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Edited Transcript of DMP.AX earnings conference call or presentation 21-Aug-19 12:30am GMT

Full Year 2019 Domino's Pizza Enterprises Ltd Earnings Call

Sep 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Domino's Pizza Enterprises Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andre Ten Wolde

Domino's Pizza Enterprises Limited - Chief Operations Officer of Europe

* Andrew Bradley

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

* 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

* Nathan Scholz

Domino's Pizza Enterprises Limited - Head of Government & IR

* Nick Knight

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

* Richard Coney

Domino's Pizza Enterprises Limited - Group CFO

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Conference Call Participants

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* Andrew J. McLennan

Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst

* 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

* Grant Saligari

Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director

* Johannes Faul

Morningstar Inc., Research Division - Equity Analyst

* Morana McGarrigle

Macquarie Research - Analyst

* Peter J. Marks

Morgan Stanley, Research Division - Research Associate

* Richard Barwick

CLSA Limited, Research Division - Research Analyst

* Sam Haddad

Bell Potter Securities Limited, Research Division - Industrials Analyst

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Domino's Pizza Enterprises full year earnings Call. (Operator Instructions)

I'd now like to hand the conference over to your first speaker today, Nathan Scholz, Head of Investor Relations. Thank you. Please go ahead.

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Nathan Scholz, Domino's Pizza Enterprises Limited - Head of Government & IR [2]

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Good morning. You may be aware from media reports overnight that one of our team members was involved in a traffic accident and passed away. We will provide any information required for the police to investigate this accident. I note the presentation and comments today were drafted in advance of last night's tragic incident. While we have a responsibility to inform our shareholders of the progress of our business over the past 12 months, the positive nature of today's commentary prepared before last night's accident does not reflect our heartfelt feeling towards our family member, his family, friends and colleagues. We are providing support to the team members and for the loved ones affected.

Our first speaker today will be Group CEO and Managing Director, Mr. Don Meij.

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

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Thank you, Nathan. And also on behalf of all of our management, all of our team all over the world, I wanted to also express my and our sadness about the accident from last night. We are a people business, and our team members across the world worked really, really hard this last year to serve our customers, so I want to recognize their work today when I now move into our presentation despite what happened last night.

So if you come to the presentation that -- with us today, we have a slightly larger group than we would normally have with us so that we can continue to highlight the quality of management that's now making up our 8 countries, soon to be 9 countries, that are trading around the world. So my name is Don Meij, and I'm the Group CEO and Managing Director. I have with us Richard Coney, our Group CFO; also the Australia and New Zealand, CEO, Nick Knight. We're fortunate to have Andrew Rennie here from Europe, he's our DPE Europe CEO; Andre Ten Wolde who's our COO for Europe. We've got Andrew Bradley with us who's our French CEO; and also Josh Kilimnik who's our Japan CEO. So yes, you can get a chance to meet them on our road show but also ask them questions on the call today.

If we come to the market presentation that we posted up on the ASX this morning, I'm going to start on Slide 3. We're really happy to report today that we grew our network sales by almost 12% last year, 11.9%. It's a little bit of irony in this year that the $308 million that we grew the business is almost the exact amount of total sales that we had as a business when we listed back in 2005, and that took us 27 years to get to that point, to be out of annualized sales, and we grew at that rate this year. Underpinning our growth, and we're going to talk a lot about that throughout the presentation, is that our online sales grew 18.2%. Our network store count grew by 179 stores, and that is a 7.5% growth. EBITDA was up 8.9%. EBIT -- our underlying EBIT -- and so that was underlying EBITDA -- is up 7.2%. NPAT was up 6.1% on an underlying basis. Our underlying EPS is up 8%. We're paying a fully franked dividend, up 7.1%, at $1.155. Our net CapEx was up 40% with an extra $26 million, we'll talk a little bit about that, largely to be recycled back into the business. And we had some strong free cash flow, which was up $48.4 million or up 132.4%.

If I talk to some of the group highlights and for the group performance, you'll notice we break out a lot of slides throughout this presentation where we're showing trends and half-on-half for each of the -- either for the group or the market as we're continually trying to respond to shareholder feedback that Nathan receives and, hopefully, that you'll see that benefit throughout this presentation.

The first point is that in our markets, network sales and online sales were really pleasing with double-digit growth in both measures, showing that we're really having little to no effect with the aggregators. In fact, the only market today, and Andrew Bradley will talk about that, that we're not as penetrated with the aggregators is France. But everywhere else, we actually see aggregators as part of the digital marketplace. And whether we acquire an order through TV, through leaflets, through Google, we see the delivery aggregators as another digital workplace. And in all cases, right across the board, we're growing aggregator growth and total online growth, so that we're actually thriving in this digital space. And the delivery today is by far -- or digital deliveries by far the most convenient way to access fast food, and it's underpinning our growth. And you can see that with the 18.2% online growth.

The international business continues to be the growth engine now of our business going forward. Today, we access a population of 340 million people around the world at Domino's, and I'm going to talk a little bit more about that, so 315 million of that population is outside Australia.

If we have a look at more detail on our business. We continue to fortress our business by opening more stores. You'll see throughout this presentation our franchisees in the segment of 3 to 5 stores continue to grow with our goal to average 5 stores per franchisee in the next few years. We added 179 stores to the business. We did come in lower than our forecast guidance at the half year, largely through the fact that we recycled some stores with project 360 back into our business. That also reduced our store count because we brought back over 40 corporate stores. And so therefore, we didn't open as many stores in Australia and a few less in France.

CapEx was higher than we originally anticipated due to investments in -- and particularly in Germany and Japan. And you'll see we've highlighted in the graph of how that capital is recycled, and there's an evidence of that when we brought back $34 million from franchisees refinancing in Japan just in the last half alone.

Underlying EBITDA and EBIT were lower than appreciated largely, as I highlight, project 360, bringing some corporate stores in. When we bring those corporate stores in, we're often renovating those stores, we're retraining team members, we're remarketing those stores and then we get the benefit later when we resell those back into the business. And you can see that through the propo and the sale of stores. So it was higher than normal. And therefore, the expenses we're hitting this half. But we also -- we highlighted this at the half year that we are incentivizing our French franchisees and to improve our strong -- to improve the unit economics, and we're now unwinding that. And in fact, France is forecast to be one of our highest profit growth businesses this year as we pull back on some of those incentives. We continue to deliver a strong dividend and strong EPS growth.

So I'll talk to -- on Slide 5, I'll largely talk to those numbers from a guidance point of view. What I can say is that we did come within our 3- to 5-year outlook. So the same-store sales grew 3.6%, within the range of our 3- to 5-year outlook of 3% to 6%. We grew our network by 7.5%, within that range of 7% to 9% store growth. And so that's what we're really saying that, going forward, we think that the top line of the network should grow somewhere between that 10% to 15%, and that's reflected in our 4% growth this year.

If you come with me now on to Slide 6. We've been listening, as I mentioned earlier, to shareholder feedback, investor feedback. We're bringing some more clarity in detail. Here, we break out also to different slides where you can see how the different individual segments have grown as a business, both through store count, both through the sales, split of our CapEx spend. And you can see that we do recycle a lot of that CapEx spend that the same business capital is actually the lower part of the total CapEx that we have as a business.

If you come with me on to Slide 7. You can see there how we reflect each of the same-store sales by market, and we break out the online sales. So you can see that, in all cases, online sales outstripped same-store sales and total sales for the business.

If you come with me now on to Slide 8. You can -- what we try to do here is highlight in this particular graph that -- we talk a lot about fortressing as a business, and we wanted to be able to illustrate to our shareholders how much organic growth is contributing to the business. And this just looks back over 5 years as we consistently show 5-year slides in here. And you can see that 32% of our sales have actually come from organic store growth in -- or 31% of our sales in the last 5 years to annualize for this year. So one of the big questions -- because of the way we open our stores, often, so many of them in June and December, and it's been hard for a shareholder to say, well, if you opened 179 stores, [don't I just buy that back three-way] because last year, your average weekly unit sales, and that's been harder to calculate because, in effect, those stores didn't open up for 52 weeks of trade. This hopefully shows that the organic part of the business is adding -- net adding to the business, and the existing stores are continuing to get stronger and healthier as well.

If you come with me to Slide 9. I'm happy to share that we've started this year quite strong, in fact, rolling some of that stronger like-for-likes from the previous year where we were at same-store sales of 4.4%, we've started the year at 4.7% as a group. All markets contributed to that. There's momentum across the board, and that momentum actually started in the last quarter of last year. So whilst we can say that the last half of last year was up 60 basis points, what we wanted to flag to shareholders is the growth you can see in the most recent 7 weeks really lifted in most of our markets in the last quarter of last year. And the individual CEOs will talk to that throughout their presentations.

If you come with me now on to Slide 10. I'm happy to announce that the underlying EPS was up 8% to $1.65 per share. To us, as a management, this is one of the metrics that we look at for long-term value creation. I think in today's world, a disruptive world, you can go and buy growth. But ultimately, do deliver that growth? And this is one of -- we think one of the most effective measures, and we're continually proud of this slide. And we anticipate, in many years to come, that the growth of our business will flow through to earnings per share for our shareholders quite materially.

So if I now hand over to Richard Coney, our Group CFO, to talk more details about our financials.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [4]

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Thank you, Don.

Just moving to Slide 12. As Don pointed out, our network sales were up 11.9%. But actually, our revenues were up 24.4% by a further $281 million. That's predominantly due to the mix of our corporate stores. We've got a lot more corporate stores especially in Japan and, again, in ANZ. So that's been the main driver there. Don pointed out, EPS is up 8%. We now -- which is slightly higher than the EBIT growth due to the benefits of -- full year benefits of the share buyback, and also our dividend is 100% franked from 75% previously.

If you move over to Slide 13. We -- this is our segment breakup in terms of EBIT (sic) [EBITDA] growth by region. You can see that in total, as Don pointed out, we're up 8.9%; Europe, a strong performer at 9.3%. However, our margins have been impacted by the increased franchisee incentives in France, which Don talked about also. And then in ANZ, we've actually had a decline this year of 4% predominantly due to the higher number of corporate stores, a proportionately high number, with our corporate store numbers up 18.4% and then obviously, with fewer store openings and some short-term franchisee support, which Nick will talk about further on in the presentation. Japan, obviously our star performer, up 42.1%, 32.1% in constant currency. This has come off of excellent revenue growth and strong store unit economics for both our franchisees and our corporate stores.

Moving to Slide 14. This is just a summary of our nonrecurring costs. Look, ultimately, these are in line with our previous guidance, with the majority of the costs, $31.6 million, relating to the Hallo conversion. Really not too much new news here with Europe at 35.2% and ANZ at 12.2%, so not much of a change on the prior year there -- prior half, sorry.

Moving to Slide 15, our group cash flow. Our cash flow was strong with -- we benefited again this year with working capital up $9.2 million. Our underlying operating cash flow, up 11.2% to $277 million. And probably a key takeout is -- you see the quantum of loans being repaid by our franchisees, this is predominantly in Japan, going from $20.5 million to $64.3 million.

Flipping over to Slide 16. As Don already pointed out, we've had feedback from investors in terms of providing a bit more detail into how our CapEx spend is made up, noting that only $17.4 million of this $90.8 million is stay-in-business CapEx. The rest of it is really reinvestment in the business. So we've got the CapEx that recycles at $32 million. The split of that is $103.6 million in outflows for new corporate stores, franchisee loans, franchisee acquisitions. And as Don pointed out, we're a little higher than we originally guided predominantly due to the investment in Japan as that's accelerated and in Europe. But inflows coming back in of $71.6 million as we get the franchisee loan repayments and selling down some of those corporate stores at the same time. And in addition, we've got other investments in the back of the house, which will ultimately deliver improved profitability for our franchisees.

Moving to Slide 17, our balance sheet. Really not too much to say there other than most of the movements are relating to foreign exchange, the weakening Australian dollar and strengthening yen and euro.

If we move on to 18, group key financial ratios. Here, you're seeing the return on equity growing significantly from 37.7% to 44.9%. Our net debt has increased. But the majority of that increase, as highlighted, is the weaker Australian dollar versus where most of our debt is denominated in yen or euro.

And then finally, if we move, for my preso to 19, we've given you a sort of a summary of the adoption of the new leasing standard. So the key point here is, as you probably already understand, this really had 0 impact to the group in terms of our cash flows and, importantly, debt covenants. However, it does have a big movement on our balance sheet with assets and liabilities increasing by approximately $700 million. Our profit and loss at an NPAT level is really not moving materially. We have a small decrease, but the mix or how we present the P&L, the EBITDA goes up significantly to sort of $46 million to $51 million is our estimate and then obviously, offset by depreciation and interest. And there's no net impact in our cash flow as highlighted.

So moving on to 20. I'll now pass you on to Andrew Rennie.

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

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Thanks, Richard.

If you come with me on Slide 21, folks. For me, if you look at FY '19, it was a year of transition, it was a year where we took our veterans that have been in the business for 15 to 20 years, shuffled the deck, and put them all into new CEO positions. And they've taken the last 12 months to set up their teams, set up their strategy. And as Don said before is that it's really starting to show, particularly in the last quarter, the growth that we're seeing now. And as I said at the last half, I honestly believe with the CEOs that we have in place, the CEO -- the COO we have in place as well, is that we have the best team that we've ever had in Europe in the 13 years that we've been operating there.

And when you look at the graph on the left, I'm extremely bloody proud, 703% growth in profit in the last 5 years is something that we should be very proud of. Now are we patting ourselves on the back for last year because we're only up 5% in profits? No. There were a few reasons for that. First of all, as have been disclosed before at the half year, that we incentivize our franchisees more to help them out in France, and that's working extremely well. And Andrew Bradley is leading the team exceptionally well there. He'll talk more in a second about what's going on, and I'm very proud of what Andrew is doing and where that's going.

Of course, we're now wanting -- the Hallo conversion. The conversion of sales are done. The last pieces of the puzzle are coming together. Head office closures happened. So we've taken out all those costs last year as well. And as we've spoken about, the inefficiency of the Dutch Belgium commissary, which we're now in construction mode of the new, more efficient commissary, which will open up in second half of FY '20, which will also deliver efficiencies. So when you put all those things together. We also had a strong heatwave back in the summer, which we don't want to go on about that. That's life. We got that. But they're the reasons why we probably didn't have the profit uplift that we've had in the last 5 years. But in totality, we still said the inventory is good.

The thing for me that I really want to focus on is that whilst we only added 77 new stores, that was below our expectations, there was almost no contribution from the German team this year mainly because they were too busy converting stores, and the franchisees were in conversion mode. What I'm happy to say now is that the organic pipeline is not in the most significant we've seen in the 3 years that we've been in the market. But if you also look at the Joey's and Hallo businesses that have been there 27 years, none of those guys have never seen a pipeline this long and deep as well. So that gives us great heart looking forward to about the sort of numbers that we'll achieve organically this year.

If you look at some other key points. We had double-digit network sales growth. Our profit was up more than 8x in this last 5 years. We've been very proud of them. And Germany really is coming into the fore. It's a bit that we didn't have 3.5 years ago, it really is starting to deliver exceptional results.

So if you come with me now on to Slide 22. I think the big thing here to look at is continually growing, right? We started with 155 stores 13 years ago. We just cracked the 1,000-store marketing, sales and store target. And in fact, within the next few months, we would have net added 1,000 stores since we've been in Europe in the last 13 years. And all the pieces of the puzzle are starting to come together. Those analysts and the investors that have visited Europe in the last 5 years, in particular, I always said FY '20 was the year when it all will come together, particularly in the second half because we have a new commissary operating by then. When you look at those numbers, we're just continuing to keep growing and keep growing, and that's what we're all about. So now that we've got the 1,000-store target out of the way, we're all fixated on getting to 2,000 stores as quickly as we can. And I honestly believe we have a team to deliver that and the infrastructure in place.

If you come with me now to Slide 23, my last slide, I just want to update on Germany. [Cellphone-only payment] is doing a sensational job there. I think the thing to look at here on the left-hand side is that the average store per franchisees is only 1.7, which is the lowest in the DPE group, which shows how much opportunity we have to grow with our existing franchisee base. We really don't need more franchisees to get to 1,000 stores. And if you look at the population per store count, it's 5x higher than Australia at 180,000 per store. And they have big pizzerias. They love pizzas, it's a very big part of their diet as is cheese and bread. And our pizzas have been regarded and voted as some of the best pizzas in Germany by far.

If you look at the graph below that, it just shows that when we transitioned the franchisees that have 2 stores up to 3 to 5, up to 6 as we've done in other markets like France is at 3, et cetera, you can see that that's our goal now is just transitioning those franchisees into bigger multiunit franchisees. As I said, the Hallo conversion is now done. We now have one brand. For the first time in 3.5 years, we're focused on one brand only for the first time. And that's going to have -- it was already showing significant results in that. So we're very proud of the team's being able to achieve that in record time.

Another big sign of high-volume mentality is the amount of ovens that the franchisees have taken up, in excess of 100 new ovens going into existing stores to help drive high-volume mentality. These are franchisees buying these ovens. We're helping them out on those. And that's a great sign. That's something you can't force a franchisee to do. They have to want to do that themselves. I won't talk about the organic pipeline. I've already mentioned that. The thing that's very exciting to me that we're seeing some great momentum in like-for-like already. We started a radio campaign a few months ago. We're now moving to TV. Andre will talk more about that. But that's very exciting when we start to see that because in every market we've been, TV has a significant impact on the brand.

So when you see all those things come together with like-for-likes, naturally replenishes bottom line for us and, therefore, our franchisees. So I'm very positive and very happy with where EU is placed, not only for FY '20 but for the future growth of the business. So we're sitting in a pretty nice place.

So on that, I'd like to pass over to our leader in France, Mr. Andrew Bradley.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [6]

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Thanks, Andrew. It's my first call, so I'll just take the opportunity to briefly introduce myself. As my name suggests, I'm British by nationality but actually I now have dual, French-British nationality, and have actually spent more of my life in French-speaking countries than in English-speaking countries. As part of my professional career, I did 20 years with Nestlé including selling frozen pizzas and then joined Domino's in France in 2004 as a franchisee. So 15 years' experience, 2 of those already in the head office, working with Andrew Rennie back in 2008, 2009 and took over the COO role a year ago.

When I opened my first store in Lyon in France, it was the 64th store in France, and we were third in the marketplace. So obviously, I'm very proud to be at the head of network when, in the next few weeks, we got to open our 400th store. And we've got at least 3x bigger than our nearest competitor. It's been a great journey. And that's just the start of it. So what we've done in the last year, I think it's really been a question of working with our franchisees. As Don mentioned earlier, we've given some incentives to get the business moving. I think all the building blocks were in place before I came along. What I've been able to do with -- because of the language and the culture is to accelerate that, and we really work with the franchisees in a positive way to get the momentum going. We finished the year strongly, much better than we started it. So within that, I think we've really shifted things during the year.

As Don mentioned earlier, one of the parts of the business which we've not benefited from in the past has been the working with the aggregators. I'd just like to point out again, like the rest of the group, that is we take the orders -- we'll be taking the orders for the aggregators but delivering ourselves with our own drivers. That was a missing piece of the business. We've started working with the other 50% of the network on the first of the aggregators and working to move on to the other 2 aggregators in the next few weeks and months. So that will add future growth for us, and it's looking very promising.

During the year as well, we -- this past year, we launched some successful new products, including Calz, which is kind of a small calzone snack product, which was significant because it's a very profitable product for our franchisees as well. And that's part of what we've been looking to do is to improve the mix and profitability. Also one of our big successes is Mardi Fous, which is a kind of a Crazy Tuesday, has been driving the growth for us in France, and that gave us a lot of momentum throughout the year. And basically building on these kind of initiatives, we're going to do more of the same next year. And I think we've got a good pipeline of new products, promotions and opportunities as well as, of course, the layer of the aggregator business. So if I look at that, there's a lot of energy in the market at the moment. I think that shows up in our new store pipeline, which we've never had so many. And this is clearly a sign of energy back in the market, the franchisees looking to grow their businesses with us, so there's very encouraging signs in that.

So I guess perhaps to sum it up, I think during the year, we've been able to build up a great team. We've made a number of changes in the management team. And I think we've got probably the strongest team we've ever seen in France, very good professionals. We've got these great launches, great pipeline of new stores coming up. So yes, this market has got a huge potential. I'm very confident that we got a very good year. So I look forward to that and, of course, got to come back in the future and report those results to you.

With that, I'll hand over to Andre to run you through the Benelux and Denmark.

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Andre Ten Wolde, Domino's Pizza Enterprises Limited - Chief Operations Officer of Europe [7]

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Thank you, Andrew. Really, really, really strong. It's hard to beat that.

Let me take you to Page 25, talking about Benelux, or rather Bene because we'll open our first store in Luxembourg next September. First point is franchisees continues to grow. And if I can take you through the slide on the left bottom of the page, you can see that the number of stores per franchisee is growing, especially in the 6 or more. So that highlights that our franchisees are really investing in the system and really wanting to grow with us. And as Don relentlessly pointy out to me, the population of Benelux is just as big as it is in ANZ. So he's thinking that I'm doing a really poor job in having only 400 stores by the end of this year in that area, and I should keep moving to open more stores. And I just want to highlight that franchisees are supportive of that and still are hungry to open more stores to fortress the market even further.

As I said, we will surpass the 300-store milestone in the Netherlands and the 100-store milestone in the coming months in Belgium, which is something that we're really, really proud of and really interesting that we can go on TV in Belgium later this financial year because we're seen in other markets in TV. So it's still so important for us. We are really strong in digital, but TV has a reach that we can't always copy on digital, so -- and we've seen strong sales growth when we go on TV.

What's been really successful in the Netherlands is the Thickshakes rollout. You might know the Thickshakes in here in Australia, forget about them, we do a way better job. And they've been extremely successful customers, a lot of them, they give us new dayparts in the Netherlands that we're successfully selling a lot of pizzas and Thickshakes.

Happy to note that the Netherlands will be the first market to launch our new loyalty program. Even though we're doing really good in the Netherlands, our market share is still -- if you compare it to ANZ, it's still low. And I think the loyalty will make sure that we increase our presence, and people will choose Domino's more often. And like I said, we're planning to complete the first Luxembourg store soon, which will open around September.

Let me take you to Page 26, about Denmark. Let me bring you back a couple of months ago, we acquired the rights and some of the assets out of receivership after a hygiene scare in Denmark with the previous owners of Domino's. And I personally spent a lot of time working on the brand as it's clearly in consumer side, a challenged brand. But we are really happy to see that the first store opened with a lot higher sales than we expected. And even more important, people have tried this until now, give us great feedback and say that they can see that there's change, they can see that this is the real Domino's. It meets or exceeds their expectations. And on the hygiene front, where all the big scare came from, the government authorities have checkers right now, and they gave a full 100% score. Underpinned with some technology, I'm confident that we'll keep on giving great service with exceptional hygiene to our customers. And we are expecting to open more stores in September. And through the year, all those stores are basically reopenings of formerly existing stores. But to the customer side, they look totally different from what they used to. And in different, I mean a lot better. And we're still running on a legacy system online there. And we'll see, once again, improved sales like we always see if we roll out OneDigital in any of our markets.

So looking forward to Europe on Page 27. There's a couple of points I want to highlight to show how we are really positive that we can continue or even increase the momentum we currently have in Europe. The first bullet point highlights the new CEOs. But as Andrew already said, these are veteran Domino's and DPE succession. All of our CEOs in the major markets have been franchisees before. So they know all the ins and outs of operating stores, which really resonates with our franchisees in the market and assures that we have a good relationship with our franchisees and can grow further.

Secondly, our foundation has always been to be really relentlessly focusing on product sales and image. And through our Project 3TEN, we're expecting continuously servicing our customers even better. I want to really emphasize this because sometimes it looks like we're a marketing or an online business, but the 3TEN project and our focus on PSI is really important in all the markets we see. If we get that, the customer will come and reward us for that.

Third point I want to highlight is that our strong online growth through our OneDigital platform continues. Together with connecting more aggregators in France and going on TV at scale, first time in Germany and Belgium in the next 12 months, makes us really confident that we can keep the momentum and even improve on the momentum.

And lastly, looking at our pipeline of stores, which I've never seen this good starting the year, we're really confident that we can open a record number of stores in Europe over the next 12 months.

So having said that, let me hand over to Nick to comment on Australia and New Zealand.

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [8]

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Thank you, Andre, and good morning, everybody. Whilst it wasn't a year we had planned, we did get a lot of work done in investing in unit economics and the capability of our franchisees, and I'm really proud of the industry-leading growth of 4.6% in network sales. And we continue to grow market share with particularly strong growth in New Zealand. That's an outstanding business in New Zealand, and it continues to go from strength to strength.

Our EBITDA, however, declined 4% during the year, and that's largely due to 3 things. As we guided in the last half, we had an increased mix in corporate stores primarily due to franchisees being removed from the network that didn't have the passion or the ability to execute the model well, and it's our place to make those changes, and it benefits not just the DPE business but our franchisees can do execute well every day as well. We have fewer store openings due to a lot of those stores that were bought back being refranchised through the Operations 360 program in lieu of franchisees opening new stores. And we did support franchisees with some short-term targeted support and incentives, which we feel is the right investment in the unit economics and we hope to build a stronger base for our franchisees into this next year.

If you follow me through to Slide 30. Two new graphs I want to call to your attention here. First one is our online sales continued to be quite strong growth in that area primarily led by our delivery business. Delivery, especially in the last quarter, has been really strong for us as we continue to execute on what we're good at there. And if you look at the existing and new store network sales, Andrew highlighted that even in a market like Australia, which is fairly penetrated, you see that the new stores are incremental and the existing stores continue to grow over time, as we've guided in the past.

So if you move with me now to Slide 31. I'm really proud that we continue to grow such incredible talent in our franchisees expanding their existing network and out there our more sophisticated investor showing that they're still using the business model and that they're able to invest in further stores. And you can see that particularly highlighted in the lift in unitholders between 3 and 5 stores, the franchisees with that number of stores as we move towards our goal. And franchisee -- oh, sorry, managers proving with a real track record of success in this business of being able to transition into the incumbent franchisees for the very first time. Domino's disputes the allegations in the class action recently lodged. We believe that the entitlements of franchisee workers were governed by our enterprise agreements and that we have all times acted in accordance with those enterprise agreements.

So if you move with me now on Slide 32. As I mentioned, a lot of effort going into strategic initiatives and decisions and a lot of that going towards assuring the culture and the capability of our franchisees and unit economics of our business. We continue to enhance the customer experience and focus on what we know we are good at, delivering a great product quickly at an amazing value price.

And things and projects like DOM Pizza Checker has continued to give me great product -- that program is showing a real meaningful lift in performance for us at our store level, and that's not just me saying that. That's our customers telling us that with the lift in product feedback scores of over 15% since that initiative got rolled out.

Our obsession with pizza will be evidenced this year. And we know that every time we remove the veto vote, every time we can get access to a group order where someone might not necessarily have something that's on the menu for them, every time we do, do that, we get access to a whole. And I'm really looking forward to allowing even more people to share and enjoy pizza with our plant-based rollout.

We're going to roll out a new world-class mobile ordering app proudly built in Brisbane, and it's already testing really, really well in beta, in these coming few months. I'm happy to report that the first few weeks of trade in FY '20 have been very pleasing with strong same-store sales in Australia and continued very strong same-store sales in New Zealand. And lastly, I wanted to sort of finish by thanking our franchisees, our store managers and hardworking team members across the business for their passion and hard work in this last year.

So now I'll hand over to Josh to talk on Japan.

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [9]

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Good morning, everyone. Delighted to be back with you again for, I guess, my first full year results and a very encouraging year with great growth in Japan.

Just like you saw in the investor meetings when you came to visit, really strong in all measures. And just to pick out a few highlights. I'm particularly encouraged with the strong top line network sales growth of 13.6%, which is both a measure of core SSS at 8.4%, coupled with a reinvigorated store development program, which we built 81 net new stores. And this is actually a broad -- a milestone to the business, which is there are 600 stores in Japan, which makes us the undisputed #1 pizza chain, which is a key milestone for us, and hopefully, many more to come. Obviously, this top line growth along with a really strong focus at store level in terms of cost reduction as well as reinvigorated local store marketing program has led to a material positive impact at a store level and as well as on overall EBITDA, which increased about 32%, JPY 1.4 billion, which is circa AUD 20 million.

So if you come with me now to Slide 35. Again, a bit of a deep dive into some of the numbers here, the 5-year trends for Japan. And basically, it all tends to show the return to positive momentum and of course, again, positive core growth, namely same-store sales, really as a result of our renewed focus on service, our promotional programs that we're doing and back to technology and, of course, the execution at store level, just considering our large corporate store base.

Digital -- to point out, one big growth in our business is digital, and we continue to make inroads here, especially with our own media platforms like Coupon App. This, coupled with the launch of on-time cooking and really a lot of enhancements around the user experience thanks to the OneDigital platform, really led to some great improvements in conversion rate and 20% lift in digital sales.

If you come with me now to Slide #36. Our key strategy, the fortress sale, our capital cities have produced most of the store growth last year. In turn, it really helps us get the operational efficiencies we wanted, but also helped lower the cost to our business as we get closer to the customers. We also grew carryout quite a bit just by naturally being in so many more neighborhoods throughout Japan.

Franchising is still part of our key strategy, and we actually added an extra 36 stores. And it's always odd to look at our history sometimes. We haven't been a business -- we've only been in franchising for the last 5 to 7 years, and it really highlights the strength of this business. You can see that there's now 2.2 stores per franchisee, which is one of the strongest in the group, and we're getting a lot of growth from all internal.

We don't go external for any franchisee. It all comes from our -- either our corporate store managers who want to take that next step or it comes from existing franchisees wanting to grow their base. And that's really, really positive. And I think as Richard said, one of the other things that shows how positive franchisees is, is that they've repaid a record amount of debt across -- both to us as well to our third parties. So really positive stuff for our franchising program in Japan.

If you come with me now to looking forward, Page 37 -- or Slide 37. We've had some great same-store sales in the first few weeks of FY '20. Our key focuses going forward: firstly, we continue our strong and consumer-tested promotions, which have really centered around quality and value.

Second, we're going to do -- just like the other markets, we're going to get into Project 3TEN and really go to the next level. And third, we're very focused on tracing our footprint. We're not a -- well, we were doing this critical mass of the market, and we obviously want to get to more and more TV. And that requires footprint and as well as core same-store sales.

So overall, if I had to sum it up, a very positive year. Very positive not only with same-store sales but also in the background of that, we've been building the platforms that we'll continue to leverage over FY '20. Our team's firings in all cylinders and very positive about FY '20.

With that, I'm going to hand you over to Don to wrap it up for us.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [10]

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Yes. Thank you, Josh. Well done. So if you come with on to Slide 39, there's a couple of messages that we want to make quite clear to our shareholders, some of these just reiterating our comments in recent years.

Firstly, we made a very clear comment to shareholders over 12 months ago that we are very, very focused on the pizza business, and we're very, very focused on the Domino's Pizza business. There was a moment in time where we considered that we may look at other concepts. But with our working closely with Domino's in the U.S., we've been given the opportunity to already acquire 2 new countries, and we're quite active in looking at other future jurisdictions in the years to come.

So we have great ambitions. One of those ambitions has been flagged for a period of time with -- that from 2,531 stores today, we look to -- by 2028 to 2030, there will be at 5,050. It's extended a little bit by Denmark, so the majority of the growth has all happened by 2028 as a system. And you can see there that EBITDA continues to grow in line with all of that growth. Both store count and same-store sales are the material path to grow our business.

How are we going to continue to grow this business? We have -- we're quite well known in the Domino's network for the strong leadership throughout our business. I'm very proud of the veterans that are running this business, be it that they may be newer to the CEO role, they're not new to leadership and they're well respected by their sub-franchisee peers because they're a team that get things done and has a lot of empathy, having -- most of them being -- having been ex-franchisees.

We also are continuing to grow our multiunit ownership. Our more sophisticated investors in this business will continue -- or have continued to grow the size of their network. The near ambition is to be to 5 stores, and our longer-term ambition is to average about 10 stores per franchisee. And you can see that that's consistently happening across our group, suggesting the best reflection for our franchisees that our -- sorry, to our shareholders that to our franchisees, we're a great place to shop.

A fair question that we continue to get asked by the media and by analysts and shareholders is the effects of the aggregators in this industry. And what we like to continue to reinforce is that where a decade ago, delivery was in decline in the analog world and the most convenient way to access fast food in the analog world would have been through the drive-through in a burger chain or a chicken chain or so on; today, without a doubt, the fastest growing part of takeaway food all over the planet is digital delivery. And it's growing at extraordinary double-digit rate.

At Domino's, we were born for this. We're dedicated that every product we've ever dreamt or designed is meant to be delivered. Our stores have territory maps that were very, very clear. Our store capital has been invested all around the execution of delivery. And so we will continue to drive that.

And underpinning that is our OneDigital platform. OneDigital, up 18%, our online sales this year, something that we innovate through Brisbane. It's often inspired from other parts of our business, I mean as our leadership gets stronger and stronger all over the world. But it shows that it's competitive. It's going to -- and we're not taking that for granted. This year, we're rolling a brand-new app. It's our third generation of apps since 2009. So -- and that will flow through to the rest of our digital platforms.

We're also investing, as you've seen, in Pizza Checker. Our product scores are up 15% in Australia since the rollout of Pizza Checker. Better product means happier customers, more frequency of purchase from our customers.

The other thing that we want to highlight in this slide that's not lost on us, when I grew up in this business, I had 2 envies of the other Domino's markets of the world, and that is as an Australian business, there was only 25 million population to serve. Today, we serve countries that have an aggregate population of approximately 340 million people. That's more -- those countries make up a larger GDP than China, more population than the U.S.A. So -- and fantastically, it's predominantly in euro and yen.

So we've got great countries in our portfolio, business-friendly countries, and we're continuing to grow pizza consumption even -- as you can see, in more recent times, in Japan, we're starting to see the green shoots where, for the first time, we may be able to say that we're growing the category because there's now net more pizza stores in Japan as a total industry than there were just only a couple of years ago, suggesting that the category could be potentially growing as one indicator, and we're leading that as a business.

If you're a shareholder that invested in this business just 3.5 years ago, very little of our business on your radar would have been the Japanese or the German business. Today, those 2 businesses make up almost 200 million of the accessible population that we have to go after today, and they happen to be the 2 fastest growth parts of our business. We're the market leader. We've got good strong momentum in store growth, and we've got really good strong momentum in sales growth, underpinned by this great leadership; the growing strength of our franchisees, which are nearly all internal, who are expanding; and the fantastic OneDigital platform that we're growing in this business.

So we're dedicated to dominate, and we're dedicated to growing. And of course, we intend to pursue more Domino's markets as well. So we have other leadership. One of the benefits of size and scale is that you can't underestimate that there are many other leaders that are coming from all over the business that want to be leaders themselves and aspire to operate some of these countries. So we've got a lovely depth of people. And as you get to visit some of these markets, hopefully, we'll expose you to the next generation of leaders in the years to come.

When we look on to Slide 40 and our 3- to 5-year highlight of our group outlook, we still believe that it's going to be in the range of 3% to 6% same-store sales. In the first 7 weeks of this year, up 4.7%. We'll open -- add to the network that is organic growth of 7% to 9%. That doesn't include acquisitions. Acquisitions will be net to that. So we do look to add further to that in the years to come. We've widened our capital outlook only because as we continue to grow our internal franchisees, we will look to -- and sometimes our internal store managers, we will look to fund some of those with the ambition that, that will be recycled back to us as they repay down those lines once they're up and running and have a successful track record in the business.

So if you come in conclusion today, we're quite proud of the network sales. We're quite proud of our online growth and the way that we hope that we can continue to answer the question that we can thrive in this new environment of digital growth with the aggregators. A part of that -- the way we view the aggregators in our markets is that they are part of the digital ecosystem, and they are one place where we will access customers.

Across the board, in every single country, we have net online growth in every business, and we have net aggregator growth. So our core business, our core platform is positive year-over-year, and then we also are getting core positive aggregator growth on top of that. So I just want to reinforce that both -- I mean this ecosystem, this hybrid system is growing, and we feel very good about that.

What's so important to us is that we will get the customers' address, we will service that customer with a Domino's team member who is hourly paid, paid [a monthly] rate, is insured, is trained, is on a safe vehicle, is safety trained, is trained in customer service and product quality handling and so on. That's absolutely important. We believe that we're developing a more premium platform for delivery through the Domino's network despite where we may access the customer over time.

When local trading conditions in the last year required that we were strategic, we may have, in the case of Australia and New Zealand business, brought back some stores. We've been refurbishing, retraining, redeveloping, remarketing. We will reap future profits from those stores in the years to come as they'll be better as we put them back into the network. Where we've required -- we've also incentivized franchisees as we did in France in the last year and, to a lesser degree, in Australia and New Zealand.

And so our franchisee strength is underpinning everything that we do, and where required, we'll do that in the future. I can say that, right now, many of those were unwind from what -- being unwound from what we did last year. So there's a net complementary growth just on that going into this year largely out of France.

If we talk about -- as I mentioned earlier, I'm very proud of the depth of leadership that has the skill and ability to drive this business forward. We don't run the business from Brisbane. Brisbane is where there's a lot still of the IP. It's still where we create OneDigital. It's still the center of high-volume mentality and some of our global leadership. But we now have the depth in each of these countries to escalate the growth, and the teams have now built that experience to move forward from here.

Hallo Pizza is fully integrated. We can really see in the German numbers. I'm really excited about how Germany is performing right now. It's one of the stars in our business, and it's a material contributor.

By the end of this year, we would have opened over 1,000 -- an additional 1,000 stores since we have arrived in Europe. That's quite a -- it's never lost on us that -- I'll talk to the Japanese chamber of commerce and I'll say that DPE is one of the rare retailers coming out of Australia that's been successful in Japan. But we also get the same commentary from our peers in Europe, that the success that we have achieved in France and Germany should not be lost that we're doing these sort of things. But we're not just surviving, we're thriving. That -- we're expanding. We're growing. And you can expect that top line to grow and more of it to flow through in the years to come to the bottom line.

Our franchisees will continue to grow in multiunit ownership and to become significantly more profitable, more sophisticated in their own structures, in their own teams. We're supporting that in training, development of multiunit ownership, giving them the platforms. We expand our own technology and insights in our business to help them, to guide our own sophisticated franchisees.

We now have franchisees that are getting well into the double-digit store count. And -- but of course, we also remain the biggest franchisee in our own business, where we operate corporate stores. And we'll continue to make sure that we try to represent best practice in operational execution and service in the way that we grow our like-for-like, in the operational audits of our business that we will be best practicers, the largest franchisee in our own system.

As a result of all of what we're talking about today, we do forecast really strong growth as a business. It is clearly becoming a larger international business. There clearly is 315 million people outside of the Australian -- and I know that whilst we're an ASX-listed company and the Australian media like to talk a lot about Australia, it's not lost on us that more than 80% of the profit is actually coming from the international business in growth today. So if you invested in DMP today, that's something that you need to really get your head around and get a lot of empathy to what's really going on in these jurisdictions of Japan and the greater -- the European nations that we're in today.

So the momentum that you've seen in the first 7 weeks of this year that we're highlighting today of 4.7%, that didn't just start 7 weeks ago. The last quarter was strong for us. The last half was stronger than the first half for us. We really do -- the management are putting their plans in place with some of the deck that we shuffled in Europe. Josh now being in the business 20 months, we've tightened the team, and he's been building the strength, in-sourcing knowledge base that comes from our own model of getting quicker to respond as we learn. So building the depth of internal talent to make sure we're growing our own IP in each of these companies -- each of these countries and individual businesses.

So in conclusion, management and I look forward to working closely with our franchisees to profitably deliver improved unit economics so that franchisees continue to invest, and we therefore look forward to being able to deliver greater growth in our profits to our shareholders. So at this point in time, I'd now like to hand over to any analysts or shareholders we may have in the line for questions.

Nathan, over to you.

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Nathan Scholz, Domino's Pizza Enterprises Limited - Head of Government & IR [11]

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Thank you. To the operator, we're ready for our first call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes from Morana McGarrigle from Macquarie.

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Morana McGarrigle, Macquarie Research - Analyst [2]

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First question is on the 4.7% same-store sales in the 7 weeks of 1 half '20. Could you please just provide some color on how sales are tracking at a regional level? So if possible to rank them in place. And then just confirm whether all regions, so ANZ and France included, are performing within that guidance range of 3% to 6%, so I guess north of 3%.

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

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Yes, Morana. What we did a year ago is when we started giving the 3- to 5-year outlook, we said that outside of the half and full year, we would just report total sales open and total same-store sales. We did want to just give a halo over that just to say that all markets contributed to that. So all markets have shown momentum. So it wasn't that it was just a market in there. So we just want to make sure that was clear. But just at the trading update and at the AGM, then we'll be just doing group same-store sales.

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Morana McGarrigle, Macquarie Research - Analyst [4]

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Not a problem. Okay. So momentum positive across all regions.

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

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Correct.

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Morana McGarrigle, Macquarie Research - Analyst [6]

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And then just on store rollout, obviously a slight miss to guidance, and you called out fewer store openings in ANZ. Can you please confirm that the ANZ network can keep growing and what growth rate we should be thinking about? Like is low single-digit achievable? And are those targets, I guess, primarily factoring store splits or are they greenfield opportunities that we should be thinking about as well?

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

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Yes. So it's Nick here. I can answer that question. In regards to store splits, the profile of new stores were largely unchanged because the majority of those in the past and going forward is still being split but -- as we fortress market. But we still think that we got a lot more [competition]. When you look at the size of the pizza category here in Australia versus other markets, it's very, very small compared to almost all the other markets around the world that we operate in. So we think there's a lot of scope there to continue to sell a lot more pizza. And sorry, the next question was around development opportunities...

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Unidentified Company Representative, [8]

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Store growth.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [9]

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Yes. So just entering the store growth, it does -- because of our distribution throughout Australia, it is largely up through purchasing and so that's where we're -- and we try to -- and Nathan's tried to break out quite clearly in the graph, showing that the net of the existing network is growing on top of the additional organic stores as well, and that will continue.

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Morana McGarrigle, Macquarie Research - Analyst [10]

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Okay. And then with the 22 underperforming stores that we saw being rolled back as corporate stores, are there any other underperforming stores, like are we likely to see this mix shift continue in FY '20? Or is it done now?

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

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Yes. So I'd like to say that most of the heavy lifting is done, but there are 22 franchisees, not stores necessarily. So there were more stores in that mix as some of those franchisees owned more than one store. But yes, we feel like with that program, we accelerated that in this last half to get most of that heavy lifting done, and whilst continuing to lift the caliber of our franchisees and their ability continues to be a focus, I don't anticipate any more further. Actually, we've already seen a reduction in those corporate store numbers into (inaudible).

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Morana McGarrigle, Macquarie Research - Analyst [12]

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Okay. Sure. And just last question from me is around the increased short-term franchising investments in France. I got the sense that those higher incentives in France were actually normalizing in the second half. So I guess I'm curious to know, were you getting pushback from franchisees or weaker uptake of splits when the incentives were normalized? And how should we think about those incentives going forward, like if the business were aligned on those incentives to encourage further store splits? And then finally on that, how does that quantum incentives compare to some of the other regions?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [13]

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Yes, I'll answer it, Morana. I think the reality is -- no, the incentives were in place for -- will be in place for over a year. I'm not sure if we said that at the half, but that wasn't meant to be that or so. And there's something that we effectively see as a calendar year type scenario that will lead slightly in the second half but they're winding down. And they're incented not only based on sales growth and the new stores, they're also incented based on quality, based on services, et cetera, as well. So we incentivize the franchisees to do the right thing by the business to a higher level, which also then gives us more customer growth, which drives same-store sales, drives profitability and then drives organic growth. So I'm not sure if you wanted to add anything to that, Andrew, but I think that...

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [14]

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No, I think that sums it up pretty well.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [15]

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And France is forecast to be the highest growth business this year from -- because we have unwound some of these profit growth.

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Operator [16]

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Our next question comes from Richard Barwick from CLSA.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [17]

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I just want to continue on from where Morana's sort of asking around about franchisee support. I mean there's an explicit comment in there, you said that the franchisee profits are healthy and improving in France. No explicit comment on Australia. What I would love to hear you describe, if you can, is that if you can talk, even in relative terms or broad terms, the EBITDA per store and how that might differ for a franchisee who owns a single store versus one that might own 2, 3 to 5 or greater than 6 as you've split them out. Can you see in your numbers, or the visibility you have, that actual EBITDA per store lifts with the number of stores per franchisee? And then just to marry that up with the franchisee support again in France and ANZ that was in place now, how are you balancing that up with those comments across the profitability?

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [18]

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Yes, Richard. Nick. I'll answer that. So I want to state clearly that when we look at franchise performance, it's franchise performance. So there are single unit operators that perform really well and there are multiunit operators that perform really well. And that's what we're focused on. And we know that as they become more sophisticated in their systems, they are able to execute and extract more on as a rule. And I think that's important to note because whilst franchise profit is slightly down in the corresponding year, on average, there are franchisees in our business that are writing records and having their best years yet, and that's not a small number either. So we're really focused on supporting those guys with the right program and the right intelligence and tools to be able to continue to execute and grow those, whilst focusing on giving that training and support to those who haven't yet found that passion.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [19]

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Right. I mean I was hoping you can give a bit more color in terms of -- I mean is it not true then that the -- those franchisees that are running most -- or operating more stores have effectively more EBITDA per store?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [20]

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Look, Richard, I can answer that. The fact that you become a multiunit owner is there's a higher chance that you've been a higher performer. That is absolutely true because you've got more experience. But it doesn't always remain true. And this is one of the downsides of averages is that you can also become a multiunit owner and fall asleep at the wheel over time because you've been in the business so long, and we've seen that happen that maybe, hey, I'm not sure I want to move to the culture of electric bikes, I like driving cars, or I don't like the culture of -- that always online orders are used to be an analog world. So there's sometimes -- or something else happens in their life. So to say puristically that all multiunit franchisees are higher would not be accurate. But as a rule, you become a multiunit owner because you are one of the most successful operators. And our most profitable franchisees right now are the multiunit owners. So if you look at the most profitable stores in the system, they're inside multiunit, and the most profitable aggregate is the multiunit owners. So yes, there's not -- there's very few where it's just a single unit owner that happens to be the most profitable store or above the average. It's normally experienced.

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Unidentified Company Representative, [21]

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All of that person doing the business, and that's required in your store.

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Andre Ten Wolde, Domino's Pizza Enterprises Limited - Chief Operations Officer of Europe [22]

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And I think too in France, it's the same play, Richard, is that we have franchisees that are extremely profitable, they're the most profitable in Europe. And if you look at the quantum of euros that have 5 stores, second store franchisee have, it might be -- in some cases, it might be a small amount first store. But because they're owning EUR 600,000, EUR 800,000, overall, they're making an extreme amount of money that they're very happy with, particularly the fact that they are managing a business and not working the day-to-day. So high variability, but in France, those incentives -- we incentivize what we want to change. We wanted to lift focus on service. We want to lift the focus on opening more stores, watching more stores because they get closer to the consumer, gives a better customer experience, and they're the sort of things that we've lifted those incentives over in France. And this is not the first time we've done it. We've done it in the past. But they stood out this year because of the quantum, but in the past, we've done it before. So it's nothing new in real terms. But yes, it's the same play in France. Does that make sense?

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [23]

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Yes. No, that's helpful. And just one other question. I think it's a quick one. It was interesting, in the slide on Benelux, when you put it up, and as Andre pointed out, with a population of 29 million sort of went back to what I've got to record it as your store targets in those countries. And so correct me if I'm wrong, but I've got 200 for Belgium, 400 for Netherlands and 15 for Luxembourg. That -- I mean there's a big gap between the total of 615 and the 1,000 that you're targeting in Australia. And yet everything that we hear about the performance in Benelux, is it at all good and continuing to perform really well. So why don't you have a higher store target for Benelux?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [24]

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Yes. These are all in development, I think, Richard. Andre is right in that we have 2 kinds of targets in our business. We have the target that we feel absolute about we can deliver to shareholders because businesses hit new tipping points. So you've seen over the history where Australia got upgraded and New Zealand got upgraded, we hit new tipping points, we've got new customers as we've upgraded almost every business. So when we look at it today, the Benelux, we have actually certainly around what we can see. But inside the business, we have different flag posts. We say, why shouldn't the Benelux be bigger. Why -- I mean why shouldn't Japan be materially bigger over time with the size and population of Germany and so on? But it feels naive sometimes to walk up to a shareholder and give a 20-year or 15-year forecast when management that's putting it out there and maybe overinflating expectations.

But internally, I can't see any reason why the Benelux shouldn't perform. In fact, there's a lot more efficiencies that Australia doesn't have with that population. I mean that's the size of Southeast Queensland from a landmass. So they'll probably give you efficiency, the media, the ability to access customers, but until you get to each trigger point, when we get to a certain trigger point, so as Andre's team and [Mischa] or [Ringo] and so on, actually get closer, then we'll review the numbers because what happens with our model actually -- often, we're sitting on a number which starts to get to a point we said, at what point do we need to keep the market fully informed because now it's switching to a new place. Because the model, every time we get the new sales data and the customer data in, it actually calculates that new store count.

And then at some point, we know that through market disclosure, we should update because it's now quite real that it's materially enough. For example, we wouldn't update, let's say, they're no longer a case at 615 stores and now 650 stores, it's not material enough to go and upgrade the market, but if it all suddenly moves to 750 or 800 stores, we would feel the responsibility to report to the market and say, you know what, the model actually says that, that's now 700 or 800 stores or whatever. Does that make sense?

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [25]

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Yes. It does. And so if you look across or even if you'd look at Benelux as a sort of a subregion within Europe, if you look across the different areas, where do you see the upside risk in terms of store numbers?

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

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You mean just in the Benelux or the whole business?

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [27]

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No. Across the whole business. So if you'd look at Benelux as one, you have France as one, Germany as one, Japan as one, ANZ as another, where is -- where are you feeling most optimistic?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [28]

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Yes. So in the size and scale of the markets, you would say today that France, Germany and Japan are the least to mature to their future capacities. So Australia and New Zealand and the Benelux have been the biggest lifters in previous years. They've hit critical mass faster there. As one metric, in Australia, we're on television somewhere between 45 to 52 weeks of the year. Well, the Benelux is breaking out. The Netherlands is almost on the same sort of television spread and therefore gets all the benefits of that. Japan is encroaching on that. Germany is just starting. Belgium is just starting. France is no way near that. It's been on -- it's that material, television, but nowhere near what it could potentially have in the future.

So when you look at all these different maturities, the way I look at it is, if I just look at it on a bigger scale, I'd say, look, we've got a -- we're servicing a population of 10 million less than the United States of America. They're already at 6,000 stores, on their way to 7,000-plus stores in what they're guiding their shareholders. Now you'd say, but don't Americans eat more pizza? Well, Australia and New Zealand, we already sell more Domino's. We're more than twice as penetrated per head of population out of the Australian and New Zealand business. So we've also shown that we can even penetrate deeper.

So if we look across this business, there are different maturities, there are different pizza consumption levels. For example, today, including the Japanese, a large [populus] of 124 million people, purchase less pizza per year. But then you've got places like Germany, France, Belgium, which consume more pizza than Australian per head of population. So we've got quite a diverse and we should always keep talking to these each individual silos. We don't break out Europe in enough detail, and maybe at some point in the future, they would just get bigger and bigger. The pressure will be there to break individual groups out because Germany, France and the Benelux are so material. And I think today, when we talk about Benelux, you can probably say Benelux Den with Denmark because that's supported by the Benelux team and so on. But yes, we look inside the business and just keep watching these numbers getting upgraded as we keep hitting new tipping points.

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Operator [29]

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Our next question comes from the line of Shaun Cousins from JPMorgan.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [30]

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Just a question regarding the first 7 weeks. Before 7, it obviously was quite strong. How much of that was assisted by promotions? I think the comment in your advertising for July was in like the biggest deal ever, 60 off large premium, 50 off large traditional and 40 off New Yorker. I'm just curious whether the uplift that you've got, particularly in ANZ and what you highlighted Australia doing quite well into the strong and I think New Zealand was very strong, was it just promotionally driven and has required franchisee support and might not be able to be sustained?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [31]

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Well, yes. So that was very well-supported, by the way, that promotion, and it did go for 10 days out of the 7 weeks and it was a success. I can share that, from a quantum point of view, 60% off was only of our premium pizzas. So the Australian and New Zealand team had an insight that one way to grow non-Domino's customers was to continue to invest in premium because people are surprised by the chicken and [ham and bacon] and the prawns, the mega meats and so on. And so by getting more trial of that product creates more frequency and purchase. Underlying, without a doubt, and Nick said this earlier, the real growth is coming from Pizza Checker. Pizza Checker, we've got a 15% higher product score as rated by customers because of Pizza Checker. And that's the underlying growth of just Australia. So Nick, anything else to add to Australia?

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Nick Knight, Domino's Pizza Enterprises Limited - CEO of Australia & New Zealand [32]

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Yes, it's important to note those premium pizzas are also our most expensive pizzas. So we're seeing actually an increase in average ticket because we're trading with customers into a far better product.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [33]

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Yes. Great. And maybe just to sort of value -- a comment on broader value. I mean one thing DPZ called out in their first quarter '19, they highlighted the markets of Europe and the Pacific, and I think they were talking about you guys in particular. And I said, one of the reasons those markets were weak seemed to be they didn't focus enough on value. Do you think that you're giving a good enough value proposition? And is that something that sort of changed during maybe the fourth quarter or the back end of the half and possibly now, I guess, just in that -- is that what you've needed to sort of solve for, and that's what's resulted in the short-term targeted franchisee support that's weighed on your earnings in the second half of '19, please?

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

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Shaun, so happy you asked that question because we were very frustrated to be in blackout and hear those commentary. It wasn't actually up. It was actually targeted at others. And you can see clearly, if you said the Pacific, well, that's Japan and Australia and New Zealand from our share, but we're not the only ones in the region to be as material. There are other large groups inside this region as well. And those comments were largely led into those other groups, without going into too much detail. So thank you for letting us close that question that we couldn't answer during blackout.

But no, we are very focused on value. Value makes up a lot of things. It's what do you get for that price between the service, between the product quality, between the image of the brand, with, for example, the use of digital assets and so on to the price. We always say product, service and image divided by price equals value. The value of a product sets an image. You can be a little bit more expensive and be great value. The lower your product quality, then you can be lower and you're getting to be cheaper. And we've got markets where Japan, where we've got an extreme of -- we sell pizzas sometimes at $50 a pizza or down to as cheap as like, in Australian dollars, $9 or $10 a pizza as a spread. And then you've got -- we obviously sell some NZD 5 pizzas, Australian dollars, and so on.

So -- but then on the other end of the scale, Nick highlighted, we have these premium pizzas. The fastest growth part of our menu today in Australia today is our premium menu because it's the one that really earns the most new customers because when you compare it to anything else, the quality of the ingredient, it's surprising the customers that Domino's does that, considering our history where we came from maybe a more traditional format of supreme, ham or pineapple, pepperoni, margaritas and so on. So yes -- no, I'm glad you got to ask that question. It's -- we are constantly focused on that in 2 categories of delivery and carryout and they have different drivers depending on that -- on those customer segments.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [35]

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Got you. I think just to clarify, that was in the first quarter '19, which was March. So you guys were certainly -- March, April, so you certainly weren't in blackout at that time. But that's fine. Maybe just...

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

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We don't respond always just to -- yes...

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [37]

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Yes. That's fine. Maybe just for Richard, just on the CapEx, the step-up in guidance from 60 to 70 to 60 to 100 -- 50 to 100. I recognize part of that's funding more corporate stores and that steps up over the next sort of 3 to 5 years that makes a lot of sense. I guess 2 clarifications. Is the expectation that franchisee loan repayments continue at a similar rate to fiscal '19? Because that's been a big sort of change in your business as you start to get loan repayments. And secondly, what are you thinking about the path of corporate-to-franchisee conversions in Japan because you've actually seen the share of your corporate stores go up a little bit. Pardon me, so really, that transition is steady -- has flatlined. You were generally getting more and more franchise sort of stores, but that didn't really move a lot in fiscal '19. So just curious about how you're seeing the corporate-to-franchisee shift in Japan, please?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [38]

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Yes. Yes. So look, the franchise loan repayments, we expect to continue. As those franchisees, the profits grow, and especially in Japan, as the guys mature and they get 1 to 2 years under their belt, we -- I wouldn't expect it necessarily to be at the same rate as the last half. That was -- that -- we did have a lot of franchisees refinancing in that period and some work we've been doing locally. My CFO in Japan has been doing some negotiations with local banks and some of the larger banks over there in terms of that. And you can imagine, like, in ANZ we've seen as, I guess, a stronger business now, so that's been helpful. So yes, so to answer that question. In terms of the question around mix of stores, I'll pass you on to Josh, in terms of the corporate-to-franchise mix in Japan.

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [39]

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Okay. Shaun, Josh here. Look, for us, we have been growing corporate stores, but we do plan to sort of recycle some of those where it makes commercially sense to. But we are seeing some great store unit economics with our corporate store base. So sometimes, it just makes more sense to grow with our corporate store.

That said, also if you -- for the people that were on the roadshow in Japan. We made a -- it's very true that franchisees actually prefer us to open the stores and then buy it off just later. So basically, what that means is we're providing a full turnkey solution for the franchisees. And that seems to be the preferred way they like to operate. So if you look, the number's in flux, and you just happen to get us at a point where we've built a lot of stores certainly towards the last half or the last quarter of last year, and then we probably plan to recycle those through where it makes, as I said, where it makes commercially sense for us to do so. So hopefully, that answers your question.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [40]

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I'll just add in that our biggest priority is getting the stores open, and the franchise corporate is more -- can be a short-term aberration, as Josh pointed out.

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [41]

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Yes. And then you will see a long-term trend of franchise growing in the network, and we'll still be a significant store owner, but we see a lot of that growth coming from the franchise network.

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Operator [42]

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Just before we move on to the next question, I'll pass back to Nathan.

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Nathan Scholz, Domino's Pizza Enterprises Limited - Head of Government & IR [43]

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I'm just conscious of time. What we're going to do is Don has some commitments at noon that we have locked in. What we're going to do is we're going to continue until 12, where Don will leave the room, and then we will continue the call because I'm conscious of the feedback that the Q&A time is very important. So what I would ask is if we're able to just continue with one question at a time for now, and therefore, we will have extra time. So you will get time to come back for a second question. So if that's okay. So operator, we'll just hand back to the next question.

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Operator [44]

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So the next question comes from Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [45]

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So I'm trying to get some enthusiasm around the growth potential in France. And you said a couple of things that sort of strike me as a bit odd because France, last year, you said would achieve some significant store openings, and they didn't. Today, you've said that the French franchise profitability is strong and improving and in fact, pointed to it being some of the strongest in Europe. But now you're paying some incentives obviously through this year in France. Just trying to understand better, what actually changes, and what's the barrier at the moment to the French opening more stores? And what's actually going to change to lend support to the guidance for fiscal '20, please?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [46]

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Yes. Good question, Grant. I think the thing you've got to understand in the franchising world is psychology. There's a lot of psychology behind franchisee -- where you have it. So just because I may have the funds and despite you having the store doesn't mean that necessarily we'll open a store. And the franchisees feel as though that the strategy of directional communication is not strong, they feel they don't get the hang of it longer. Because quite frankly, if you open a store this month, next year, it doesn't really work. I'll open it at any time.

So to be fair, franchisees are a happy [appetite]. They've said that. And with the change of management into France with Andrew Bradley now is that they've been able to align and get the strategy going in the right direction and get them off their hands to get in. This is uncommon (inaudible). And we saw, if you look back in our business in 2014, wherein back to Europe, same thing. They weren't stabilized, they weren't growing, they're sitting on their hands, they were p(expletive) off with the strategy. I kind of -- I came along, we've realigned the strategy going in, and we started growing again. You can see that very clearly on the graph. And that's what we've done again with Andrew Bradley. So I'll just get Andrew to add any comments he wants to that.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [47]

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Yes. No. I think it is a question of -- like I said in my presentation, the building blocks are there. But I think what I've been able to bring in is perhaps some communication and understanding a little bit the mentality of the franchisees, and it is softening in the mind. And this is a lot of what we've been doing. We spent a lot of time talking with people just giving them the confidence to say, okay, yes, now we're going to move forward quicker. And that's really been the objective, and I think that come together during the year.

So yes, we work through a third party. 95% of our business in France is through franchisees. So it's important that they are confident in what we're doing. And I think with that putting together intelligently incentives, as Andrew mentioned earlier, which incentivized people to do the things we want them to do, yes, it shows that they've got confidence in the market. The result in floating at one stage, I think we've been able to get through that. And now we're full steam ahead. So I'm very pleased where that's going. We've got very nice projects signing up.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [48]

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And the other thing I can say in that is that you won't be left wondering by January because absolutely, in the pipeline right now, leases signed. Many stores under construction that all the work that Andrew did in the last year, he opened a record half of organic stores, which isn't typically a record half because, as you know, Europe's largely shut down in July, August and September, similar to Australia being shut down in January and February with all the holiday and then getting workers back and building stores and constructing stores.

So we won't leave you wondering. I see the pipeline. I know this pipeline as much as we can have. I won't give a number because there's always that last little counsel issue that can happen or something goes wrong, but it would be very difficult to see that we won't have a record half in store count in France. So that should give you some confidence.

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Operator [49]

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Our next question comes from the line of Craig Woolford from Citigroup.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [50]

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Don, I'll just ask the one question may be directed to you, and I'll queue again for others. But you mentioned about the focus on pizza and more specifically Domino's and then potentially other countries. Where would you draw the line? How would you reconsider developing markets in Asia or countries that you might not have existing expertise in terms of the geography and demography, but you can apply your skills as a Domino's franchisee?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [51]

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Yes. So some of the things that -- we've had a consistent model that we've used over a number of years now, which we called the one degree of separation model. And the one degree of separation model was started with the origins that we're -- Domino's and rather than being other concepts in Australia and being a multiconcept franchise system in Australia, we decided we would go Domino's worldwide, and that's what we've done.

But inside that, there was some criteria. And one of them was that we had leadership that we thought could lead in and export to that country is what we called our missionary program. So the idea was we would send somebody in well-trained in our mentality, the way that we think and drive this business, the reason we've been successful. We do have a model we call high-volume mentality, and that high-volume mentality has been our successful model today that's underpinned by OneDigital. But that -- we have a leadership, we have empathy with that and know-how to execute on that.

We also look for opportunities where we think we can expand, and it's got to be somewhere that we think there's got material growth, long legs in it. Doesn't mean we wouldn't look at a bolt-on but we do look for the ones that we can expand. Our Board's very, very strict on the whole -- the way that we go to buy or acquire that market. We've got to meet a number of hurdles -- of financial hurdles.

We also look along the line of, can we get some synergies as a business that we can -- like some of the ones more recently, like Germany is beautifully synergistic. We started with the Dutch team supporting that heavily. Our [stock price] came out of the Netherlands. And then even today, there's still a lot of Dutch support, same thing for Denmark, same thing for Luxembourg. So in the origins of our business, the Australians would go out there, our leadership, and we still have a lot of Australian leadership around the world and people like [Josh] and [Kelly] who now runs Denmark and Andrew and so on.

But today, our successful business -- our next most successful business has been the Netherlands, and therefore, we have a lot of Dutch leadership. So that's been really important. It's really important that we -- it's business-friendly countries we can bring the money back to Australia. There's a number of countries in the world that don't meet that criteria. We can get all excited. We could sell a lot of pizzas, but we just don't know have we'll ever get the money back for shareholders.

And then selfishly, it's got to be a material currency. There's some parts of the world where you can sell a lot of pizza, but then divide it by 20 or divide it by 40 for Australian shareholders. And the same amount of effort to open a Domino's store in (inaudible) any country in the world, sometimes even harder in those countries.

So there was always sort of criteria that fits around it, which means that first of all, synergistic works really well, adding more countries to Europe, if there's something else we could add to Asia that was synergistic. But like we did with Japan, we wouldn't rule out a fourth location in the world if it met all those other criteria and were significant enough for our shareholders. Yes. So that sits on our radar as well. But very, very focused on pizza, I want to make it really clear. Even our menu, very, very focused on pizza. We think there's a lot more pizza to be sold in every country, including Australia and New Zealand.

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Operator [52]

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Our next question comes from the line of Ben Gilbert from UBS.

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Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [53]

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Just a question -- just on the Aussie NZ second half EBITDA margins, so down about 165 basis points. And I think it's the first time we sort of heard about this increased support sort of haven't been previously spoken to. Obviously, talked of corporate losses.

Can you give us any color around when that started, was it around that $15 pizza promotion? Should we be expecting this to annualize into next year? Or are you able to pull back knowing that your numbers are looking a bit better?

I'm just trying to understand that margin because it was definitely a bit softer, a little bit disappointing that second half margin trend in Australia.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [54]

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Yes, Ben. Yes, I can definitely confirm, it wasn't around that $15 offer. That's a really, really profitable and successful offer at a store level, and we can drive support from our franchisees on that offer. It was short-term in nature in a food subsidy. I know it's just the cleanest way that we could subsidize some food franchisees to help them through a tougher couple of months earlier on in the half. And that's all been unwound now.

So we also invested in Pizza Checker and some other equipment that -- because we believe that that's the right thing to do. We really believe in that project and wanted make sure our franchisees truthfully embrace that and didn't have to worry about the cost of that program. So that's basically most of what we're talking about there, and it's all been unwound.

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Operator [55]

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Our next question comes from Andrew McLennan from Goldman Sachs.

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Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [56]

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Just my question in relation to the growth you're seeing in Japan and how that might imply a growth future for Europe. Within the Domino's system, people talk about hypergrowth and the ability to drive very strong comp store sales growth. And the key bottlenecks, if you like, to that growth being achieved in Japan and in Europe has been around scale, around branding, around technology. You seem to have overcome much of that in Japan and, you're looking very much like you'll be across much of that in France.

I'm just wondering about how you think about that sort of growth phase in each of those regions and what impediments remain out there from an internal structural perspective, as you mentioned earlier?

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [57]

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Andrew, Josh here. Just talking to Japan specifically. Probably, if we look for the future, we don't see any headwinds in terms of site selections or anything like that. We are on our way to try to get critical mass because Don already talked about how much TV or how many stores and how many sales we need to get on to full TV. That's something we're driving towards. If there was -- one thing is very similar for the rest of the world, I mean one of the things that is -- something that we have to always consider is people. If you don't have any problems finding sites and you've got obviously you have the pipeline of people to do that. And we are active, and that's part of the foundations building what we're doing right now is making sure that we have enough people because we know we can keep adding stores. That's not the problem here. So that's something that certainly, our management team deals with every day and certainly, a KPI for our business and future growth in Japan. In terms of Europe, I'll pass it over to...

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [58]

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I want to say -- so it's Richard Coney. [As also discussed] so we had talked about, we do tend to have a tipping point. And in the Benelux region, we had hit that tipping point in terms of when we're hitting television, you're on television. And so we've -- I think we've sort of had talked to the market about both Germany and France are probably 100 stores away from that sort of critical mass in terms of what makes that more effective TV. But I'll let Andrew Rennie complete.

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Andrew Charles Rennie, Domino's Pizza Enterprises Limited - CEO of Europe [59]

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Yes. I would say that the movable target because it depends on how much competition to the market. For example, Netherlands didn't have too much competition on QSR on TV. So with 100, 120 stores there's upside in getting some penetration. We expect that those who do it are those who will get the 100 stores mark, they'll have a similar sort of effect around 100, 120 store mark.

Germany, with 80 million population, you need more stores. So as we approach 400 stores, as we approach 500 stores, that starts to step up. And probably around that sort of 500 store mark does have its impact. Although the good news is that things like radio are having an impact already. We're starting TV in September. We'll start to see the benefits of that, and that will speed up that process.

And the same in France with a population of 65 million, 67 million, we're hitting that (inaudible) at [200 or 400] but probably getting closer to 500 because it's a very crowded QSR space, you start to have cut through. So for me, as Richard said, probably within (inaudible) about to approach it in sort of the next 6 months or so Netherlands is already there. France, we did the next sort of 100 stores, and Germany, similar. So -- but it's not a -- it's sort of -- it's gradually stepped up with time. It doesn't do sort of overnight change.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [60]

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It's not an exact science, so we're -- yes. And what I've also said, if you look at it, if you actually go back and look at Domino's U.K., when they really get their tipping points in terms of their store numbers, if you go back and look at their business, when their profits actually increased significantly, and there are over 1,000 stores now, but we may went from that 300 to 500 store ranges when they started to get some (inaudible). So you're looking for historic reasons, again, on a historic basis.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [61]

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I'll reinforce just what -- it's Andrew Bradley here, I'll just reinforce what Andrew Rennie said. I think there's this tipping point. We have the calculations. We've done it, that an extra 100 stores in France would very, very significantly increase our TV presence. And it is very -- the market is pretty sensitive to TV supporting France (inaudible).

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Operator [62]

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Our next question comes from Sam Haddad from Bell Potter.

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Sam Haddad, Bell Potter Securities Limited, Research Division - Industrials Analyst [63]

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My question related to Japan. Previously, profits in that market were quite seasonally weighted to January and December, I think that was about 40% to 50% of profits come from those 2 months. Was that we experienced in FY '19? Or are you starting to see some of the sales spread towards other nonseasonal periods? In other words, is the traditional seasonal purchasing behavior of the consumers done start to -- [so slightly] changing?

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [64]

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Sam, Josh here. Look, yes, traditionally, we're a special occasion market. And we expect last year and at the other meetings that we're moving away from -- we're not moving away, we're just adding into other different occasions as we get away from that because we shared with the market, I think last year or through the investor roadshows that, that investor -- that special occasion market is only 2.1% of the overall spend in our QSR category.

So we did see -- we obviously did see a significant amount of profit through that region, but most of the -- for, sorry, December, January. But when we look at how the balance of growth has come from the other months. So that's been part of the strategy. Obviously, with our barbell strategy, trying to exercise different consumers at the value end as well as keep our core positions around that special occasion. So Christmas will remain, and New Year's will remain to be very important to us, but we're going to balance that growth certainly, in the years to come around how we access those customers. And how do we engage with more value until we get high frequency and we become less of a special occasion and more of a standard to the consumer base.

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Operator [65]

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Our next question comes from Johannes Faul from Morningstar.

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Johannes Faul, Morningstar Inc., Research Division - Equity Analyst [66]

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I was wondering in terms of the sales through delivery aggregators. You mentioned earlier that it didn't really have a material impact on the network sales, but did it have an impact on the franchisees' profitability? And if so how large was that impact? And maybe as a follow-on, which aggregators are you working with in Germany? Were you selling through Deliveroo at all?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [67]

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Yes. So who wants to take (inaudible)? So I think that we haven't seen the impact on franchisees' profitability directly from aggregators. We see an impact on franchisees' profitability from a lot of different things, but you couldn't zero in on, say, aggregators. They were part of that. Particularly, when you look at markets like Germany and the Netherlands, for example, we've had aggregators now for like 5, 10, 15 years, and their profits have been growing consistently for that long as well. So you definitely can't correlate between aggregators and franchisees' profitability.

And your other question was...

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [68]

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Yes. So I mean I can talk to Australia. I mean I think a couple of important things to note. We execute the delivery ourselves. So at the rate that we would pay for an acquisition of an order is materially less than what other small operators or chains would be paying. It's our view that it's a very profitable order, and the cost of acquisition of that customer and that platform is actually materially better than it is in places like [Google], for example. So as Don mentioned today, we view the platforms as an ongoing part of the new ecosystem, and we think that we're best positioned to execute and -- for ourselves and our franchisees to make profit inside of that by being really efficient.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [69]

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It's important to note that when our customers are buying, the product is usually not under a coupon...

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [70]

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Or not at all. There's no discount...

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [71]

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Through the aggregator. So that obviously benefits the franchisee, although they've got a cost associated with that aggregator or that the margin that they're making on the product is usually higher.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [72]

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So the question about Deliveroo, can I answer that? We were not on Deliveroo. So...

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [73]

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We are in Australia. And we're testing in Europe.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [74]

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And Northern Germany.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [75]

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France and then Germany.

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Operator [76]

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Our next question comes from Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [77]

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Sorry, I just wanted to come back to ANZ. The profitability drop in the second half was $7 million at the EBITDA level. Should that persist in the first half '20? Like, is there anything that's actually going to change in terms of the economics of those stores near term? Or is it more of a longer-term journey to rectify the profitability issues with some of those stores?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [78]

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Yes. So I think Don touched on it the first thing in this morning. One of the big things that happens when you take on so many underperforming stores is that we invest all in those stores. So that is investment in not only CapEx or renovations, but investing in hiring new team members, investing in marketing, investing in programs to turn those businesses around. So we did take back a lot in that half, and that is a big part of that, but we also did share this morning that, that will then reflect in a positive way on profit on sale or as we turn those stores in a profitable corporate stores. So that's a big part of it. We did do some incentives, as I mentioned, where we subsidized food cost of franchisees. That's all been unwound, as I mentioned before. So I would expect that most of those things are now not in the second half, and we continue to grow off that base.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [79]

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So I mean we would be expecting our second half in '19 to be stronger than our first half. I would highlight that.

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Operator [80]

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Our next question comes from Craig Woolford from Citigroup.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [81]

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Just 3 quick follow-ups, hopefully. So firstly, on Europe, with the pace of store openings in FY '19. Did I hear correctly that one of the reasons for the miss was Germany? Because I would have thought -- and the fact that you are converting Hallo Pizza stores, who would have thought that would have been well known. Thus, the crux of the question that I have is trying to understand whether the miss on store openings was about the sites that were available or finding suitable franchisees to run those stores.

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Andrew Bradley, Domino's Pizza Enterprises Limited - CEO & President of France [82]

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Yes. Good question, Craig. Andrew here. So you're right. We probably should have been a bit more conservative. What we've thought was that we would have a bigger uptake in organic in FY '19 for the German guys. In reality, what we did was we actually incentivized them to take on new stores. Well, with what, we had them do is take on existing franchisees that were underperforming. So typically, where we had a conversion, like a Hallo or Joey's, the bottom 20% of guys we move on, but that takes time to work at who these guys we move on to, et cetera, et cetera. So we re-homed those stores, if you like.

So instead of putting organic stores in the hands of our best operators, we put some of those underperforming stores in their hands. And therefore, they weren't able to open the organic stores. It wasn't access to locations. We've got plenty of locations. And we're also building out, to be fair. Our development team was very lean because we've been -- it was actually a conversion team. So we had to build that team up, and we're probably 6 months behind in April in terms of getting that team built. It took quite a lot on finding the right people to head that development team. That's why we had confidence now that, that conversion process is over, there's less need to put the low-performing stores in the hands of the good franchisees. So therefore, we have the appetite now on organic stores. That's the key reason.

So Germany wasn't much of a contributor at all. Does that make sense?

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [83]

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Yes. That certainly clears that up. And the other one was just on Japan, Josh, yes, some of the improvement or the strong same-store sales growth, should we expect with the menu changes that we'll see transaction growth more so than average ticket?

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Josh Kilimnik, Domino's Pizza Enterprises Limited - President & CEO of Japan [84]

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Well, look, at the moment, we don't foresee a ticket decline. There's definitely a -- at this point, I mean we do have the -- we've had the [bar room] menu strategy for the last 6, 7 months. And we'll -- it will be relatively flat, I would say. But we would see, in terms of average ticket, but we are looking for a higher obviously order growth as we access more consumer or get occasions within the week. As I said before, we're so focused on Christmas and everything we forgot about the consumer for the rest of the year. So we've now changed all that marketing programs. We're heavier in LSM activity. We've obviously -- with more stores, we have more TV. So we should start seeing -- we are seeing transaction growth with little effect to ticket at this point.

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Operator [85]

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Our next question comes from Ben Gilbert from UBS.

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Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [86]

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Just a final quick one from me. In terms o [thoughts here on] the buyback obviously you note that pre-Christmas last year. What the thinking is around that in terms of getting it going? Or are you just sort of comfortable leaving that sitting on the fence?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [87]

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Yes. Look, our focus, as Doug pointed out, is that we are looking at potential other acquisitions at the moment. So yes, probably the buyback is probably not high up on our priorities at the moment.

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Operator [88]

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And the next question comes from Peter Marks from Morgan Stanley.

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Peter J. Marks, Morgan Stanley, Research Division - Research Associate [89]

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Just on the ANZ EBITDA decline again. I just wanted to clarify if the corporate stores that you took back were loss-making. And then if you could give us a sense of the differential in profit on sales year-on-year. Like did you book a lot of profit on sales in ANZ in the second half '18?

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [90]

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Yes. So if you -- actually, if you have a look at our cash flow, you can see our profit on sale is relatively flat. Actually, it's slightly less at a group level. And that sort of -- that mix is right across the group. It's not specifically Australia, Japan or Europe. So there was no real change there. Maybe we'll go into the...

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [91]

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Yes. In terms of the stores that we're taking back, not all of them were loss-making. And some of those stores were and still are quite profitable stores. But with any transitioning business, when you're putting new teams in, embedding new cultural or a new strategy, there's a short period in time where you're investing in training and driving culture in that business. And then you have a short-term hit for obviously a longer-term benefit as those stores return to profitability.

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Donald Jeffrey Meij, Domino's Pizza Enterprises Limited - MD, Group CEO & Director [92]

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But to answer your question, it impacted us. It -- taking at a -- yes, most of them would be in the time period below profit, below negative profit.

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Peter J. Marks, Morgan Stanley, Research Division - Research Associate [93]

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Okay. And then on the franchisee profitability outlook for this year, what sort of same-store sales growth do you think you need to have that improve? And what are the biggest headwinds that you're facing there?

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [94]

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We've guided through fixed cost of the group, and yes, that's where we're targeting for Australia as well. And what we need to do is get the fundamental drivers of customers' expectation from us. And we know that when we have been able to execute on that historically, then profitable sales have followed. And one of the things that I want to point out again is that Peter [Sheffer] has a program that's really helping with that execution at a product level. And then our core offering, our pizza, our customers are telling us that we've seen a 15% improvement in there, right, in the quality of that. And then it's a matter of matching that product and continuing to work on that with the needs of the consumer, talking to widening the appeal, so things like plant-based meat, and then execution of that strategy with things like our new ordering assets coming online as we focus on a faster and fresher delivery and getting that value proposition and the balance right of pricing between our offering at the lower end, but also as Don mentioned earlier, getting more of our premium products into people's mouth. So that's definitely our focus in this next 12 months.

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Operator [95]

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We have no questions in queue. (Operator Instructions) Our next question comes from Andrew McLennan from Goldman Sachs.

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Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [96]

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Sorry, just one more quick one. On Page 6, looking at your CapEx slide, where you've got the CapEx which recycles at $32 million. Obviously, one of the big stories for yourselves over that's been building up over the last in a while has been about how much capital view we'll be able to recycle. Clearly, given your aggressive growth in Japan from the store's perspective and the issues in Australia in terms of being able to -- the net sales to franchisees as being constrained. I'm just wondering if you could help explain how this number compared to 2018 and how you expect it to move going forward. I imagine, in some instances, that number could get negative potentially. If you could just talk through that, please.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [97]

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Yes. Look, at the moment, we are in a moment of time, and you said we've put a range of $60 million to $100 million. So right now, we're at the high end of that range because of really taking those opportunities in Japan, as you've highlighted, the acquisitions of stores and corporate stores in Australia. So we would expect that over the medium term that would decline, but it could hike up and down depending on what's happening in each particular year, so -- but over the long term, if we start opening markets, new markets, then ultimately, we will potentially go negative long, long term. And really then, that depends on the mix of corporate stores in Japan as well. Obviously, we've got a -- we're very weighted to a lot of corporate stores in Japan. And as Josh pointed out, our bigger objective is to get stores open right now. But once we -- if we ever do get to maturity in Japan in the coming years, then that will ultimately recycle. And as you've seen with the refinancing of lines, it tend to be quite significant when we start to get that money coming back. Does that make sense?

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Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [98]

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Yes. No, that's actually a good clarification, Richard. So basically, the capital is being recycled into new growth, not necessarily to be a net cash flow benefit over the medium term? Okay.

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Richard Coney, Domino's Pizza Enterprises Limited - Group CFO [99]

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Yes.

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Operator [100]

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Thank you. We have no further questions. I will pass back to Nathan.

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Nathan Scholz, Domino's Pizza Enterprises Limited - Head of Government & IR [101]

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Thank you all for joining us on the call. And I appreciate your patience as we've extended out this Q&A to make sure we could exhaust all of the questions. We have an extensive road show schedule over the next couple of days, and we look forward to meeting many of you face to face and introducing our international management team. So thank you very much for your time.

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Operator [102]

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Thank you. Ladies and gentlemen, that does conclude the call. Thank you so much for your attendance. You may now disconnect.