Collins Foods Limited (CKF) Earnings Call Transcript & Summary

Thank you for joining us today. I'm joined today by Andrew Leyden, Group Financial -- Chief Financial Officer. We've also sent a presentation as part of the announcement to the ASX. So if we move to Slide 2, strategic priorities. When I stepped into the role almost 6 months ago, I defined 3 focus areas: operational excellence with the need to be laser focused on delivering great customer service and experiences driving same-store sales growth and margin improvement; two, continue creating scale via profitable new restaurant development, complemented by disciplined capital allocation, including M&A as opportunities emerge. One of my first priorities was also to conduct a strategic review. The objective of the review was to sharpen our focus and clearly articulate where the business is headed to, to deliver increased shareholder value. During the December investor roadshow, a number of Collins shareholders also ask me direct questions, and this strategic update gives me the opportunity to provide clarity to those questions. So what we're showing today is a refined and focused strategic update, one that aligns our operations, resources and capital around the priorities that would deliver long-term shareholder value. If we move to Slide 3, strategic initiatives. First, Australia. Australia remains our largest and most profitable markets. Under our current development agreement with Yum!, we will continue to drive sales growth through same-store sales growth and disciplined network expansion, and been on our successful partnership with Yum! to drive top line performance and long-term sustainable growth. An enhanced emphasis would be put on operational excellence and execution store profitability and cost management. Germany. We're going to do a deep dive on Germany in the next few slides. So I'm not going to talk about Germany right now. I'm going to talk about the Netherlands. So moving on to the Netherlands. Our performance in this market has been impacted by a number of factors, including a challenging regulatory regime, grid connection issues, cost of living pressures and significantly high level inflation. This has impacted the profitability of our business in the Netherlands. In response to those challenges, Collins Foods will focus on operational excellence to lift same-store sales performance and drive cost efficiencies, review and optimize the existing restaurant portfolio with the aim to deliver sustainable profitability. The partial impairment of the Netherlands restaurant portfolio is expected in FY '25. Taco Bell. As part of our commitment to sharpen our focus and align resources to profitable growth, we have made the decision to exit the Taco Bell business. We are working closely with Taco Bell International and Yum! towards the potential transition of the business to new ownership. We intend to complete the transition within the next 12 months subject to former terms being agreed. A further update will be provided, including estimated exit costs as matters progress. If a new operator cannot be identified or an agreement cannot be reached, other exit options will be explored. Last, operational excellence. We will be laser-focused on operational excellence with a strong emphasis on same-store sales growth, cost management and margin improvement. There's a lot of value for Collins and for our shareholders in our team optimizing our store network and driving outstanding operational execution. Now let's do deep dive in relation to Germany. So if you move to Slide 4, Germany accelerating growth with KFC. Collins has been talking for some time about the next strategic growth opportunity to which we could allocate capital towards profitable sales growth and strong margins. After a review, we believe Germany is the right opportunity. We currently have a profitable network of 16 stores in Germany in 2 clusters around Dusseldorf in North Rhine-Westphalia and around Stuttgart in Baden-Wurttemberg. This network is supported by the capability we have built in Amsterdam to cover Holland, but beyond that to help us expand throughout Europe. As Yum! is relaunching KFC in Germany and accelerating its development in partnership with Yum!, we want to establish Germany as our second strategic growth pillar for Collins Foods, and we are excited by the significant long-term potential of this market. We have just signed an agreement with Yum!. This binding agreement will accelerate growth, and we are targeting between 40 to 70 new restaurants -- new KFC restaurants across the country over the next 5 years, although our ambition could see those numbers rise further over time. In addition, we have exclusivity to open new KFC restaurants in certain trade areas over the 2 regions we currently operate in. We will also look at potential acquisition opportunities to create scale faster and provide a platform for further development. This move strengthens our European business and reflects our confidence in Germany as a key driver of value creation. It also opens Collins to additional potential opportunities in Europe. So why Germany? And if we move to Slide 5, the rationale. Obviously, we have an existing presence in Germany with a profitable network of 16 restaurants around 2 big cities. We also have a European support center in Amsterdam with existing core functions to support growth in Germany. We believe Germany presents for Collins Foods the best opportunity right now in Europe to scale meaningfully in a large and underpenetrated market. There are 80 million consumers across the country, served by only 207 KFC stores. And for context, the larger QSR operator in Germany is McDonald's with 1,400 restaurants, and there are also 750 Burger Kings. QSR growth outpaces GDP growth in Germany. The chicken category and KFC as a brand are underpenetrated in the German market with significant opportunity for growth. The opportunity to expand profitably and drive scale is clear. These fundamentals support our confidence in Germany as a key strategic pillar for long-term profitable growth. If we move to Slide 6, management changes. As I mentioned at the beginning of this presentation, we have just announced some important changes in our leadership team, Krystal Zugno is appointed as General Manager, Australian operations, in charge of both KFC and Taco Bell. This is a return to our KFC home for Krystal as she has been with the KFC family in various leadership roles for over 20 years at Collins Foods. Krystal brings exceptional knowledge, strong leadership and operational experience. She ran the KFC division during the challenging COVID years great success. In Europe, Chris Johnson steps up his role as Chief Operating Officer to become Acting General Manager. Chris brings deep industry expertise and knowledge, having started his career with Yum! in South Africa and with continuing leadership roles across key international markets. Chris played a key role in establishing Collins Foods in Europe. He knows European QSR landscape very well having operated in the U.K. and Ireland, the Netherlands, Germany and Western Europe more generally. I would also like to take this opportunity to thank Helen Moore and Hans Miete for their significant contribution to the Collins Foods business over the last few years. As a conclusion, I will say that Collins Foods has successfully operated KFC restaurants for over 50 years, building a reputation as a trusted operator. The strategic growth initiatives announced today in partnership with Yum!, provide strategic clarity and renewed purpose. I'll now hand back to Darcy to begin the Q&A session.

[Operator Instructions] Your first question today comes from Caleb Wheatley from Macquarie.

I just had a couple of questions on Germany. So you mentioned that underpenetration, you called out a couple of fairly large peers there as well with much higher store numbers. Just keen to hear exactly how you're thinking about improving that penetration piece. I imagine clearly more stores is going to help that, but what else sort of needs to happen more broadly to continue to drive growth in that market, please?

Sure. I'll say a few words and maybe Andrew will add a few months as well. So Germany is a core market in Europe. And there was a situation with the previous master franchisee where there was a bit of a slowdown for us and other franchises in opening stores in Germany. Yum! made a significant structural change earlier in the year or late last year and has taken back the market. So Yum! now going to operate the market for KFC in Germany. And we're panning up with them to contribute to this growth opportunity. Based on realistic -- what we believe are realistic numbers in terms of store openings and based on a model that we currently have that is profitable.

Yes. Caleb, maybe just a couple of points to add. Scale does matter in QSR. I think the McDonald's comparison we provided is not necessarily the number we're aiming for, but clearly, we can aspire to deliver much greater scale than currently exists in the German market. And that's a national opportunity. We've clearly highlighted a couple of areas that we already operate in, where we have some exclusivity advantages, but it's a national opportunity. And secondly, I think there's also a key opportunity to build the brand -- continue building the brand in the market. After a couple of years of relative -- some challenges, let's call it, in the last couple of years, I think we've got a really good opportunity to partner with Yum! and build the brand really effectively in the German market as well. And scale plays are role in that because it helps to fund investment in the brand. So I think there's the focus on the network, but there's also the focus on brand building as well.

Okay. That's great. And then my second question, just around that exclusivity period. How long does that initially last for? And can you provide any additional color on the performance measures that you mentioned might result in an extension of that exclusivity?

We can't provide too much Caleb, simply because it's confidential. But there are performance obligations, primarily around development that we would need to meet to secure that exclusivity consistently moving forward. But we feel pretty good about the opportunity to build scale in the market. So yes. I can't go into too much detail on that, it's confidential.

Your next question comes from Kseniya Chadayeva from Jarden.

And I wanted to know if you're still comfortable with meeting your FY '25 in July and EBITDA margin guidance. I think you guided 14.2% to 14.7%. So you make any comments on that?

Well, we won't be commenting on trading today. This update is a strategic update. Clearly, we are aware of our continuous disclosure obligations. But today is really about strategic update that Xavier has annunciated earlier.

Okay. And then maybe just in terms of like general competition in German markets or Australia, like how are you seeing competition at the moment? It seems like brands doing more promotions, and it's a bit more aggressive in the market. So can you make any comments on that?

I can answer that question. All markets around the world are competitive. I mean, it would be great if we could find less competitive markets. I think that's just the world we live in. The structure of the German market is different. There are some very strong local players. Just to give you some perspective, though, we delivered pretty strong performance in Australia all the time. Australia was the most penetrated KFC market in the world. In Queensland, where we operate, where we have the bulk of our operations is the most penetrated state within the most penetrated country in the world. So I think as a benchmark, Australia, you would regard as extremely competitive, and we continue to perform reasonably strongly in this market. Germany is very competitive, but we think there's a lot of opportunity for growth.

Your next question comes from Tim Plumbe from UBS.

Just 2 questions from me, if possible, please. Just around the store rollout in Australia. I appreciate you've got the development agreement in place. Previously, you guys have kind of guided towards 9% to 12%, which, if memory serves correctly, that's a little bit ahead of that development agreement. Can you just give us a sense like what's the minimum store rollout per annum you'd need to do over the next couple of years to meet that development agreement? And how are you thinking about the next couple of years maybe compared to the 9% to 12% that you guys have previously kind of drive towards?

Yes. Tim. Yes, I don't think we've disclosed sort of base commitments to the market. Again, that sort of falls within the rounds of confidentiality. But what I would say is that we've delivered somewhere between 7% and 10% over the last few years. I'm not sure, we've guided above that. The long and short of it, though, is if we can find restaurants that hurdle and we're confident they can hurdle, we'll do them. So there's no real ceiling, if you like, on development in Australia. Clearly, it's very penetrated market. And I mentioned on the last -- with the last question that we operate in the most penetrated state, in the most penetrated country for KFC. So we are more than cognizant of the impact of cannibalization on our restaurants. So we go into our development process with our eyes very open. But yes, 7% to 10% has been the historic performance. We're comfortable with that range. If we can find the opportunity, it's a nudge we will -- we're obviously mindful of the impact of cannibalization on other restaurants.

And then just on the Netherlands business, you flagged high inflation, cost of living pressures, et cetera. When you look at the performance of that business relative to Germany, which are kind of got a lot of similar sort of pressures, what are the core differences between the 2 geographies in terms of what's driving the difference in operating performance?

Yes. That's a good question, Tim. Thank you for that. Look, in the Netherlands, I think what we've seen in that market -- which is not unique to that market alone, but we've seen soft consumer sentiment for a period of time. Clearly, post COVID, we have extremely high levels of inflation that affected the ability of consumers to find money to spend. And probably more marked in the Dutch market than other European markets, and I'll include Germany in that, has been the rates of labor inflation. So labor is inflated almost 30% in 2.5 years, and that's going to impact any market. It's not -- those conditions are not unique to us. It's been -- it's affected the performance of the QSR market overall. We've held our position broadly in that market, but the whole QSR segment has been affected by extreme levels of labor inflation. Now those rates of labor inflation have moderated in the last 6 months, which is great and great for us. It's clearly been imposed on the market to return purchasing power. But in a business like ours where value is so important, it is going to have an impact. All that said, we think we can improve our performance in that market by focusing on operations. Xavier alluded to that earlier, and also having a much more cost conscious focus when it comes to running that business. So there are structural differences primarily driven by labor inflation. Our economic -- what we find in our Netherlands business is we have more variability in performance, I guess, in our German business, we have more consistent performance and more consistent unit economics. So we feel very confident about the opportunity in Germany for that reason.

I'd like to make a few more points. I think there are significant differences between Germany and Holland. In Germany, in general, there are fewer development approval barriers from authorities in terms of opening QSR restaurants, which we find is an issue in the Netherlands. Of course, there's less penetration, account penetration in Germany -- in the German market versus the Netherlands for KFC and a big opportunity to accelerate growth in Germany. And there's also, as Andrew mentioned, historically, there's been a better and more consistent performance in Germany versus the Netherlands and higher limits of profitability as well for the restaurants.

Your next question comes from James Ferrier from Wilsons Advisory.

Can I ask you, firstly, about Taco Bell and the exit there. Is it suffice to say that, that segment earnings profile essentially goes to nil at some point as part of the exit? And as part of that, is there any additional cost out to come out of the shared service line that would be associated with Taco Bell today.

James, I'm not sure I quite understand the second question. I mean, the first question, obviously, to the extent we have a full exit from Taco Bell at some point in the future, then clearly, the P&L will move to zero. The second point around shared service. I mean, we deploy shared services to support Taco Bell and we allocate resources to that business commensurate with the size of that business and its profitability. I think, clearly, with the simpler business, you've got an opportunity to simplify structure. I think you've seen a little bit of that with the announcements. I'm not sure if I understood the rest of your question, can you maybe ask the question again or clarify what you're asking for?

No, I think that was it, Andrew. That was good. Just trying to get a sense as to whether there was an opportunity to shrink the shared service cost line as a consequence of exiting Taco Bell, but I think you've addressed that. Second topic I wanted to ask about was Germany. What commitments have Yum! made as the -- essentially the manager of that market? What commitments have they made in terms of new store openings, additional marketing funding for brand building above and beyond the standard marketing level. Just trying to get a sense for sort of what commitments they're making and conscious that in the -- in the past, the management team of Collins Foods has talked about that market being a sort of a growth opportunity that was too significant for Collins to do itself. So I'm just trying to get a sense of whether you are trying to do this yourself or how committed Yum! are to put dollars behind this growth strategy as well?

Sure. Of course, I don't want to put words in the mouth of Yum!, and you can ask them a question. These are questions we've asked and discussions we've had with Yum!. So we're certainly not relaunching KFC in Germany on our own, absolutely not. So the fact that Yum!, KFC have taken back the market and they're going to run and manage the market is a really good signal for us because who better than the brand itself can manage and launch the business. Yum! and KFC have got a large operation in Switzerland to run Europe, but also they've got a team in Germany already in Dusseldorf that they're going to strengthen as part of their commitment to the German market. Germany is important to them because no brand can have an ongoing successful business in Europe without making Germany good and profitable. So there's a commitment in terms of focus on digital and marketing, on products, on brand and to work together towards profitable development.

James, the only thing I'd add to that is, why wouldn't Yum! invest in the German market. It's an exciting opportunity. We're underpenetrated, chicken as the category is underpenetrating. I don't think it's about looking for -- looking for commitments. I mean, we're all committed to the market because we're going to build restaurants and we're going to build the market. So why wouldn't they be excited about a market that is underpenetrated for the brand. So I think we all collectively feel very excited about the potential of the German market and what we can achieve in it.

Okay. That's very helpful, Andrew. And quick follow-up. How many store sites have been identified by Collins within that target of 40 to 70 in the sense of hitting the ground running?

We've been working -- I'm not going to give you numbers, but we've been working on development opportunities in Germany irrespective. So even prior to signing this agreement, we've been looking at building a pipeline in that market given that Yum! has taken the market back. So the work is progressed. I'll probably leave it there. I won't give you at this stage.

Your next question comes from Michael Toner from RBC.

Just continuing on with Germany, I'm kind of interested in some of the conversations you've had with Yum! Brands. I mean, getting exclusivity in 2 regions. It's obviously a key positive. It's good to see their commitment to growth in that market. But just now, Xavier, you've sort of hinted a potential upside. Is it potentially on the table that you could pick up more exclusive regions over time? Or when you're speaking to upside, are you just sort of purely talking about extensions of that existing exclusivity?

Yes, sure. A few points here. The first one is the German market is open for business. And based on the gap between McDonald's and KFC's networks, I think there's a huge opportunity to grow potentially beyond the 2 states where we're already operating. We want to have an absolute sense of focus, and we're going to continue building the cluster of stores. But what I'm trying to say is beyond the 2 regions where we are operating, Germany is open for business. There are obviously other franchisees that Germany is open for business with a level of underpenetration where we can contribute. So the point around exclusivity is probably not the main point. It gives us confidence that we're supported by Yum!, but it's -- the main point is probably that the market is open for business. And beyond just the 2 regions where we've given elements of exclusivity, we can actually open more stores in other regions. The key, I suppose, constrained and opportunity is our ability to ramp up our development resources in Germany quickly enough to have a strong pipeline of opportunities that delivers profitable store openings quickly. So that's really what we're going to focus on today. Now that Yum! has taken back the market and we've agreed on strategic growth with Yum! for Germany. It's our ability to ramp up and drive significant store openings quickly. So I won't put a number, but this is really the constraint and the opportunity we have.

Okay. Great. And you've also talked again about sort of explicit M&A opportunities in Germany. And that is exciting, but I am sort of cognizant that this has been sort of mentioned for kind of quite some time now by Collins. I'm just sort of wondering what constraints are there for you to sort of be able to pursue that and just kind of what you're seeing with valuations as well in that space at the moment?

Yes, sure. So we've been talking about M&A opportunities in Australia and in Germany. I want to be very clear that there's nothing in mind -- we've got nothing in mind at the moment. We're just looking at those opportunities as a way to grow the business beyond same-store sales growth and store development. We see M&A opportunities in Germany as a way to potentially accelerate growth in the existing 2 regions where we have a business, and potentially expense on our region and ramp up quickly with store openings and development. In terms of constraints, of course, it depends what network of stores are available and how they make sense in our context, but also it depends on the value and what value we're going to drive for shareholders through acquisitions. So we're going to review potential opportunities on a case-by-case basis and do what we can to accelerate in Germany.

Okay. Great. If I may, just 1 more very quickly. I'm just sort of speaking, high level, and you may not be able to answer this question, but I'm kind of curious as to what you've been seeing sort of from a macro perspective over the past months, particularly with consumer confidence of taking a bit of a nose dive in some key markets. Are you sort of seeing this sort of in real time impacting you guys? Or is it probably too early to tell?

Yes, Michael, I think -- I mean, I think it's very hard, just sort of determine a trend at the moment, given the volatility of the markets, the impact of Trump's presidency in the toing and froing of tariffs and the changes that happen on a regularly occurring basis. They're clearly impacting confidence. I'd say overall, sentiment is probably more favorable than it was this time last year. That seems to be holding, albeit volatility remains a concern. I'd say too early to call anything a trend at the moment because the markets are volatile. But I think from a consumer perspective, our view would be not just here but also in Europe, that sentiment is slightly favorable relative to where it's been.

Your next question comes from Elijah Mayr from Goldman Sachs.

Just a couple from me. Maybe just starting with Germany. Can you sort of maybe I guess, differentiate between Germany and Netherlands just with the regulatory and building environment that was obviously something sort of hamstrung the rollout from Netherlands. How does that differ in Germany?

I think probably puts it without getting into all the regulations around Germany. I mean, I prefers not knowing them all, but they're certainly not -- we don't have as many constraints when it comes to securing permits, securing approvals, zoning regulations. Whilst they're material, they're not as significant in terms of barriers to development as they would be in the Netherlands, which is a challenging market for development and it has become more challenging over time, particularly in cities where it's been difficult to secure additional locations. I think all markets have relatively onerous -- barriers to get through when it comes to development, but they're certainly far less onerous in Germany than they are in the Netherlands.

Good to hear. And then maybe sticking with Germany and just in the regions that you're operating in, can you give us a sense of the size of the other franchisees within these regions you operate in terms of number of stores they operate.

Yes. Look, it's a fragmented network of partners that Yum! operates within the German market. It's not like Australia, where you've got large franchisees like Collins, large restaurant brands and someone more private franchisees that operate at scale. It's far more fragmented in that market. Clearly, AmRest is present in the market. There are other partners as well that operate within the market that may be interested in development as well. So -- but -- the long and short of it is, if you think about the 2 regions we currently participate in, they represent about 35% of the population of Germany. So we know those markets quite well. And there are some other attractive markets in Germany that we'd like to penetrate all the time. So yes, very exciting opportunity overall. Xavier, I don't know if you want to add anything.

Yes. I think there are around 25 franchisees for KFC in Germany. It's a very fragmented market. Most of the franchisees operate only a few stores. There only probably 4, 5 key operators with a large number of stores.

Yes. That's helpful. And maybe just one last one, just on Taco Bell and the exit there. If you're unable to find someone to take over the brand, is closing it down an option? Or is it more like you transferred back to Taco Bell back to Yum!. Just what would be the process this year unable to find a suitor?

So the options we're exploring at the moment, one is to transition the business to Yum! and for them to operate the restaurants. The other option, obviously, we're exploring with Yum! is to transition the business to another operator. If that doesn't occur, the option that we will have is to close stores step-by-step or in one go. Yes.

Your next question comes from Peter Marks from Barrenjoey.

Just a question on your current margins in Europe, like how -- is there a big difference between Netherlands and Germany? Because I always thought Netherlands is the higher-margin business. And then just a follow-up to that, what are you hoping to get the Netherlands to in terms of profit margins as you refocus that business?

I think we'll probably talk a little bit more about margin expectations, Peter, when we release our full year results. We'll then be able to disclose where we're at with Europe, and we'll give some color to do the relative markets of Germany and the Netherlands. So again, I'll stay away from that today, but we'll do that when we get into our full year results conversation. But suffice it to say that we're confident that development in Germany will be profitable. And that's why we've alluded to what we're going to do in terms of development agreements in Germany.

Okay. And just -- yes, just on the German, I guess, investment, is the payback period like 3 to 5 years? Or is it you taking a longer-term view than that, that profitability might not be there at those levels initially. But as the market grows and the brand grows in Germany, you get to more like those 3- to 5-year payback periods over time. And just I know you used to talked to -- taking 18 to 24 months or something like that to open a Netherlands KFC, like is it a similar time frame in Germany? Is it an 18-month to 24-month type from start to finish?

I think the 18-month time line is probably more -- is realistic. I mean, developing in any markets at this time, you've got to get the relevant approvals to develop. In terms of -- I won't give you the specific hurdles that we use. But what I would say is we look at things like PSAs, we look at margin structures, we look at payback periods, we look at rates of return in making our determination about whether an investment is a good one or not, and we'll be pretty disciplined in applying our hurdles around that. So again, I don't want to, for competitive reasons, give the specifics away, but we do look at those -- all of those components that you'd expect us to look at.

[Operator Instructions] Your next question comes from [ Alex May ] from Morgans.

Just on Germany and maybe a bigger picture question. I just wonder why it's underpenetrated relative to other QSR brands. I think KFC has been there for about 50 years. So just wondering as to why that is?

Yes, it's a really good question. And probably you should ask Yum! and KFC themselves, that probably would give you a colorful picture. I mean, we've done our research, obviously, chicken is underpenetrated with a lot of potential. KFC, the brand. There's no issue. The brand is well known. I think it's due to probably 2 factors. One is when McDonald's launched, they accelerated very quickly and ramped up store openings very quickly and took a lot of market share. It took a long time to Yum! and KFC to restart and accelerate. And then there were elements of instability in the, I suppose, the Yum! system in terms of operating structure and support. I think these 2 factors have certainly contributed to why there's such a gap. That's just my kind of big picture view, but I think it would be interesting for you to get Yum! point of view on that.

For sure, I'll give them a buzz. Just secondly, just with regard to Taco Bell. You've been operating Taco Bell for a few years now. I'm just wondering now you've made the decision to exit that. If there are any learnings that you're taking from that experience as to why it didn't work that you can apply for KFC in the future or perhaps for the group's strategy of acquiring less well-known brands.

I think that's a fairly complex question that you could wait for some time. If I -- maybe I'll spell out a couple of things. I think the competitive set in Australia is clearly different than the market where Taco Bell is most dominant, which is the U.S. with the market being established by other players in the category, very strong players in the category. I think the launch there are probably a number of learnings in relation to launch that, again, I won't [indiscernible] both site selection and the food proposition. There are learnings around some disadvantages with respect to how we launched into the market. From a footprint perspective, I think we spent our restaurants around that probably wasn't the right decision because we didn't have critical mass in any place. Operationally, we think we run the operation pretty well, and it's run efficiently and it's run incredibly and [ standards ] are good. But I think the big discussion for us is really where do we want to allocate capital, and that is the primary reason for the decision that we made today.

Your next question is a follow-up from Tim Plumbe from UBS.

Just a couple of questions from me, if possible, please. Just following on from James' question. In terms of Taco Bell, how should we be thinking about that for our forecast going forward? Are you going to exclude that, i.e., normalized EBITDA for continuing operations and classify that as noncontinuing.

We're still working through it, Tim, to be honest with you. I'll give you clarity when we go to the market in a few weeks' time. We'll let you know exactly how we're going to treat it. But clearly, at some point, it's contribution or like thereof will disappear from the P&L. But yes, I'll come back to you in terms of how we're going to treat that when we go -- when we publish our results.

Understood. The 40 to 70 KFC restaurants in Germany, you've said that it's across the country. So does that mean that there are stores within that group that are outside of those 2 exclusivity zones? And if so, how do we think about rough split?

No. At the moment, we've got 16 stores in stores in 2 regions, and it is important, I think, to build clusters and to build scale in each of the regions. So we don't want to spread our resources around too much and start building stores everywhere. So the point is we will focus on those 2 regions and drive scale in those regions. However, the opportunities across Germany. So if we identified a certain stage, an opportunity to grow in another region that is adjacent to the 2 regions, or by acquiring another business, we can scale up and then develop further to the acquisition. Of course, we will consider those options. But what we're not going is to open stores all around the country with complexity and additional resources that will be needed. We will initially focus on those 2 regions with the opportunity to drive scale in other regions if the opportunity occurs.

Yes. That's good to hear. Sorry, just very last question. You guys have signed a binding agreement with Yum! post the master franchisee moving on. Is it fair to assume that -- I mean you've got AmRest who is the other major player. They've got 24 stores versus your 16. Have they signed a similar binding agreement with a commitment to also roll out incremental stores?

I can't talk on their behalf.

That's a matter between Yum! and AmRest, so I think...

So I guess my question is, like, are there other parties that have also committed to the expansion. So are there other people that will be growing the store rollout at [indiscernible] and Yum!?

I can't answer the question. I think it's a question for Yum!.

[Operator Instructions] Your next question comes from Emily Reynolds from Citi.

I had a couple of quick ones. Just on Taco Bell. If you don't find like an appropriate suitor for the business or however that materializes, is there a plausible scenario where some of those Taco Bell stores could be converted to KFC stores? Or is kind of the placement as the likely to be cannibalized into your existing install base of KFC stores?

Emily. Yes, some of the restaurants are fairly closely located with other KFCs. And in that case, we probably wouldn't convert them. I think others may be candidates. I think much comes down to the transition process and whether GMR or another party, they may want to take the whole portfolio. They might want to have a partial transition. I think we've just got to see how that plays out before making any firm decisions about any brand changes for particular locations. So yes, a bit early to sort of make that determination at this point.

Great. And if I could just ask 1 further just on the Netherlands. So the corporate franchise agreement you've got it's due to expire at the end of '26, I believe. What do you need to say in terms of performance improvement in the Netherlands to feel comfortable with that agreement as it stands and rolling that forward into further years, like if things just stayed as they are now and you don't see a real improvement? Do you see a plausible scenario where potentially the Netherlands is no longer suited to your portfolio?

Thanks, Emily, for the question. So we've got a business in the Netherlands, and we've been operating there for some time. It's kind of our core business in Europe for now. And obviously, we want to continue operating in Holland as long as it can be a profitable business in a sustainable way. So whether it's a CFA or another type of agreement, it's actually kind of doesn't matter. The question is, what's the best agreement we can get to with Yum!. That, of course, would give us an element of control on the market would support them, but also would ensure that we drive profitable business and our margins are as fat as possible.

And maybe just a second point, Emily. I think by our own admission, we'd like to see the Netherlands business contribute more effectively to overall group performance. And the changes that have been announced today are really designed to do that. So yes, I think whatever arrangement facilities, that's what we'll be looking to do.

And maybe one last comment on the Netherlands. We've talked a lot about the external factors earlier today and the difficulty to operate in the market for external reasons. I think we should acknowledge that our operational performance could be better. And there's certainly an opportunity for us, Collins Foods, in Europe to drive operational performance and margins in our business.

Your next question comes from Owen Johnston from UBS.

Just a quick question from me. I mean, feedback on the desk suggest a degree of surprise, I think, at the timing of today's update. Was there anything -- was it driven by staff changes or the Yum! agreement? Just curious if you can provide any color on the timing of the strategy update. I think the expectation was that there'd potentially be something post results.

Yes. Okay. So I think part of the timing is due to me, I joined the business back in November and starting to get to another business, went to Yum!, went to Europe, went to the U.S. in December and January. And then we did also the road show back in December with lots of questions from shareholders. So it was my responsibility to kind of articulate what I want to do and answer questions asked back in December by shareholders and analysts and also to take the time to work with Yum! on where do we meet, what can we do together? What are the plans? Where do we agree, where don't we agree? And those discussions take time and then align towards an announcement. So we try to synchronize all of that in one announcement, which is today. But basically, the reason why it's happening today is because at this point in time, we've been able to agree on a number of things and initiatives. That's exactly why it's happening today. There's no other reason.

Your next question is a follow-up from Tim Plumbe from UBS.

Just one more question from me, if possible, please. Obviously, a lot of cost inflation in Germany. Maybe for Andrew, can you give us a sense, obviously, it depends on what type of restaurants being open. But for our model, what's a good like average cost of opening a new store in Germany sitting at now, please?

Yes. Tim, it's -- I've got to say -- and I'm not trying to be evasive, it's a very difficult question to answer because the cost of opening restaurant is completely dependent upon where it is, the type of development that we want to put in place. And by that, I mean, we got to do cold shelves, hot shelves. I think would explain what they are to you before, how much risk do we want the developer to take? How much do we take? So it's actually very difficult. What I would say is they're a bit more expensive than Australia like-for-like. But also, we would look for commensurate PSA improvements on that as well in margins. So hard to be precise is the short answer to your question. It really depends on the metric of the development and the type of development model that we're using to get that restaurant and move around.

As there are no further questions on the phone, so I'll pause briefly and address any questions from the webcast. The first question from the webcast comes from Tim Morrison. Tim asks, what are you expecting a net cash inflow or outflow from exiting Taco Bell?

No. I'll take that one. I think if you look at the reasons for us making the decision on Taco Bell, this is a business that does not contribute profits and it doesn't contribute cash flow. Therefore, the decision that we make would be a positive -- would be a positive impact to cash flow over time once we have fully exited the business.

Thank you. The next question is another one from Tim Morrison. Tim asks, what is the capital cost to Collins to open 40 to 70 new KFC stores in Germany over the next 5 years? And what return on the capital would you expect on that?

Yes. I think I covered that in the prior question. The capital costs very difficult to determine because it's so site-dependent and also dependent upon the nature of the development and the relationship that we have with developers in the market. We have a series of -- we have different development options. We have cold shelves, where we take full responsibility for development. We have warm shelves, and we have hot shelves, where we ask the developer to take more risk. So it depends on that, it depends on the site. So yes, hard for me to be precise at this stage. And in terms of returns, I mean, we -- again, I'm not going to elaborate on what the specific returns that we look from a development. But suffice it to say that we look at a range of metrics, not just return from sales levels, which we used PSAs, which is average weekly sales. We look at margin structure, we look at rates of return, and we look at payment periods, primarily as the drivers of whether a restaurant is going to hurdle or otherwise.

Thank you. We have 1 follow-up question from the phones from Johannes Faul from Morningstar.

I just had a question on the impairment. On the impairment in the Netherlands, is that spread across all stores? Or are those impairments tied to specific stores? And perhaps also, how much book value remains for the operations in the Netherlands on the accounts?

I'll answer the first part of your question. The second will probably cover a little bit more when we do the full year results. But we test for impairment at a restaurant level. So it's not charge that we take across the whole portfolio. We have quite a lot of restaurants in our Dutch business that are highly profitable, and we're very happy with them. There are others that are at the bottom end of the portfolio that have got some challenges. Those are the ones that will be subject to more rigorous impairment testing. And the range that we put in the ASX release today reflects the bottom end of the portfolio. So no, it is restaurant specific.

Okay. Great. And then roughly how many restaurants or what's the maximum impairment on an average restaurant. Maybe that's the way to put it?

Typically, you would impair a restaurant based upon what its future cash flows are going to be. So again, we can cover that in a bit more detail once we've completed that work. I think it was important to give the market a range today, so that there was a view on what the expected level of impairment would be, but we'll clearly come back when we do our full year results on the impairment that we've taken.

Unfortunately, that does conclude our allocated time for questions today. I'll now hand back to Mr. Simonet for any closing remarks.

Thank you very much, Darcy, and thank you all for joining the session today. Have a great day.