Collins Foods Limited (CKF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Collins Foods Limited HY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Xavier Simonet, Managing Director and CEO. Please go ahead.

Thank you, Ashley. Good morning, everyone. My name is Xavier Simonet, I'm the new Chief Executive Officer of Collins Foods. And with me on the call today is our Group Chief Finance Officer, Andrew Leyden; and our Chief Operating Officer of KFC Australia, Helen Moore. To Slide 1, please. So I joined Collins Foods less than a month ago. And before we start the presentation, I would like to take a moment to introduce myself. I have more than 30 years of experience in business in Europe, Australia, Asia and the U.S., working for public companies, privately-owned businesses and a couple of times with private equity in Europe. I do not come from a QSR background, but I have relevant experience in retail, franchising, brand development, large team management, consumer goods, international growth, digital transformation and M&A. My last 2 roles in business were CEO of Kathmandu Holdings, an ASX-listed company between 2015 and 2021, and CEO of the private-equity owned retailer and brand in the U.K. with operations in Continental Europe. I'm delighted to have joined Collins Foods. Collins is a proven, strong and resilient business, operating world-class QSR brands. I look forward to working with the Collins team, the Board, Yum! and other stakeholders to drive growth, improve profitability and shareholder value. Andrew Leyden, our Group CFO, will now take you through Collins Foods results for the 2025 half year, which was a 24-week period to the 13th of October 2024. Good morning, Andrew.

Thanks, Xavier. Good morning, everyone, and welcome to the presentation today. Please note, as we take you through today's results, financials are presented on a post-AASB 16 basis unless stated otherwise. For those of you more accustomed to pre-AASB 16 numbers, we've made them available in the appendices to the investor presentation. In addition, please note that the first half consists of 6 4-week periods, while the second half is 7 4-week periods. Collins Foods has demonstrated over time, the resilience of its world-class brands and strong fundamentals. In the first half of financial year '25, Collins Foods delivered higher revenues against the backdrop of a challenging consumer environment, which impacted same-store sales, while persistent inflation weighed on margins. Key first half results, the highlights include: revenue from continuing operations were up 1.2% to just under $704 million, with modest growth in KFC Australia, offset by softness in KFC Europe. Underlying EBITDA from continuing operations was down 6.6% to $102.7 million, with margins impacted by a combination of flat same-store sales and ongoing inflationary pressure. Underlying net profit after tax from continuing operations was down 23.8% to $23.7 million due to lower EBITDA and higher depreciation on an increasing store footprint. Statutory NPAT was $24.1 million, down from $50.5 million in HY '24 reflecting the $20.2 million gain on the sale of the Sizzler Asia business in the prior corresponding, period and, of course, underlying performance. Net debt was reduced to $158.9 million and the net leverage ratio was 1.09 compared with 1.12 in the prior corresponding period, reflecting strong cash generation in the first half. The portfolio was 386 restaurants strong at period end. And as a result of strong cash flows, the Board has declared a fully franked interim dividend of $0.11 per share against $0.125 per share in the prior period. The record date of the dividend will be the 9th of December 2024, with a payment date of 6th of January 2025. So moving over to Slide 2 to the segment highlights. The group's performance this half was underpinned by strong brand metrics and a resilient QSR category. KFC Australia posted sales growth of 2.7% while same-store sales were down very slightly 0.1%. This same-store sales measure includes the cannibalization impact on our existing portfolio, which we expect from the opening of new restaurants and which we estimate represents around about 1% of network sales. KFC maintained brand share in a challenging consumer landscape. The brand renewed its marketing strategy to focus on delivering Every Day Value and innovation to KFC customers. Digital revenues continued to grow at 33.7% of sales compared with 28.1% in the same period last year. Margins were lower than the prior corresponding period, with sales growth insufficient currently to offset continued wage, energy and cost of sales inflation. KFC ended the period with a network of 285 restaurants with 6 new restaurants opened in the half and 22 remodels completed. The pipeline for new store openings remains healthy. KFC Europe posted a sales decline of 3.4% with same-store sales down 3.8% after cycling 2 very strong years of growth in the half year to '24 and '23. Netherlands same-store sales were lower by 3.3% and Germany, 5.5%. Despite sales softness, the brand maintained market share confirming that QSR sales overall in these markets were soft, with consumers struggling with cost of living challenges. However, KFC brand health metrics improved in the period, with both brand awareness and consideration, a measure of willingness to buy rising in the period. Digital channels remain key to growth in Europe, now accounting for more than 60% of sales. Overall, our European portfolio now stands at 74 restaurants with a stronger development pipeline in place. Taco Bell Australia reported a relatively flat same-store sales performance. Digital channels represented just under 30% of sales. The brand index rose driven by effective marketing execution and Taco Bell's increasing focus on Every Day Value at $5 and $10 price points. The brand continued to deliver a pipeline of innovation and a series of brand collaborations with other iconic brands, including Doritos and Red Bull. Taco Bell's freestanding drive-thru format continued to outperform the network particularly in Victoria, providing more insights into the successful formats that we see for the brand moving forward. At period end, the portfolio remain unchanged at 27 restaurants across Queensland, Victoria and Western Australia. Now moving on to our group financial results on Slide 4. Revenue was up 1.2% to $703.5 million with modest growth in Australia, offset by softness in Europe, with performance overall resilience in the face of challenging consumer pressures alluded to earlier. Underlying EBITDA was down 6.6% to $102.7 million with margins impacted by a combination of same-store sales softness and inflation, primarily in labor and energy. Underlying EBIT was $52.5 million, down 14.7%, reflecting lower EBITDA and higher depreciation relating to new builds and remodels. Despite short-term economic pressure, Collins continues to invest in a disciplined way to invest in its portfolio in digital technology and in new restaurants. This will benefit our business over the medium to long term. Accordingly, underlying net profit after tax was $23.7 million, down 23.8% and EPS was $0.202 per share, down from $0.265 per share in the prior corresponding period. Statutory NPAT was $24.1 million against $50.5 million in the first half of '24, with the prior corresponding period, including $20.2 million of NPAT relating to the gain on the sale of Sizzler Asia. Net debt was $158.9 million, down $14.1 million with strong cash flows enabling net debt reduction, further adding to the group's investment capacity. As referred to earlier, the directors declared a fully franked interim dividend of $0.11 per share against $0.125 per share in the prior corresponding period. Now turning to Slide 5, which is the income statement. This draws attention to the reconciling items between statutory and underlying results. Key differences between statutory and underlying results were relatively small, but included net profit after tax of a loss of $0.6 million due to the release of a Taco Bell lease liability upon settlements, following the closure in financial year '24, and $0.2 million of NPAT relating to the write-off of a make-good asset. Basic statutory EPS was $0.205 per share with underlying EPS at $0.202 per share. Now moving on to cash flow on Slide 6. Cash generation was again strong in the first half of 2025, and is a recurring and attractive feature of the Collins Foods business. Net operating cash flows were strong again at $75.3 million. And whilst EBITDA was lower than the prior period, cash conversion was very strong at 108%. Investing cash flows were higher by $28.3 million with CapEx up $1.3 million to $34.1 million reflecting investment in the network and in technology. New restaurant investment was $9.1 million, remodels absorbed $14.9 million and digital technology and sustainability investments were $3 million, asset renewal investment was $7.1 million. Financing cash outflows were lower by $21.4 million to $35.8 million, with no debt repayments made in the half. Lease principal payments were $18.9 million. Collins' strong cash flows continue to support significant business reinvestment and full year dividend payments. Now moving on to the balance sheet on Slide 7. Our strong balance sheet gives us significant investment capacity for growth. Net debt was reduced by $6.6 million in the half to $158.9 million driven by strong cash generation and disciplined allocation of capital. Cash balances increased to $88.6 million. Other current assets were down $3.9 million with a $3.6 million reduction in sundry receivables. Property, plants and equipment increased by $1 million to $256 million reflecting new restaurant builds and remodels, of course, less depreciation. Right-of-use assets of $490.8 million and total lease liabilities of $591 million, both rose as we added restaurants to the portfolio, as did other non-current assets consisting mainly of movements in intangibles. The net leverage ratio ended the period at a very comfortable 1.09. The Collins Foods balance sheet remains strong as we head into the second half of the year. I'll now hand over to Helen to take you through KFC Australia results.

Thanks, Andrew. On to Slide 9 and our KFC Australia business. Our performance during the half reflected tough consumer market conditions, but pleasingly, these appear to be showing signs of leveling out. Our most material business unit posted a 2.7% increase in revenue to $536.8 million. Same-store sales growth was broadly flat at negative 0.1%, cycling 2 years of strong same-store sales growth and trending up during the period. The gradual improvement in same-store sales performance has continued into the second half, improving to positive 0.8% for the first 7 weeks of the second half. EBITDA was down 3.1% to $102.2 million with margins down 114 basis points on the prior corresponding period to 19%. This is due to a combination of flattish same-store sales and cost inflation on labor, energy and product input. Turning to Slide 10 and a focus on brand health. KFC Australia has maintained market share during the half and continues to outperform competitors on key brand health metrics. As highlighted on the YouGov charts displayed on the slide, KFC retained the #1 position for brand index, taste, buzz and recommendation compared to other major QSR players. Brand health is absolutely essential in advance of a consumer-led recovery. KFC Australia's brand and culture marketing activations, such as Christmas in July, Colonel's Spice House and our sponsorship of the BBL and NRL leagues plus AFL teams are all driving solid customer engagement. Our Every Day Value launch lifted value perceptions and trust by creating accessible category entry points with new bundles such as the $9.95 Packed Lunch and the $24.95 Boneless Dinner. We also ramped up our innovation with consumer favorites such as Cookie Dough, Hot & Spicy and The Slab. Digital sales continued to grow to 33.7%, up 5.6 percentage points from the prior corresponding period. This was driven by growth in app sales and also kiosk roll-out. Meanwhile, new restaurants were added and investments in capacity continued with 6 new stores and 22 remodeled restaurants during the period. We also super-charged 7 of those remodel restaurants during the half. I'll now hand back to Andrew to cover KFC Europe.

Thank you, Helen. Now turning to KFC Europe on Slide 12. Performance continued to reflect the challenged economic environment in Europe. Revenue was 3.4% lower at $142.1 million, driven by affordability issues arising from cost of living pressures. Same-store sales were down 3.8% cycling a very strong HY '24 and HY '23, with Netherlands same-store sales lower by 3.3% and Germany 5.5%. The EBITDA was down 15.2% to $17.1 million, with margins down 168 basis points to 12% due to same-store sales softness and elevated labor and other costs. Moving to Slide 13. This slide highlights the key brand metrics for KFC Europe. KFC Europe maintained market share driven by value, innovation and taste, but in the QSR category, which overall continue to reflect cost of living challenges. Digital sales grew again, contributing 60.4% and 64.5% of sales in the Netherlands and Germany, respectively. Brand metrics improved during the half with awareness up 2.4 percentage points on the prior corresponding period to 23% and consideration up 2.8 percentage points to 17.6%. New products launched during the half included a 'Beter Leven' Boneless Zinger, a product with higher welfare standards, delivering on our value and innovation promises. Collins Foods was also awarded for leadership in construction efficiency and sustainability innovation. Whilst the overall QSR category has been impacted by challenging consumer economics in the short term, we expect the category will be resilient over time with KFC in particular, continuing to benefit from strong brand health and consumer preferences for ease, convenience, faster service and of course, great tasting products, which offer great value for money. Now turning to Taco Bell on Slide 15. Revenue was down 2% to $24.6 million and same-store sales growth marginally lower at 0.3% down, cycling a significant Uber campaign investment in the prior corresponding period. Targeted geographic marketing investments are benefiting in-restaurant transactions and Victorian freestanding drive-thru restaurants once again outperformed the network confirming the strength of this format for the brand. There was a modest reduction in profitability due to elevated marketing investment and persistent cost inflation. Now moving to Slide 16. Taco Bell's brand health continued to benefit from marketing, quality, innovation and consumer experience. Focus on Every Day Value at $5 and $10 price points has driven value perceptions higher. Brand Index continued to grow driven by quality, value. And brand awareness is now the highest in the Mexican QSR category. Consumers top reasons for repurchase with great tasting food and also good value for money. Improvements in brand metrics were supported by a pipeline of innovation, including successful collaborations with well-known iconic brands such as Red Bull for International Taco Day, and Doritos as well as the launch of a new beverages range. Now moving on to Slide 18 and our outlook. KFC Australia's total sales increased 3.9% in the first 7 weeks of the second half, with same-store sales up 0.8% continuing the trend of improving same-store sales performance over the first half and now into the second half. Economic sentiment appears to be leveling out and should continue to support this trend. Margins will, however, remain under pressure, with improvement not expected until financial year '26. Some product inputs are expected to see slight deflation in 2025 although labor and energy remain elevated. KFC Europe sales were lower in an overall soft QSR sector, down 1.6% in the first 7 weeks with same-store sales lower by 3.5% in the Netherlands and 0.4% in Germany. Of note, the business continues to cycle very strong growth in the prior, corresponding period. The cost environment is expected to be stable over the next 12 months. Taco Bell's overall performance was flat with same-store sales down 1.4%. Collins expects to add a further 7 net new restaurants to the portfolio before the end of financial year '25, with 3 in Australia and 4 in the Netherlands. Now moving on to Slide 19. Collins Foods provides the following guidance for full year financial year '25. Financial year '25 group underlying EBITDA full year margins on a post-AASB 16 basis are expected to be in the range of 14.2% to 14.7% compared with financial year '24 at 15.4%, with underlying EBIT margins expected to be in the range of 6.8% to 7.3%, which compares to 8.3% in the prior year. Full year financial year '25 interest, which includes interest on borrowings and on leases, is estimated to be around $42 million for the full year compared to $38 million underlying in financial year '24. This primarily reflects new and renewed leases, reflecting growth in the group's restaurant portfolio. The group's effective tax rate for financial year '25 is expected to be in line with the half year number at around 33% compared with financial year '24 underlying of 30.3%. This primarily reflects the effective tax rate in Australia and the non-recognition of deferred tax asset on statutory tax losses in the Netherlands in financial year '25. We expect the tax rate will normalize as European profitability improves. And with that, I'll now pass back to Xavier for his comments on the longer-term outlook.

Thank you, Andrew. Moving on to Slide 20. To conclude, Collins Food is a proven strong and resilient business operating world-class QSR brands in attractive markets. Our company is well positioned to benefit as consumer confidence returns and I am excited about its future potential. Looking ahead, as I become familiar with the business and engage with our teams in Australia and Europe, my priorities will be: firstly, to be laser focused on operational excellence. We will continue to leverage the existing store network to deliver great customer experience, to be a world-class operator and to drive same-store sales growth and margins. Second, to continue creating scale by a profitable new restaurant development, complemented by disciplined M&A as the right opportunities emerge. Our strong cash generation and balance sheet will enable us to invest in profitable growth. Last, to review our growth strategy in a timely manner. Our objective is to deliver scale and profitable growth, which in turn will drive shareholder value. From a more personal perspective, I have deeply enjoyed my first week at Collins Foods. We have a great team, a culture of collaboration and a passion for performance and customer service. I enjoyed a warm welcome from the Collins' Board and team and the young stakeholders I have managed to meet. I look forward to working with the team more broadly and creating value for our shareholders. I will now open the call for questions.

[Operator Instructions] Your first question comes from Peter Marks with Barrenjoey.

Just a question on the improvement in the Australian sales growth, interested in what you're seeing in terms of overall promotional intensity in the market. And it sounds like you might have benefited from getting your value meals right recently. So just wondering if that's come at the expense of margins in the half and yes, just overall promotional intensity, how you're seeing that play out?

Thanks, Peter. It's a really good question. You can probably see the changes we've made in our marketing strategy during the half, which have obviously had benefits to both topline sales and margins. I think what we were all seeing is that -- and this is my personal opinion, I think the QSR category was playing a different game to where the customers were. So this time a year ago, we were all deep discounting through the app to try and get customers into the app as part of a loyalty program. What we've effectively seen is that as the cost of living crisis bit, customers are trading into value at the expense of core. So you will have seen a lot of activity in the market from a value perspective, but it wasn't necessarily sticking in the way we wanted it to in our business. So the transition for KFC into Every Day Value, which is still supported by some of those value promotions and innovations has been actually very successful for us during the half. So I think that answers your question. But look, the competitive intensity is obviously still out there, but we're very confident in our strategy and that it's working for us.

Okay. That's helpful. And then just one on the Netherlands, if I can as well, and the Middle East issues there. It looks like you might have closed 1 restaurant in the half. I guess, is that related to the Middle East issues you're seeing there? And is it possible to get a sense of like the restaurants that aren't being impacted by those issues of the performance of those? Like -- and I guess, a bigger picture question, like if this persists, do you need to reassess your restaurant growth outlook in the Netherlands?

Yes. Peter, I'll take that. Yes. So the impact, of course, is driven by consumers that are, I guess, sympathetic to a certain cause, not attending our restaurants and also demonstrations that impact and disrupts our -- the ability of our restaurants to operate. It doesn't affect every restaurant. It affects some of the portfolio, particularly where the Muslim population is more pronounced. We think the impact on overall network sales is approaching 1%. So it's material. But it doesn't fundamentally affect the way that we think about that business moving forward, but it's a challenge. There are clearly other markets around the world that are affected much more than we're seeing in the Netherlands. We have impacts everywhere, but it's -- I'd say the Netherlands is more pronounced for us. In terms of the closure of that restaurant, no, it's not related to the conflict in the Middle East. It was related to other matters. But yes, certainly not related to the Middle East.

Your next question comes from Caleb Wheatley with Macquarie.

Xavier, congratulations on the new role. Question -- first question, sorry, just on the longer-term outlook around KFC Australia. So you spoke to those customer reviews, leading competitors pretty much across the board, some fairly strong penetration within the Aussie market. How do you think about driving additional growth in KFC Australia in the medium to longer term in this business, given it seems like you're pretty well penetrated already, please?

Yes. I think there's quite a few opportunities we have. So firstly, I mean, relative to our competitors, we really doubled down on the lunch and dinner day part. So I think there's an opportunity for us to expand in the medium to long term into broader category occasions for customers. So I think that would be the first one in terms of our existing boxes. The second thing that we have disclosed to the market in our last couple of updates has been our super-charge remodel program. So in stores where they perhaps weren't built for the sort of volumes that they're now doing today, being able to unlock that capacity to drive same-store sales growth, which we will have done by end of this year in 20 restaurants. So that's a very strong program. And then finally, new store growth. And I mean, we perpetually worry that we're running out of room. But in reality, we always find another 7 to 10 stores to open each year for KFC. And certainly, our new store openings this year are performing very strongly. So we always have to balance off the cannibalization impact, but as populations grow and also appetite for KFC grows, we tend to continue to find compelling opportunities. So yes, I think that probably answers the question.

And on that store remodeling program, how many years or how much line of sight do you have enabled in terms of continuing to grow the same-store sales in those stores that may be a little bit undercapitalized at the moment?

So we typically see in a store that we super-charge remodel, we'll see the uplift very quickly within the first year and then that new sales level will hold for that restaurant. We're currently working through our 5-year plan for super-charge remodels mapping it alongside our new store growth opportunities to decide how many stores will be eligible for that program over the 5-year period.

Okay. And then my second question, just on cost inflation, flagged labor, energy and product inputs as key drivers of the EBITDA margin decline. Can you just provide an update on what you're seeing in current markets on those cost inputs. Any thoughts on the outlook from here?

Yes. Caleb, very different in different markets, I think is the short answer. But if you look at Australia, we think cost of sales will be in a period of deflation in 2025. That 1% to 2% is probably our estimate at the moment, but that's a material improvement on where we've been. If you think about labor, we've seen some inflated labor increases over the last couple of years, but that's going to move with minimum wages now at a much more moderate level, which is great to see. Energy is still problematic. We still have elevated rates of energy across the states of Australia in which we compete. So I don't think that's going to moderate any time soon. But certainly, the cost of sales change is really welcome. The market in Europe, a little bit different. Energy has settled down. Labor rates are now -- we've had 2 consecutive years of rate increases at double-digit rates, 10%. That's going to come down to something that's much more moderate and close to Australia. We think it's going to be in that 3% to 4% range in the markets of the Netherlands and Germany. Cost of sales, we had a period of deflation in '24. I think that will move back to sort of very low single-digit rates of inflation for financial year '25. So I think you could characterize the cost environment is improving, particularly given our exposure to our KFC Australia business, which is, of course, our largest profit contributor.

Your next question comes from Sean Xu with CLSA.

My first question is around the M&A opportunities. I think it has been a while since it was first backed by management. I'm hoping to get a bit more idea on what kind of M&A assessment criteria are you considering? Are they small bolt-on acquisition or a large transaction in one go? Are they mainly within KFC brand? Just a bit more clarity would be really helpful.

Yes, Sean, thanks for your question. I think, first of all, the first thing I would say is that any M&A has to deliver value for our shareholders. And so we're fairly disciplined in the way that we assess them. And we want to make sure that when we're adding assets to the portfolio, they're going to pay their way. Australia, of course, is a very penetrated market. So when we look at opportunities here, I wouldn't say it's super easy to find. But when you look at opportunities in the domestic market, they're likely to be bolt-on, that just add value to our portfolio. Likewise, in the Netherlands and Germany, they are likely to be relatively small clusters of assets because that's the way the market is structured. If we were to make a decision to penetrate a new market that's likely -- that would likely be larger because you want to generate some scale early. So it really depends on the nature of the opportunities. So we've got our eyes open. But I think it's only right that we address those opportunities with a fair degree of discipline.

All right. Is there anything you would definitely not consider, rule out straightaway?

Well, there are things that we wouldn't consider because of the categories that we're in, I guess, is probably my first answer to that. I guess always with M&A, you want to play close to your core capabilities. That for us is important. So whatever we choose to entertain, we want that to be close to our core capabilities of running successful restaurants on a sustained basis. So those are the things that we're interested in. That's what we like doing as a business. So yes, that's what we've been looking for.

Cool. My next question is just for Xavier. I think given your experience outside of QSR, I'm just very interested, how did you assess KFC's brand health in your first 4 weeks into your job? And how do you intend to maybe leverage your background to address the challenge faced by Collins at the moment?

Sure. KFC is a very strong brand. And as Helen mentioned before, we've got strong brand recognition and brand metrics are very strong as well as the market share in Australia and actually in parts of Europe where we operate. So it's a very good starting point. To come back to the second part of your question around how I plan to leverage my expertise and experience. Yes, I don't come from a QSR background but I believe I've got lots of transferable skills that I can transfer to the business. So using the business like my retail experience in Australia and internationally, particularly in Europe, large team management, brand management, international development, particularly in Europe, where I run businesses, digitization, M&A and also leading public companies and also franchising as well.

Your next question comes from Tim Plumbe with UBS.

Just 2 questions from me, if possible, please. Just following on from Caleb's question around food deflation, maybe Andrew or Helen, given that it's mainly around the Australian business. Can you talk a little bit about -- I know that you said 1% to 2% food deflation, I'm assuming that's across your business. But when you look across the industry, is it down by more than that? And will you get an ongoing benefit as your contracts roll through and you start to reset at price and market pricing? Or are you saying the market is down 1% to 2%?

So the comment Andrew made, Tim, was on the KFC Australian business around our expectations on cost of sales reductions, we manage cost of sales very, very closely. We have an excellent team that do that, and they're constantly looking at the appropriate price bars for each category of products. So it's not necessarily relevant to compare our cost of sales base with a beef provider, for example. But for each of the individual categories that we're buying, whether that's chicken, oil, bread, et cetera, we have a very clear line of sight on what the prices should be in those categories. And then we work through, obviously, the appropriate negotiations with our suppliers and partnerships in that space. So we, at this stage, have a reasonably clear line of sight on cost of goods. But of course, as the environment changes, we would, of course, renegotiate our positions as needed as well.

The only thing I was going to add to that is that, that estimate reflects the basket of goods that we buy. The mix of product inputs that affect our business wouldn't necessarily be directly comparable with other categories.

Yes. I guess I was trying to ask like on a like-for-like basis, with the idea that you guys have got contracts that will be rolling off throughout the course of the year. So as those contracts roll off, does that 1% to 2% become a more significant number given what you're seeing in terms of like chicken, for example, what the market is down versus what your effective benefit is going to be?

So our outlook does take into account the timing of any contract changes, and that's where the guidance that Andrew provided has come from. That's probably all we can say at this stage, given the confidential nature of the contract.

Yes.

Okay. Last question, just thinking about the like-for-like movements in the second half of last year. We saw a pretty material deterioration in the last kind of 20 weeks of second half '24 versus the first 6 weeks of the second half of '24. Given that all else equal, that the run rates that you're seeing at the moment for the first 7 weeks of the second half of '25. Is it fair to assume that we could expect an acceleration for the remainder of the second half of '25, all else equal?

Yes, I'll take that one, Tim. We are -- I mean, we're definitely cycling softer comps. There's no doubt about that. We'd like to see that. That's clearly what we're targeting is an improvement in same-store sales. And I think as you and I have discussed on prior occasions, we want that to be in the low to mid-single-digit range because then it gives us a lot more confidence that we're going to expand our margins when we're at that level. So too early to call in terms of where we see it, but we are cycling softer comps, that's for sure.

Your next question comes from Ben Gilbert with Jarden.

Just one for me, just round where the discussions are at your new master franchise operator in Germany because I understand that some pretty ambitious targets for Pizza Hut, KFC and Krispy Kreme, it just feels like it's -- not a lot has progressed since they've taken over, pretty sure it takes time, but how are those discussions going? Do you see yourselves in a position to sort of reaccelerate that rollout in Germany in the not-too-distant future?

Thanks, Ben. Yes, look, first of all, Germany is an attractive market for us. We like it. It's under-penetrated from a brand point of view, and we think it has a lot of long-term potential, so that's not changed. In terms of our relationship with the master franchise holder, look, it's taken some time for that business to -- does it stall out, I guess, in terms of how they want to run the market? Which franchisees are playing a prominent role when it comes to development, those sorts of things are just taking longer than we'd like, frankly, to clarify, but we're working very hard to get clarity so that we can start to prepare for investment decisions. So I can't really put a time line on it. I can't really talk too much more about it other than what I've mentioned but we really like the market, and we're keen to develop in that market.

How is the discussion sort of at a Board level at the moment or even an Exec kind of level just around rollout? Because I think you led to -- you always find stores in Australia, it's tough. Germany sounds like it could take a little bit longer. Netherlands obviously got some other issues. You've obviously talked more proactively around looking at M&A which, from our perspective, seem like something may be more imminent. But how much of a priority is it to really trying to find markets where you can actually accelerate that growth to drive some more topline through the business? Because it just felt like 9, 12 months ago, you started more actively talking about it, it was something more imminent coming on the M&A front?

Yes. Look, I think by our own admission, we'd like to have a few more runs on the board when it comes to development in new restaurants. If you look at the markets we're in, we're developing fairly aggressively given the penetration in Australia. The Netherlands, as you know, is a difficult place to develop restaurants given energy constraints and given permitting challenges. But we've lifted our game in both respects there. I think we're somewhere between 7 and 10 restaurants in Australia. In the Netherlands, we've got 4 going in before Christmas. There'll be more next year. The pipeline is building. And Germany, I've explained, we're keen to develop and we want to roll out more restaurants. And I think beyond that, I don't think -- clearly, we have conversations about other markets, but it's probably too early to talk with any great clarity about what that means in the market. But -- so yes, we're looking at development opportunities in all of our key markets. We'd like to accelerate it, but we need to do that profitably, and we're disciplined.

That's helpful. So just final one for me just to Helen. Just a comment you made before, and you think the market sort of started to get it right now in terms of not just pushing and the consumer now sort of aware of more so where they're at. And there's an opportunity around margins, obviously, value and then add-ons, et cetera. So do you think sort of the markets -- and I appreciate it's a tough question, but has hit a baseline now in terms of profitability, and there's just a greater understanding around not doing blanket promotions and actually trying to drive more margin accretive basket. You think that's an industry phenomenon now because, obviously, it's competitive and you want to see your competitors probably taking a more rational approach as well, which will allow you to hopefully see margin growth into next year as well?

Yes. Look, I agree with your perspective on that. I mean we want to see our competitors succeed. And I think some of the bigger players in the market struggled with value perception around the time that we were pushing as market promotions through the app and then not offering that value in stores. So I think the Every Day Value approach KFC has taken is really about rebuilding trust, but also rebuilding a more sustainable basket. I can't comment on other competitors, but you can certainly see some of those types of themes coming through. And yes, I agree with your view. I mean the entire category benefits when everybody is performing well. So we wish our competitors as well with that.

The next question comes from Sam Teeger with Citi.

There's been a desire for the company to expand in Europe for some time. Realistically, how much time do you need Xavier, to get your feet under the desk for your comfortable making an acquisition into a new market? And when entering a new country, is the preference to get a large number of stores immediately or perhaps buy a few, test and learn, and then have an option to buy more stores later if it goes well?

Thanks, Sam, for your question. As you will appreciate, I only started in my new job 4 weeks ago. So it's been very short. I'm going to travel to Europe in January and spend time with the team visiting stores, but also engaging with key stakeholders, franchisees, franchise partner and Yum! in the market. As I mentioned before, I plan to review our growth strategy in a timely manner and come back to the Board with the objective to deliver scale and profitable growth. And I think in that context, we will organize when we can next year in the first half an Investor Day to be able to share our plans based on my review, and the discussions we have had with the Board and the management team on that.

Sure. And in terms of Australia, the outlook, specifically, the comments around labor to remain elevated, to what extent do you think too much labor has been taken out of stores in recent times? And what's the potential for sales to improve with increased labor leading to faster queues and quicker service for customers?

Yes, I'll take that question. We have been very disciplined around our labor investment in restaurants. So from my perspective, there's an absolute laser focus on operational excellence, and that's everything from our operating standards through to our customer experience. So what you're seeing in our labor numbers is predominantly rate increases that have come through over recent years. We expect those rate increases to remain somewhat elevated in the next round of increases, and we don't expect to be removing labor hours that we need to drive sales from our restaurants. So hopefully, that gives you some comfort from that perspective.

I was more asking to what extent has too much labor being taken out of stores in recent years and the potential if you put labor back into stores, could that potentially drive a better sales outcome?

Yes, sorry, perhaps I wasn't clear enough in my answer. We haven't taken labor out in recent years. So despite the topline challenges, we've retained our labor model so relative to the sales levels of the stores and the channels that they have available to them, we have the right labor model for those stores. There are always opportunities for us to try adding extra labor in to see if it drives sales, and that's certainly something that we do on a trial basis. And if it works, we'll continue to increase labor. But yes, it's sort of a day-to-day part of our operations here at Collins Foods group.

Got it. That's clear. And then last question, just any color you can provide in terms of what's driven the relatively better performance in Germany compared to the Netherlands over the first 7 weeks of the second half?

I don't think there are any major trends that sort of determine that Germany's performance should improve to the level it has. We have a handful of restaurants in Germany. It's not a large portfolio, and we do see higher variability for that reason. So yes, it's more to do with that than it is anything else, to be honest with you. It's a relatively small portfolio impacted by local conditions, local market trends, consumer demand at that time. Clearly, when you've got portfolios as big as the ones that we have in the Netherlands and Australia, you probably have more generic trends that you can look at. But in that market, we run a relatively small portfolio.

Your next question comes from Elijah Mayr with Goldman Sachs.

Just a couple of questions for me. Maybe just firstly, on the full year guidance for margins. It seems like you guys have a pretty good handle on costs sort of going forward. Can you maybe give us some color on what same-store sales growth you'd need to get to the top end of that margin guidance range?

Elijah, I'm not going to give that guidance because we haven't. I mean we sort of -- we've put enough out there for analysts upon their own views about what they want to think same-store sales will be. Our intention though is to keep growing same-store sales and to see that trend improve. So I think you've seen the trend move from negative 0.6 in the first 6 weeks of the period. When we put our trading updates out, we were negative 0.3. At the half year, we're negative 0.1, which means that we're in growth for the period between the trading results and the half year end. And then for the first 7 weeks of the year, we're at 0.7 up. So given that we're comping softer numbers, we'd like to see that improve. Clearly, we've got our own internal targets that have allowed us to deliver some guidance to the market. The range that we put out there is relatively narrow but I thought it was appropriate that we put a range out there. The other 2 elements that we're giving guidance on are, of course, areas where there's a fair degree of variability and analyst estimates. So depreciation -- sorry, interest where $9.5 million of our interest bill is on bank debt and the balances on leases, which should -- which should now -- that should give analysts enough to project where lease interest will be. And obviously, the changes to our tax rate that I've explained on the call. So yes, we'd expect it to improve. We're starting to comp softer same-store numbers from the prior year. And yes, I think the momentum is looking positive in Australia.

Perhaps just to add a tiny bit more context on that. The ABS data for October, which many of you will have seen, had takeaway sales growing at 1.4%. Whereas restaurants, cafes, et cetera, were down 0.3%. So you're starting to see that consumer movement into Christmas, which is positive. And on the data we've got, which is to September, the KFC brand has consistently outperformed the QSR market in terms of its growth. So I'd like to think we'll see a category recovery and that KFC is very well placed to benefit from that.

No problem. Appreciate the color there. Is there any scheduled price increases for the second half or into 2025?

Well, that would be really letting the cat out of the bag, wouldn't it. We can't share commercially sensitive information, of course, but we'll always take an approach around affordability. And I think it's really, really important at the moment, while consumer sentiment and cost of living pressures remain, but we're very disciplined about our approach to taking price. But we certainly do have a focus on building bigger bundles and on how the basket is constructed. So you'll start to see that coming through in terms of the retail strategies that we're employing in our business in the coming months.

I Understand the commerciality there. Maybe just one last on Europe and sort of potential M&A over there. Are you seeing an improvement, I guess, from a valuation perspective, given the softer conditions and the impact of margins for a lot of the QSR operators across Europe. Is this now a more favorable environment for you to partake in some M&A over in Europe?

Elijah, I mean, clearly, valuations are based upon future expectations. I think based on where markets are yes, there's probably been a softening of valuations, but they're primarily based upon where they're heading in terms of cash flow projections. So yes, I don't really want to comment too much about what we're seeing and what sort of targets we're entertaining. But yes, generally, I'd like to think generally that profitability is bottoming out in our sector. And if you think about where same-store sales are heading, particularly in our largest market, that bodes well to profitability overall.

Your next question comes from James Ferrier with Wilsons.

First question is in relation to KFC Europe. So there was a net decline of 1 store in the first half period relative to the end of FY '24. Were there any openings there? Or is it just a single closure?

James, yes, single closure, an isolated restaurant, you shouldn't read anything into that in terms of impacts across the portfolio. Our intention is to add another 4 restaurants to the portfolio before the end of this calendar year. And we've got a nice pipeline developing of restaurant development beyond that. So yes, just a restaurant that wasn't earning its keep, if you like, and it's no longer in the portfolio.

And just a follow-up then on the franchise side of things in the Netherlands, what was the movement, gross and net, in franchise store count in the period?

Relatively flat because we're the primary developers in the Netherlands, so relatively flat. Collins is by far the largest contributor to the portfolio in terms of change.

Yes. I was more talking about -- so within the corporate franchise agreement, there was minimal changes to the overall number of stores that Collins Foods is responsible for or governing.

Yes. So we're sitting at 74. The other franchisees haven't really been developing. So the numbers have stayed relatively flat outside of the Collins portfolio.

Yes. Understood. And then probably a question for Helen. When you look at the KFC Australia business, so we've seen a sequential improvement in same-store sales growth and noting the fact that you're probably cycling some residual menu price increase that were implemented around the middle of calendar '23. So as you move through first half FY '25, that menu price increase benefit drifted away. So this is sequential improvement in underlying same-store sales growth, is probably even stronger than the reported numbers would suggest. Can you add some color to whether or not that's more customer count driven or ticket driven or something else?

Thanks, James. Very insightful question. And yes, you're right, we haven't had the benefit of pricing in the half, which probably does mean those numbers are a little bit stronger than it might seem. What I would say is as we've changed our marketing strategy during the half to really focus on Every Day Value. We've certainly seen the benefit flowing through into ticket and basket size. And then we've seen a slower recovery in transactions within that number. So hopefully, that gives you a little bit more color on what we're seeing. But certainly, we're quite pleased with the improvements in tickets, and we're very pleased with the uptake of our new Every Day Value offers, which are providing really great category entry points into the KFC business. And then, of course, consumers continue to trade up into the innovations or more premium bundles that we offer from that point.

Thanks Helen, that's great color.

Ashley, I think there 1 or 2 more questions and then we'll need to wrap up.

Okay, sure. Your next question comes from James Bales with Morgan Stanley.

Just a couple of questions for me. Firstly, limited time offers, they're obviously a great lead indicator of consumer health and ultimately, same-store sales. How has your sort of latest efforts gone with the consumer? And have they responded in terms of changing their behavior and trading up instead of down.

Yes. It's a great question. I assume you're asking about Australia, so I'll respond that way. And if you've got a further question about Europe, please let us know. It's been a really interesting journey, to be honest because we did see coming into the full year results that our innovations were really flying off the shelves and going very well. And what you will have seen from KFC in this half, therefore, is a much more innovation-heavy marketing plan. And those innovations have typically performed either in line with our expectations or well ahead of them. So there have been some products, for example, Cookie Dough where we've actually run out of products before the end of the promotion because based on the trial results, we expect it to perform at a certain level and actually consumers have really gotten behind the promotion and wanted to try it. So yes, we're certainly seeing that appetite for something new and interesting in different and challenging times for consumers. So you'll see more of that to come.

Perfect. And then one more on digital maybe. Can you just remind us of the benefit that you see with a higher online sales penetration? Is it basket size, cost to serve, loyalty and frequency. Like how should we think about that?

All of the above is the answer. So yes, we will always see on average, bigger basket sizes in our digital channels. Part of it is the consumer psychology that they've got the time to browse the menus. So we also see that phenomenon in a kiosk, for example, where the customer is in restaurants but using a digital channel. And then that typically does drive all of the other benefits that you've talked about around frequency and of course, our ability to then communicate with those consumers. So we have a reasonably comprehensive personalized value program, which seeks to reengage and drive frequency in our known customer base as well.

Your final question today comes from Billy Boulton with Morgans.

I was just interested in how you guys are thinking about CapEx for the full year at this stage.

Yes. Billy, our CapEx really is determined by the timing of remodels, to be honest with you. So that's what dictates where we're going to be in our range. We kind of -- we've guided sort of $75 million to $90 million a year on CapEx across the group. We'll probably be in the midpoint of that range for this year. But yes, as I say, it's really driven by the timing of remodels rather than new builds.

Perfect. And just also on your group EBITDA margin, I think you came in slightly ahead of your guidance for the first half. I was just interested in what drove that?

Yes. The relatively strong -- well, in relative terms, the performance of KFC Australia. So that was -- so that allowed us to come in. I think we were 0.1% above the better end of the range that we put out in the market. So we're fairly happy with that. Clearly, we've got a lot of work to do second half, but yes, that's where it came from KFC Australia.

And -- but from your perspective, was that more sales driven or cost-driven?

So I'll respond on this one. It's probably more mix driven than anything else. So just seeing that sort of slightly nicer trend on sales but also the mix of what our consumers are putting in their baskets, which was driven by our marketing strategy, as I discussed earlier.

There are no further questions at this time. I'll now hand back to Mr. Simonet for closing remarks.

Thank you, Ashley, and thank you, all, for joining the call. Have a good afternoon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.