Domino's Pizza Enterprises Limited (DMP) Earnings Call Transcript & Summary

Good morning. The time is now at 11:00. So we're going to start our webcast for the results. My name is Nathan Scholz, the Head of Investor and Government Relations for Domino's Pizza Enterprises, and it's my pleasure to welcome you to the full year results for the period ending 27th of June 2021. We are joined this morning by representatives of our global leadership team, including our Group CEO and Managing Director, Don Meij; our Group CFO, Richard Coney; Andre Ten Wolde, our DPE Europe CEO; and Andrew Bradley, our France CEO. I thank them both for joining us at 3:00 a.m. local time. Also joined by Josh Kilimnik, our Japan CEO; and Nick Knight, Australia, New Zealand CEO. With that, I will hand you over to our Group CEO and Managing Director, Mr. Don Meij.

Thank you, Nathan, and welcome, everybody, who's joined the call. If we could start with Slide 3 in our investor presentation today. I really want to start by thanking our franchisees, our team members, our executives all over the world and our Board for -- despite the challenging conditions, particularly in the Northern Hemisphere that we've really demonstrated the best of Domino's values, and that's guided us throughout. So I'm very proud of the actions of our team around the world. If you come with me now on to Slide 4. It gives you a bit of an idea of what we're going to talk about today. These results are the dividends that are being paid and that have been from the performance and the investment from the last 3 years. And then what we've done this year and what is coming this year are the sort of investments we're going to talk about today for future results to come. If you come with me now on to Slide 5. You can see there that the power engine of DPE has consistently been digital delivery. It was pre the pandemic and it is today, with that growth of 21.5%. It's actually 26.1% in constant currency, which is even more relevant for performance. We look at our EBITDA was up 27.2% and in constant currency, up 33%. Our EPS, up 28.7%. We've increased our dividend payout policy as of today or it actually was our policy to be between 70% and 80%. We're now going to run at a run rate of 80% going forward. So that means that the full year dividend is up 45.4%, and you can see our free cash flow was up 40%, 40.2% for the year. On Slide 6, I really want to highlight that the really strong performances out of the big engines today in Japan, Germany and France, which we opened record stores in all of those locations for a big year. So despite all of the lockdowns, the curfews, the teams did an extraordinary job around the world, getting stores open, including some better cadence in Australia, New Zealand of 30 stores. And so living with COVID, what we often feel and see is that during lockdowns, we lose carryout and then delivery accelerates. But as we've come out of lockdown, deliveries remained higher than historical averages and carryout returns as we've seen in summer in Europe this year. If you come with me now on to Slide 7. I really think that at DPE being one brand with one focus is part of our successful formula. When you think about in France, our investments in the franchisee partnership with incentives a couple of years ago, and we're seeing the benefits there. The strong results in Germany coming from those strategic acquisitions, Hallo and Joey's, now one unified brand, the first time a pizza brand has been of this size and scale that we can communicate the benefits of the Domino's brand. And in Benelux, we continue to fortress and open a number of -- increased number of stores and our delivery expertise in those countries along with Japan are the leaders for the world. Japan when Josh and bringing in Toddy Reilly and Ben Oborne just a few years ago now taking a relook at the Japanese business, and you've just seen incredible acceleration as we apply the DPE mentality of high-volume mentality. And of course, Australia and New Zealand, the constant focus from Nick and the team on renewal base of our franchisees, learning from the past and from the greater business and you're seeing the acceleration of our multiunit ownership. If you come on to Slide 8. With these strong earnings, it's also been a strong year of investment. We've really leaned in heavy on ESG this year, and you're going to see that. We've put some more information and posted more disclosure than ever before, and we're very committed to making more people sharing in the success of Domino's, more stakeholders in this coming decade. From a marketing point of view, this also should be noted that many of our markets also added extra funds to the marketing funds to give a boost to -- and we could buy TV at lower rates. Digital and strategic insights have been a significant investment. Again, we're going to see our third generation of [indiscernible] this year, partnering with DPZ, getting -- more leverage as a business is a constant focus from the Board and leadership. And our development teams. We've never had more development team members. That's been one of the most significant investments. We're about to have our 10th country, so 10 development teams. But in places like Germany and France, that's -- it's really expanded to multi teams, and that's why you're seeing this acceleration of store growth. If you come with me now on to Slide 9. You can see there that we've had another good start to the year, almost solely led by Japan. We're now in a normal cadence, again, where in Europe, we've got most of our team on holidays in July and August. But I can assure you we're going to have a record first half and a record full year of still growth, and we'll talk a bit about that throughout this report. Customers asked us and shareholders -- sorry, shareholders have asked us, are we going to retain all of these customers that we were getting these new customers during the early phases of COVID? And where you can see our cumulative same-store sales growth of 13.7% for these first 7 weeks, I think it -- we can with confidence say that we are retaining and gaining with these customers, especially in delivery. If we come on to Slide 10. The network up in constant currency of 18.8%. Currencies today have been a headwind, but we all know that they can be a tailwind in the future as well. Coming on to Slide 11. I'm really happy to report that 94% of the new stores that were opened with franchisees this year, were opened from within inside the system. Internal candidates, whether they be store managers getting their first store or an existing franchisee expanding their own multiunit ownership. So that's a really important measure for us. That -- those that grow up in the business are often our A performers or our highest performers. I can also say that this cadence, this momentum you're seeing with our store growth that we will add more than 500 stores to the system this year. That includes the 157 stores in Taiwan, but we will also open a record organic growth. And that will be across the business. It will be strong numbers mainly not a record in ANZ, but it will be a strong result in ANZ and the rest of the business coming in and around records. Coming on to Slide 12. You really get a sense at just all of this investment in Mainland Europe and in Japan is now paying in results in the sales and the profit growth. And you can really see the size of those businesses coming on. On Slide 13, we're really happy for the first time to report on our franchisee profitability. We will report on this on a 6 monthly basis. It's been a question that's being asked, and we're happy to be now delivering on that. It is worth noting that there is some COVID benefits in these results, but we are very focused as a leadership team. It's part of our ESG philosophy that a really healthy, strong franchisee base is the driver, and that's why you're seeing some new stores open and you're seeing some further investments that we're intending to make in Australia and New Zealand this coming year. So these are strong results. We're very focused on the long term, and we will report on these on a 6 monthly basis. Now at this point in time, I'd like to hand over to our CFO, Richard Coney. Thank you, Richard.

Thanks, Don. Just moving to Slide 15. Revenue growth of 15.4% has flowed through to our profits, resulting in margin expansion and EBIT growth of 27.2%. Our underlying NPAT is up $42.6 million, which is 29.2%. Noting on a statutory basis, this is actually 32.9%. As Don highlighted, our full year dividend is up 45.4%, 70% franked, with our payout ratio increasing from 70% to 80%. This is from H2 '21 onwards, and we expect for this to continue going forward. Moving to Slide 16. As you can see, we've had EBIT growth of 33% in constant currency, noting the headwind on an FX basis of $13.3 million. Very strong performances in Europe and Japan with constant currency growth rates of 48% and 53%. We've had global cost increases as noting our increased investment in ESG and customer. And so that's specifically around our BI platforms and data science solutions. This sales leverage has resulted in significant margin expansion, as we can see, especially in Japan and Europe, with our total margins now lifting from 12.1% to 13.3%. Moving to Slide 17. This slide, as always, provides further detail of our nonrecurring costs. Noting in Europe this year, we had a fairly material write-down of the carrying value of our face masks, which we managed to secure at the onset of COVID-19. So that was -- impacted us just a one-off cost. And in ANZ, you can see we've still got continued legal defense costs for the Australian fast food class action. Moving to Slide 18. As Don highlighted, free cash flow, up 40.2%, to $216.2 million. With strong cash conversion of 105.7%, predominantly due to our positive working capital movement of $42 million, rolling last year's $63 million. It's also probably also worth noting that we do expect part of this to unwind due to the timing of our financial close this year with the additional week, the 53-week reporting period for 2022. Just moving to Slide 19. This slide gives us a sort of summary or breakup of our net investing on CapEx. And as you can see, the CapEx, which recycles makes up over 35% of our net CapEx. And within this, we have invested $99.5 million to fund the openings of both corporate and franchise stores, predominantly franchisees. Offsetting this, though, is the $69 million in inflows from our franchisees and sale down of corporate stores. So some big investments, and we expect this to actually continue and increase in the coming years. Moving to Slide 20. Not a lot to say on our balance sheet. Most of the material movements are a result of FX translation and the reevaluation of our put/call option due to Germany's significant outperformance this year. Moving to Slide 21. Key financial ratios. As you can see, all of our ratios are up significantly. Return on equity gone from 44.4% to 49%. Return on capital employed now up to 18.7%. You can see our net debt has reduced by significantly $118.7 million. And as a result, our net leverage now has dropped to 0.9. So a very good outcome sets us up for the future. If we just move to Slide 22. Thanks, Nathan. I'm pleased to announce we have now concluded negotiations for our new 5-year $900 million committed loan facility, which -- with financial close and drawdown, which we now expect to actually occur tomorrow. The new facility not only increases our funding capacity by $150 million, but also lowers our funding margins, improves our diversification. We now have 8 banks across our geographic footprint with 3 banks, European banks, 3 Japanese banks and 2 Australian banks. This will provide us with additional -- this will also provide us with additional capacity to support our franchisees' funding requirements in all of our markets with having local banks that get to understand our business. With that, I'll pass you back to Don Meij.

Thank you, Richard, and thanks for all the great work you did for that facility and the team. So what are we going to do with these funds? With the strength of the balance sheet, what we're doing is that we are paying this increased dividend. It's 90% payout approximately. We do expect that to be around 70% franked in the coming years. We'll -- we've got really strong cash flows as well and free cash. So that's also aiding in this. As Richard said, we're acquiring the market of Taiwan, buying out the remainder of our partnership in Germany. We will enhance our franchisees where required. We may, in some cases, buy back or we may support our franchisees to expand and keeping our powder dry there. And we're continually looking at further acquisitions and continue to be quite active in that space. It's always opportunistic, so we can never guarantee it, but we are being quite active, and we hope that we can achieve some more markets to add to our business. If you come with me on to Slide 24. Really happy with the EPS for this year. And obviously, that CAGR now 21.9%. So the constant investment in this business is getting some good results. So passing you now on to Andre Ten Wolde to talk about Europe.

Thank you, Don, and welcome, everybody. Good morning. Very happy to report on Europe. Strong results in all of the markets despite their very different challenges that -- in all markets related to COVID and different variations of measurements taken by the government. Nathan, if you can take it to the next slide. Yes. So really strong increase in sales, obviously against a year where there was 4 heavy COVID months. But over 2 years, it's a CAGR of almost 14% sales growth. And on -- most of that is, again, powered by our online sales, which have grown, again, really steady, both our own online sales as the aggregators, they're both growing at sort of at the same relative rates. So the share of aggregators is not growing, but in absolute numbers, obviously, it is. I'll talk about network growth -- store growth later. And on the bottom right corner, you can see that it's both the existing stores as the new stores that are adding to the network sales. You want to come with me to the next slide, Slide 27, on partner store openings. Again, despite all the differences in the markets on maturity, but also on COVID-related measurements, we managed to open a lot of stores in all markets. The Benelux as a combined market opened 45 stores. Germany opened 40 stores and has a strong pipeline for next year. What has been working very well is dividing up the market in 4 smaller markets, let's say, 4 Benelux-s in Germany now so that we can focus more on store openings all over the country. And in Denmark, we opened 6 stores and notably, 2 of those stores were greenfield stores, so areas where there's never been a Domino's store before, and we saw increased performance of those 2 stores. And with that, I'd like to hand over to Andrew Bradley to talk about -- a little bit more about France and about ESG.

Thanks, Andre. Good morning, everybody. Yes, for France, very pleased in what was a very challenging year. We had a series of lockdowns and particularly curfews, which was very disruptive to the business during the -- basically the whole year. But I think we managed to get through very well with the franchisees. And I think this is really a sign of the confidence that there is with the franchisees that we opened 38 stores, which is by quite a long way the record for France. In these conditions, and it's a sign of confidence, I think what is pleasing is it comes from existing franchisees, whether they be traditional franchisees with Domino's, also quite a few of the Sprint stores, some of you remember, we bought, some years ago, the Sprint network out in the west of France, which has brought in some really good young franchisees, which have been developing with us and moving around France to open in other areas. And also our emerging leaders process, which helps young operational people coming through the system to become franchisees, and it was a record year for that program, which has now been going for 4 years. And we've moved a lot of people through that some of them already opened stores and the others will be opening stores in the future. So the pipeline looks good for the future. So overall, a very good result for the year and a new record in terms of openings. If you just move on just on to the next slide, just as a summary really for Europe. As Andre was saying earlier. The situation was not identical across each of the European countries. We all had our challenges. But I think we all got through them because we were built on the same strong structures, as Don mentioned earlier on, in this development of the time with the franchise network. And I think we've come through stronger with the franchise networks as they've seen what we've done. And this network, combined with high-volume mentality and the 3TEN delivery program has meant that we've been able to drive profitability with the franchisees during this period, taking opportunities that came during the period. And it's giving people the appetite to grow. And as we grow, obviously, that adds more money to the advertising fund, which means more growth than we are into a positive circle. So delivery has stayed strong after most of the lockdowns have finished. That's very encouraging. And we -- the carryout of the Click & Collect business is coming back nicely. And we think after the European holidays, we'll see a good comeback with that and have a program designed for that. And it's giving people the appetite to grow -- And as we grow, obviously, that adds more money to the advertising fund, which means more growth than we are into a positive circle. So delivery has stayed strong after most of the lockdowns have finished. That's very encouraging. And we -- the carry out of the Click & Collect business is coming back nicely. And we think after the European holidays, we'll see a good comeback with that and have a program designed for that. So DPE, we have continued to invest in network growth to grow with our franchisees and help them to open stores. But we've also invested in the infrastructure and new commissary in Netherlands, in order to go to support this growth, both for the Benelux and rest of Europe. So I think these are important investments for the future. So the summary for Europe, a very satisfying year and above all a good place to grow from. So with that, I'll hand over to Josh to talk about Japan. There you go Josh.

I'm sorry, Josh. We seem to have an audio issue on our end.

Sorry about that. Okay. So by all accounts, great results in Japan, but a year that we've invested in our future growth and is really as per our strategy and our long-term aspirations in Japan. We've invested in quite a few things, and I'm going to share with you in the presentation to come. So if we can go to the next page where we go through the results, some of the high-level results. So if you look at this page, some of the things that stand out to me are really the consistent growth trend lines that we have, the key standards of 30.9% in total network sales, combination of not only the stores we built in FY '20, but also the stores we built last year of 126. Also, if we look at the online sales increase, which is an incredible percentage uplift. But what's more exciting for me is really the sheer quantum of digital orders, which in Japan's case is really balanced between carryout and delivery sales. So if you can go with me now to the next page. Okay, we've seen significant internal franchisee reinvestment back into the brand through this year, which really is largely driven by confidence in the strategy, our upweighted communications of the strategy with our franchisees, which has increased their confidence. But really, of course, what is the major factor is strong unit economics and is always the major deciding factor. That, of course, along with funding options now with quite a few suitors that are helping us through that is really a good recipe for success. If you recall, a couple of years ago, we're about 1.5 to 1.9 stores per franchise. And as a result of professionalizing the franchise side of the business, we're up around about 3%. And this represents now 50% of our stores, which are now franchise, which we've gone across that magic 50% mark. What you will see is -- well, what you can see here is 38.6% of the system is now 3 to 5 stores and 12% or almost 12% is 6-plus. Of course, there is 1/3 of our franchisees that are still single units, but the majority of them are pretty positive about their expansion in the future. If I look at Taiwan. It's great to start the journey on -- with you on Taiwan as we welcome Taiwan soon into the DPE family. So more on this in the slides to come. Next slide, please. So we've experienced some amazing results. And as I mentioned last time, it wasn't -- it isn't like we weren't overly surprised, but we are pleased. Over the last 3 years, we've been executing against the strategy, which I've taken all of you on the journey on. And we now are seeing the critical mass fruits of this work. Operations has never been better, and we've got the metrics to demonstrate this. Service has improved by 2 minutes across the group over the year, and that's even considering the increased volume. We also saw consistent cost control, which goes for our strong store managers, our training programs. And of course, this all dropped through to the record P&Ls in the store, which is basically the main scorecard I look at. If there was one thing to take away from this slide is that we've rolled some of the largest conceivable sales from the first half of last year with 11.3%, which is really a testament to the strength of the strategy, the layers, the product layers and the provisional layers that we've been building upon and generally, the brand strength of Domino's in Japan. Overall, when we look at margin, sales is the major reason. But it's also worth iterating that we've been investing alongside this back into the business as we set ourselves up for the future. We've upweighted many managers in their stores, and we need to carry these managers because this ensures we have a solid pipeline for our future stores, and we can open successfully. We've also been investing back into things like TV into prefectures that can carry many, many new stores. This creates strong brand presence and also helps our stores open strong. An example of this is Hokkaido. We've got about 11 stores there. And we can see many, many stores over the next 12 to 24 months. One other reason for margin expansion is that we're constantly challenging the cost base. And an example of that is, as we grow in more and more of prefectures and we get critical mass in those, it's enabled us to reduce distribution costs by setting up regional supply hubs or distribution centers. Thanks to our supply partnerships in those regions who have graciously come on the journey with us in Japan. Finally, one thing I just wanted to get out of the way early in contrary to popular belief is that Olympics produced high sales. In general, across -- we don't tend to see that on big events like this. We didn't see this through Rugby World Cup as well. And we also had the numbers from the many Olympics that have run in the DPE or the overall Domino's network and generally don't have that impact on the business. So at this point, I'd like to hand you over to our CEO in ANZ, Mr. Nick Knight.

Thank you, Josh. Next slide, please, Nathan. I'm very pleased with our growth this year and being able to grow our network sales by 6.5%. And inside of that result, a really strong result in online sales of 10.1%. Next slide, please, Nathan. A really good step up with -- in new stores with 3 new stores for the year. And as you can see, that's helping drive an increase in average number of stores per franchisee and particularly in those larger group cohorts, which is really great. Next slide, please, Nathan. Underpinning that and helping drive that is our program to lift the capacity of our franchisees, and that's really starting to deliver some very strong results. We have now -- I feel really confident about our new generation of young multiunit franchisees who have shown that they both have the appetite but most importantly, the capacity for growth. Also, our program of Operations 360 continues to be a focus. And I want to call out there that we really do feel like most of the heavy lifting is done there, but that continues to be a work in progress. Over the last 3 years, 37 franchisees with the lowest operational performance scores inside of that program, representing 54 stores have left. And it's really pleasing to see that tail end of the cohort showing really improved metrics, both customer satisfaction and that, of course, leading to better profits for those franchisees as well. On JobKeeper, we made it clear from the start of the pandemic that we wouldn't rely on government assistance if we didn't have to. And whilst that program helped to keep some employees connected with the business, which was really important in that early phase, we were privileged to be able to continue to trade. And subsequently, we were able to hand back all of the JobKeeper paid to us over the last 2 years. Our franchisees and -- like in the other markets, I really want to call out their level of engagement, really have been able to navigate this rapidly changing local environment. And in Australia, particularly, we've seen those changes really affect trade and our operation of our stores. And inside of that, delivery growth continues to be really quite strong. And as we've come out of these less restrictive lockdowns, we've seen definitely the rebuilding of the carryout segment, which is predominantly what gets affected inside of the lockdowns. Next slide. please, I mean Nathan. I'll hand over now to Andrew to talk to you about our progress on ESG.

Thank you, Nick. Yes, we've said in the past that we want to be more than just driving a great profit and to do the right things because they're the right things to do. And another thing that we believe within the group is that what gets measured gets done. And these have both been really the basis of what we've been doing this last year in ESG. So if we could move -- come with me to the next slide. The arrival of Marika Stegmeijer as Chief ESG Officer for the group has really allowed us to move forward on a lot of fronts. And we've made a lot of progress in this area in the first year. I'm not going to run through all the points on the slide today. But you can just see a couple of examples of how we are starting to measure some of what we see as the key KPIs for ESG in our business. And this is an example of in terms of store carbon footprint and also in terms of females in the executive positions. You find a lot more information if you haven't already been on the site on the investors site. The Domino's is a good part of it, where you will see there was already quite a lot of information about what we are doing, and this will be updated as we move forward through the year. I think it's important. I want to just use a couple of examples of things we've been doing in France just to show that this is doing the right thing, but it's also good for our business and can drive profits within the group as well while doing good. We've done a couple of logistics projects within France, one of which was to reduce the amount of packaging we set out into the network. And with the changes we've made, we've been able to take out 350 tonnes a year of outer packaging, which previously was being sent out to the network. So that is all being recycled and reduced in a centralized way. We're also just launching a new initiative in the way we distribute our dongles, which will give us quite significant reduction in need for logistics, in trucks. And so this will obviously be good in terms of reducing as well the amount of trucks that we have on the road at any time of delivery. So these are things which, as I say, are the right thing to do, but also are good for business. And that is the driving force of what we're doing as far as the ESG is concerned. And there are just a couple of examples in France. The other countries have their own examples of what they have been doing there. On the governance side, I think we're going to also take the opportunity to recognize the contribution of Ross Adler to the group as a Board member and previous Chairman of the Board over almost 20 years. He will be retiring at the AGM and everybody would like to thank Ross for his contribution over that period as the group has grown significantly during that period. And we also take the opportunity to welcome Tony Peake who's joined us. His background is chartered accountant, means he brings a lot of experience in a lot of areas, which will be used and very helpful for the group as we continue to grow in the years to come. So welcome him aboard. If we just go to the next slide now, just look forward as to where we're going. I think it's, we say, continuity and acceleration in this whole area as ESG becomes a way of doing business. I think if we summarize it, it's measure, manage and report would be the summary of what we are doing. And to making sure that this vision and strategy for our ESG policy is in line with our core business in all the markets, and it will vary a little bit from one market to another. We will continue to communicate on this as we move forward. And this you will hear a lot more about Mission Positive 2030 as we move forward. This is the summary, and this is how we'll be communicating about all the different initiatives that we are doing because we think they are the right thing to do, but also because they're good for our business and important for all the stakeholders in the business. So there's a very quick summary. If you want more details go to the site, and you'll see there's quite a lot of information there. And with that, I'll hand over to Don for the outlook.

Thank you, Andrew. And I'd personally like to also thank Ross Adler for the 20 years being a young CEO when we listed the business. There's absolutely no way that we would have been able to list the way that we did and he's been incredible guiding rutter in the background for our business over these last 2 decades. So thank you, Ross. You'll be greatly missed. If we come with me now on to our group looking forward. As we mentioned earlier, we're still living with COVID. As a philosophy in our business, this is something that's not going away anytime soon. And as a result, we see the fluctuations in New Zealand, with the most recent example of that last night, what we're experiencing in Sydney and Melbourne right now. But we do see our carryout business decline during lockdowns. Delivery does increase, in some cases, quite materially. And then what we've seen in summer this year in Europe to reinforce in the great reopening in Europe is that delivery has remained a lot higher than our historical numbers, as we've now retained a lot of these new customers. But then we do see a return to carryout, as Andre said. So we've had a really good summer, as you can see in our results here in Europe. We're going to continue to monitor the commodity increases. What I can say today because of our long contracts. We've just come out of a significant cheese period. We're actually in a low cheese period right now, predominantly through the Australia/New Zealand business, soon to be in Japan. And when we look at our soft commodities through the months of the financial year because we've got long contracts, we don't actually see much of an increase although there is an expectation that there will be some increases in the second part of the calendar year '22 with what we're observing around the world. We also like to highlight that there is labor shortages in most markets, it makes Project 3/10 so important to us. This is a decade where the most efficient companies will win. We need to be able to do more deliveries per hour as we do, do than just about anybody else in the delivery business, and 310 is a major driver of that. So we do expect there will be some natural market inflation in our truck drivers, in our commissaries, in the distribution systems and potentially for our own drivers. We can't wait to launch our new web and app in the coming 12 months, it's time. You've seen our online continues to grow. We've still got increasing conversion, but we want to be able to attack ourselves with an even better platform as you will see. There will be record expansion this year in organic, plus obviously the acquisition of the Taiwan market. And I want to just remind the audience that what we experienced 4 years ago, in Japan is that we will capture the 2 biggest weeks of the year in the first half. So when we look at this year, we'll try to analyze that. So what happens in the first half will be largely inflated compared to normal because it's captured that extra week. The whole business is capturing an extra week, but that's really significant in the Japanese business, just alluding that ahead of reporting. So at this point in time, I'd like to hand over to Andre to talk about Europe looking forward.

Yes. Thank you, Don. For Europe, it won't be a surprise that we will keep on building on the foundational work that we have done so far, and we will continue to do more work on the foundation. Like you said, with -- when emerging from the lockdown, we tend to keep the delivery numbers on a very high level and then slowly add carryout, most notably in Denmark, where carryout came back a couple of months ago, with their new system of vaccinations or show that you've had a test in the last 3 days. So society is sort of back to normal where it goes to visiting restaurants and stores, and we've seen that all over Europe. So we're very confident that our focus on delivery and revealing the carryout is an opportunity and will add more sales over the months coming or the year coming. Also for store openings, the pipelines in all markets are very high. Locations are available and the increased investments that we did in development teams is really starting to pay off combined with franchisees really wanting to invest in the brand and grow their own business. We expect France to continue to deliver strong results. France, notably, the hardest hit market with COVID with their 7 o'clock curfews where the French tend to eat a lot later. We've managed to offset that with more deliveries while keeping our operations really strong. It's kudos to the team in France that their delivery times improved, where the deliveries almost doubled, which is a testimony to have good franchisees but also the operations team to work together. In Germany, store openings will continue. We're seeing the effects of the increase in investments. From the 1st of January, we'll see the last royalty step-up after the Hallo conversion. But we still intend to deliver above-average growth. Benelux, since the start of this calendar year, we've seen a real increase in sales again in -- or a bigger increase than before, partly due to the launch of Crunchy Chicken, a whole new layer that we tend to expand in the rest of Europe. And then lastly, Denmark, our reputation is improving, but it's a really slow process. It's good to see that if we're in new -- if we store open stores in markets where there's never been a Domino's stores, we tend to do a lot better than in the reopening of the old system. So looking forward this year, all new stores will be new markets outside of Copenhagen. So we expect that we can improve on the reputation. And with that, I'd like to hand over to Nick.

Thank you, Andre. Looking forward for Australia and New Zealand, the pandemic continues to bring some short-term uncertainty, especially into this region, it seems, at this moment in time. Many of you will be aware that the New Zealand business or New Zealand itself was plunged into a lockdown last night that we'll see our New Zealand stores closed for 3 days, and our Auckland stores closed for 7. So there's still a lot of volatility inside of our operations at the moment, but our focus is resolute and remains unchanged, and that is that this next era will be, I mean, a focus on execution. We're very focused on making sure that we have the right product, service and image at an affordable price for our customers. And a big part of that is making sure that our franchisees are equipped with the skills and tools that they need to be able to execute inside of that. I'm pleased to report that franchisees grew significantly even during the commodity increase rises of the last half and enjoyed close to record profit levels. And those commodity prices have now moderated. So very excited about what this next 12 months holds. Next slide, please, Nathan. I want to share with you what we're calling Project Ignite internally in the Australia and New Zealand business. And essentially, this isn't the first time or anything particularly new to the business, and you've seen and Don called it out earlier on the call, regions like France have done similar things. And predominantly, what it is, is an investment in the long-term growth and the future growth of our franchisee level business. It's an investment in store level profitability across the board, showing through predominantly food costs and some other smaller areas of reduction. It's an incentive to what we call developing markets. And the reason for that is we know that where we have the highest penetration, we have the best unit economics due to reduced delivery times and better saliency of -- in those markets, and that leads to better store level profitability. So an extra incentive to encourage and help those franchisees reinvest in growth. And an investment in new store openings with a reduction in the cost of a new store and also some improved waiver programs around that. I'm very excited with how the system has received that franchisees, very excited by that and already seeing a great pipeline starting to develop there. Next slide. I'll hand over to Josh.

Thanks, Nick. So looking forward for Japan, we've started the year strong. And I might just remind everyone that we are still going through the effects of COVID, state of emergency extended out most likely to the end of September or midway through September and just keeps moving. It's the biggest spike we've ever seen. That said, we're comfortable with our strategy, and we'll continue to execute against that. What I see is that -- for our future, is we'll be actively front-loading our future success. This will come in the form of mainly new managers, which really do need to be handled with care because you can't simply fast track the time required, the training and the experience. So this is an area that we want to sort of remain slow on and make sure we do the right thing because it actually minimizes our stress in the future and allows us to openly capitalize on customers and profit going forward. We'll also continue to invest in our pricing and promotional layers we've been building over the last 12 to 18 months. Hangaku Half Price is one of those. BOGO delivery, buy 1 get 1 free delivery, both layers are still going very strongly for us, and we'll continue to invest in those. We're also, as previously mentioned, about our strategy, we're still working on ways to access single users, offerings like the pizza rice bowl combined with no minimum delivery is a great way to do this, and we're going to continue to up weight this over the course of the next 12 months, which is really important to access the single users, as aforementioned. The growth profile of the business, most likely take a bit of a new shape over the next 1 to 3 years with franchise really taking the lead to facilitate [ this with ] combined a franchise -- a really solid and robust franchise development program, along with an incentive package to deliver more franchisees over the next 3 years. As I think about store growth, it really comes to the fact that we have carve-outs and carve-outs have an impact on margin. And we've put some really good process and rigor in place to make sure that we balance that with our greenfield and carve-outs. So we can manage our internal margin expectations in Japan. All that said, we've got a few little headwinds, a little bit commodity price/cost, which is just more of a timing thing that will be definitely up by next half. And we've been hit with a small minimum wage increase which is a bit of a surprise for us. It was handed down at the start of July, and we were telling people at the start of August. The good news is, is we've already found a way to mitigate that through sales and orders predominantly and that is work in progress as we speak. Finally, I want to update the group of all our investors and welcome our tenth market to DPE. We're likely to get the keys to this market on the 1st of September, thanks to receiving foreign investment approval this month. And we're just really excited in welcoming all Domino's Taiwan. And not much to share just yet, but we look forward to sharing updates at further -- future announcements with you on that market. So at this point, I'll hand back to our Group CEO, Mr. Don Meij.

Thank you, Josh. Well done, everybody on a great year. So if I now refer to Slide 46, it's often a positive thing and a results period to look back that in full year 2014 or financial year 2014, we forecast there would be 2,950 stores in 2025, and we've achieved that 4 years early. It's also exciting that we are going to open or add to the network 500 stores this year or more than 500 stores. That puts us on a cadence to 3,000 -- or 3,000th stores will open in the next couple of weeks, but our 4,000th store will actually open before the end of the calendar year '23, and our 5,000th stores will open sometime during the calendar year of '26 and '27. We are upgrading the master -- for the Benelux in Japan by 200 stores in the ballots and 500 in Japan. We like to use the word milestones here because I think it's really important -- but these are not, as we've seen in the past, potentially the final positions for each market. But as we hit new tipping points with advertising, our penetrations, our faster and more efficient delivery and benefits to our customers, has allowed us to -- through our models, through our digital models, being able to map out more stores. If you come with me now over to Slide 47. I love this slide. It shows that we doubled our network in the store count and we tripled our EBIT, which is showing that we've been efficient as we've grown. And you can see there that for shareholders that have woken up today that they are milestones as we've added another 1,100 stores to this network in the years to come. If we come on to Slide 48, I'm really happy today to reinforce that we expect our same-store sales over a 3- to 5-year outlook to be within the 3% to 6%. We're upgrading the cadence of our store growth, network growth to 9% to 12%. We clearly exceeded the outlook last year and we -- with all of this investment in development with the high profitability of unit economics, the constant focus on constantly even making that better, as you've heard from Nick, is that we have great confidence that we're going to be able to move this 9% to 12%. We are only receiving more CapEx. We are investing -- Some of that investment may be, for example, in Germany, with the huge growth, we're well ahead of the plan in Germany, and we supported our franchisees to buy extra ovens when they may have been more conservative. Sometimes it's helping a brand-new manager to get their first franchise or a multiunit owner to just stretch themselves a little bit, and we could support in that as they're expanding and they get an opportunity that arises. But we're also investing significantly in our digital platforms security strategy insights in ESG. It's worth noting that whilst this number has increased over time relative to the size of our network, it's still quite a modest investment. And when you consider the scale and how quickly we're getting to that scale. So we want to stay ahead of it. If you come with me now in conclusion on Slide 49, I think that we've been able to illustrate today that it's the investments of the past, both in geographies, in our platforms, in our people, and our franchisees, and our store managers and strategic elements of our business that has allowed us with these long-term decisions to deliver today. And the investments we're making today are going to help us deliver in the years to come. We will continue to deliver organically and inorganically. We're very proud to be part of the Domino's system. It shouldn't be lost on anybody that we greatly benefit from all of the learning beyond the 10 markets that we operate and the great leadership around the world, particularly from the parent in the U.S. where we're looking to work closer and closer with on technology projects and constantly learning from each other. So we're a very focused one brand business and very proud Domino's master franchisees around the world. Our franchisee profitability continues to improve. Of course, these are averages. There will be an exception, but that may not apply. Often it's from an operations or a distraction. But these -- when we look at the network that we're creating and the structures and the systems we're creating, they're allowing our franchisees to thrive. And in the odd case during the middle of COVID, the peak period, the bleaker periods, but also survive in those moments. So we have -- we really have a lot of confidence the network that it's going to continue to grow at a great pace. Exceptional performance is in the big businesses, Germany and Japan and France coming on strong now that all of this has allowed us to now have a new outlook of 80% dividend from our NPAT and in and around 70% franked. If you come with me on to Slide 50. Our franchisees have also demonstrated their resilience, and we cannot thank them enough with working with us around the world to deliver on this exceptional performance in some challenging times. We'll continue to invest, as you've seen with Ignite. And with the new market of Taiwan. And yes, I'm just so happy to be able to share the increased outlook for store growth and the next 3 to 5 years and some investment that matches to that. So now at this point in time, I'm going to hand over to Nathan to answer many of the questions that you've reported to us.

Thank you, Don, and thank you to all of our speakers this morning. [Operator Instructions] I'm just going to start with the first question in relation to acquisitions. We've had some questions from Craig Woolford And then also from Ben Gilbert in terms of acquisitions. So does DMP expect these to be adjacent to existing geographies? And also, what's the appetite across the rest of Asia for M&A? Or is Asia more of a priority versus Europe? I'll hand that to Don.

Yes. So we always like to think a little bit more generic, yes, rather be specific. But our core focus today and where we're getting the synergies of our scale is either in Europe or in the APAC region. That's where we operate the 10 markets. And so that's where our core focus is today. And it is -- it can be in new M&As, if we're fortunate enough, and we seek approval from our board and from DPZ. But also, if we are also looking inside markets at some smaller acquisitions to build up scale and that continues today.

There's a number of questions in relation to Ignite and then also incentivizing franchisees for opening. So perhaps if I can just start with on Project Ignite, a question from [ Alexander ] and from another analyst asking about what the expected payback on the $12 million investment in Project Ignite is going to be?

Thanks, Nathan. So the investment in a lot of cases has been more than what we're flagging there, and that's because some of it's returning already. But I think that we're going to see a really ramped-up pipeline over the next 3 to 4 years. And definitely within that time frame, we'll start to see our franchisees and all of those stores start to really scale up and see the full benefit of that scale and leverage.

Then in relation to Ignite, so is the cost called out a gross or a net impact? Is there going to be more investment in FY '23 and beyond? And I have the same question in terms of returns?

It's a net investment. And -- It's a program that we're putting in place for 4 years as we've called out. And it's not the first time we've seen an investment like this and do want to highlight the obvious example of France and the obvious result that, that has had when applied correctly. And I think it's the program we have in Australia and New Zealand will have a very similar effect in getting that payback to that magic number that we see around the world of 2.5. And when we see that, we know that it really does lift the store level investment from our franchisees, both operationally and in new stores. And we know that, that pays back huge dividends, not only to our franchisees, but our customers who are experiencing far better service metrics through that penetration.

And still, keeping with the same topic, Nick, we've got a few that we're going to make sure we get all the way through. So from Grant Saligari and other analysts asked a similar question. I mean how do you balance this? Is it a question about encouraging our franchisees to invest? Or is it that there's a level of franchisee unhappiness? And then can you perhaps dig into what this means in relation to what kinds of incentives you're talking about that will go into the market?

Yes. So it's to encourage that and give confidence in investment. We know when we get that -- like I've said, that unit economics to the right level, stores almost open themselves because franchisees really see the benefit in that. And in many cases, it becomes capacity related. When we look around the markets where we have the biggest penetration, we also have the best store level unit economics and the best sales and customer satisfaction to go with that. So it's partly to help drive that because we know that those new stores, if we bring them forward benefits all of the stakeholders in the business, and they become the gift that just keep giving in terms of being able to offer more meaningful employment by being able to get better service and by improving and fortressing our markets as we're seeing all around the Domino's world. And it's coming in the form of -- like I've mentioned, the reduction in some food cost at store level and some other fees, a specialist or a special incentive aimed at developing markets, namely Sydney, Melbourne and Adelaide. And that's where we have the most growing and the most opportunity to grow and a reduction in the cost of a new store build, and that's -- all culminates to really make the -- and some of that will be through DPE lines, and you're seeing that reflected in some of the CapEx that we're forecasting there.

Adding to that, Nathan, what Nick just highlighted there with the reduce of the store cost itself, that's a pretty well a global project. And one of the things that's happened during the pandemic because we're seeing the age of delivery accelerate, then we need smaller foyers. And smaller foyers means there's less CapEx -- It also means that's operating costs, these conditioning less maintenance and so on. So overall, these -- we're looking to continue to bring down the cost of a store while at the same time, increasing the average franchisee profitability. So this is a double side to that.

Just in relation to Japan, a couple of questions in terms of the increase in the expected store numbers there. Richard has noted that we only recently increased the store count there and now we've lifted it by another $500 million -- We've also been asked by Sam Teeger that we've upgraded quite a few times already. So perhaps are you able to talk through the assumptions behind that? What's changed? What changed since our most recent upgrade for Japan?

Sure. A couple of things. When we looked across the system, when -- certainly, when I originally started there, we were really low penetration in some of our major capital cities. There's a lot of population, not a lot of stores, and that affects a lot of things, service quality, Pizza quality is a byproduct of that as well. And we just saw an opportunity to up-weight that and to get critical mass in each one of these markets. As you model that out, no doubt we could see that there was upside to growing the stores in each one of these markets. Of course, we also mentioned a couple of years back, we didn't have a model to go and expand into some of these regions that were virtually inaccessible through high cost. So we introduced things like back-of-house stove, which enabled us to go into these regional prefectures. So it's -- It's not just one thing that's made us uplift our store targets, but it's a whole range of things that has allowed us to sort of see whitespace territory as well or greenfield sites as we call them. And ability to sort of keep pushing the envelope to find more stores properly. Remember, in each one of these prefectures, you've got to hit critical mass. And there's a lot of population here. And we get encouraged by some of the other big chain brands on their penetration in each one of these cities as well. And we use our own metrics to plan our road map going forward. So as Don said, it's a milestone. It's not the end, but we can see these stores before us.

And Josh, you just mentioned in terms of greenfields versus fortressing existing markets, a question from [ Tom Curic ], in Japan, how many stores are in Tokyo and Nagoya? Do you think those 2 markets are fully penetrated? Or is there more room for growth?

Well, no, no. I mean, I look at -- if you take Tokyo, the city limits of Tokyo, it's about 13.9 million people just in Tokyo -- we have about 298 stores in that territory. You take Greater Tokyo, you've got 37 million people. We've got about 400 stores. So that give you an idea, there's -- so 1.5x the size of Australia and we have 400 stores. If you look at Nagoya, the city of Nagoya is about 2.2 million. If you look at -- Great Nagoya, you got a 6.8 million. And we've got about 65 in the city of Nagoya and about 96 in the Greater Nagoya region. So there's considerable upside here. And again, just going back to some of our big global chains that are already there, we're 1/3 of the size. And in some cases, in the Nagoya's case, we're 1/4 of the size, and we can see that with our growth trajectory and just the way we grow the brand in the critical masses that we can get that we're heading towards right now, there's going to be tremendous upside. So -- You will see more growth. We've just got to balance the carve-outs and do it smart and make sure that we've got the right model to do this.

Just moving on to a question about CapEx. Capital intensity appears to be increasing and is ahead of the store rollout upgrade. Can you give some color on CapEx allocation, any detailed investment in the digital space? And the bigger question is there now a concern that consumers are gravitating more towards aggregators as they ramp up their investment in offering?

Yes. So when -- if you look across our business with the rare exception of individual stores and so on, typically, aggregated growth has remained at a constant percentage, not an increased percentage of our business, so our online ordering business and the aggregator business because we operate inside the upgraders are quite constant. And there are some exceptions in the business like CBD Melbourne or CBD, Sydney or something like that as a small example or an Amsterdam. From a CapEx point of view, I'm not quite sure I agree that we're increasing the cadence beyond the store growth. I think our store growth is when you look at -- from last financial year and 4 to 5 more years from now, we've got to make sure we stay ahead of this. And especially from security, from the quality of our platforms, they can't break retiring some of the old digital legacies. So I think that you'll see that we've given quite a wide band there. History says we've sort of come somewhere in the middle of that. But it's -- a lot of technology is a big piece of that as well, not just only store investments. And remember, when we do the many franchises, we typically going to get it back within 1 or 3 years the cycles back. So at some point, sometime beyond my lifetime when we stop growing, then the -- investing maybe on these new stores. But right now, long bandwidth of growth and we want to support it.

And just staying on the topic for a bit, there is 2 similar questions in terms of CapEx and franchisee because we talked a lot about investing in franchisees to support. So -- So is that really -- is the lift in CapEx guidance really driven by those loans to franchisees? Or is there other ways in which we're using CapEx to support those franchisee growth?

Yes. Sometimes the CapEx, as I said, can be even in equipment. We may do a mass rollout we did a couple of years ago with Pizza Checker and DPE may fund that just to make it easy. Ovens is the most recent one in Germany. We're really -- the capacities we're doing in Germany. It's -- from a sales point of view, it has our highest unit, a was for most months of the year. That came out of being one of our lowest markets. So trying to feed that with equipment means that sometimes we just derisk it. Rather -- don't need to have the conversation, let's derisk that for you. We'll give you more ovens. If you don't need them, we can always take them back. But just get rid of those arguments with franchisees. And then we've got new managers. To grow to 6,650 unit network, we do have some of our franchisees retire over time. You're seeing retirement in France, for example, Andrew really talks a lot about the new emerging leaders program because he also has some old franchisees there that -- I won't say old, they're within -- around our age, but they've made a lot of money, and they want to go and enjoy their lives. And so we've got to make sure we're also growing through that capacity. And so the best thing we can do for shareholders is grow our existing franchise base and within [ confinement ] there's no better ROI. It's the best place to put our CapEx. And as I said, most time, it recycles back pretty quickly as well.

I want to say, I'd just highlight that there's sort of a technical difference between loans and we also license stores. So you'll see our loans being repaid but also when we -- it comes across as a sell down of stores. So a lot of the, let's call them our top gun young franchisees, we will fund under a licensing arrangement. So that is pure CapEx. But it is allocated to that recycle section in my presentation.

A number of questions from different participants in terms of labor, how easy or difficult it is to staff new stores -- What are we looking at in terms of cost pressures and not just in Australia. There's also been asked a similar question from Japan. Are we seeing above inflation cost increases from labor? And is there anything that DPE can do in terms of assisting with staffing at that store level?

I might even hand over to Andre at this point to talk about in Europe and then to Josh. It is a headwind across the business and the shortage of team members. Our efficiencies without a doubt are giving us an advantage. But I'll let others had some color.