of us agree that's the strategy for the company. When we drive that forward, I might have a captain's call every now and then, but by and large, it's the three of us, and then we've got four big segments under that of the business. Those big segments keep bringing up part of the strategy to Andre, Josh and I, three segments.
Excellent. Thank you. Richard, a question from Alex Mees, just on terms of the dividend. Will future dividends be able to be franked?
Yeah, well, they should be. I mean, the-- obviously, this year, the franking was impacted by the statutory losses for, for the restructure costs. That's, that, that was a direct hit to our P&L. Moving forward we'll, we'll pick up the franking as, as our earnings, statutory earnings recover, which, which without these large non-reoccurring, the, the position should improve over the next 6-12 months. In line with, we were saying the markets, where our position is gonna be in terms of profits. ANZ is obviously helpful, that with the ANZ market in terms of franking, the profits are, are made in ANZ. With, with that market turning around earlier, that's, that's, that's helpful.
In addition to that, yeah, as Japan and Europe increase their profits, we collect royalties from those regions, so it's beneficial.
Richard, while I've got you, Craig Woolford has asked, "Why was there such a large increase in payables in FY23, it being up 25%?
Yeah. I, I, I think I sort of answered that earlier, but, but, a one-off from the acquisition of, of Singapore, Malaysia, Cambodia. That was AUD 30-odd million in itself. Then, yeah, just it, it's literally timing.
Thank you. Don, a question from Santiago from Citi: "Which of your markets are staffing issues most challenging, and how are you addressing this? Obviously, given the increased volumes that we're targeting.
Yeah, look, it is, it is challenging across the board. Where we're obviously got the fastest growth parts of the business, it's, it's, it's really challenging. We've made it clear with our franchise partners that we've got this momentum, we're not gonna back off. At the same time, trying to support them with strategies on how we can grow our team members. We have stores that are doing new volume. I mean, we have stores in the ANZ business now that are on a run rate of AUD 4 million a year. They're all in very small areas, so they're not candidates to be easily structurally fortressed. There's some that are, but there's others that aren't.
Yeah, as a team, we're when we look at our three-year plan, very much in this phase right now, as we grow the average weekly unit sales, is how do we support our franchisees to train and staff their stores and retain their team members? How do we structurally improve operations? There's things that we get feedback constantly. We pulse our franchisees. They're giving us really good feedback on things we need to invest in to service them better. We will do that. Even some new equipment and software design that aids some virtual assistants and things like that for the business. It's, it's a, it's a pressure wherever you see the high growth.
Markets with the highest sales growth, they're the ones that are the loudest, because it's often coming from delivery and delivery is the most labor-intensive.
Okay. We're unfortunately gonna have to leave a couple of questions on the table, just given the, I'm conscious of time, and we have a hard stop that we need to meet. Maybe, Don, if I just pass back to you to conclude. This, as you mentioned at the start, not necessarily the result you'd like to be, the numbers you'd like to be putting down on the page. you've gone through a significant restructuring, which is currently underway, both in terms of team members and also some organizational changes and some closing of stores. You've been in this business a long time. You know, what's your expectation of the future? How are you sort of looking over the years ahead?
Yeah, I, I wanna apologize first to our franchise partners, because as I said, I give us a 5 out of 10 for what we did in most of the business, not the Netherlands. We don't live in the averages. They did an extraordinary job, and there's other pockets of our business did an extraordinary job. overall I take responsibility that we could have done things differently, and the hangover from all of our growth as well. We c- we could have responded to that faster. That is the year in the past, and I apologize to ash- our long shareholders with that as well. We're now living in the future, and there is lots to inspire our team.
It is right now, it's a two-speed part of the business in that in one sense, our franchise partners are starting to see in Europe and parts of Asia and Australia, New Zealand, the merits of what we're doing with sales and margins. Our support offices are going through this restructure, and any restructure does have some emotional feeling in the business. Morale can drop in parts of the business that are getting the most restructuring. We, we've been sensitive to that as well. You know, this business is built from our franchise partners up. Confidence in this build is built, built from our franchise partners up.
Personally, I'm loving it because it is a partnership, and we're working very closely together, and we're gonna do some extraordinary things. whilst I'm cautiously optimistic that three, four months is not a full one to two years, or track record, it does feel that the things we're doing are positively structural and we're going to reward our partners, our customers with better value and then our shareholders. Thank you, everybody, for coming on this call today.
Thank you so much to Don, Richard, Andre, and Josh for presenting and answering questions today. As always, a recording of this presentation will go up on our investor website. I do need to get the speakers now off to ongoing engagements as part of our roadshow, and I look forward to seeing many of you at the pizza lunches over the coming days and all of the one-to-one meetings that we have scheduled. Thank you very much for your time and attendance. Have a great day.
Thank you.