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Edited Transcript of DMP.AX earnings conference call or presentation 19-Feb-19 11:00pm GMT

Half Year 2019 Domino's Pizza Enterprises Ltd Earnings Call

Jun 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Domino's Pizza Enterprises Ltd earnings conference call or presentation Tuesday, February 19, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Charles Rennie

Domino's Pizza Enterprises Limited - CEO of Europe

* Donald Jeffrey Meij

Domino's Pizza Enterprises Limited - MD, Group CEO & Director

* Josh Kilimnik

Domino's Pizza Enterprises Limited - President & CEO of Japan

* Nick Knight

Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand

* Richard Coney

Domino's Pizza Enterprises Limited - Group CFO

* Stoffel Thijs

Domino's Pizza Enterprises Limited - CEO of Germany

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Conference Call Participants

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* Ben Gilbert

UBS Investment Bank, Research Division - Executive Director and Analyst

* Craig John Woolford

Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team

* Michael Simotas

Deutsche Bank AG, Research Division - Research Analyst

* Morana McGarrigle

Macquarie Research - Analyst

* Richard Barwick

CLSA Limited, Research Division - Research Analyst

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

* Thomas Kierath

Morgan Stanley, Research Division - Executive Director

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Domino's Pizza Enterprises Limited FY '19 Half Year Results Analyst Briefing. (Operator Instructions)

I would now like to hand the conference over to Mr. Don Meij, Group CEO. Please go ahead.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [2]

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Thank you very much, everybody, for coming on our call today. So my name is Don Meij. I'm the Group CEO and Managing Director. With me here in Sydney and over the next few days is Mr. Andrew Rennie, who's our CEO for Europe. I've got Richard Coney, our Group CFO; we've also got Mr. Nick Knight, who's our Australia/New Zealand CEO. We have got Josh Kilimnik here, who is our Japan CEO; and Stoffel Thijs is coming all the way from Germany. So we look forward to being able to -- for those of you who haven't met some of our expanded team around the world.

I'm really proud today to share our strong global performance where our network sales were up 14.6% and this has been largely driven by our continued growth online where our online sales were up 16.5%, and that underscores our vision as we are wanting to be the leader in the Internet of food in every neighborhood. Today, that's what we see as one of our strengths. And despite all the competition that is growing in the space, we've been able to grow 16.5%.

Our underlying EBIT growth was up 12.1%. Our underlying EPS was up 12.4%. We had strong underlying operating cash flow where we had free cash flow up $36.5 million.

Overall, one of the things that we're benefiting in this result is the benefit of our portfolio of markets. We had strong performance in Japan, in Germany, in the Netherlands, in Belgium and New Zealand, with softer performances in Australia and France.

As you'll see once you get into the results, Japan was a real standout market this half and it really was a half performance even though we were rolling a soft comp last year from Christmas where EBITDA was up 34.3%, and that strong growth is continuing into this half. We had a number of milestones in the last half where we surpassed 1,000 Domino's stores in Europe. So today, we're operating in north of 1,074 stores. In Germany, it's hard to believe that only just 3 years ago, we acquired a market in February that had 21 stores. And today, I'm really proud to say it's 310 stores operating. And it might be a small milestone but still significant, the Australian market just opened its 700th store in country as well.

If you come with me now on to Slide 5, you can see the size of our global network today where, in the last half, we turned over AUD 1.43 billion in global network sales, which puts us now well and truly on track on to exceed $3 billion network sales for the year. We had network sales growth in Australia of 6.2%. In Europe, we had 23.7%, the -- one of the most significant parts of our business for the future. And Japan, a really strong 16.9%.

If you come with me now on to Slide 6, I just want to talk about some of the bigger picture of what we've been achieving online to achieve that 16.5% half-on-half growth in online sales. We -- the group did 32.4 million orders across the OneDigital platform. And it's just so exciting to see the strength of that OneDigital platform and you'll be able to see it talked about by each of the CEOs in their respective markets.

As an example, 95% of the deliveries were placed online in the Netherlands and Belgium in the last half. I mean, it's quite incredible. Only 5% of people decide to pick up a phone to get an order for delivery in the Netherlands and Belgium. And just so -- just to be clear on that, the delivery business is the core of our business in the Netherlands, whereas we share carryout more equally in other markets.

One of the other examples of just the strength and power of the platform is that, as many shareholders will know, that around 48% of our profits are achieved in December and January in the Japan business and the biggest day of the year is Christmas Eve where we typically do 5x the volume. And this year, we turned -- we sold 698,000 pizzas on the OneDigital platform in -- on New Year's Eve, so just giving some of the size and the capacity that we're building into this platform.

If you come on to Slide 7, it's been a busy half where we added 77 organic stores in the network, but we also converted 72 stores of Hallo Pizza in Germany. And that's well and truly ahead of plan and Stoffel will talk about that today.

We're really also happy to reconfirm that we're well ahead of schedule in our franchising program in Japan. It's all internal franchising. Our managers, our existing franchisees are opening stores. We had originally guided that we would be 40% franchised by the Tokyo Olympics. And today, 43% of the network is franchised and performing really well.

If you come on to Slide 8, we'll open our 2,500th store next month in Nagoya, Japan, showing the rate and pace of scale of the network.

If you come on to Slide 9, I want to highlight that we've had an increase in our same-store sales in the first 7 weeks versus the first half where our like-for-likes were up 4%. And we've opened 13 new stores in the last 7 weeks versus 5 this time last year. So there's a nice rate and pace of change in our store growth that continues to build. Also, credit to Andrew and Stoffel and the whole German team is that we've now gone from 72 stores that we ended the last half with, converted in Hallo, to now 110 stores, so to bring that whole network in Germany to 310 stores. Can't underestimate the significant effort and probably one of the fastest growth markets in history for Domino's to get to that size that quickly in such a big pizza market.

If we go to Slide 10 and just talking and talking about our guidance, I want to reconfirm that our same-store sales will be in the lower to mid end of our guidance, the 3% to 6%. We are slightly adjusting our store count to be in the range of 200 to 215, which is still on the higher end of our 3- to 5-year outlook of 7% to 9%. I think you'll find us in the high 8s for store growth, so it's still within that window. EBIT will be on the lower end of our guidance and was reconfirming that our net CapEx will be in the range of $60 million to $70 million.

So at this point in time, I'm going to hand over to Richard Coney to go through some of the detailed financials.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [3]

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Thank you, Don.

Moving to Slide 12, just confirming again, EBIT up $11.7 million or 12.1%. Going down to NPAT, we did have additional interest costs relating to the share buyback and partly the Hallo acquisition. EPS though, with the benefit of the buyback, is actually up 12.4%. And we're -- our interim dividend up 7.9% and 75% franked.

Just moving to Slide 13. It's important to note this year that as a result of adopting the new revenue standard, we're now consolidating our ad funds. That does impact our margins and there's no benefit in terms of the bottom line. So we've done a -- we've actually normalized those margins on this page so you can see an apples-with-apples comparison.

If you look to ANZ, that growth is 3.3%. The margins are off slightly and this is predominantly a result of the additional corporate stores in our mix. We've gone from 66 corporate stores in the first half last year to 92 now. Nick will talk a little bit more about that.

In Europe, our growth is 13.3%, predominantly due to some tough trading conditions in France. We're expecting higher than that. On saying that, we did benefit from FX of approximately $2 million.

In Japan, a real highlight for us with 34.3% EBITDA growth as Don has highlighted. And again, we had benefited from FX of $2.1 million, still delivering 25.2% EBITDA growth.

You can now come with me to Slide 14. This is a slide we always put in reconciling our statutory to underlying where we have $25.7 million.

If you move to Slide 15, we've detailed that split. And a couple of things have happened. In the half, we concluded and reached settlement on our IP dispute. So we've put that behind us. That actually cost $10.9 million.

In Europe, Germany conversion continues and integration to Hallo Pizza continues ahead of plan. So that $12.6 million although a large number is all as we've advised and previous guidance of $30 million to $35 million in '19. And there were some other items which we can talk about if you would require more detail later.

Moving to Slide 16. Actually, we've created this additional slide really trying to highlight the material contribution of our international business we're making to our underlying earnings. Since 2013, our overseas underlying EBITDA has increased from $3.1 million to $71 million and now makes up 51.7% of the group for this half. This demonstrates we now have a well-balanced and diversified portfolio with management successfully operating across multiple geographies and, more importantly, cultures, the French, the Germans and the Japanese, and EBITDA.

If we move now on to Slide 17, you've seen this slide many times, but again, EPS up 12.4% as highlighted for the year and our EPS CAGR for 3 years is 15.2%, which is obviously strong.

Moving to Slide 18, our cash flow. As Don highlighted, underlying operating cash flow before interest and tax is up 26.2% to $139.8 million. Our working capital did benefit from strong revenues in Japan, so slightly positive at $3.9 million versus negative $7.2 million in H1 '18. Tax payments have sort of normalized now back to a normal level. We did benefit in prior halves from unusually higher normal deductions related to R&D and other items. Our cash conversion continues to be strong at 74.2%. And again, our loans being repaid by franchisees, especially in Japan, has gone from $2.5 million to $13.8 million.

Moving to the balance sheet on Slide 19. There's not a lot to say here. Most of the movements relate to translation of our assets from Europe and Japan and the stronger yen and euro. So I won't go into too much more detail there.

And then finally, moving to Slide 20 for me, our financial ratios. You can see return on equity has increased to 44.6% from 37.7%, obviously with higher profits and the share buyback funded by lower interest-bearing debt. Our net leverage has increased from 1.5x to 1.8x, but with interest coverage at 16.2x, our gearing continues to be conservative.

I'll now pass you on to Nick Knight, who will talk to you a little bit more about ANZ.

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [4]

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Thanks, Richard. Good morning, everybody.

If you follow me now on Slide 23, first half network sales increased 6.2% and 3.5% on a same-store basis. Although that was an industry-leading performance, it didn't meet the expectations that management had set. In spite of that result, a really strong performance. I want to congratulate the team in New Zealand for their work there.

If you move now to Slide 24, there's a couple of different graphs and charts from this page, but really what I want you to take out of this is that Domino's continues to grow not only share of the pizza category, that's really clear, but also continues to grow the category by taking share outside of pizza on the broader QSR. And what's really exciting for me about that is that whilst we've shown that we can and we will continue to poach that ex-pizza category, we still only represent 3.5% of the total QSR market here in Australia, leaving us a lot of room to continue to grow and expand the Domino's business.

So if you move with me now onto Slide 25, we opened 13 new stores, organic stores in the network in the last half, 11 of those being franchised. We did highlight at the last half that we expect heavier weighting of new stores to the second half, but I do want to take this opportunity to say we've seen a slight moderation in store count rollout in Australia and New Zealand as we head towards our target of 1,200 over the coming few years.

We opened, as Don mentioned, our 700th store. So I just wanted to congratulate Greg and Sarah on their 5th store, some amazing franchisees doing some great work there in Flagstone in Queensland.

I'm really, really excited about the technology we continue to develop not only for our customers, but for our team members and stores and franchisees. We are putting a lot of effort into really leading-edge stuff here that's really helping drive efficiency at a store level and really helping team members and store managers and franchisees do a better job of executing for the customer and run a more efficient business.

We introduced the Official Pizza of Summer campaign. We put a lot of new product into the system and a lot of things going on in December. Some of those worked extremely well, some of those not as we had planned. But one of the things that I just want to call out is the XL or the extra-large pizza. That's a really good example of where we're trading, amazing value to customers, 50% more pizza for just $3 more, but not only that, it's an incredible vehicle for profit for our stores and franchisees. So now there are win-wins that we continue to find there and lots of projects just like that in the pipeline.

If you move with me now on to Slide 26, we shared in 2017 that we had a program called Operations 360. And in essence, what that is, is the benchmarking and training program for franchisees to highlight where they have opportunities in their business and how they compare to like-for-like peers. And that program was designed to help us grow our multi-units. We have a target of 5 stores per franchisee and you can see from the graph on the right there that we're making good progress with that job.

Now part of that program is that we will see, in some cases, franchisees leaving the system and that is resulting in a short-term increase in corporate store count. I don't expect that, that is going to be materially impacting on our numbers, our EBITDA, but it will -- because we book all the revenue for corporate stores as revenue instead of just franchise royalties, that will have an effect on our margin in flattening that as we increase the revenue on. Another byproduct of that is that some of these franchisees will be pretty disappointed with themselves and no doubt disappointed with Domino's and they may choose to voice that publicly. That is an unfortunate expectation, I mean, in some cases, but we think that our business, our franchisees and our customers are best served with sophisticated franchisees who are operating more than one store. And we're making good progress as we move towards that.

So if you follow me now on to Slide 27, franchise profitability continues, as always, to be an ongoing focus and lots of projects that we have where that is an intended outcome. Project 3TEN continues to drive delivery times down as we shoot for our goal of a pickup pizza in 3 -- order in 3 minutes or a delivery in 10, safely delivered with our technology that we're developing in-house and we've partnered on in various aspects of the business.

Pizza Checker, really excited about this one. It's a year late because it took a little bit more time to get right, but we really feel like we have done that now. And we are now -- we'll be fully rolled out in South Australia by the end of this week and I continue to just get some -- incredibly excited when I see feedback scores from customers who are getting our product checked by Pizza Checker. It just continues to show that investing in this area of the business and giving our franchisees, managers and team members the tools to execute better for the customer is the right place to invest.

Our new next generation mobile app will launch. We're really aware of the speed -- pace speed as it impacts on conversion. And this new app will not only be faster, simpler and a more rewarding experience for customers, but it will be an app that you'll be able to open in any of the DPE countries and order a pizza in any of the markets that we operate, which is exciting.

So just to finish up, I'd like to thank our store managers, our franchisees, our team members out there working tirelessly every day to execute for the customer. We don't take their efforts and their faith in us for granted. And looking forward to working side-by-side with our franchisees and store managers as we move into the second half.

I'm now going to hand over to Andrew to talk on Europe.

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [5]

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Thanks, Nick.

If you come with me on Page 30 folks, as Don said before our network sales in Europe were very pleasing at 17.4% on a constant currency basis. And whilst 2.3% like-for-like isn't something we're proud of and we have higher expectations of ourselves and we need to do better and we will, yes, this is against the backdrop of record heat waves or record hot summer, snow. But yet through hail, snow, whatever it takes, we keep delivering, right?

We're continuing towards our goal of 2,700 stores now and new upgraded store count in Europe. And also, I take people back a little bit is that this business only, 12 years ago, we were only at 155 stores. And as you look back into half 1 '14 into that graph there, we had challenges 5.5 years ago. When I went back to Europe, we had challenges in France in a few different pieces. We overcame those challenges. Back then, we only had an EBIT of AUD 6.3 million in that financial year and we're now closing in very fast on AUD 100 million EBIT over there. So clearly, that didn't stop us from achieving some big goals. And the challenges we've had this last half won't stop us from going towards our next big goal.

Exceptional performance once again by the team in Netherlands and Belgium. And it's quite pleasing to see when you look at some of the -- if you look to the numbers back in Australia, there's a population there of 35,000 to every store in Australia/New Zealand or -- and we look forward to the next slide on Slide [35], you see that even in the Benelux region where we've been doing exceptionally well, we're still only 85,000 for the stores, so still 2.5x smaller in terms of penetration there, so a lot of growth to go.

If we move on to Slide 31, we've opened 31 organic stores in the first half and we're on track for this financial year to have another record organic growth year with 95% of those stores being opened by internal franchisees or managers. And as I said, hitting 1,000 stores is no small milestone and not many people would have believed that we could have hit 1,000 stores when we first went to Europe back 13 years ago.

I'm extremely impressed with the team that we have in place. I honestly believe in the 10 years that I've been working in and out of Europe that we now have the best management team in place that we've had in those last 10 years without a doubt.

In aggregate, I think Europe has done okay, but we're not giving ourselves a pat on the back. We have a lot of work to do. And a couple of those things that we're working on is that the initiatives that new management in France have put in place. We have an incentive program in France with our franchisees and we adjust that incentive program based on what we think the business needs. And then we've adjusted that to give more in terms of incentive back to franchisees to help them invest in growth, particularly in customer growth. So you don't see those in same store sales yet and we've seen great effect of that.

And we're bringing back things that worked for us back 10 years ago with our Mardi Fou and our value proposition. So we're getting some really good returns on those.

I'm extremely happy with what Andrew Bradley is doing. He's communicating with the franchisees because he was one of them as well, like many of us were, and it's definitely been the right strategy to bring Andrew on board.

You'll hear from Stoffel in a second. He's our man in Germany now. And again, extremely impressed with Stoffel's work there. Twice now, he has worked with us there when we did the conversion of Joey's. He's got a lot of experience and he will talk to that in a second and you'll see that his experience is quite extensive.

As I said before, because of the penetration models that we've -- and the sales we've been achieving in the Benelux, we now have Luxembourg and we'll be opening a store there this half. We've upgraded slightly sliding to 100 stores, giving ourselves a little bit more time because the reality is this is a big business with lots of moving parts and we don't want to put too much pressure on ourselves. So we firmly believe that we'll be in that vicinity somewhere between 25 and 28. We'll be up there in that sort of 2,700 store mark. And if you still do the comparisons of what the store to our population will be, it's still way above where Australia/New Zealand is today. So we're still being very conservative on that basis even though the French and the Belgics and the Germans eat a lot more pizza per capita than what Australians and Kiwis do at the moment.

If you turn with me to Slide 32, and now a couple of things to pick off the page here. With Project 3TEN continuing to roll out, the Dutch continue to be the best in the world and are leading the rest of our markets in Europe. A big plus for me is that the French stores have broken their record 3x in the last 2 months, all led by Andrew Bradley's team. And for the first time ever, we've had a 10-minute delivery store for the whole week. So the whole week, we have reached 10-minute deliveries in France. Many people thought that was impossible. And the other thing to take in mind, they don't have all the technology implanted there yet, but other markets have to achieve that. So that's quite organic and quite impressive.

We'll come down -- the other big thing for me is that we're rolling out the loyalty program. And for those of you who follow DPZ would see that loyalty has been a huge success for DPZ over the last sort of 4 or 5 years. We've taken a lot of learning from those guys. They've been extremely helpful with us. And in fact, we're adopting a lot of their programs. So we've been testing that, a lot of positive remarks. And loyalty is very popular in the European countries. A lot of people have a lot of loyalty programs. I think there's a lot of upside for that. I won't say that in this -- coming in this half, but I think that FY '20, we'll start to see the effects of loyalty coming through.

We're coming now on to Slide 33 where we touch on France. What did we do to have lower margins? We invested in our franchisees. We invested in their long-term success. We invested in marketing programs. We invested in customer growth programs. And they seem to starting to pay off, as you'll see, that the like-for-likes are coming to a nice space. So I would say, if you go back 5.5 years, we've had challenges before in Europe with different cultures, go about things in different ways. And the good news is we always are able to overcome them and move forward and it hasn't stopped us from being successful in Europe at all.

If you come down to the next slide, on Page 33, look at France, 170,000 people per store. Australia is 35,000. We're 170,000, that's how much more growth we have left. And the French eat 2 to 3x more pizza than the Australians do. So it's absolutely not only in terms of store -- in terms of population per store, it's consumption as well, which is 3x higher. So on a normalized basis, you could probably say that's more like 340,000 to 500,000 per store, so lots of growth there. And as I said, all of you will get to meet Andrew Bradley. He'll probably come out with us next half and you'll see what a quality guy he has been.

The other thing that we expected to have rolled out last half, which has been delayed, is the aggregator layer in France. It's a sales layer that we treat very similar to Google search. We've got it in every other country now except for France mainly because we've been in negotiations to make sure we get the right aggregator with the right deal in place and the right terms. We're very close to closing that off. And I think once we get that, we'll have an extra sales layer in France like we have in the other markets. Some of the markets have got a 10%, 12% sales layer from that. We don't have any of those in France at the moment. I think that's also something we expected to have in by now, but it was a bit delayed.

Look, on that note, I think I've spoken enough. I'd really like to pass over to one of our exceptional leaders of business, Mr. Stoffel Thijs, who will talk to you more through what we're doing in Germany, which, as Don said before, is probably being one of the big successful stories of Domino's in its history in 60 years. Even [Rich Allison] has commented the fact that they haven't seen a market go from 20 stores to plus 300 stores in such an amount of time. And you can't underestimate, when you're taking 2 or 3 different companies and different cultures and putting them together, how hard it is, but Stoffel and the team are doing a fantastic job. So on that note, I'll pass you over to Stoffel.

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Stoffel Thijs, Domino's Pizza Enterprises Limited - CEO of Germany [6]

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Thank you, Andrew. And since I'm a new name to most of you, I'll first briefly introduce myself.

My name is Stoffel Thijs. I'm the CEO for Germany, as said before. I joined Domino's 21 years ago as a delivery driver and developed into a multiunit franchisee before joining DPE to build the highest margin corporate system in our network in the Netherlands. As Andrew already told you, I then moved to Germany to help in the Joey's conversion. And after that, I lived in France to establish local management, which we've done last summer. This summer, I moved on to Germany to become the CEO.

In Germany, we today have 310 Domino's stores, of which 109 are converted Hallo Pizza stores. With that number, Hallo conversion is ahead of schedule. And while we're welcoming the new Hallo franchisees to our brand, the Joey's converted franchisees are moving to the organic growth trend with their stores. In our converted stores, we are embedding the 3TEN philosophy and with EDP records being broken every week. We are enhancing our relationship with our repeat customers by growing our own media-based channels. Our ongoing focus on our digital strategy has resulted in a 20% uptick in order sales for our converted Hallo Pizza stores.

Now I would like to take you to Slide 35. Looking forward for the Benelux, management anticipates accelerated new store openings in the second half of 2019 with the first store opening in Luxembourg. To provide for all the growth, the Dutch team is working on a new commissary, which we expect to be operational in the second half of 2020.

For France, Andrew already spoke about the 3TEN philosophy, which we'll be pushing further by testing fast-bake ovens and predictive ordering to drive delivery times down even further. Higher store openings are anticipated in the second half and DPE is investing in a third distribution center in the south of France to reduce freight costs.

Now please follow me to Slide 36, forward-looking for Germany. Our Hallo Pizza conversion will be done by the end of March of this year, which will result in a significant increase in marketing activities in Q4 financial year '19 with our full focus on one brand. Part of this focus is one national menu, including a Daily Deal to drive sale in pickup. Since time is the enemy of food, we introduced Co-Pilot, driving efficiency on store level and reducing delivery times. To enhance customer experience, we'll introduce in-house (inaudible) like Order Anywhere and pickup guarantee, which is proving to be successful in other parts of DPE. With more and more deliveries being done on e-bikes, management is aligned with the vision of having 95% of deliveries done electric by 2025.

On that note, I would like to hand it over to Josh.

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [7]

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Hi, everyone. Josh Kilimnik here, CEO of Japan as well. I've been back and reporting to you after just over 14 months in the business. And the results have been really encouraging.

And Japan really has responded well to a new level of focus on what essentially is Domino's fundamentals all around the world. This has translated to results, which has really broken a 3 year flat to negative trends, and it was due to 9% network sales increase, of which 4.8% in same-store sales basis. Like top line, bottom line has also increased and it's really been due in part to our focus on the store unit economics of both our franchise and corporate stores for without that, we can't do anything in the business. So that has been the focus every day and that has allowed us to achieve some of the results you'll see over the next few pages here.

So let me dive into this a little bit more. So if you come to me -- come with me over to Page 40, the strategy has been somewhat straightforward. As you know, we're focused on delivering excellence through Project 3TEN, much like the global business. We've increased our product quality and offering, which I'll come back to in a moment.

One of the main things is we've really leveraged the DPE global business in terms of what they know in terms of digital platforms. And our OneD platform has really led to strong conversion, which is a big change to what we had last year using our legacy platform in the market, so OneD certainly performing for us.

I think, lastly, we've made sure there are significant sales period, especially through Christmas and January. It's been both delivered by operational excellence, but also a promotional offering that's [written] over consumers, along with a full menu offering, which you might recall last year at Christmas didn't go so well because we've limited the menu this -- sort of the year before that in 2017. In 2018 Christmas, we had a full menu offering and we executed on both an operational and a sales level, so really encouraging results.

Franchisees have really welcomed this new direction as well. And the increased profits this had in the business have allowed them to pay down debt not only to us, but also to the banks. But the -- it also allows them to invest in their teams and do -- and buying extra franchises and expanding their own networks further on.

Yes. We've had a solid 6 months of store builds, 31 net new stores, including 6 brand-new franchised stores, but the story doesn't really end there. I mean, we've had 23 new franchised stores. And one thing to remember here is that Japanese franchisee really likes us to open the stores and do some of the heavy lifting for them and give a full turnkey solution to them. And we actually don't mind that. We've got the corporate network that can do that. This actually helps in giving them a head start and it gets them to focus on the operational aspects of the business going forward and not have to worry about some of the start-up problems that you have in a new store. So certainly, a critical control point for us and we'll continue opening stores and cycling through franchisees.

One thing to note is that they are 43% of our system now and growing, and that's really encouraging for us. And as we look for further engagement of our franchise base, we see it as a real source of growth going forward.

We ended the year, 550 stores. We'll build another 5 this year, and that's really encouraging and is ahead of plan.

If you come with me to Page 41 now, as aforementioned, we've driven our Project 3TEN initiatives down to the store level through a range of roadshows and incentives that really aim to safely bring down delivery and carryout in a really phased approach over the next 2 to 3 years. We're really changing mindsets here in Japan and we have achieved some amazing results with our Co-Pilot technology that has produced world records in this space.

In terms of technology, Japan is committed to the ongoing optimization of the OneDigital platform, which has proven now easily capable of handling the biggest of sales. Their Christmas period was not a problem at all. And use of this key platform is unlock some other opportunities for us where we -- actually launched Offers App. As you'll recall, the sales last year, we launched Mission 20, and we'll continue to build and deliver tech on this platform.

If you come with me to Page 42, looking forward, our road map, we'll continue to build key differentiators in tech and in service and in innovative products. And I just want to pause on products for a moment.

One thing that we have been doing in the market is really bringing authentic international experiences to our consumers. The research is very clear. Japanese wants us and brands like us to add to their culture. And we've been doing that through things like Italian range, which we've introduced the triple-aged Italian salami and bucatini to the business. And we've also done that with New Yorker, which is American cheese, American pepperoni, American beef, giving Japanese authentic experiences that adds to their culture. I think we're going to continue to innovate in this area and as we look to become one with food again in Japan. A very important part of Japan is eating out and food quality.

We're going to continue to invest in our delivery positioning with -- we're looking at our garages. We're going to further go after technology innovation. And one of the things that OneD allows us to do is to launch something that the DPE markets have already got, which is On-Time Cooking, which really allows a consumer to get a very, very hot pizza when they want them. So we only start cooking that pizza when they trip a geo-fence and that allows the quality improvements and hotter, fresher pizzas for them to pick up from our stores.

We anticipate a very strong H2 with accelerated store openings. With all the things going on in the profits, we feel that this is the -- we should be accelerating store openings now. One thing to mention there is that it does have a slight drag on our profitability, but this is the right thing to do for the long term of our business as we try and hit -- as we go towards critical mass. With that culture, we've raised the outlook to 1,000 stores and very pleased with the results over on Japan.

Thanks very much. I'm going to hand over to Don Meij to wrap this up.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [8]

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Thank you, Josh, and thank you to all the CEOs and Richard. One of the things I'm most proud about is the depth and the experience. And I hope that some shareholders and analysts don't get to travel as much and that, over the time, we continue to introduce our leadership around the world that are driving some of this extraordinary global growth for our business.

So if you come with me on to Slide 44, as has already been highlighted, we are upgrading the outlook of the Benelux to an additional 100 stores. And the population of the Benelux is roughly the same as Australia/New Zealand to put in perspective. So we're now giving that a -- we're well and truly (inaudible) market in Europe such extraordinary growth. It's easy for us to see an additional 100 stores. And once again, with the share growth we're getting in -- with the leadership team in Japan, we've upgraded our outlook there for another 150 stores to approximately 1,000 stores.

We have been listening to the market. We've been listening to feedback from shareholders and analysts. And rather than just having absolute numbers at absolute times, we've decided that more and more, you'll see -- as we give out, we'll put it in a range. So we have given ourselves a little bit more oxygen in this space and we're now saying that we'll achieve 4,900 stores somewhere between 2025 and 2028. It should be noted that, that is before any additional country acquisition, although it could include more acquisition in market if we are successful enough in converting businesses.

Like all acquisitions, they are opportunistic so that they can never be promised, but we are active in this space. And as we reiterated 6 months ago, we're very, very focused on Domino's growth. So in previous years, we've pursued other growth, but right now we're very dedicated to Domino's growth and are being supported with that within the Domino's network from DPZ.

If you come along to Slide 45, I clearly remember well listing the business in -- with the team in 2005 and we listed with 333 stores. And we shared with shareholders that we thought we'd get to 550 stores as a business. I'm really proud to say that we'll open our 2,500th store in Nagoya, Japan in March. I'm looking forward to that celebration with the team. Quite a significant milestone in our history and past the halfway mark on our way to 4,900 stores between 2025 and 2028. So even with this year with a slight adjustment of our record organic growth, about 200 and 215, we're well on the upside of our 3- to 5-year outlook of 7% to 9% store count growth.

If you come with me on to Slide 46, reconfirming our 3- to 5-year group outlook, where we believe our essential sales will be in the mid-range -- low to mid-range of the 3% to 6%. Our annual store growth will achieve that in 7% to 9%, and we believe that is a genuinely good -- a realistic 3- to 5-year outlook. You can see our organic growth is lifting and we're lifting that even when we're still in our converting stores like the Hallo business and you cannot underestimate the significant efforts to do that. And then our annual CapEx will be in that range of $60 million to $70 million. It's really important to note that loans are coming back from our franchisees. It's a very healthy part of our business where today, right across the globe, it's mostly internal growth. We do support young managers that are the stars in our business to go on and to become franchisees, and some of our successful multi-unit owners sometimes need a little bit of our support as well. And it can't be underestimated the significance of the success in Japan and how quickly that loan book is coming back in Japan, which was the biggest part historically. So feeling very good about that.

So in conclusion, we had a really strong half with our network sales up 14.6% our global sales. In line with our vision to be the leader in Internet of food, we achieved really strong online growth of plus 16.5%. Overall, we had strong performances in Japan, in New Zealand, in the Netherlands, Belgium and Germany with softer performances in Australia and France. So one of the benefits of going overseas was to create a portfolio of markets. And when you think of that today, we have 12x more pizza customers, potential pizza customers outside of Australia than we do have in Australia. That's 300 million more consumer potential than we have in Australia. I do remember many, many years ago having population envy in that I always worried we would run out of enough Australian customers. And whilst we haven't got to that point and we're still confident in achieving our 1,200 stores, there is without a doubt, we have significantly more opportunity and we're proving ourselves and more recently reconfirming that in Japan that we can drive successful sales and profitability through these other markets. Also, what's so great about the portfolio we have is the strong currency. So the euro and yen, 2 of the stronger currencies around the world, which is another envy I used to have when I'd walk up to the Domino's worldwide markets and the Aussie dollar wasn't as strong that year and we were trying to compete. We have no excuses. We have huge populations, big markets. And we are working to those plans and delivering on those plans.

Highlighting the performance here in Japan today, at 4.8% like-for-like cannot be underestimated relative to the performance of the retail market in Japan. That's a really strong half and that was achieved with a lot less discounting because we're driving things that work through technology, through product, through execution of delivery times and so forth and so on.

If we talk about Germany, reiterating just 3 years ago we had 21 stores, today, it's 310 stores. We are moving many of our franchisees to Phase 3. Those shareholders and analysts who were following us will remember that when we announced 3 years ago, when we acquired the Joey's business, Phase 1 was the physical conversion of beautifying and turning these stores into Domino's stores and then giving the franchisees and customers the access to OneDigital. That was Phase 1. Phase 2 is the much longer period where we go through cultural conversion. Not everybody will want to be a Dominoid but it's a mental game. And so many of our franchisees are still in Phase 2. But what we're really excited about is many of our franchisees have now moved to Phase 3, and we're seeing organic growth. So we opened our first organic stores last year and now we've got really good momentum. And I expect that you'll see strong organic growth and Germany will now start participating in the organic count. Sometimes we've had shareholders and analysts say jeez, there's a lot of store growth in the second half. That's largely led by adding Germany to that now with organic growth, the speed-up of Japan, be it that we've also will have slower store count growth in Australia based on -- compared to historical numbers.

If you come with me on to Slide 48, we do have a number of initiatives and we can talk to those. Both Nick and Andrew have spoken to those in France and Australia. The difference between the like-for-likes in Australia may have been 1% or 1.5%. We do have high expectations as a business. And so 3.5% is disappointing to us be it that we were still the fastest growth QSR in Australia in the last half by network sales of any of the major QSRs. And I'm sure many of you may have seen the Roy Morgan research that came out and said that in the last 4 years, Domino's was the fastest growth major QSR, where we've gone from 1.8 million Australian visitors to our business every month to now 2.8 million, and it continues to grow at the fastest pace.

Now continuing on, we've upgraded our outlook to now 4,900 stores within the next -- by 2025 to 2028. 70% of our revenue now comes from the international business. And for the first time, nearly 52% of our EBITDA also came from the international business and will continue to grow as a proportion based on the size and scale.

We are reiterating today that we will be on the low to mid end of our same-store sales guidance and our EBITDA will be on the lower end of guidance based on some of the slower performance in the first half, and we're slightly adjusting but still in our long-term outlook our store count growth to be 200 to 250 organics -- 215 organic stores this year. We do expect that we will continue to pursue more acquisitions, both the conversion businesses within markets and we're hopeful for other countries. We're really well supported by DPZ. Our strength and relationship with our -- the brand owner Domino's Pizza Inc. out of Ann Arbor, Michigan, really, really strong relationship. We're doing the most collaborative technology sharing in our history right now, which is great for leveraging both all of the work that they're doing and all of the work that we're doing in partnership. So very -- really positive about where that's going and also the approval to enter into negotiations with more countries. So that's also a really positive part of our relationship. So yes, that's a continually growing part of our businesses, with which we share in the brand. And so yes, moving forward, we're going to be offering a 3- to 5-year outlook on same-store sales, on store count growth, on CapEx. But this will be the last year that we offer an annual guidance figure. Once again learning and listening to the market, we think that for the size and scale of the portfolio of our business, that we are better serving our shareholders and the market by giving 3- to 5-year outlooks on what we think we can achieve rather than focusing on short-term moments in annual guidance. So at this point in time, I'd like to now hand over to our calls for any questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ben Gilbert with UBS.

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Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [2]

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Just a first question for me, just around you mentioned the last update just around some cost pressures from import costs across the business. So I was just wondering how you're seeing those, how they're translating into margins, particularly in Australia and how you're looking to manage and mitigate those going forward.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [3]

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Sure. We'll quickly run around by market but I’ll start with, as you said with Australia, with Nick?

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [4]

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Yes. Hi, Ben. Nick here. So we did highlight that we were expecting some small cost increase on the food cost. We were enjoying a benefit last half. In this half at a store level, I'm proud to report that at the moment, if you look at our food cost as a percentage of sales, it's the lowest it's been in this half in a number of years. In fact, we're seeing some good reductions due to some initiatives in the last couple of weeks as well. So we have been able to mitigate those at the store level and that's not a headwind in the purest sense that we had guided or alluded to the last half.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [5]

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Anything from Josh, Japan?

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [6]

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Yes. I think for Japan, we're answering any headwind we have with volume increase. So we really haven't seen the basket size or basket cost increase too much. So yes, nothing really there.

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [7]

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And in Europe, Ben, there were some slight headwinds in the first half but we see those flattening out and not the same impact in the second half. So there were some.

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Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [8]

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Yes. And just wanted -- just interested in the comment that you put, just in the European one just around the headwind from the payments to Domino U.K. just it's going to be a bit of a headwind around margin. How should we be thinking about that? You're -- obviously you're sort of taking the share. So in theory it's better running that business (inaudible)

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [9]

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I'll hand over to Andrew, but just to clarify, Ben, that's actually the DPZ not to DPE our partner. So that's -- when we acquired -- it's a real partnership. So while we have a genuine partnership in the ownership with Domino's United Kingdom, DOM listed on -- over in the U.K., the royalty support came from DPZ because we're buying businesses that weren't paying the royalty because they were the franchise all themselves. And so we had a stepped-up process, which we talked about when we acquired both these businesses. So that's support from DPZ and so that's just a slight taxing of the German business as time goes on roughly in that sort of 0.5% range. Andrew, you want to add any color to that?

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [10]

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No. It did last another couple of years, but we've got things that -- advantages coming our way too. As you would know, Ben, we've got the Hallo head office that will be closed in this half. It's a benefit. We've got the new commissary coming on in H1 in FY '20 for the Netherlands which helps our margins big time there. And we've also been able to find a -- the location in the south of France for a -- not a commissary but a distribution model that will allow us to lower freight cost in France as well. So with those along with getting online with the aggregator in France, the wholesaler there, we think we've got some good margin coming back in the business. You'll start to see it in the second half but more so in FY '20.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [11]

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And reinforcing, when we talk about the aggregators, we talk about them as a search engine. Absolutely around the world, Domino's delivers -- that's one of our strengths. We want trained Domino's drivers that are trained in safety, that are being paid hourly wages. We think that's a much more efficient model and that's a dedicated Domino's model globally. So really just the aggregators that we talk about is just accessing it as another way of accessing the platform.

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Operator [12]

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Your next question comes from Tom Kierath with Morgan Stanley.

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Thomas Kierath, Morgan Stanley, Research Division - Executive Director [13]

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Just a question on the ANZ business. Obviously, growth has slowed. Have you guys borne some more cost there and franchisee properties elevated? Or can you maybe step us through the drivers of the margin reduction and the slower growth profile there?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [14]

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Yes. So Tom if we go to the margin I highlighted in my presentation today, part of that is just the booking of the revenue and I think also the ad funds -- no, sorry, that's different. Yes. So that does have an effect on margin and booking the full revenue of corporate stores versus just the royalty component from franchise. In terms of flattening, one of the big drivers for us at a store level is obviously that operating leverage of sales, and being a little bit softer than expectation has meant that it's been a little bit softer than expectation at a store level. But we have a number of initiatives in play at the moment that we have invested in. So we did invest in Pizza Checker for our franchisees and some of the hardware associated with the XL pizza, and we do that because we showed the franchisees that we are down in it with them and we are a partnership and we do believe in this platform. So that's the kind of investment that you're seeing DPE make on those fronts. And theirs are the kinds of programs that are also helping drive that sales and give the franchisees that operating leverage.

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Thomas Kierath, Morgan Stanley, Research Division - Executive Director [15]

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And just one for Andrew. It looks like the last couple of months in Europe improved a fair bit. Weather, it seems like was pretty poor over that period. Can you just talk through the drivers of that and whether you can continue with any kind of developments you've done to drive that?

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [16]

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Yes. Tom there's a couple things there. One is we've actually had some -- believe it or not we had quite a few days of stores shut with snow. So that also hampered us a little bit. But to be fair, it was just brought back to sort of more normalized type like-for-like because, as you know, summer wasn't normal. And I'd even say that post-March, post the conversion of Hallo, we'll move into a better state again. And also post the -- getting those aggregator -- or getting an aggregator on board in France, yes that hasn't happened as fast as I would like. But if we -- we're determined not to move too fast there because once you've done it, you're locked in for a while. So we want to make sure we've got the right plan in place there. So make sure that from our point of view, we feel as though the same-store sales will start to cycle upwards, particularly in the Q4 and mainly because when you think about it, all the CEOs in place have only been there 6 months. It takes at least 6 months to get their programs into place, put their fingerprint onto the business, their strategies into the business. So yes, I'm feeling quite good about it, particularly as we run into FY '20, I think we'll see some pretty nice numbers.

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Operator [17]

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Your next question comes from Richard Barwick with CLSA.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [18]

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Can I just go back to the royalty coming through on Germany and think about how that might translate through into basically margins for that business? Can you just confirm -- you talked about it being 0.5%, so just in terms of is it going from what to what? And then really what I'm trying to get to is how soon until you think Germany can actually be delivering a margin? And here I'm talking EBITDA to Domino's as a percentage of network sales to be in line with the European average.

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [19]

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Sure, Richard. Andrew here. We can't disclose the detail because it's in confidentiality with DPZ. All I can say is that it falls into line with the rest of our business in the next couple of years. I know there are small steps between now and then. And what I can tell you about the German business, it's already contributing quite a sizable amount of EBITDA in terms of absolute numbers. And in terms of margin and more normalized EBITDA, as you suggested, I would suggest that happens in the next probably 12 months, 12 -18 months as we move into 2 things. One is we go away from 2 branches to 1. So therefore, we don't have double overheads. But more importantly, we can start to go forward with one strategy. We get national marketing. We start to drive same-store sales and we move into -- as Don said before, we move into a serious phase of organic growth. I mean already this second half, we'll start to see some meaningful organic growth in Germany but we'll have a full year's worth next year. And I'm very comfortable. We've got the team in place that we've wanted. We didn't have them for the first couple of years. So yes. Germany is contributing very good bottom line now but it will become even more meaningful in the next 12, 18 months.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [20]

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That's useful. And one for you, Nick. You touched on the number of stores per franchisee in Australia sort of quite a change relative to FY '12. Can you talk about what's happened a little bit more recently? I mean, you sort of first announced that target of 5 stores per franchisee in 2017. Where exactly are you now? What's the progress? And in what sort of time frame do you think to reach that 5 stores per franchisee?

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [21]

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Yes. So we're seeing some good growth in the last 12 months in that area as we held out all of these stores that we opened in the last half that were franchised, for example, were 100% internal franchised. Managers either coming into franchise -- or more franchisees expanding their network. So that continues to be a theme. 96% the last 2 years was a similar fit. And you can see more and more of that as stores we are opening are internal. We were -- when we started disclosing this to the market, we were in the range of around 1.8 average per franchisee. We're now well over 2. So we're making good progress there, and we continue to just invest in systems that enable a more sophisticated franchisee to run a network of that size. And a lot of the technology we're building and are affording in BI type infrastructure is angled towards giving that kind of insight to that level of franchisee. In terms of -- back to 5 stores, internally, we talk about a 5-year target but that's a work in progress.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [22]

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As in 5 years from now or 5 years from 2017?

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [23]

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Yes. From 2017, sorry.

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Operator [24]

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Your next question comes from Michael Simotas with Deutsche Bank.

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Michael Simotas, Deutsche Bank AG, Research Division - Research Analyst [25]

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My question is on margins in ANZ. And I'd just like to talk about them in terms of EBITDA to network sales because that should remove some of the noise around the ad funds, et cetera. They've been rising for a long time and they've fallen in this half. What should we expect going forward? And the whole world, as far as the Domino's systems goes, seems to be a lot more focused on franchisee profitability and profit pool splits. Is this a redistribution of earnings back to the franchisees?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [26]

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So I'll get Nick to answer that, Michael, specifically on the growth.

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [27]

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Yes. So, looking inside of that result, Michael obviously, there is some lumpiness. You've got the profit on sale of stores and other things that do change from half to half. And then depending on the weighting of the corporate network and the kind of stores that we're taking back inside of those, I mean, some of those stores, you could refer to them as orphans. We are running a little bit of an orphanage there where we're taking back stores and we are improving them. And then in later years, we will refranchise those to successful franchisees or managers. But my expectation on the EBITDA, the network sales as a margin would be that it is fairly consistent for the next couple of years depending on -- sales, of course, is the thing that drives that leverage for both our franchisees and for us. So that is the plan for us and what we do have in the pipeline is to be able to continue to drive that operating leverage at a store level.

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Michael Simotas, Deutsche Bank AG, Research Division - Research Analyst [28]

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And do you think you'll be able to hold them flat when you cycle the writeback of share-based payments in the second half?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [29]

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It will be within the range, Michael. Yes.

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Operator [30]

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Your next question comes from Craig Woolford with Citigroup.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [31]

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Just wanted to ask a question about Australia. You sort of didn't quite meet expectations. Is that primarily just the same-store sales growth? And if it is, what element of that? Was it transaction numbers or average ticket that was disappointing relative to your budget?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [32]

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Yes. So we don't always break out ticket and customer counts. And so it's funny but it fluctuated during that whole half, even as you said now we're almost into 8 months. So we've had things like the extra large pizza, the BIG ONE, garlic bread crust, they're all natural increases of ticket, and they were brought in for those sort of reasons. And so during those periods, we've seen some increase in ticket. And then earlier, whenever we get a shift in carryouts, so when we get a growth in carryout, that's got a lower ticket. Typically, a carryout we've shared with the market is around $18 and the delivery is roughly $34 for a ticket average of anywhere depending on the half where we're trading $24, $25, that how it sort of levels out. So it does fluctuate through those periods. Both we were positive in customer count and ticket over the 7.5 months be it that sometimes we were slightly down on ticket, but we were positive in customer count all the way through. Let me say we're disappointed in that we set ourselves targets based on what we think we can do during the half. We did expect to have Pizza Checker in this half as we think it's one of the most significant things going back to GPS Driver Tracker from delivery time point of view going back to the pace and color from a product point of view or variety of product, we think this one is going to be -- and we're already seeing that we can genuinely move customer feedback scores and NPS scores by stores implementing Pizza Checker. So it took us longer. It's new technology and we expected that in that half. So we're not -- 3.5, as we've said, we're still the fastest growth QSR in the last half by like-for-likes and by network. But we set ourselves slightly higher goals than that, and normally we leverage from that, and so that -- trying to get some of those momentums. We do if you get a 4.5 or 5, it would be a slightly better bottom line.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [33]

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Yes. And just to clarify, this increase in corporate stores in Australia, in the note it said there were 17 stores acquired. I thought that might've been a bit more stores. But organic store openings were more through corporate stores is what you're alluding to there in Australia.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [34]

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No. That's not correct. The 13 stores that -- we opened 13 organic stores. 11 of those were opened by franchisees.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [35]

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Right. So the movement in the corporate store count is more just acquisition?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [36]

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That's right. Yes.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [37]

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Yes. Got it. And then just lastly, just on this focus on acquisitions, Don, can you just give us a bit more clarity what is important in your criteria around acquiring? Are you looking for adjacencies to existing countries? How would you consider less developed market in terms of GDP per capita? What's important for acquiring new territories for Domino's?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [38]

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I think this is a good question. So yes, we do like adjacent markets because we get all those synergies especially when it's something like if it was in the euro. Then it's just so easy for us in the way we procure from a finance and leveraging all the back of house with distribution and so on. So yes, that is on our preference. We are attracted to these more developed markets rather than underdeveloped markets today. That's more of our focus today. Now of course, some underdeveloped markets become developed markets over time. And so considering how long we're in this business and our ambitions, all of a sudden the markets in the future may -- we thought we might say, hey look, we are now at a point where we are interested in them. But yes, criteria, we do like the stronger currency markets because we do have to report in AUD and we also have a lot of North American shareholders. But the amount of energy, running 1 Domino's store no matter where it is in the world is pretty similar energy. And so we looked at things that we can scale, that we can add. We're a little unique in that we do see treasures also in some of what other people think are smaller markets because you just need to look at New Zealand. You just need to look at Belgium. You just need to look at the Netherlands, They're all really big markets by income to us today. We are going to get the scale fast in those, so we're not -- some people might look at small populations of 10 million 20 million and so on as less attractive. We still look at those as quite attractive because we do see it as an Australian perspective, knowing how we built the business here. That's giving you some sort of idea. Now the other part of acquisition is also still looking for more conversions because it just speeds up. This is a business of scale. This is a business of building brands. It's a business of connecting with technology and leveraging that technology costs across small platforms as we compete against other players that are entering the market. So yes. It's always been about scale and it is still about scale today that we're able to leverage.

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Operator [39]

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Your next question comes from Shaun Cousins with JPMorgan.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [40]

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Just a question in regards to the store target that you've extended. Can you confirm that you're still on track for 4,650 in 2025? Or does that look a little unlikely, and hence, you've gone with the 4,900 in 2020? I'm just curious around the -- I get the extension but will you meet your previous 2025 target I guess pre-Luxembourg?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [41]

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We do actually, Shaun. We do think we can do that but it just becomes such a contingent in the market of an absolute number, we want to give ourselves some breathing room there. But we actually do believe. We do model in the business how we still think we're going to achieve that. But yes -- we're trying to take away short-term conversations around absolute targets of certain times. And this is part of us growing up as a 100 company and the amount of tension we get around all these sort of important things. So yes. Going forward, you've noticed that we do outlook. We start to give ranges rather than in the past we've just -- we modeled numbers. We then would put in a slightly lower number than what we thought we could achieve and they were the numbers. But now you're going to see ranges as we go forward.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [42]

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Okay. I assume 2025 is probably long term in most people's sort of time frame, but I get your point. Secondly maybe just on -- you have an EBITDA margin target in Australia of 45% by 2023. Do you still believe you can hit that target, again, long-term target?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [43]

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Yes. We do at this point in time and the only thing that would change that would be if we dramatically slide our store count. Nick's talking about an adjustment in our store count growth. When we were doing the sort of 60s and 70s, I think we're now guiding that slightly lower. So that will be -- whether that happens in 2023, but that's a model to outnumber looking at when you start to get around that 1,100 store mark and beyond. So that's what we're -- we still believe we can achieve that. Because we still only have very similar overhead although we are adding -- on an ongoing basis, we are adding more sophisticated people in our business around specialty areas. We're leveraging more and more data science. We're investing in BI at a faster rate, more digital, creatives and marketers and so on, more engineers. Now we leverage that across the whole business. So Japan contributes to that. How we leverage that is actually by order count. So we divide the order count. So Japan benefits in that model. New Zealand suffers in that model because New Zealand has our highest order count per store and Japan has our lowest order count per store but very, very high ticket. But it's just the way we think is a fair model, it's per order, and then that sort of overhead typically for our infrastructure is leveraged that way across the network. So therefore, Australia is benefiting, if I can summarize, from its own growth but also the growth of the greater network around the world. Does that make sense?

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [44]

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Yes. Certainly. It does. And my final question is with regards to France. It's obviously a very large pizza market and you've had some rough weather. You got too hot, too cold, and I guess the aggregator has been a little bit -- you've had some delay there. But just curious around your confidence about your ability to execute in that market. Do you think there's anything with your offer? Or is the high volume mentality not there sufficiently amongst your franchisees? It seems as though this has been a tough market for some time. I'm just curious apart from some of these external factors, if there's anything that DMP's doing that's actually not working as well as you would like and your confidence about getting to -- I think it's that 1,000 store target.

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [45]

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It's Andrew here. I'll just give you some feedback, having worked in France for basically 10 years over the last 12, I know it pretty well. Let's put a couple things in perspective. So when we went to France, we were the third player in the third sized brand, that's the third in terms of size. Today, we're circa 4x bigger than our nearest competitor. So I think the first thing you'd say is that Domino's used the dominance by majority in terms of branded pizza, without a doubt. Still massive amounts, we're a drop in the bucket in terms of the total size of the pizza market, which is exciting. Two is that we've been voted best pizza 2 years running by the consumer. So we clearly resonate with the consumers because we make a French style pizza which you've seen when you've been there. The third point is that our franchisees -- we've got some of the biggest volume stores in the world. They nailed HVM. In fact, they hold -- one of them held the European record for sales for many, many years. So that's not it. Andrew Bradley has shown that we've been able to average 10 at delivery times. That means they can adopt and do the type of things we've been able to do in other markets. It's just happened in the last couple of weeks. And some of their biggest days, are value-driven days their Mardi Gras, et cetera some of the most successful days we've seen in DPE in terms of value driver. So on the base of that, I would say that yes, the French consumer does love Domino's Pizza. Yes, the franchisees can do high volume mentality. In fact, some of them -- some of the best at it in the world. But you're in a different culture, and sometimes, you go through the highs and the lows of that. This is not the first time it's happened in France. It may happen again in the future, but it hasn't stopped us from achieving our goals. As we said, when we started there, the business was losing money and it had 90 stores. And today, we're almost 400 stores, and we will get up into that 800, 1,000 store region and probably go past that when you look at the size of the market. So if you need to come over again and I'll take you through the stores and take you there on a Tuesday night, you'll see stores full of consumers. So, yes, I'm -- having lived there for 10 years, I know the market pretty well. I'm pretty comfortable with where it is and where it's going. We had bad days and bad 6-month periods. That's part of business.

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Operator [46]

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We now move to our last question from Morana Hunter with Macquarie.

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Morana McGarrigle, Macquarie Research - Analyst [47]

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Just following on from that question that Shaun just asked on external factors. You've obviously talked to the impact of weather and the delay in aggregator. There's been no mentioning of recent protests. Has that impacted sales in France in the last half? And then how you're thinking about it in the next couple of months just given these are still ongoing please?

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [48]

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Morana. It's Andrew here again. Now look, the yellow vest brigade doesn't affect our business. It affects more the tourist type businesses down on the Champs-Élysées and that sort of area. We're not in those areas. We're more -- we look after the locals. So no, that's not an excuse and I won't use that. And I don't like using weather as an excuse, that's just a reality of doing business in Europe. It happens every sort of 5 to 7 years, you get these sort of weather incidences. But now looking forward, that's not an issue at all.

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Morana McGarrigle, Macquarie Research - Analyst [49]

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That's clear. And then just one more, again an earlier question on ANZ. Did you say there has been a step-up in franchisee profitability? And just while we're on that, could you also just please provide an update on status of any franchisee payment issues?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [50]

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Yes. Sure. So no, I didn't guide that we've seen an uplift in franchise profit. We're seeing a slightly less number than the previous year. Most of that is because of the softer comps than we would've expected in same-store sales. And in terms of the underpayment issues, I think that's the question that you're asking. Is that?

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Morana McGarrigle, Macquarie Research - Analyst [51]

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That's right.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [52]

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Yes. So that's -- the ombudsman has released their report on that. There's no further action. All of the stores that were under investigation except for 1 franchisee has been finalized. And we await the outcome on that final franchisee in the coming months. So it's taking a long time but we respect the process there. And we've implemented a lot of systems since that time to help us understand where the gaps might be and continually monitor that. So we have ongoing programs to make sure that we've got good compliance across the network.

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Operator [53]

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There are no further questions at this time. That does conclude our conference for today. Thank you for participating, you may now disconnect.