Collins Foods Limited (CKF) Earnings Call Transcript & Summary

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

Thank you, Mel. Good morning, everyone. I'm Xavier Simonet, the CEO of Collins Foods. With me on the call today is our Chief Executive -- Group Chief Financial Officer, Andrew Leyden; our General Manager of Australian Operations, Krystal Zugno; and General Manager Europe, Chris Johnson. Normally, on this call, we would have Andrew, our CFO, and myself, but because of the importance of the work we're doing in Australia and in Europe, we've decided to ask Krystal and Chris to join us. We are presenting the FY '25 results, which we announced to the ASX earlier this morning. As always, we'll go through the investor presentation and then take questions. But first, before I start, I want to say a big thank you to our restaurant teams and our support center teams in both Europe and Australia for their work, energy and also for their contribution to the success of Collins and KFC. So if we move to Slide 1, since I joined back in November, my immediate priorities have been operational excellence across all our businesses, growth in our core markets and scale, including accelerated German expansion. I've also made up decisions on profitable business segments like Taco Bell. I move swiftly to reset the leadership team as announced in April. We have continued targeted investment in our core business. And as also announced in April, we entered into a binding agreement with our franchisor partner to support accelerated growth in Germany. And disciplined execution and focus on operational excellence has seen improved underlying performance in H2 in a challenging market, as demonstrated by our results today. So looking ahead, I believe we are well positioned to take advantage of improving conditions. With strong cash flows and a robust balance sheet, we remain active and open to organic and inorganic growth opportunities, particularly in Germany. Moving on to Slide 2, we will focus on innovation and exceptional customer experience to drive same-store sales growth, profitable new restaurant development in Australia and Germany and improved operational efficiency to lift our margin. With a focus on profitable growth, the decision was made to exit our Taco Bell business. Slide 3 provides an overview of our FY '25 performance. 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 a challenging consumer environment, Collins Foods delivered a solid financial result with record revenues. Whilst underlying performance and profit for the year were -- whilst underlying profits for the year were lower, encouragingly, we delivered a much improved performance in the second half of the year. The period benefited from deflation in some input costs, easing cost of living pressures, and importantly, we are seeing the benefits of a stronger operational focus. Revenue from continuing operations was up 2.1% to a record $1.519 billion, with growth in Australia, partially offset by softness in Europe. Underlying EBITDA from continuing operations was flat at $228 million, despite soft economic conditions and cost inflation, particularly in the first half. Underlying NPAT from continuing operations was down 14.8% to $51.1 million due to higher depreciation on a larger store footprint. This result reflects a relatively strong second half of the year. Andrew will cover from the statutory earnings later in the presentation. We continue to generate exceptionally strong cash flows, and our balance sheet remains in great shape with net debt lower than last year. As a result of a strong second half performance and a strong balance sheet, the Board declared a fully franked final dividend of $0.15 per ordinary share, bringing the total FY '25 dividend to $0.26 fully franked. Slide 4 shows the size of our KFC network by geographic market. Australia network now spans 288 KFC restaurants and our Netherlands footprint total 62 restaurants. While Germany is subscale at the moment at 16 restaurants, it won't be subscale for long with Germany providing us, as I will talk to in more detail later on, a significant and exciting growth opportunity for Collins. Our network is serviced by 3 restaurant service centers, RSCs in Brisbane, Amsterdam and Dusseldorf. Operational highlights are set out on Slide 5. Digital remains a key growth driver in all markets, and we continue to invest in channels, which improve accessibility to the KFC brand for our customers. In FY '25, we rolled out kiosks to a further 106 KFC restaurants in Australia, increasing the number of costs within our European store network. We also diversified our digital sales mix in Europe. Menu innovation and effective marketing and product campaigns such as KFC FLG in Australia and Kapsalon in the Netherlands are introducing KFC to new customers and strengthening brand perceptions. We continue to expand our network, opening 10 new restaurants in Australia and 4 in the Netherlands during the year. In addition to expanding our footprint, we're also modernizing the network, remodeling a further 53 stores, which included 8 supercharged formats. These restaurants feature dual drive-through and T-line kitchens, unlocking sales capacity and improving customer experience. Turning to segment highlights on Slide 6. As I mentioned earlier, group performance benefited from a stronger second half with KFC same-store sales improving in all markets. KFC Australia revenue increased 3% over the prior year, with same-store sales up 0.3%. Soft consumer conditions and cost inflation impacted margin, down slightly on the prior corresponding period. The KFC brand remains strong, leading its QSR peers on key brand metrics. Digital is continuing to account for a larger proportion of revenue at 34% of sales, up 4.8 percentage points over the same period last year. As I mentioned earlier, we opened 10 new restaurants and closed 1 due to a better location becoming available, bringing our national network in Australia to 288. Sales in KFC Europe were slightly lower than the prior period, with same-store sales down 2.7%, following 2 years of very strong growth. The Netherlands same-store sales were lower by 2.5% with Germany lower by 3.3%. However, both experienced significant uplift in performance in the second half. Germany's performance over recent years and particularly last year was impacted by the disruption caused by the transition of the management of the market between Yum! brands and the former master franchisee. Pleasingly, the German market has now stabilized under Yum!'s control. Despite the self softness that I referred to earlier, KFC continue to grow market share in the region, driven by stronger brand health metrics and product innovation. Digital sales were another growth driver, representing more than 60% of sales in both markets. The development agreement with Yum! will see us scale our footprint in Germany. We're very excited about that, and we're addressing profitability challenges in the Netherlands, which we will cover in more depth later. Our European portfolio now stands at 78 restaurants. Taco Bell Australia sales declined 2.5% over the prior year, impacted by a highly competitive consumer landscape. The network remains unchanged at 27 restaurants across Queensland, Victoria and Western Australia. Discussions are ongoing to transition our Taco Bell operations to new ownership, with the intention to complete this process within 12 months. Our progress on sustainability is highlighted on Slide 7. In FY '25, we laid the foundations for upcoming sustainability reporting obligations, establishing a regulatory road map, completing a double materiality analysis, enhancing our data quality and strengthening sustainability governance. The climate risk and scenario analysis is also underway. We have a beyond compliance approach to sustainability and have already made significant strides towards our 2030 targets. Key FY '25 progress includes rooftop solar installed on 196 restaurants, 13 more than last year, diverting 23% of waste from landfill. Our workforce of more than 21,000 people, and include 43% female leaders. We've raised almost $1 million for charity partners, and we're using 100% cage free eggs and Better Life chicken in Europe. I'll now hand over to Andrew Leyden, our Group CFO, to take you through our 2025 results for the full year ended 27 April 2025.

Thanks, Xavier, and good morning, everybody. Let's first move to our group results overview on Slide 9. Revenue in financial year '25 was up 2.1% over the prior year to just over $1.5 billion, and that's a record for Collins Foods, as Xavier stated earlier. Growth in Australia was partially offset by softness in Europe, reflecting difficult consumer conditions, particularly in the first half. Second half performance improved markedly. Our performance overall underlies the resilience of our business in challenging economic times, but also the benefits of operational focus, which was sharpened in the second half. Underlying EBITDA was relatively flat at just under $229 million, and that's despite weak consumer sentiment in both Europe and Australia in the period and persistent cost inflation, again, especially in the first half. Underlying EBIT was $117.1 million, down 5.7%, reflecting flat EBITDA, but with higher depreciation relating to new builds, remodels and leases. The company continued to invest in network expansion and modernization as well as in digital channels, all of which will benefit our business in coming periods. Underlying net profit after tax was $51.1 million, down just under 15% on the prior year, and EPS was $0.434 per share, down from $0.51 per share in the prior period. As indicated, this result included a comparatively strong second half performance. Statutory NPAT was $8.8 million compared with $76.7 million in financial year '24. Financial year '24 included a $20.2 million net profit after tax contribution from the sale of Sizzler Asia. In financial year '25, total restaurant impairments were $40.8 million, inclusive of $35 million relating to the Netherlands portfolio, as well as a $3.2 million provision top-up for potential wage under payments relating to prior years. The Netherlands impairments was slightly higher than the range flagged to the market in our announcement on the 15th of April this year, having now completed a full impairment review of all assets. As explained in April, the impairment charge in the Netherlands reflects the soft consumer environment and an increase in labor rates of over 30% over 3 years, which impacted the profitability of the whole QSR segment. With respect to the provision for potential wage under payments, Collins Foods is committed to meeting its obligations under the Fair Work Act and takes wage compliance very seriously. The company has been reviewing historical employment and wage data to determine whether employees may have been entitled to additional payments. We are constructively and proactively liaising with the Fair Work Ombudsman in relation to these matters and are committed to fully remediating any impacted team members. Cash flow, again, was a highlight for the year, with net operating cash flows totaling $101.4 million, up on the prior year. Net debt was lowered by $27.6 million to $137.9 million with strong cash flows, funding capital investment, dividend payments for shareholders and also debt reduction, further adding to the group's investment capacity for the future. And today, the Board declared a fully franked final dividend of $0.15 per share, which brings the total financial year '25 dividend to $0.26 per share, fully franked compared with the prior year at $0.28 per share. The dividend record date will be the July 8, 2025, with a payment date of the 5th of August. Now moving to Slide 10, which reflects our second half performance. At a group level, our H2 performance was stronger than the same period last year with higher revenues, EBITDA and EBIT in absolute terms, while EBITDA margins also improved. Key drivers were brand health, impactful product innovation, commodity deflation in Australia and the benefits of improved operational performance. Group H2 revenues increased 2.8% on the prior period to $816 million and were higher in both Australia and Europe, up 3.2% and 2.3% over the prior period, respectively. EBITDA for H2 was up 5% over the prior period to $125.8 million with margins up 32 basis points to 15.4%. EBIT also grew 3.3% to $64.6 million. As well as overall sales being up, KFC same-store sales also improved in Australia and Europe in the second half. The graphs on the bottom left of the slide show same-store sales performance on a half year basis. And pleasingly, performance lifted significantly in the second half, with Australia up 0.7% over the first half, while the Netherlands and Germany improved 1.5% and 4.1%, respectively, versus the first half. This performance improvement continued into early financial year '26, and more on that will follow later. Please note that the first half consisted of 6 4-week periods, while the second half was 7 4-week periods. Moving on to our income statement on Slide 11, which outlines the reconciling items between statutory and underlying results. The most material item impacting the difference between statutory and underlying performance was a $40.8 million noncash impairment charge, of which $35 million related to the Netherlands restaurants as previously flagged. The balance of the charge reflected single restaurant impairments in Australia and Germany, as well as small capital write-ups on previously impaired restaurants. The group also provided an additional $3.2 million for potential wage under payments relating to prior years. Underlying EPS was $0.434 per share, while basic statutory EPS was $0.075 per share. Now turning to cash flow on Slide 12. Strong cash generation remains an attractive feature of the Collins Foods business. In financial year '25, net operating cash flows increased by $5.1 million over the prior year to $181.4 million. While EBITDA was lower than prior period, cash conversion was extremely strong at a 120%. Operating cash flows were applied to fund disciplined investments, dividend payments and net debt reduction. Investing cash outflows were $67.9 million, mainly reflecting capital investment in the store network and digital technology. New restaurant investment was $17.4 million, remodels absorbed $26.1 million and digital and sustainability investments totaled $7.1 million. Asset renewal investment was $15.2 million. Financing cash outflows were $78 million, which included $10 million in bank debt repayments, dividend payments are just shy of $30 million and lease principal payments of $42.2 million. Net cash movement was an inflow of $35.6 million for the year compared with a $3.9 million inflow in financial year '24. Now on to our balance sheet on Slide 13. Collins Foods balance sheet is in exceptional shape and provides significant capacity for investment in growth opportunities. Net debt was reduced by $27.6 million over the prior year to $137.9 million, driven by strong cash generation and disciplined allocation of capital. Cash balances increased $35.3 million to $119.1 million. Property, plant and equipment was down $7.9 million over the year to $247.4 million, reflecting new restaurant builds and remodels, less depreciation and impairment. Right-of-use assets of $503.3 million and total lease liabilities of $634 million, both increased on net restaurant additions as did other noncurrent assets consisting mainly of movements and intangibles. The net leverage ratio ended the period at a very comfortable 0.93 down from 1.07 in the prior year. Now Slide 14 outlines our capital allocation priorities. Collins has a disciplined approach to capital management, focused on: Firstly, investing in profitable growth opportunities; secondly, maintaining a strong balance sheet and also paying consistent fully franked dividends and then contemplating capital management activities should suitable investment opportunities not be available. However, our major growth focus areas for capital allocation, our investments in growth and ensuring our balance sheet remains healthy. Xavier will provide commentary on how we see the outlook for the company later and as always, happy to take questions at the end of the presentation. But for now, I'll hand over to Krystal, who's going to take you through KFC Australia performance.

Thank you, Andrew. Turning to Slide 16. The headlines on the KFC Australia FY '25 performance are as follows. We've delivered effective execution with a focus on operational excellence, strong brand metrics demonstrating resilience in a challenging environment, digital investment has produced attractive results, and margin improvement in the second half. Our positive start to FY '26, which Xavier will outline later in the presentation, reflects enhanced operating disciplines and improved consumer conditions demonstrated by strong same-store sales growth. Our results are a true reflection of our restaurant team's commitment to operational excellence and delivering great customer experiences. Moving to Slide 17, our solid FY '25 performance reflects the resilience of the world-class KFC brand, which remains as relevant today as it was when it first launched in Australia more than 50 years ago. As Andrew mentioned earlier, brand strength and improved operational execution saw momentum build in the second half of the year, which has continued into FY '26. Revenue increased 3% over the prior period to $1.2 billion, driven by new restaurants, strong digital growth, product innovation and operational excellence. Same-store sales were up 0.3% following 2 years of strong growth with same-store performance improving in the second half to positive 0.6%. EBITDA was up 0.5% to $222.6 million, with margins down 46 basis points on the prior corresponding period to 19.3%. This was due to relatively flat same-store sales and inflation across key input lines. Margins in the second half of the year improved 48 basis points over the first half to 19.5%. Encouragingly, this was 12 basis points higher than the same period in FY '24. EBIT was slightly lower due to higher depreciation on network investments. Slide 18 shows our network. Collins Foods is the largest KFC franchisee in Australia, operating more than 1/3 of the nation's KFC restaurants. As you can see, the majority of our network is located in Queensland and Western Australia. On to our development pipeline on Slide 19, pictured are some of our newest restaurants. While Australia is one of the most penetrated KFC markets in the world, we see further opportunities for profitable network growth. We continue to expand our restaurant network with 10 new builds added in FY '25 as well as 1 closure due to a better location becoming available. Over the year ahead, we're targeting 7 to 10 new restaurants and remain on track to expand into even more communities as we look to deliver 28 to 30 new restaurants by 2028. We continue to prioritize the modernization of our existing restaurant portfolio, targeting approximately 30 remodels in FY '26, which will further enhance customer experience, and create greater operational capacity through our supercharge remodels, which we expect to drive top line growth. Turning to Slide 20, and KFC Australia's brand health. Despite soft consumer spending, the KFC brand continues to go from strength to strength, leading its QSR peers on key brand health metrics. Consideration, a measure of willingness to buy is now at a 4-year high and across the second half has recorded the highest score in the QSR market. Brand health is essential in advance of the consumer-led recovery, which we started to realize towards the end of FY '25. Improving brand health has been assisted by menu innovation, including standout performers, such as Zinger Nachos, proving to be consumer favorite. We've also strengthened our everyday value bundles, adding items such as the Luxe Lunch for $9.95. Slide 21 shows the KFC brand is continuing to outperform its QSR peers. As you can see in the YouGov graph, the impacts of digital investment, product innovation and everyday value has assisted in placing KFC as the clear market leader against our competitor set on Brand Index. Brand Index comprises results across quality, value, reputation, satisfaction, recommendation and impression. The KFC FLG launch has not only modernized and energized the brand, it's resonated with consumers, and this is seen in the Brand Buzz results, continuing to improve with KFC leading the category. Brand Buzz results in the Gen-Z population are significantly higher with improved cut through with these consumers. Turning to Slide 22. On our strategic focus of operational excellence, which is at the heart of everything we do, we continue to invest in restaurant modernization and digital channels to elevate the customer experience. In FY '25, we remodeled 40 stores and added kiosks to more than 100 restaurants. We're also seeing high rates of KFC app adoption and conversion driven by exclusive offers. Increased brand accessibility is a key growth driver with digital now accounting for 34.2% of sales, up 480 basis points over the same period last year. Remodeled restaurants are enhancing all customer interaction points, while improved operational systems such as vendor managed inventory and KFC Listens are lifting efficiency, product quality and engagement. Lastly, having been with Collins for over 24 years now, I am personally energized to be back leading KFC Australia. We have amazing operation and restaurant teams who work hard and achieve great results. Looking forward with a strong KFC customer base and improving consumer conditions, over the next 12 months, my team and I will be particularly focused on optimizing operational processes to leverage our digital investments, unlocking opportunities with AI, particularly through increased sales forecasting accuracy and elevating the customer experience. These 3 areas are aligned with our strategic focus on operational execution to enable growth in customer experience measures, sales and margins. I will now hand over to Chris to cover the performance of KFC Europe.

Thank you, Krystal, and good morning, everyone. Turning now to KFC Europe on Slide 24. Our FY '25 performance reflects a challenging economic environment in Europe, particularly in the Netherlands, which was impacted by cost of living pressures and significant cost inflation. Revenue of a little over $312 million was slightly lower than the same period last year, with same-store sales down 2.7%, cycling a very strong FY '24 and FY '23. Same-store sales were stronger in the second half of the year at negative 1.7%. On a full year basis, Netherlands same-store sales declined 2.5 points (sic) [ 2.5% ], while Germany was down 3.3%. Sales in Germany were impacted by instability created by the transition of the market management between Yum!, the franchisor, and the previous master franchisee. The German market returned back to the leadership of Yum! in mid-December 2024, and their teams have been fully focused on rebuilding core team structures and processes. Pleasingly, the market is now stable, and Collins and Yum! are working together to capitalize on clear growth opportunities in Germany. More on that later. EBITDA was down 7.5 points to $39.4 million, with margins down 96 basis points to 12.6% due to subdued trading conditions in both markets as well as elevated labor cost increases in the Netherlands, which have amounted to more than 30% over the last 3 years. EBIT of $7.6 million was down 37.1% over the prior period on lower EBITDA and higher depreciation on our growing restaurant network. Moving to Slide 26, and a more detailed look at our Netherlands operations. The graphs on the left show average annual restaurant revenues by geographic market at the top and underlying EBITDA and EBIT margins at the bottom. As you can see, KFC Netherlands had healthy average restaurant revenues in FY '25 of $4.1 million. However, its EBITDA and EBIT margins were the lowest of the group. Margins were impacted by challenging consumer conditions given cost of living pressures, cost inflation, particularly in labor and variable performance and productivity across our network. Regulatory challenges, including zoning and permitting as well as access to energy have hindered our development progress. As a result of lower profitability, 16 Netherlands restaurants were impaired with a noncash impact of $35 million. On to Slide 27. Restoring profitability in the Netherlands is our #1 priority over the year ahead. Improving brand strength and operational standards are key to our sales growth as our efforts to enhance the team member and guest experience and ensure we maximize efficiency gains throughout the entire P&L. Brand health will be underpinned by a renewed focus on bringing excitement and relevant and distinctive products to our menu boards, balancing media spend across value and core. We're also doubling down on digital investments into our own [ kfc.nl ] website and e-commerce app as well as menu and bundling innovations. The stabilizing labor cost inflation environment will support the bottom line. Whilst we focus on optimizing operations, we're moderating our development pace in this market over the short term. Slide 28 looks at KFC's growing brand strength in the Netherlands. In a soft consumer environment, taste and new local Dutch product innovations such as the Kapsalon and Lava Sauce delivered market share gains and strengthened our brand metrics. Awareness increased to 70% and consideration rose 0.9 percentage points over the same period last year. Digital channels remain a key contributor to growth, representing almost 63% of all sales in the Netherlands, benefiting from our continued investment in kiosks and third-party delivery services. I'll hand back to Xavier to talk about the German opportunity in more detail.

Thanks, Chris. Turning to Slide 30. Before Chris goes into more detail about our German business, I'd like to make a few key points. Germany is a very significant growth opportunity for Collins. It's the largest economy in Europe and a large and stable QSR market. Our recent agreement with Yum! will accelerate our presence in these large consumer markets where both the KFC brand and chicken more broadly are underpenetrated. The KFC brand is a solid #3 player in Germany with plenty of room for growth as the market moved towards scale. McDonald's and Burger King, respectively, have 7x and 4x more restaurants in Germany than KFC. This gap opens opportunities for accelerated growth and scale for Collins in Germany. Despite having the lowest number of restaurants amongst its QSR peers, it has been the fastest-growing brand in Germany since 2019, outperforming competitors on both food quality and taste. We are targeting 40 to 70 new restaurants over the next 5 years with a period of exclusivity within the North Rhine Westphalia and Baden-Wurttemberg regions, areas where we already operate restaurants. We will also consider acquisition opportunities in Germany that can help us drive scale and accelerate development in a market that will become our second strategic growth pillar. Back to you, Chris.

Thank you, Xavier. Slide 31 takes a closer look at these regions. The biggest opportunities for accelerated growth comes from 2 of the most populated regions in Germany, North Rhine Westphalia, home to cities like Dusseldorf and Cologne, and Baden-Wurttemberg, its capital being City of Stuttgart. A single KFC currently services approximately 400,000 people across these regions. The graphs on the bottom left show how this compares to McDonald's locally as well as KFC Australia, where 1 KFC services just 34,000 people. Whilst we are initially focused on scaling our footprint in these 2 areas over time, we'll also look to buy and build opportunities in other regions. Turning to Slide 32. Despite the market's relative instability over the past few years with changing master franchisees and an inflationary environment, our German restaurants have performed well. Finally, on Slide 33, moving to restaurant economics. Our German restaurants are some of the best performing in the group. As you can see, in FY '25, Germany had the group's highest average store revenues at $4.4 million, with restaurant margins broadly comparable with KFC Australia, with the exception of property-related costs, which are higher historically. These unit economics are more encouraging given the market is subscale, reinforcing our confidence in Germany's long-term growth potential. The market will also benefit from significant investment in capability, including branch marketing from Yum!. I'll now hand back to Xavier to take you through Taco Bell Australia's performance and outlook for the year ahead.

Thanks, Chris. Turning now to Taco Bell Australia on Slide 35. Revenue of $53 million was down 2.5% over the prior year, results impacted by weaker consumer sentiment. Cost inflation, marketing investment and softer sales all impacted profitability. The network remains unchanged at 27 restaurants across Queensland, WA and Victoria. Collins has made the decision to exit our Taco Bell operations. We're continuing to work with Taco Bell International and Yum! to transition the business to new ownership, aiming to complete this process within 12 months. Now moving on to Slide 37. FY '25 has been an important year for Collins, and we enter the year ahead in a stronger position. In summary, there has been strong execution with operational excellence driving growth and margins. We have strong brand metrics, demonstrating resilience in a challenging advanced. We are well positioned to take advantage of improving conditions with momentum building. Strong cash generation and our healthy balance sheet provided capacity to invest in future profitable growth opportunities. As I mentioned before, we remain active and open to organic and strategically sensible inorganic growth opportunities. Now I will provide our outlook for FY '26 as set out on Slide 37. While trading conditions remain challenging, our stronger performance in H2 has continued in FY '26 with total sales in the first 8 weeks, increasing in all markets. We're seeing a more favorable cost environment in Australia and are benefiting from increased operational efficiency across the group. KFC Australia's total sales rose 4.9% in the first 8 weeks, with same-store sales up 1.6%. Operational initiatives and a growing network are expected to drive sales and enhance customer experience over the year ahead, supported by improving consumer sentiment as cost of living pressures ease, increased labor productivity and commodity cost deflation will also deliver margin improvement. The Netherlands total sales for the first 8 weeks increased 2.6% with same-store sales down 0.2%. Improving profitability is the key priority in the Netherlands in FY '26, with operational excellence expected to drive sales, productivity and efficiency. Recent cost pressure on poultry is expected to continue in FY '26, given the impact of the Avian flu in Europe, and we're continuing to optimize our portfolio under a reshape development agreement with Yum!. Total sales in Germany increased 2.4% in the first 8 weeks with same-store sales slightly lower at 1.3%. While sales have been impacted by the transition of market management, increased marketing and capability investment by Yum! and Collins is expected to drive sales growth over the year ahead. Our first restaurant under the new agreement with Yum! will open in August, targeting 40 to 70 over the next 5 years. As in the Netherlands, cost pressure on poultry will continue in FY '26. In FY '26, Collins Foods is targeting year-on-year group underlying NPAT growth in the low to mid-teens on a percentage basis. I want to again take the opportunity to say a big thank you to our great restaurant teams and RSA teams in Australia and in Europe and thank them for their work, their energy and their contribution to our success. And I will now pass to Mel, our operator.

[Operator Instructions] Your first phone question comes from Tim Plumbe with UBS.

Just 2 questions from me, please. The first one around the Australian cost base, if possible, please. Margin in the second half was a fair bit stronger than you guys have guided to. So I was hoping that you might be able to give us a bit of color as to some of the key items that caused that outperformance first year, what you're expecting originally? And the productivity improvements that you're flagging for FY '26, did you get any of those benefits in FY -- in the second half of '25? Or is that a '26 story?

Yes. So Tim, thanks for your question. That was 3 questions, I think. But anyway, that's okay. Yes, there are probably 3 factors that have led to some margin improvement in Australia. First of all, as you've seen from the trends, our same-store sales performance improved. Clearly, we want to continue to see that rise, is relatively stable in the first 8 weeks, but we'd like to see that rise a little bit. But that's strengthening same-store sales performance, albeit modest, gives us a little bit of leverage in the P&L. The second factor is probably deflation on 2 material commodity inputs, one of which is poultry, the other one is potatoes. And if you think about our menu, that comprise a fair proportion of our menu. We've seen deflation in both those categories and that impact started to bite just at the end of the third quarter of the fiscal. So we've not had a full year of that, that will continue into financial year '26. And then probably the third element, which has only been partially realized as productivity. Our productivity did improve in the second half. More to come on that as we get more precise about matching labor supply with volume demand, and there's a lot of work going into that whole program. Clearly, that's important that we match supply with demand for every single hour that we operate our restaurants. And there's more to come on that scenario, and that both Chris and Krystal are very focused on. So those are the factors driving the change in the second half. I know it's a little bit atypical because normally we'd see a stronger first half than second half. But all of those elements combined to give us a better outcome in the second half and clearly more to come in '26.

Our next question comes from Sean Xu with CLSA.

Just to follow up on Tim's question. Can I ask for some color what sort of the same-store sales growth will be required to achieve your top end of the FY '26 NPAT guidance? Because assuming you were expecting a pretty material uplifting from your first 8 weeks trading period to achieve these. Is that a fair assessment?

No. Our assessment of same-store sales is -- we're not going to see a dramatic rise given where the consumer environment sits. Whilst we think conditions are modestly improving, I wouldn't say that consumers feel flushed with cash at the moment. So we think a low single-digit same-store sales rate will prevail. We want to see it lift. Of course, we'll do our best to lift it as long as we can. But I think we'll continue to see a favorable cost environment in '26 as well. We'll continue to see -- the prices that we're seeing on chicken and potatoes will continue favorably throughout the year, and we'll also see more work done on productivity. So no, I think, Sean, we're not expecting to see radical increases in same-store sales performance. It's a combination of all 3 that lead to where we positioned ourselves with respect to net profit after tax projections for the coming year.

Sure. That's helpful. My second question, just a quick one. Your Germany target of 40 to 70 shops over the next 5 years, what sort of the -- are you able to give me it's more like a more and weighted? Or what sort of the profile in terms of timing wise?

Yes, I can take that one, Sean. Yes. So clearly, it takes a little while for the pipeline to emerge. And there's a lot of work that goes into developing a pipeline in areas that we think will drive enough traffic to drive profitability. And I do want to emphasize that we're not going to build restaurants for the sake of building restaurants. They need to be in the right place with the right traffic with the right productivity outcomes. But -- we're going to -- financial year '26 will be modest. The real ramp-up starts in '27. We think that 5 to 6 restaurants, maybe 5 to 7, that sort of range, and then it will grow beyond that. So -- and what the numbers will be in the subsequent years just depends on how successful we are in targeting sites.

Your next question comes from Peter Marks with Barrenjoey.

Just a quick question on Australia first. Did you see any impact on the business from Cyclone Alfred, I think it was in late March. Was there any restaurants closed or sales lost or extra costs you took there? And I guess just a follow-up on Tim's question. Like, given you had the guidance out there that you didn't expect the margins to improve until '26, like I understand the drivers, but which of those surprised you? Because it doesn't feel like the same-store sales growth accelerated significantly versus what you might have expected. So just interested if either of those things on the cost side of it surprised due to the upside.

Yes, Peter. Firstly, on the same-store sales, it might seem modest, but a movement from minus 0.3 to plus 1.6 is meaningful in the context of our business that has a big impact. And in terms of the cyclone, yes, we did see impacts. Obviously, our business is very exposed to Queensland so we basically took the brunt of it, with particular impacts in Southeast Queensland, where the impacts were pretty significant. We did have closures. All of that is reflected in our same-store sales number. We, I mean they're not unique events cyclones in Queensland. It seems to happen fairly frequently. So yes, we dealt with it. Was there an impact? Yes. Very hard to quantify what the impact was. It's probably modest but we dealt with it, and it's included in the same-store sales numbers.

And just like did the cost relief you got on the input side or the wages, was there a big surprise there on what you're able to achieve in the half?

Well, look, it's great to see deflation. I mean, we don't always know exactly where it's going to come out until the negotiations complete. So I think it didn't surprise us. We thought we'd get deflation just not -- maybe it's come out more favorable than we expected, but that's for a period of inflation. So to some extent, it's rebalancing. The area where we've really knuckled down is on productivity. And so whilst there's more to come in '26, we definitely started that program in the second half. We've always focused on productivity, but we really doubled down on it in the second half, and we saw some benefits, particularly in the last quarter. So normally, it takes a little longer to get those benefits to be realized. But yes, we definitely saw better outcomes in quarter 4.

And if I can add something, of course, we are driving same-store sales growth. It's really important for us, and we want to drive growth for Collins. But we see also immense value in driving same-store sales growth, productivity and operational excellence in both Australia and in Europe.

Your next question comes from Elijah Mayr with Goldman Sachs.

Just a couple from -- maybe just firstly on the FY '26 guidance. Can you confirm that, that includes Taco Bell and perhaps what your expectations are within that guidance for Taco Bell into FY '26?

Yes. So the short answer, yes, our guidance includes Taco Bell. We're including it in the consolidation in both years. If that changes, obviously, we'll inform the market. We're expecting the position on Taco Bell to remain relatively flat.

And then second question, just on KFC Australia kiosks noted that in presentation that increase in FY '25. Can you kind of confirm that was the case just for Australia or it group? And sort of where are you at in the Australian network in terms of the stores that have the digital kiosk?

Yes. Thanks, Elijah. It's Krystal here. We did add a further 106 kiosks just in the KFC Australia network. That takes us to about 2/3 of our restaurants having kiosks now, and they're performing strongly. So we're looking at how we best spend our capital to invest further in digital formats.

Elijah, maybe just a comment on Europe and then maybe Chris can answer this, but penetration of kiosk in Europe is already very high. But yes, just Chris might add some color to that.

Elijah, the European journey for kiosks started a few years prior as the channel mix in Europe is traditionally different, Australia, of course, being a high drive-through market. And given the city network in Europe were a higher dine-in and front counter business. 100% of our restaurants in both Germany and the Netherlands have kiosks with an average of 4 to 6 kiosks per restaurant and some of our busier restaurants have up to 15, 14 kiosks within them, and that's reflected in our digital sales mix at 63% in the Netherlands and 67% in Germany.

Your next question comes from Ben Gilbert with Jarden.

Just in terms of Netherlands, just in terms of the actions you've taken, obviously impaired the last update, how quickly do you think you can get those margins back up? Because you obviously have spent a bit lower to look on a post EBIT basis. Are you expecting to see quite a material uplift in terms of initiatives? Or it seems like headwinds, et cetera, and poultry mean that they're going to remain pretty benign through fiscal '26?

Yes, Ben. I'll pick that one first, and I'll invite Chris to comment. Our intention is to get that business to a meaningful level of profitability as best as we can. And so can we make immediate change in performance? Well, yes, of course. That's the intention. So we do want to see a change in the trajectory of that business in financial year '26. I'll let Chris talk about the things that are happening in that market. But we want that business to earn its keep and to generate an appropriate level of return on the investment that we've made. Impairments are always unfortunate, of course. I mean, we can't write restaurants up. We can only address them on the downside. But our intention, despite the impairment is to drive as much profitability as we can add out of that network as possible. And maybe, Chris, if you want to provide some color?

The brand is in good health, as shared earlier, and KFC in the Netherlands celebrated 50 years in 2022. So the brand is also has a long heritage and is a solid #2 in the market, with a 50% bigger network than the #3 being Burger King or Hungry Jacks, I think we call it here locally. The market is definitely responding to a renewed focus on labor productivity and food waste, cost of sales management. And with our more moderated view on pipeline development and new restaurant goal, we feel confident to make meaningful changes in FY '26.

And just a second one for me. Just in terms of -- you've always got a pretty strong balance sheet position, probably gives you a lot of optionality. Where do you see the highest return, incremental return you're able to generate at the moment? It feels like how you're talking through the presentation as Germany and looking to buy existing change in that market. Is that the preference of priority? Or are you still looking to greenfield master franchise agreements, which you've alluded to in the past in Europe?

So it's Xavier here. Obviously, we have a strong balance sheet, which is great, and it provides us with optionalities and capacity for organic and inorganic growth opportunities. I can't say much more in the sense that we want to be open, but we need to have a disciplined approach based on profitable strategic growth. And of course, we want to deliver shareholder value. Germany is upscale. As you mentioned, the store economics are pretty strong. So we want to drive accelerated growth in Germany through buy and build. We've got nothing in mind at the moment in terms of M&A opportunity. But certainly, we will look at acquisition opportunities in Germany, they occur to accelerate in this market, which we believe should become our second growth pillar.

Your next question comes from James Ferrier with Wilsons Advisory.

First question I wanted to ask one and perhaps it's one for Krystal. In the Australian business, I'm keen to hear your thoughts on the menu performance. How you're reading it in terms of the success of innovation, the product mix and the benefit you're seeing flow through to gross margin. It seems like it's been a big focus for the franchise community and for KFC and interested in how you're reading the improvement there? And then how much perhaps more improvement is left when we look forward into FY '26?

Yes. Thanks, James. The everyday value strategy that came into play over the last 12 months actually has continued to strengthen as time has gone on. And what it's really done is providing great value entry points that really makes us the more affordable to the everyday consumer when they really need that affordability the most. That's been coupled with a stronger product innovation, which help upsell the customer in our core LTOs. What we look forward to in FY '26 is actually quite a strong and persistent pipeline of product innovation that is quite craveable products that are coming this year.

That's good to hear. Second question, maybe one for Xavier or Chris, just in the German market there, I'm interested in what color you can provide on some of the other initiatives that are underway there, whether it's new store opening plans from other stakeholders or restaurant buyback plans, refurbs, et cetera, brand-building campaigns from Yum!. Just any further color you can give on the broader plans for the brand in Germany?

With pleasure, James. Historically, KFC Germany has had one of the lower remodel compliances across Europe. However, one of the bright spots over the last 18 months is the German market has heavily invested in what they called the remodel acceleration program to bring not just restaurants close to Collins, but across the entire estate up to latest look and feel. And the market is now at [ 45 ] last touched within 5 years, which is at the normal standard. At the same time, as alluded to earlier, the market is realigning its teams and processes, specifically around brand and marketing. And a new CMO, who is ex McDonald's, has joined the market 2 weeks ago as well as a new Head of Digital, and we're very encouraged by the first signs. And given Collins' strategic importance too young in that market. We also have the benefit of sitting on not only the advertising co-op but also the Ops Committee, the development committee and the business model committee. So Collins has a voice at the table with Yum! on a quarterly basis across key priorities and projects.

Your next question comes from Caleb Wheatley with Macquarie.

Just a couple of follow-up questions from me. The first 1 on the kiosk front, particularly in Australia. So you mentioned 2/3 of the stores in Australia have been now. Where do you see this getting to over the coming 12 to 18 months? So it seems like a fairly big opportunity on both the revenue and the cost side for the Aussie business. So how should we think about the opportunity there, please?

I think the penetration of kiosk will continue to rise. I mean every time we do remodels, we install kiosks. There are 1 or 2 of our -- or some of our restaurants, a handful where installing kiosks is very, very challenging, just by virtue of its physical dimensions and location. But I think I expect to see us increase our penetration over time. Every single remodel comes with kiosk installations. So it's -- as always, it's making sure we get the return on the investment that we target when we put any investment into our network.

Okay. Got it. And I have sort of been touching a little bit throughout some of the other questions. But maybe just a bit more specifically on CapEx across the business as we go into FY '26. Just noting, obviously, store openings to come in Australia and Germany and the remodels you've called out as well. How should we think about moving in CapEx as you work through some of those programs through FY '26, please?

Yes. Look, I think for the next couple of years will be -- our CapEx levels will be similar to what we've got this year. And really, what drives that is the fact that the ramp-up in Germany doesn't really commence until '27. So I expect our CapEx to be relatively consistent for the next couple of years and start ramping up as we start to develop out the German market.

Your next question comes from Sam Teeger with Citi.

Just on Germany, after the changes in KFC in Germany, can you talk through who are the other main players with you at those key committees who are looking out to the other states? And based on your discussions with them, what do you think of their willingness and ability to invest and repair the KFC brand across the whole of Germany with you?

Sam, it's Chris here. I'll field that one. So for context, across the 210 KFCs in Germany, there are 24 other franchisees. And I'm sure you can appreciate that will be some second or even third generation low single-unit operators all the way through to other multinational listed, AmRest, or a franchisee that you may be aware of who operate multiple brands across Europe. And in those forums that you've alluded to, we have a good mix of voices at the table and Collins, along with AmRest are the only franchise partners that are present in all 4, which is great as we've got capital and commitment as Collins, I won't speak for AmRest. But we've got a good mix of franchisees and across states as well. So it's not a very narrow forum, but they're quite large there.

But do you think the rest of them or most of them are willing to invest in marketing to really repair the brand after what happened under [ IS ] management. Or is it just going to be you kind of carrying the load yourself?

We have committed spend. So one thing that is clear is that we're all contributing to the national co-op. And as answered a few minutes ago, the remodel compliance has really ramped up. That was a bright spot over the last 18 months, and that's a real commitment by franchisees, not just Collins, deploying their capital in remodel. So we're -- we've had very good conversations, and we're also a member of the franchise committee, as you would imagine, in Germany. And those are very constructive and broadly, people want to move on and build the brand and do right by our customers and our team members.

And Sam, maybe just to add to that, I think as you see in Australia, you've got franchise partners that want to grow and invest and you've got others that don't. And I don't think Germany will be any different. But we don't expect we'll be the only partner developing in Germany.

And just to add to that as well, Sam, I was in Germany a few weeks ago and spent quite some time with [ Jan ] in Germany and Yum! in Europe. There's a strong commitment on the Yum!'s side to drive growth in Germany for various reasons. KFC is far beyond McDonald's and their strong willingness to drive that and invest behind growth. And obviously, we want to contribute as a key pilot to that. There's no success for KFC in Europe without success in Germany considering the size of the market. So there's strong willingness on Yum!'s side to drive that growth for KFC.

Your next question comes from James Bales with Morgan Stanley.

Firstly, maybe on Germany, when you think about the M&A opportunities that you might come across there, can you help us understand, are you after the ability to open up additional states? Or are you after grade assets or assets that you can put capital into and materially improve? How should we think about the equation there?

So a few key points. First, we want to have a strong focus on a few regions. We don't want to spread our resources around across too many states. We want to focus and develop. So at the moment, our focus is across 2 areas. One is around Stuttgart, the other one is around Dusseldorf, where we have our store network. If the opportunity occurs to acquire another network in another region and build a third region, that would be fantastic. If we acquired a network, we would acquire a network to build scale and accelerate but also to be able beyond the stores we would acquire to actually develop more restaurants and leverage the teams and the capacity and the capability on the ground to accelerate development beyond just the acquisition.

Got it. And then you also made reference in the presentation to a new agreement with Yum! in the Netherlands. Can you maybe help us understand what's changed as part of that agreement? And what does Yum! really care about in terms of your phase of slowing down the rollout and improving profitability?

James, yes, I mean, the agreement really is to moderate development. I think there's a common understanding that there are some unique challenges in the Dutch market that we don't see in other markets. And so the moderation of development sort of reflects that because we've got a knuckle down and resolve profitability challenges in that market. So that's in everybody's interest because having a profitable franchisee network makes sense for all parties concerned. So that's the nature of the changes there. Obviously, we still run the market. And as we flagged in a previous announcement, what that looks like moving forward is yet to be determined and will be subject to negotiation. So that's the piece of work that is as yet unfinished. Sorry, I'm not sure I answered all your questions, James.

No, no. That gives me a good sense.

We'll just take one more question because we've got to run afterwards.

No problem. Your final question comes from Michael Toner with RBC.

Look, very, very quickly. So I can see that revenue sort of came in line or maybe sort of marginally below this year, but you've called out operational improvements on a fewer case throughout the presentation. I was wondering if you could be a little bit more specific as to exactly what initiatives you guys have put in place and sort of whether there's further room to run from a productivity perspective, particularly given it's very too half-weighted it looks like?

I could start and maybe invite Krystal and Chris to comment. Just your comments on sales. I'm not sure what the comparator is that you're running as again. I mean, our sales performance has improved since the first half in every dimension. So second half improved on first half and same-store sales in the first 8 weeks have improved upon half 2. So we've seen a gradual improvement in trend, whichever way you look at it. So we're pleased about that, more to do. We're definitely pleased about that. Productivity, put simply, obviously, there are things that we can do to drive efficiency and technology plays a role in that. But fundamentally, it's about getting better at matching supply and demand. So making sure that we are supplying labor when the volume demand is there. And so if I just want to simplify the whole equation, that's really what we're trying to do, and we're trying to leverage technology to do that, working with Yum!. It's a system-wide issue, and we all acknowledge that's an area where we can drive further benefit. But Krystal and Chris, any specific issues related to Australia and Europe?

Yes, I can talk to what we've been trialing in my first 8 weeks, which is a really great tool that assists in what Andrew has been alluding to. And in the trial so far, we've seen significant improvement in ensuring we have the right people on at the right time, which has unlocked sales and also customer experience metrics. So we are strengthened by the tools that we have in place. The trial is moving forward. So we do see that operating discipline adding further benefit in FY '26.

And in the European context, halfway through Q4 in mind, then first 8 weeks, we've rolled out across both Germany and the Netherlands biweekly sales forecasting and team member hour assessments, as well as extreme focus on productivity and the so-called best when busiest, and this is showing dividends. This has rolled through and is really gaining momentum in the first 8 weeks of this year. And then further opportunity, which is important for us in Europe is around waste and waste management, not only for the P&L, but also in terms of our ESG commitments, and we've seen big improvements in cooking to demand and using the technology appropriately in both Netherlands and Germany.

That's all the time we have for our question-and-answer session. I'll now hand back to Xavier for closing remarks.

Thank you very much. Thank you for joining the meeting. We're going to follow up and make sure we answer other questions. I just want to say on behalf of our executive team, that we're very energized and excited about the year ahead. Very happy about the underlying results that have been delivered. And I want to thank again our shareholders for their support and encouragement. Have a great day.

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