Collins Foods Limited (CKF) Earnings Call Transcript & Summary

Well, good morning, everybody. How are we all. My name is Mark Hawthorne, and welcome to the Collins Foods Limited 2026 Annual General Meeting, which is my first AGM addressing you as Chairman. Having begun my QSR journey on my 15th birthday at McDonald's Cost Harbor, this is a role that I feel very privileged to have. And I accepted this role mostly because of the confidence I have in the strength of the KFC brand and the company's strategy to convert that into sustainable growth and in the team we have to deliver it. I'd first like to acknowledge Robert Kaye, FC, who led this Board as Chair with distinction for over 11 years. And in his time as Chair, the Colon share price increased by more than 4x. I was personally very grateful that Robert agreed to continue as a Nonexecutive Director until his next election because his support and counsel has been truly invaluable. I'd like to thank Robert for his considerable contribution to the company over a long period of time and how -- what he has contributed to my leadership personally. Thank you, Robert. As a reminder, only shareholders, their reported proxies, corporate representatives or alternatives may ask questions, make comments or vote during the meeting, and all other attendees are very welcome to observe. I do note that a quorum is present in accordance with the company's constitution. And as it is now 9:30 a.m., I declare the 2026 Annual General Meeting of Collins Foods Limited open. I'd like to now introduce the members of the Board who are present today. To my immediate right is Xavier Simonet, Managing Director and Chief Executive Officer, looking very dapper today, suit and tie and all. And next to him is Robert Kaye, SC, as I said, our former Chair, an independent Non-Executive Director. And besides Robert is Christine Holman, Chair of the Audit and Risk Committee, who as outlined in the Notice of Meeting, will retire from the Board at the conclusion of today's AGM. Christine, what you've done for Collins is hard to explain what you've done on the strategy for Collins and where you're taking columns on the route of compliance and governance is just extraordinary. And I've learned a lot from Christine and her counsel and friendship has been very important to me, and I hope those last 2 remain forever. So thank you personally and for Colin's Christine. Next to Christine is Meredith Scott, who was appointed as an independent nonexecutive director by the Board on first of June 2026 with a lot of experience particularly in audit in Ernst & Young days. So she brings a lot of capability to the function, which we're very excited about. Meredith is standing for election at this AGM and will assume the role of Chair of the Audit and Risk Committee following conclusion of today's meeting. Next is Kevin Perkins, a Non-Executive Director. We have to go to the archive to see how many AGMs this is for Kevin. I think we worked out, it's about $12 million -- so thanks, Kevin. And online from the United Kingdom is Nigel Clark and our Independent Non-Executive Director. Nicki Anderson, who will retire from the Board at the conclusion of today's meeting is not present at the AGM today due to personal reasons. We're also joined by members of our executive leadership team. To my left is Tracey Wood, who's our Chief Legal and Risk Officer and Company Secretary. Also President is Andrew Leyden, the Group CFO with all his friends down the front. And we have Crystal, the Head of our Australian operations; and Tony, our Chief Development Officer, welcome to all of you. And finally, we're pleased to welcome Ben Woodbridge, the lead audit partner from PwC, is available to answer questions relating to the audit and the auditor's report today. Now before proceeding to the formal business of the meeting, I'll provide a brief overview of the 2026 financial year, and then Xavier will then provide an update on the company's strategy and outlook. Following our presentation, we'll invite questions from shareholders before moving to the formal part of the business. The notice of meeting has been available to shareholders and with your consent, I'll take that notice as read. And I also refer shareholders to the correction of the notice of meeting released to the ASX on the 13th of August 2026 which corrected typographical errors in the explanatory memorandum relating to Resolution 5. And I further confirm that resolution 2 regarding the reelection of Nicki Anderson has been withdrawn. Accordingly, resolution 2 will not be put to the meeting and any proxy votes received in relation to that resolution will not be counted. The Notice of Meeting and the company's website provided shareholders with information on how to participate in the AGM, ask questions and vote online using either a desktop or mobile device. I'll now briefly remind shareholders with the process for submitting questions and voting online. Tech's questions may be submitted through the online meeting platform at any time during the meeting. And to ask you questions like the Q&A icon type your question into the text box and then press the send button. To ask a verbal question, please follow the instructions displayed below the webcast and shareholders attending in person who wish to ask a question when verbal questions are invited should wait for a microphone so their name in question can be clearly heard by all attendees. As indicated earlier, questions will be addressed later in the meeting. Questions may be moderated to avoid repetition and where questions are practically lengthy, they may be summarized in the interest of time. And depending on the nature of the question, I may respond directly or invite a member of management or another director or the auditor to respond. Now while we'll endeavor to address as many questions as possible during the meeting, if time does not permit us to answer every question, we may respond to shareholders separately after this meeting. So I encourage shareholders to submit your questions as early as possible. All items of business will be decided by a poll. I will open the polls now and keep them open throughout the meeting, allowing eligible shareholders and proxy holders to vote at any time. If you're eligible to vote and have logged in the online meeting platform, a voting icon, which looks like a ballot paper will appear on your screen or navigation bar. Selecting this icon will display the resolutions and available voting options. There's no need to press the submit button as your vote will be recorded automatically. You may also change your vote at any time before the polls are closed. Shareholders and proxy holders attending in person may complete their voting cards at any time during the meeting. And Louis Brinlea with Computershare will act as returning officer for the conduct of the poll. The results of the poll will be released to the AXS following the conclusion of this meeting. So I now declare the poll open. If the voting icon is not immediately visible, it should appear shortly. But if you're experiencing any difficulties accessing the voting platform, please refer to the guidance available on the company's website or seek existence from Computershare, Lewis is at the back or at the desk. Xavier will shortly provide an update on the company's performance, strategy and outlook. But before I hand to him, I'd like to make a few opening remarks. FY '26 was an outstanding year for Collins Foods. And I personally like to thank all of management led by Xavier as CEO, everybody in our support centers and the over 22,000 team members in our restaurants and surge relentless efforts have contributed to this result. The company delivered record revenue and record underlying profit in very demanding economic conditions for the quick service restaurant sector. As well as record profit performance, cash generation was yet again to highlight, net debt and our net leverage ratio were reduced. And this was all while we continue to invest in our team, in our restaurant network and in technology. Xavier will comment further on our trading performance a little later. On the back of such a strong year, the board declared a final fully franked dividend of $0.15 per share, taking the total FY '26 dividend to $0.28 per share, which is up from $0.26 for the year before. This was a record equaling dividend for shareholders. '26 was also a year in which we strengthened the strategic foundations of the business. We firstly restructured and extended our corporate franchise agreement in the Netherlands. We signed new development agreements in Germany and executed the acquisition of 8 KFC restaurants in Munich, which gives us a strong base from which to develop restaurants in the 3 wealthier states of Germany. We also exited Taco Bell with the transaction being completed on 17th of August 2026. And as part of that exit, the company anticipates recording a one-off gain relating to the lease liabilities and the transfer of them, again expected to be between $20 million and $22 million. Specifically, these decisions mean we can concentrate fully on the KFC brand in Australia and Europe. So our growth aspirations have never been stronger. In Australia, the KFC brand health remains a real strength. Because KFC continues to lead the category on the measures customers care about, which is the brand index and brand buzz. Our opportunity is to translate that brand strength more fully into higher revenues and profitability, closing the average unit gap with our largest competitors. Germany is our second strategic growth pillar and a substantial opportunity. We now operate 25 restaurants in Germany and are the largest KFC franchisee in the market by revenue. KFC has close to 220 restaurants in Germany, serving more than 80 million people annually compared to approximately 1,400 restaurants for McDonald's, and so we'll be targeting significant growth in our portfolio by FY '30. Location, revenue, profit potential will remain key determinants of where we will choose to locate those restaurants. And we will remain disciplined in terms of where we allocate that capital. In the Netherlands, profitability remains our priority ahead of network growth and will only consider network growth were conditions warranted. In addition to my succession as Chair from Robert Kaye, SC, who has made an outstanding contribution to Collins Foods. We've previously communicated that this meeting marks the requirement of 2 directors, retirement, sorry. Christine Holman, Chair of the Audit and Risk Committee; and Nicki Anderson, Chair of the People, Culture and Nominations Committee, who steps down at the conclusion of this meeting. I'd like to thank Christine for her time as a Board member of Collins, but specifically for how she lifted the leadership and governance of the Audit and Risk Committee. As announced on 18th of August, Nicki Anderson adviser Board of her decision to retire for personal reasons and withdrew nomination for reelection. And on behalf of the Board, I'd like to thank Nicki also for her valuable contribution, including our leadership of the People, Culture and Nomination Committee or PCNS for short, and we wish her also every success for the future. Robert Kaye, who we missed being Chair, will chair the PC and C until such time as the new director is appointed, and Nigel Clark from the U.K. will join that committee. And as I said before, I'm pleased to welcome Meredith Scott, who joined the Board on first of June and stands for reelection today. Meredith brings more than 30 years of experience in financial oversight governance and risk and subject to your approval, will succeed Christine as Chair of the Audit and Risk Committee. Getting paying conditions right for our people is an obligation we take seriously, and we are meeting it head on. Our voluntary wage compliance review continued during the year, and we commence remediation payments to affected team members in November 2025. Now at the end of FY '26, the provision for estimated wage underpayment stood at $8.3 million, and we remain actively and constructively engaged with the in respect of our obligations. -- also entered into a settlement agreement on a no admissions basis regarding the class action proceedings considering the 10-minute pause breaks. Collins Food's share of that settlement is approximately $9 million, but the settlement does remain subject to court approval. On safety, our injury frequency rate in Australia improved 27% on FY '25, and we are partway through a multimillion dollar program to replace older pressure cookers within our fleet. So safety continues to be a critical organization priority, reflecting the importance of protecting our team, our customers and our communities. We're also seeking your approval today for amendments to the long-term incentive plan. Following an independent review and consultation with shareholders, it's proposed that a post-tax return on capital employed measure be introduced replacing relative total shareholder return. This will carry equal weight with earnings per share growth and it's also proposed that there will be no vesting unless returns are equal to or greater than our cost of capital by at least 100 basis points. Because as we enter a more capital-intensive phase of growth, our focus will be ensuring our capital is deployed in a way that supports long-term growth. FY '26 also marked an important step in our sustainability reporting with the company publishing its first climate report under new mandatory reporting standards, including our transitional plan. Our 2026 sustainability report has been impressively led by I said that right, Emma. Thank you. It was our Group Head of Sustainability and sets out our broader progress in the pathway to achieving our 2030 goals. And finally, thank you to all of you, our shareholders, for your continued support, my fellow Board members and to our more than 22,000 team members across Australia and Europe for their effort and commitment to our business and who are instrumental in delivering those record results. Collins Food enters FY '27 with a clear strategy, exciting strategic growth plans in both Australia and Germany and Europe and a Board and management team intent on executing that plan. So with that, I'd like to welcome Xavier Simonet, our Managing Director and Chief Executive Officer, to address you.

Thank you very much, Mark. Good morning, everyone. FY '26 was a year of disciplined execution. We grew the business and lifted profitability in every market and refocused the company on the KFC brand to set up our next stage of growth. Our strategic priorities are clear, grow Australia faster, build Germany profitably, run every restaurant better while also continuing our focus to lift governance and safety standards even further across our business. We expect -- with respect to FY '26 results, group revenue from continuing operations was a record $1.6 billion, up 8.6%. Underlying EBITDA was $244 million, up 6.3% and underlying NPAT was a record $61.4 million, up 13%, the highest in the company's history with underlying earnings per share of $0.52. Statutory NPAT was $47 million. Statutory NPAT of $47 million included $7.3 million relating to the class action settlement and associated costs, $6.5 million of net restaurant impairments and $1.5 million wage provision top-up as well as $0.4 million of acquisition costs. Cash generation was strong with net operating cash flow of $150 million and cash conversion of circa 94%. We reduced net debt to $120 million and our net leverage ratio to 0.77, while continuing to invest in our team, our restaurant network and in technology. Return on shareholders' equity grew 220 basis points to 14.5%. Our exceptionally strong balance sheet provides us with the capacity and flexibility to invest in profitable growth. Moving on to Australia. Australia remains our largest and most profitable market. And in FY '26, we delivered record revenue of $1.2 billion, up 7.6% and with same-store sales growth of 2.7% with momentum building as the year progressed. We opened 8 new restaurants and completed 33 remodels, including 3 supercharged formats. Digital grew strongly to 43% of sales, up from 34%, supported by greater kiosk penetration and a reset of our delivery fee structure. KFC continued to lead its quick service peers on brand index, brand buzz, satisfaction and recommendation. Our new brand campaign, Go Full Chicken, together with KFC's new global visual identity, gives the brand a fresh look and voice that is appealing to today's consumers. We are now investing to unlock more value from every restaurant. We have embarked upon the natural rollout of Quench by KFC, a new and exciting global beverages and dessert platform. We are extending trading hours and we'll commence breakfast trials in around 16 of our restaurants on the Gold Coast in September. Late-night and breakfast together already account for more than 1/3 of Australian quick service spending and among the category's fastest-growing dayparts. Moving on to Europe. Europe in FY '26, delivered record revenue of $350 million, up 12.5% with underlying EBITDA up 14% to $45 million and underlying EBIT up 95% to $14.9 million. In Germany, same-store sales grew 3.7%. And in the Netherlands, restaurant level EBIT margins improved from 6.7% to 8.5%. In the Netherlands, which shows network profitability as our key priority ahead of network growth. We extended and simplified our corporate franchise agreement now running to the end of 2029. In Germany, we completed the acquisition of 8 restaurants in and around Munich on the first of June, taking our network to 25 and making Collins Foods the largest KFC franchisee in the market by revenue. We also lifted our FY '30 development target to between 45 and 90 additional restaurants. However, we will ensure we remain disciplined in how we allocate capital and that each development meets our investment hurdles. We're also investing in the market's development, property and operational talent to ensure we deliver great restaurants to drive profitability as we grow. We also announced our exit from Taco Bell. I'm pleased to confirm that in August, 20 restaurants were successfully transferred to the joint venture established between Taco Bell International and Restaurant Brands Australia. The remaining 7 restaurants were closed during FY '26 with 4 leases successfully assigned to third parties and the other 3 well progressed. The material benefits of the transition will be reflected in the interim FY '27 financial statements. Now moving on to the trading update. The company sales in the first 17 weeks of FY '27 were up 6.6% on the prior corresponding period on a constant currency basis. KFC total sales were up 6.4% in Australia, down 2.5% in Netherlands and up 44% in Germany. KFC same-store sales were up 3.4% in Australia, up 3.4% in Netherlands and down 5.3% in Germany. For the last 4 weeks, overall performance continued strongly in Australia and improved materially in Europe. KFC total sales were up 5% in Australia, plus 4.9% in the Netherlands and plus 58% in Germany. KFC same-store sales were up 3.1% in Australia, plus 3.1% in the Netherlands and basically flat in Germany. KFC Australia continues to perform strongly with strong same-store sales despite lapping an extremely strong Christmas activity in the prior year. Already, during this year's recent Christmas in July campaign, the team, our team delivered successfully several weeks of all-time record sales. Moving forward, there's a very exciting growth plan in place, including impactful innovations and promotional windows, initiatives to drive volume in the core range, extended late night hours with the rollout already well progressed and the natural rollout of Quench by KFC, a global beverage platform. We expect these initiatives will significantly strengthen organic performance. In addition, breakfast trials start in September in selected Goldcar stores. We have so much to look forward to in KFC Australia. Our teams are very excited, and we are ready to execute well and with discipline. Europe and specifically Germany remains an exciting and material strategic opportunity for shareholder value creation, as highlighted by Mark. However, as reported when we released our full year results and trading update, Europe started the new fiscal year softer than expected, reflecting general consumer confidence across the continent, a prolonged heatwave and a demanding prior year lap arising from the Squid Game game promotion. These issues impacted the whole KFC system, not just the Collins portfolio. Pleasingly, performance has strengthened significantly in both Germany and the Netherlands compared to the first 8 weeks with same-store and total sales, both showing material improvement in trends. These improvements reflect more impactful promotional windows in both markets. Additionally, in the Netherlands, a range of products was launched just a couple of weeks ago, in several Collins restaurants and early results have been extremely positive. Germany is a strategic market for both Yum! and Collins. We believe our partnership can drive profitable growth and value creation. We acknowledge there is still more work to be done to deliver stronger sustainable performance after Yum! brands stepped back into its market leadership role bringing its global experience, scale and successful product platforms. We will continue to collaborate with Yum! to build sales momentum and confidence in the German market. With respect to restaurant development, we will remain super disciplined with the investments we make, ensuring restaurants deliver the appropriate returns for shareholders. When we are confident sustainable same-store sales growth has resumed, we expect more restaurants will meet return hurdles and growth in new store numbers will accelerate. Our focus on operational excellence in all markets to grow sales, profitability and customer engagement remains undiminished, and we will be disciplined on costs and capital allocation. Our overall objective is to deliver outstanding experiences for our people and customers and strong shareholder returns. Thank you for your support, and I'll now hand the meeting back to the Chair. Thank you, Mark.

Thank you, Xavier. Okay. Okay. I'd like to now provide shareholders with an opportunity to ask general questions. And as a reminder, questions relating to the formal business of the meeting will be addressed when we consider each item for business later in the meeting. And as shown on the screen, shareholders joining online may ask a question by selecting the Q&A icon and entering their question in the text box. When you have finished, please click send. If you wish to ask your question verbally, please follow the instructions provided below the broadcast and for shareholders attending in person, please wait for a microphone before speaking so that everyone can clearly hear your name and question. I'll now invite any general questions from shareholders in the room. Firstly, provided they do not relate to the formal business of today's meeting. Sure. Just wait for the mic.

I'm Richard Logan, Shale. Just wondering what contingency plans you have in place for birth with chicken production possibly affected?

Yes. No, thanks, Richard. And yes, good question and 1 we're very aware of. Clearly, Yum!, as our franchise also clearly across it, we are involved in all the risk meetings involved. The good news about Australia because chickens are protected industry in Australia, you are not allowed importation. So the biosecurity measures are the best in the world. So there's lots of work going around in relation to, obviously, the farms themselves. And also, should there be an issue in a local area that they can activate supply movement around the whole country. So we're very confident that risk, although obviously, the increasing number of Avian blue -- Avian flu is a factor out there. The impact on our supply chain, we believe, is extremely low. Any other questions from inside the room. We'll now move to questions online, Tracey?

We have 1 question online under general questions. This is from Stephen Maine. It is very unusual for a public company to lose 2 of its 3 female directors at the same AGM, particularly when neither is particularly long serving. -- seeing as Nicki Anderson is not at the meeting, good outgoing Audit Committee Chair, Christine Holman, please comment on why she believes this has occurred. Could the Chair then comment on how many new directors were likely to be electing at next year's AGM and confirm that at least one of them will be female.

Okay. I'll first go and Christine is welcome to provide a view on that. Yes, we have lost both our female chairs of the subcommittees as you've seen, firstly, hello, Stephen, I should have acknowledged you first. My first question for you was Chair. Maybe not the last. I'm probably thinking over time. But your questions are always valued. Thank you. Yes. Well, as you've seen, we're very proactive with replacing Christine with Meredith, who's a very competent female based on you see on her history. Nicki has -- not seeking reelection for personal reasons. We are well advanced in recruitment for her replacement, which we intend to be a female as well. So we're quite aware of our responsibility for diversity, which we're proactively working on. The other directors, I believe Robert has already shared that next AGM that he will not be restanding and at this stage, that's about it's, Stephen. But again, I welcome Christine, come and comment on her departure. Yes. I think you've summed it up really well.

And just 1 clarification. I think 7 years is considered long standing, is that.

Yes, 7 years I mean Christine was always very open to us that she would only serve 2 terms. So I actually said that when I met there 5 years ago. So her departure was not a surprise.

There's no further questions on that item.

Okay. Okay. So before we move to the formal business of the meeting, I remind shareholders that voting remains open and that the poll will close at the end of question time. If you have not yet cast your votes, please do so now. As advised earlier, the Notice of Meeting dated 20th of July 2026, together with the resolutions contained in the notice is taken as read. The proxy results should now be displayed on the screen. And as you can see from these proxy results, all resolutions currently before the meeting have received sufficient proxy support to be passed subject to the outcome of the pole. The 2026 Annual report comprises the Financial Report, Directors' Report, Sustainability and Climate Report and the independent auditor's report. The Financial Report has been approved by the directors and audited by Collins Foods Limited's independent auditor, PwC. And in accordance with Section 317 of the Corporations Act 2001 and I now lay before the meeting the Financial Report, Directors' Report, Sustainability Climate report and Independent Audit Report for the financial year ended May 26. And with those reports, I'll now invite questions for PwC or myself in relation to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted in the preparation of the financial statements all the independence of PwC in relation to the audit. Are there any questions of me or the auditor in the room. Have we got some questions online, Tracey. We do.

We have 1 question online. It's from Stephen Maine. PwC has been the external auditor for Collins Foods since 2005, and how many competitive tenders for the audit have we run during this 21-year run? When was the last competitive tender? And when is the next tender likely to occur? If there has been no tender, just say that rather than talking about 5-year partner rotations, which we all know is the law.

Thanks, Stephen. I will mention the 5-year partner rotation, but that's not the only part is that, yes, I've been on the Board for 5 years. Whilst I've been on the Board, we ran a robust process in 2025 where we interviewed through the Board multiple possible alternatives to the audit firm, PwC was rehired, but obviously, there was a partner change, Ben. This is his first year of the audit, who replaced. So yes, we have the rotation as required, but there was a robust tender in 2025.

There are no further questions.