Collins Foods Limited (CKF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Collins Foods Limited Full Year 2026 Results Briefing. [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, Darcy. Good morning, everyone. I'm Xavier Simonet, the Managing Director and Chief Executive Officer of Collins Foods. With me on the call today is our Chief Financial Officer, Andrew Leyden; our General Manager of Australian Operations, Krystal Zugno; and our General Manager of Europe, Chris Johnson. Today, we are pleased to present our FY '26 full year results announced to the ASX earlier this morning, together with the trading update. As always, we will work through the presentation and then take your questions. I want to start today's presentation by thanking our 22,000 team members and particularly our restaurant teams across Australia and Europe for their energy, motivation and contribution to the success of Collins Foods. Moving on to Slide 2. FY '26 was a record year for Collins Foods and a new milestone for the business. We're delighted to announce that we delivered record revenue of $1.59 billion, up 8.6%, record underlying NPAT of $61.4 million, up 13% and statutory NPAT of $47.1 million, up 280%. I want our teams to feel proud of their performance in the year. These are continuing operations figures, and I'm pleased to say that the records still hold even excluding Taco Bell's contribution. This result reflects the strength of the KFC brand, our focus on operational excellence, and disciplined cost control, achieved in a consumer environment that remains challenging. Moving to Slide 3. Beyond the record results, there were several other significant achievements. In Australia, lifted performance through our laser focus on operational excellence. We invested in new growth opportunities, including trialing KFC's new global beverage platform Kwench by KFC, and we leveraged our network to drive same-store sales growth, profitability and delivering great customer experiences. In Germany, a strategic growth pillar for Collins, we signed new partnership agreements with Yum! to drive accelerated growth, and we acquired 8 restaurants in and around Munich, enabling us to develop in Bavaria, one of Germany's most populated and wealthiest states. With 25 restaurants in Germany, we are now the largest KFC franchisee by revenue and are present in 3 key states from which we will grow. In the Netherlands, we improved the profitability of the business and extended and restructured the CFA, which simplifies our role in market, allowing us to focus on what we do best, running great restaurants. Finally, we successfully negotiated an exit from the Taco Bell brand, enabling continuity and releasing Collins Foods from material lease and other obligations. We are extremely pleased with the results delivered, but also the very significant progress made on our strategic agenda. Now I'll hand over to Andrew for our financial performance and sustainability progress.

Thanks, Xavier, and good morning, everybody. Turning to Slide 4, which provides an overview of financial year '26 performance. Financials are presented on a post-AASB 16 basis, unless stated otherwise, with pre-AASB 16 financials available in the appendices. Just a reminder that financial year '26 was a 53-week reporting period. As Xavier has outlined, we were very pleased to report record revenue and underlying profits in financial year '26. Revenues were a little short of $1.6 billion, up 8.6% on the prior corresponding period. Underlying EBITDA was $244.5 million, 6.3% up on the prior year, whilst underlying NPAT was $61.4 million, 13% up on the prior year with improved net margins. Including Taco Bell, which is the basis upon which we gave guidance, we delivered $60.1 million of net NPAT, representing 17.6% growth on financial year '25, hitting the midpoint of our given range. Statutory NPAT from continuing operations was $47.1 million, and I'll cover the reconciliation between underlying and statutory results on a subsequent slide. Cash flow balance sheet and return metrics were again very strong. Net operating cash flow was $150.1 million, and net debt was reduced by $18.3 million to $119.6 million, with the net leverage ratio down yet again to 0.77 versus 0.93 at the end of financial year '25. Pleasingly, return on equity increased 220 basis points to 14.5%, which demonstrated the combined benefit of earnings growth, coupled with disciplined capital allocation. The Board declared a final dividend of $0.15 per ordinary share, taking the total financial year '26 fully franked dividend to $0.28 per share against $0.26 per share prior year. This represents a 7.7% increase and equals the highest dividend declared in financial year '24. Slide 5 sets out our sustainability progress and pathway to 2030. Financial year '26 was the first year of mandatory climate reporting, which is included in our annual report. Some key highlights from the year include the diversion of 22.3% of waste from landfill, upcycling 100% of our cooking oil, including into aviation fuel, emission reduction pilots in restaurants using more sustainable refrigerants and optimize HVAC, reducing food waste by 9 basis points, completing almost 1,600 food safety inspections, raising $700,000 for charity partners and providing almost 11,300 meals to people in need. We employed 22,000 people from 104 nationalities with female leaders representing 46.2% of our population. Investments in safety culture delivered a 26.9% drop in our recordable injury frequency rate, and we employed 5 people through our First Nations preemployment program. We will continue to focus on new sustainability initiatives and look forward to updating on our progress. Now to the financials on Slide 7. Revenue in financial year '26 was up 8.6% as reported earlier on the prior year to a record almost $1.6 billion, with growth in both Europe and Australia. The result benefited from favorable currency translation contributing $16 million. Underlying EBITDA was up 6.3% to $244.5 million. Whilst absolute profits were up, percentage margins were slightly lower by 34 basis points, which reflects a combination of 3 factors: the successful growth we saw in delivery after a change to the fee structure, some value investment made throughout the year and higher protein costs in Europe. Underlying EBIT was $130.7 million, up 10.1% with margins up 11 basis points to 8.2% on higher EBITDA. Higher cash profits were partially offset by higher depreciation on increased investment. Underlying NPAT was $61.4 million, up 13% on the prior period and underlying EPS $0.52 per share, up from $0.461 per share in the prior period. Statutory NPAT from continuing operations was $47.1 million versus $12.4 million in financial year '25. As covered earlier, strong cash flows enabled network investment, further debt reduction and dividend payments. The total financial year '26 dividend will be a record equaling $0.28 per share, with the final dividend having a record date of 14th of July 2026 and a payment date of the 11th of August 2026. Slide 8 reconciles our statutory and underlying results. Revenue was $1.64 billion, which includes $47.7 million from our Taco Bell discontinued operation. On a continuing basis, revenue was just under $1.6 billion. The main non-trading items were the inclusion of $7.3 million on a post-tax basis for the class action settlement and related costs, $4.8 million of noncash impairment charges on previously impaired restaurants in Europe arising from lease changes and incremental capital spend in those restaurants. $2.7 million noncash impairment on 2 KFC Australia restaurants was taken, along with a $1.4 million top-up to the provision for wage payments relating to prior years. Pleasingly, we saw a $1.1 million reversal of impairment on the restaurant in Germany. We made a $0.8 million gain on the sale of a land parcel and $0.5 million fair value gain on a previous debt modification after the earlier refinancing completed this year. Now turning to cash flow on Slide 9. Strong cash generation remains a highly attractive feature of the Collins business. Net operating cash flow before interest and tax was $232.6 million, with the movement on prior year reflecting 2 extra periodic royalty payments to Yum! versus financial year '25. After interest and tax, net operating cash flow was $150.1 million with higher tax paid due to the increase in profit and the timing of deductions. Cash conversion was again strong at 94%. Investing cash outflows were $56 million. This included $3 million of contingent consideration on the financial year '24 European acquisition. $13.8 million was spent on new restaurants, $16.8 million on remodels, $6 million on digital and sustainability investments and $15.3 million on asset renewal. Financing cash outflows were $120 million, including $33 million in bank debt repayments, dividend payments of $31 million and lease principal payments of $58 million. On to our balance sheet on Slide 10. Collins Foods balance sheet is in excellent shape with capacity to fund future profitable growth initiatives. Both net debt and net leverage ratio were reduced as covered earlier. And cash balances were down $25.2 million to $94 million, but primarily due to the paydown of debt of $33 million during the year. And now having covered an extremely strong set of financials, I'm going to hand over to Krystal, who will take you through what's been happening at KFC Australia.

Thank you, Andrew. FY '26 was a year where we elevated our operational execution and lifted brand resonance, resulting in growing sales and profitability. We opened 8 new restaurants, bringing the Australian restaurant network to 295 with a healthy pipeline for future build. We also completed 33 remodels, including 3 supercharge remodels. Revenue grew 7.6% to $1,241 million, driven by new restaurants, strong digital growth, product innovation and our team's focus on delivering operational excellence. Same-store sales were up 2.7%, a big improvement on the 0.3% recorded in FY '25. Restaurant-level EBITDA increased 6.2% to $260 million on positive sales, lower commodity prices and productivity gains. The restaurant EBITDA percentage margin reduced 26 basis points to 21%, impacted by the successful change in KFC's delivery structure, which drove volumes and absolute profit that initially impacted percentage margins. EBITDA was up 6.5% to $237 million, and EBIT was 6.6% higher to $156 million, with higher EBITDA partially offset by higher depreciation on investments made. KFC brand strength, menu innovation and the expansion of customer usage occasions powered growth in FY '26. Back-to-back core menu innovation, including Zinger Banh Mi and Hot & Crispy Wrap plus returning favorites like Zinger Nachos, fed our customers' love of creative spins. The protein range campaign through social media also exceeded expectations. We are well progressed in preparing the national rollout of Kwench by KFC and most restaurants will be selling Kwench by the end of financial year '27. KFC introduced Wicked Wednesdays and trialed the Boxfull range, bringing more excitement and consistency to our value proposition. The Liquid Gold Signature Sauce was the first of KFC's new Basket Builders, another avenue for innovation and ticket growth. Slide 14 highlights the success of menu innovation and campaign activity throughout the year and continues to drive KFC's brand health results. KFC continues to show dominance across the QSR category, clearly demonstrated in brand index, brand satisfaction and brand recommendation as well as brand modernity remaining strong with Gen Z. KFC's consistent leadership is widening the Brand Buzz gap against competitors while strengthening our earn results. Turning to a defining year for Collins in operational performance. FY '26 was our best year ever on the KFC National Balanced scorecard. 6 of the top 11 restaurant managers were from Collins Foods, and we won 4 of the 9 National Category awards plus Area Coach of the Year. We were also recognized at the KFC Global Operations Conference for collaboration and partnership and its impact on our results. There is a direct correlation between operational execution and sales and profit outcomes, and this is supported by Collins employee engagement being up 4% over prior year and customer overall satisfaction up 5% over prior year. I am very proud of our operational teams, their commitment to operational excellence and to delivering great experiences for their teams and their customers is reflected in our results. I will now hand over to Chris to cover KFC Europe.

Thanks, Krystal, and good morning, everyone. Before turning to KFC Europe, I'd like to take the opportunity to thank my Dutch and German teams in our restaurants and our above restaurant leaders in the Amsterdam and Dusseldorf offices for all the hard work over the last year. And the results I shared today are the accumulation of their significant contributions. Starting on Slide 17, profit improvement in the Netherlands and growth in Germany combined to deliver a materially stronger European result. Revenue was up 12.5% to $351 million or 7% on a constant currency basis. In Germany, total sales were up 10.1% on a constant currency basis, same-store sales of 3.7% against a decline of 3.3% in FY '25, reflecting improved brand and in-restaurant execution and the benefit of the VAT reduction on dine-in customers from January 1 of this year. In the Netherlands, total sales were up 6.1% on a constant currency basis, with same-store sales flat, but up on the prior year, reflecting broader category challenges. EBITDA on a total Europe basis was up 14% to $44.9 million, with margins up 17 basis points to 12.8%, reflecting same-store sales growth in Germany, lower food waste and higher labor productivity. Restaurant percent margins were slightly lower on higher poultry prices due to avian flu. EBIT of $14.9 million was up 94.7%, reflecting higher EBITDA and lower depreciation. To Slide 18. Investment in our teams, training and effective performance rhythms is improving the customer experience. We continue to build talent and capability through the in-house Collins Academy with a heightened focus on our restaurant general managers. Both markets benefited from more marketing windows in calendar year '26 and a stronger pipeline of innovation-led limited time offers, drawing on KFC Europe-wide collaborations and ensuring everyday value, combined with targeted promotional offers protect gross margins. On margins, we've made considerable progress in unlocking efficiency through lower food waste and higher labor productivity. Moving to Germany on Slide 20. Unit economics across the portfolio compare broadly with those in Australia despite lower restaurant density and network maturity. FY '26 margins in absolute terms improved while percentage margins were slightly down on FY '25 due to poultry cost pressure from the avian influenza. We expect this impact to dissipate over the FY '27 year. The Munich acquisition completed on June 1 is progressing well to plan. We are accelerating investment in new site acquisition, construction and restaurant team capability to support the growth pipeline. And we continue to deliver strong guest experiences with KFC Listens and Google review scores up 5 and 13 percentage points on the prior year. On Slide 21, we expand on establishing Germany as our second strategic growth pillar. We continue to be very excited about the potential of Germany from a value creation perspective. With over 80 million consumers and only 217 KFC restaurants compared with circa 1,400 McDonald's and 750 Burger Kings, the KFC brand and the chicken category overall are underpenetrated. Following the Munich acquisition, Collins Foods is now the largest KFC franchisee in Germany by system sales, further reinforcing our leadership position with young in the market. We continue to invest in people and organizational capability as well as monitor for possible bolt-on acquisition opportunities to expand into complementary geographies in support of our longer-term growth ambitions. 1And finally, turning to the Netherlands on Slide 23. We continue to direct our energy in this market to profitability improvement. We've lifted operational execution to support sales and the customer experience. Margins benefited from labor productivity gains and lower waste, along with lower depreciation as a result of prior year impairments. These gains were partially offset by the impact of avian flu on poultry products. In terms of brand development, awareness increased 1.1 percentage points to 71.1%, the strongest growth amongst our QSR peers, and our market share was up 0.2 percentage points to 9.2%. We've extended and restructured the Netherlands CFA during the FY '26 year. Yum! Brands will resume marketing responsibilities from January 1, 2027, enabling Collins Foods to focus on what it does best, execute on its core role as restaurant operator. Back to you, Xavier.

Thanks, Chris. Turning now to Taco Bell on Slide 25. We announced our exit from Taco Bell on the 31st of March 2026. Under the transition agreement, 20 restaurants will be transferred to a joint venture between a subsidiary of Yum! and Restaurant Brands Australia. Trading losses on the transferring restaurants ceased from the 1st of April 2026 with no royalty or advertising contributions from that date, and we expect completion of the transfer to occur in July or August. The 7 remaining restaurants were closed during FY '26. $1.7 million in total one-off closing costs relating to the exit of Taco Bell were recognized. We expect a material one-off gain relating to the lease liability transition and reversal in FY '27. The exit extinguishes the associated losses and liabilities and allows us to focus on value creation through KFC. Slide 27 recaps our 3 strategic growth priorities. First, sustainable growth in our core market, Australia; second, accelerating scale in Germany through profitable new openings complemented by acquisitions and leveraging Yum!'s brand-building investment to establish Germany as our second strategic growth pillar. Third, operational excellence across Europe and Australia. We remain laser-focused on same-store sales performance, productivity and efficiency. I'll now hand to Krystal and Chris for more detail on how we are accelerating growth in Australia and Europe. Krystal, over to you.

Thank you, Xavier. In FY '27, our Australian operations are transforming with targeted investment across team experience, operations and the brand. Improving our team's experience is crucial to customer experience and operational excellence, and we are investing intentionally by increasing the number of field-based roles to support the restaurant teams and the creation of over 1,000 new jobs for Australian Youth. To set our teams up for success, we have expanded training initiatives within our restaurants, a key investment at this crucial growth stage. Operationally, we remain balanced scorecard focused and we'll continue to partner with KFC SOPAC to trial AI systems and tools. In addition, we will complete our cooker replacement program by the end of the year, improving safety, equipment consistency, product quality and productivity. KFC Australia has launched its brand-new platform, GO FULL CHICKEN. It is committed to realizing the ambition to deliver the most craveable food and a more dynamic restaurant experience. GO FULL CHICKEN captures the heart of what makes KFC Australia iconic. Its unapologetic obsession with chicken, its pride and care in what we serve to our customers and its culture in which restaurant teams bring to life every day. GO FULL CHICKEN was launched 2 weeks ago with KFC Global's reimagined evolution of the world's most iconic chicken brand. It introduces a refreshed visual identity, product innovation and modern restaurant design, celebrating the brand's legacy while meeting customers here and now. KFC will evolve the menu, enhancing core offerings such as boneless chicken, saucy platforms, limited time offers and Kwench by KFC. KFC has shown its dominance in key brand health metrics, and it is globally committed to set the standard for modern chicken in QSR. Our operational performance delivers continued growth. With our strong foundations in brand and operational execution, we are well placed to start operating in key day parts that our competitors are already in. These day parts represent more than 1/3 of the total days potential. Late night and breakfast are the 2 fastest-growing QSR day parts and present a real opportunity for KFC to realize its fair share of the category. That is why we are investing in 3 strategic initiatives to build growth, including national rollouts of Kwench by KFC and late night trade, and we have also committed to testing Breakfast. After a successful Cairns trial, Kwench by KFC is in rollout phase across our network, targeting 80% rollout by April with capital expenditure of $35 million in FY '27. Kwench will improve consumer consideration for KFC and with high consumer appeal and strong trade-up potential, it offers value across dessert, snacking and add-ons. As national media is engaged and innovation is activated, we expect to see national sales growth beyond the Cairns trial results. Late night trade is the fastest-growing segment for QSR, and our menu architecture is already in place to take full advantage. We have already commenced extending trade to midnight through a staggered national rollout. Early results of the limited restaurants currently live have been very promising. Breakfast presents a great opportunity for KFC. QSR Breakfast share is almost as big as lunch and is growing. We see the potential opportunity for this day part and have agreed to partner with the KFC SOPAC team to trial breakfast in some of our restaurants later this year. We are looking forward to accelerating growth through all of these strategic initiatives. Over to Chris, who will share what we are planning in Europe.

Thanks, Krystal. Slide 32 covers how we're accelerating brand relevance in KFC Europe in partnership with Yum!. On the menu, bonus and hot wings are gaining traction as preferred formats. Marketing collaborations remain a key pillar for Europe, and our FY '27 innovation pipeline is strong across dump, sourced and loaded, all resonating with younger consumers. On category usage occasions, Yum! is preparing the first Western Europe pilots of Kwench by KFC in 2 markets, and Collins is working closely with Yum! on the business case and launch mechanics with an intent to start a trial in Germany during H2 of this financial year. Slide 33 sets out our plans for what we expect will be a record German development year in FY '27. FY '27 capital expenditure will be approximately $20 million, focused on mid-single-digit new restaurant builds predominantly in the North Rhine Westphalia state with Bavaria development opportunities building through the year as our acquisition team embeds the newly entered territory. We're making a $3 million incremental upfront investment in FY '27 to accelerate pipeline delivery and build a scalable rollout model. Our ambition is to grow the network by between 45 and 90 additional restaurants by FY '30 with site remaining the critical determinant of the pace and trajectory of our rollout. Throughout, we remain laser-focused on performance and unit economic discipline. Back to you, Xavier.

Thanks, Chris. Slide 35 shows our sales performance in early FY '27. For the first 8 weeks of trading in FY '27, Australia recorded 6.7% total sales growth and 4% same-store sales growth on the back of effective innovation and impactful promotions. There is a strong plan in place with good innovation and effective limited time offers that the team is executing well. KFC Australia, our dominant profit engine, continues to perform strongly. In the same period, sales in Europe were disappointing and below last year. Germany reported 26.4% total sales growth, which included 4 weeks of trading from the Bavaria acquisition. Same-store sales growth was, however, negative by 7.2%. Netherlands reported revenues down 5.2% and same-store sales were negative 7.8%. The conflict in the Middle East had a negative impact on sales in Europe from the beginning of March with a deceleration in sales trends in the last quarter of FY '26. Higher fuel prices and uncertainty affected consumer confidence across the 2 markets. KFC's limited time offers also underperformed expectations in addition to the brand lapping a very strong commercial collaboration with Squid Game at the same time last year. These factors were exacerbated by the prolonged impact of the heat wave across Europe, which is disrupting restaurant traffic. We are working actively with Yum!, the owner of KFC and our franchisor to stimulate demand and strengthen performance short term and long term. On the cost side, we're seeing flat to modest level of commodity inflation in Australia, whereas in Europe, the effects of the avian flu that drove up poultry prices in FY '26 are expected to dissipate in FY '27. Commodities are expected to deflate in Europe overall. We're seeing a very modest impact from fuel price increases to date, while labor inflation remains high in all markets. In Australia, recent cases of bird flu were detected in wild birds in Western and South Australia. There have been no cases in poultry currently, and suppliers have heightened biosecurity measures in response. I also reassure shareholders that KFC has very strong contingency plans in place to mitigate any supply disruption should it occur. We remain confident in our strategy for the long term and for long-term value creation, and we will continue to invest behind it in FY '27. We're planning 7 to 10 new restaurants in Australia and approximately 7 new restaurants in Germany. We will continue to work with Yum!, our franchisor, to strengthen restaurant economics. We will continue to innovate core offerings while rolling out Kwench by KFC across our whole network in Australia and initiate Kwench trials in Europe. We will also expand Australian trading house to capture the fast-growing late night trade, and we will partner with KFC on a Breakfast trial later this year. In that context, targeted investments in G&A will be made to drive growth. In Australia, we will invest an incremental $2 million in additional training to support the initiatives outlined earlier. While in Germany, we will invest an incremental $3 million to enhance our German restaurant network development capabilities and grow the pipeline of new sites. We also expect to spend between $80 million to $100 million in growth and modernization CapEx during FY '27. This is in addition to the cost of the Bavarian acquisition. Consistent with our general practice, we will not be providing earnings guidance for FY '27 today. While our trading update for the first 8 weeks of the financial year gives an indication of short-term trends, it is very early in the year. Before moving on to Q&A, I would like to quickly summarize on Slide 36, why we are excited about our strategic priorities and strongly believe that Collins is extremely well positioned for the future. So Slide 36. FY '26 was a record financial results. I'm delighted with these outcomes and very proud of our teams. We have a significant growth runway in both Australia and Germany in FY '27. And FY '27 will be a year of preparing for further acceleration. We have a resilient business model, a very strong balance sheet and a conviction to invest in profitable growth opportunities to create value for shareholders. Thank you, and let's now turn to questions. Back to you, Darcy.

[Operator Instructions] Your first question from the phone comes from Sean Xu from CLSA.

My first question is around the Fair Work Commission decision on junior rate change impact on your cost base in Australia from FY '27 onwards. Now based on our previous communication, we're understanding there will be $20 million annual impact on FY '31 after full hedging. It's a big number. Could you please let us know what are the mitigation you can put to offset that impact, please?

Sean, Yes, so the impact in the fiscal year '27 is relatively modest, so about $1 million. Obviously, that grows as the discount on the junior rates changes over the years. So financial year '31 will be the first year where it's fully implemented. So it is about $20 million. And there are ways in which we can mitigate that. Clearly, the way that we manage our revenue line is the best mitigator for any margin pressure irrespective of whether it's labor or whether it's food inputs. And we have a lot of time to work on that. It's known by the whole system. The whole system is aware that it will impact the rate of labor relative to revenue. And we'll be working on not just revenue-based initiatives. And obviously, there are lots of them. You've heard that from the presentation. But we'll be working as well with Yum! as a system to drive labor productivity as well, particularly through the automation of the back of house. So there are lots of things. I can't go into too much detail with you here. But obviously, the impact is very -- is well known. It's right across the system. It doesn't just affect KFC. It clearly affects anyone that hires young people. And we have strong plans in place to mitigate both through the revenue line and through the cost line.

Andrew. Maybe I'll just move on to the second one on capital allocation. Now based on our recent industry call, understanding some of your KFC competitor in Germany does not consider region is a key focus area for the business. Given your balance sheet is sitting at a quite comfortable level, would you consider another German bolt-on acquisition in FY '27 or FY '28?

Thanks, Sean. We're happy to consider another German acquisition if the opportunity occurs. We want to be very disciplined, very strategic. And if we were to acquire another network of restaurants in Germany, we want to make sure that it's a quality network, delivering already quality financial results. We would also want to make sure that we are continuing to be focused on building density in the 3 key states where we are and that we do not start investing all over Germany. So at the moment, our focus is to make sure we integrate the Munich network well, and it started really, really well. But we also continue to develop and strengthen the existing restaurants we have in our existing territories.

Your next question comes from Tom Kierath from Barrenjoey.

My question is just on the Aussie EBITDA margins in the second half. I think they fell a bit over 100 basis points. You're saying that commodity costs were down, productivity gains have kind of come through. Is it delivery that's causing that big reduction in the margin? And if it is, could you maybe just step through how you kind of alleviate that or how you price for it? Because obviously, it looks like it's a pretty big headwind for the business.

Tom, Yes. So I think you're aware that seasonally, we do see a slightly weaker margin in the second half, really a consequence of the number of public holidays in the second half. So we do see that pretty typically in any normal year. Specifically this year, yes, delivery had an impact on percentage margins. It's actually a very profitable channel. We like it. and we've competed very well in it this year. I think you're aware that there was a change in the delivery fee structure right across the aggregators from $8.95 to $3.95. Clearly, there's greater consumer sensitivity to that delivery price than there is on the premium on the food. So the economics of the delivery channel subsequently are improved. In absolute terms, they are very healthy. In percentage terms, they're slightly lower. So that -- I'd say that would explain one of the movements, probably the main movement in the second half. Probably the other one is there's a little bit of value investment in quarter 3. It's -- I think quarter 4 was much more balanced in terms of the nature of the relationship between the limited time offers that we have in market, the innovation pipeline and the value that we provide to consumers. And we see movements like that typically throughout the year. But overall, I'd say delivery was maybe the biggest influencer. But we're very happy with the economics of the delivery channel overall.

Yes. Okay. And then just second, I think there's an extra trading week in this period. Should we think about that as just like a 2% tailwind for the profit this year and then kind of a 2% headwind like in round numbers for next year? Or is there some sort of accounting that we need to be aware of just when we're setting our forecast for next year?

No, it's broadly linear. I don't think you need to overthink it too much.

Your next question comes from Tim Plumbe from UBS.

Just 2 questions from me, if possible, please. Just wondering if there's any more color that you could give us around the early observations from Kwench and late night strategy in terms of store performance versus the rest of the portfolio. How should we think about these into the second half of '27 and the sort of tailwinds that, that could add to the business? I mean, if I think back to when you introduced the staggered approach to third-party aggregator delivery, is it on the same sort of par as that or a lot less than that?

I'll start, Tim, and Krystal, if you want to complement with anything, please feel free. So Tim, we're not publishing the impacts of Kwench. I mean, suffice it to say, we've trialed Kwench in Cairns. Quite important to trial it in an area so you can get right behind it. The teams are delivering it consistently and you can absorb some regional media to support it. We've given an indication of the capital spend for financial year '27, so $35 million, $36 million behind the initiative. We wouldn't do that if we weren't confident in it. It's a good initiative, delivers good outcomes for us. I'm not going to give you the same-store sales number, but it's the addition of a day part. We currently don't compete as effectively and as we'd like. And it's -- Kwench as a category spans both beverages and desserts. So yes, very excited about it. I can't give you the numbers, unfortunately. Maybe in time, we can. But clearly, we're just about to roll it out nationally. And late night, again, pretty early days for late night. We've ran some trial, maybe not the right word, but we've tested it in certain parts of the country. Again, we're happy with its outcomes. Not at a point where we can share that with the market yet. But yes, I mean, these things, of course, they provide momentum to our trading performance in Australia.

If I can add something. Kwench is also important to us in terms of strengthening appeal of KFC to Gen Z consumers, which are core to our business and the same for late night as well.

Got it. And just like your thoughts in terms of the opportunity from late night relative to the introduction of third-party aggregator. I mean if you look at it as a percentage of the areas that you operate in currently, it's like a 17% uplift. How are you thinking about it relative to the introduction of third-party aggregators?

I don't think we think about it in the same way at all, to be honest with you. I think the way we think about Kwench, it's -- if you think about the brand equity metrics that we published, they're very strong. Kwench is another way of capitalizing on the strength of the brand to penetrate new day parts and build revenue that way. The way channels are different. The way we bring the proposition to consumers through the channels that we operate, I think we think very differently about.

Yes. I'd just add to that. Late night trade, as we -- as I indicated earlier, we are very early in the rollout phase. It is very promising, but these are hours that we're not trading in currently across most of our network. In addition to that, we're seeing improvement in our 8 to 10 p.m. window. So we're excited to see what that will look like across the network, but it's way too early to be determining what that would look like or even comparing that to other initiatives that we've rolled out previously.

Your next question comes from Mac Ross from Morgan Stanley.

Look, there's been a question just now on margins. But just following up from that. So through FY '26, you called out labor productivity a number of times as the margins move forward, including when you gave guidance last year and then again at the half. Margins have obviously stepped back in the second half year-on-year. But with wages stepping up again sort of 4.8%, delivery mix unlikely to reverse, do you think margins can improve from here into FY '27?

Mike, Yes. Look, we're not giving margin guidance. I think it's far too early in the year to give margin guidance, but we're always interested in improving our margins. Of course, we are. And the best way of thinking about that is through the revenue line. Leveraging the revenue line is always the best way to leverage your margin structure. So we acknowledge that the costs of labor are rising 4.75%, a little bit more in Europe. We're kind of used to it. It's a bit of a norm. And that's consistent across the QSR category. I think our job is to work out how we mitigate that, but primarily through revenues, revenue growth, which is transaction mix, new initiatives, the way we manage promotions, the way we balance value for consumers with margin structures, all of those things come into the mix. So there are many levers. I'm not going to give guidance on what it is, but there are many levers that we can use to mitigate cost increases. The other thing that we're looking at as well is productivity and productivity has improved. Whether we look at that on a dollar basis or a transaction per labor hour basis, it has improved. And there's more to come on that, particularly the relationship between demand planning that we talked about on previous road shows and the way we deploy labor through the use of technology. So we'll talk more about that as we visit everybody on the roadshow, but there are different mechanisms that we can use to mitigate cost increases.

And to add to what Andrew said, we are doing some work with Yum! on how we can use AI tools to optimize labor and food. These are 2 huge cost buckets for Collins Foods. And if we can optimize labor and have the right people in the right restaurants at the right time and the same for food, that would give us an opportunity to improve our margins. So a lot of work is being done in this area.

Appreciate it. And maybe just one on breakfast, if I may. Just curious, like why does Yum! Global believe Australia and then I guess, more specifically, the Gold Coast is the best market for trial breakfast, considering -- and correct me if I'm wrong, but KFC Breakfast, at least the offering has not really worked at scale elsewhere in other markets. And then maybe just to add on to that, are you able to confirm if you'll have a coffee offering attached to your breakfast offering?

Thanks, Mac. We're not going to talk about product items at this stage. It's going to be a trial. We're not going to be the only franchisee in the KFC network in Australia to trial breakfast. Breakfast has been trialed in some airport stores at Sydney Airport. It's going to be trialed in KFC's network in our network on the Gold Coast, but it's going to be trialed in other areas of the country as well.

Your next question comes from Sam Teeger from Citi.

Look, kudos to Krystal and her team for the stellar job in Australia. The Brand Buzz and index metrics provided on Slide 1, Slide 14 do look very good. Just wondering how do the metrics compare in Germany? And what do you think the reason why innovation and LTOs seem to be hitting the mark in Australia, but they're not having the same success in Germany?

Sam, thanks for the question. We haven't shared any Brand Buzz or similar metrics for Germany as Yum! run the market, as you know, not Collins, and we just don't have them to hand. It's a good shout out, and we'll look to see if we can maybe provide some color in future roadshows. On the LTO piece, I think it's just worth stepping back around how the markets are set up. In Australia, I'm looking at Krystal to give me a thumbs up, I believe it's 13, 4-week pause roughly, give or take. And in Germany, historically, it's typically been 7- or 8-week -- 6 to 7 to 8 to 9-week pause. So in the German context, it's just longer marketing windows, Sam. And when we've got -- as we've called out, as part of the reason for the underperformance in the first 8 weeks of the year. When we've got a window that just hasn't hit the mark, in the Aussie context, you need to swallow it for 3 to 4 weeks. In the German context at the long end, it might be 7, 8 or even 9 weeks. So we're educating with Yum! really around taking the best practice from Australia and across the English channel in the U.K. We've also got 12 or 13 windows per year. To shorten the number of windows. It's higher intensity and looking at Krystal again, it's more difficult for our teams. But ultimately, in the market we're in today with the amount of ramping competition, Sam, we believe that the strong pipeline of LTOs speeding with pride from other markets is where the German market and to be fair, the Dutch market needs to go as well.

Sam, if I can add something. For KFC, Continental Europe is behind Australia and the U.K. in launching new day parts and new product platforms like Kwench. We're now launching Kwench in Australia. We're going to start testing Kwench in Continental Europe.

In 2 countries.

In 2 countries. So that we are behind in Europe. KFC is behind in Europe versus what's happened in Australia and the U.K. There is an opportunity for us with Yum!, our franchisor to accelerate and make sure that new global platforms when they're ready, are introduced in Continental Europe at faster speed.

Great. And just digging into that Germany update in more detail, can you talk to how the performance of delivery has gone versus dining? I imagine some of the drivers don't want to be riding bikes around in this scotching heat.

That is the truth, Sam. So what we've seen, and it's quite consistent across both. I know your question was on Germany, but I'll give some color for the Netherlands as well. There has been a slowdown in the delivery channel in the first half of this year, so the back end of FY '26 as well as the first 8 weeks. Yes, the heat wave, the intensity and the duration has caused a number of days where riders on bicycles just from a duty of care perspective shouldn't be riding and aren't. We are seeing, however, that it's in the German context, the delivery slowdown is probably also related not just to the weather, Sam, but the quality and the Brand Buzz of the LTOs as well. So when that LTO is not working in restaurant, it's not drawing consumers via the app either.

Right. And has the Football World Cup been a positive or negative impact for KFC in Germany and now with Germany out, how will that impact sales?

Well, my hometown of South Africa got knocked out yesterday. So we can share one later in the week. So I think, Sam, given that the time zone difference in all honesty, the time zone difference, I mean, it's now 3:00 in the morning in the Netherlands and the Netherlands are playing, no impact at all on sales, right? No -- it's not relevant. When the matches are at 7 or 8 in the evening, it's good for sales because there's a little bit of delivery bump. But in all honesty, the World Cup, it's not been high intensity or high visibility in Europe, just given the time zone challenges. And I don't expect that with Germany being knocked out a couple of hours ago that it will have a meaningful impact on how we forecast the H1.

Thank you, Sam. Darcy, we're going to have to move on. But I'd like to thank you all for joining this call. Obviously, FY '26 was a record financial result, and we're very delighted about that and very thankful to our teams for their work. We've got very strong strategic initiatives in place for FY '27, and we're going to focus on execution and operational excellence. So thank you for your support, and have a great day.

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