Domino’s Pizza Enterprises Limited (OTCPK:DPZUF) Q3 2022 Earnings Conference Call August 23, 2022 8:30 PM ET
Company Participants
Nathan Scholz – Head, IR
Don Meij – Group CEO and Managing Director
Richard Coney – Group CFO
Andre Wolde – CEO, Europe
Josh Kilimnik – CEO, APAC
David Burness – CEO, ANZ
Marika Stegmeijer – Chief ESG
Stoffel Thijs – CEO, Germany
Conference Call Participants
Nathan Scholz
Good morning. My name is Nathan Scholz, I am the Head of Investor and Public Relations at Domino’s Pizza Enterprises and I am delighted today to be presenting to you the FY ’22 Financial Results.
With me presenting today from Sydney Australia and I’d like to acknowledge the capital the organization of the business land and my respect to the [ph] elders both past and present. Joining me today is Group CEO, Don Meij, Group CFO, Richard Coney; Europe CEO, Andre Wolde; APAC CEO, Josh Kilimnik; Chief ESG, Marika Stegmeijer and ANZ CEO, David Burness and Germany CEO, Stoffel Thijs. For our Q&A today, pleased to give your questions in the Q&A function bottom of your user screen. Questions on email chat, fortunately unlikely seen during the presentation.
And with that, I’ll now hand you over Group CEO, Don Meij
Don Meij
Thank you, Nathan and welcome everybody. I’m going to start on Slide 2. One of the things that I want to share up front that we continue to guide around the world and we’re operating 10 markets and hopefully soon actually 13 markets is that every day we make a decision for all of these different pace that we have to work at that we really grounded in our personal values and that’s helped us all the way through the pandemic and in daily effects of the Ukraine war in Europe, particularly inflation.
Throughout this presentation, on Slide 3, and then we’re going to go through it in three different tasks, first of all, training through COVID and the outlook from pre-COVID to now, then we’re going to talk a lot about the inflation, how we’re upsetting inflation, where we are getting a right to how we’re getting it right. And then the big picture still from the medium term and the long term, which is where we really believe in the age of delivery. It’s the most convenient way to get QSR today and how we’re making sure that we’re going to stay ahead in the age of delivery.
If you come with me onto Slide 4 and just have a look at the big highlights; we were able to achieve the positive network sales, despite rolling high comparatives for the previous year. And also with the FX, we’ve continued significant store openings. In fact, it was a record for organic store opening, plus we added the acquisition of Taiwan, which really put us in high strength and within our range for CapEx.
If you have a look on Slide 5, as we highlight, our network sales were up 4.6 in Aussie dollars 4.6%. Our online sales, the engine room of this business, up 4.4%. We added 438 stores to the business in the last financial year. We were able to deliver an EBIT that’s actually down 10.5% and therefore our EPS is down 12.6%. If we look at it on a — from a pre-COVID to now, we really feel that what we promised we would do, we have been able to do and that we added a billion dollars — over a billion dollars to our network sales driven by our online digital delivery largely at $1.1 billion. We added 865 stores to the network and that the actual EBIT was up $42.1 million. Since that period are up 19.1%.
Now, if you come with me onto Slide 6, which probably will surprise many investors today is we’re going to talk a little bit about the great success that we’re experiencing in Australia, New Zealand. In fact, it’s probably been five years that the Australian New Zealand business has been the poster child for the rest of the business, because what we’ve done since July in Australia, New Zealand is we are delivering new, innovative products like the cheeseburger pizza through technology like we finally got our new, our third generation app and web out and that’s performing exceptionally well. And also with our pricing, but not only have we been able to excite consumers and we’re enjoying strong customer count growth, strong same-store sales, but that’s therefore leading that our franchisees currently are ahead of last year in earnings and that therefore leads DPE to be ahead.
So if we just break that out, because that’s the roadmap, and you’re going to hear about that because that’s already also being applied in Japan and we expect that that will be imminently rolled out in the next six weeks through Europe. But if we just look at APAC, , APAC has at this point, largely offset through its pricing initiatives, through its innovation, the barbell strategy, and so on the, overall food, labor and energy. We haven’t rolled it all yet in Europe, as I just mentioned, although we expect that that is imminent. And so far, the early response from customers is rewarding with positive customer account growth and same-store sales.
Asia has rebuilt itself from when we went to the rebasing last October and that’s what’s so exciting. Our whole business roles, the strong numbers in Europe and Japan at the end of September. So, we talk about our business, we were talking about this first quarter by the time we get to the AGM and then, half year and full year and why we still believe in our outlook and the ANZ business, despite the fact that we actually had a $10 million investment in the business, we actually were able to exceed even our own expectations, particularly in the last nine months of the year. And the way we’ve started this year is incredibly exciting.
We have an offset in Europe, as I mentioned, we will. Germany has experienced some lower same store sales but still a really strong business when you look at what we’ve been compounding, and you’ll see that in the breakout. We’ve broken out Denmark, because it is unique Denmark in that it’s a turnaround business for us, where we bought a brand damage business.
And specifically Stoffel will highlight as Denmark is supported very heavily by Germany, where we’re at right now, we’ve just launched a new campaign and the results we’re already seeing from that and why we believe that actually that’s the peak. You’re seeing the peak of losses in Germany, and that we will reduce them from here and head towards profit. France was probably the — well, probably was the weakest performer. We went too early on price and we’ll talk all about that. And the Benelux strong performer constantly in Europe and continues to perform well.
If you come with me now to Slide 7, when we highlight that the same-store sales for the first seven weeks of this year we, with a negative that is rolling strong comps with the rebasing particularly with France and Japan. So we do expect from October that will go positive. We’d also like to highlight that we are rolling the UEFA Cup in July last year. So that was obviously strong support in Europe. We’ll pick up the benefit of the World Cup in the last quarter this year. The 13 stores is simply timing. In fact, just in the last week that number was guided internally to be 24. It became 13. It’s just timing of stores. You’ll see that we’re still quite confident and we’ll explain why we’re confident in new store openings.
ON the next slide; if you go to Slide 8, because one of the questions, that’s the most obvious question to shareholders, are you — where’s your three to five year outlook look like for same-store sales and store count? And I feel subject to any new developments, particularly in Europe with the Ukraine war and the effects that may flow into energy especially in places like Germany, but all things given equal on what we think will happen that we will go to positive sales from October and those markets and in Japan. So we’ll be slightly positive by the AGM and be able to report positive results at the half year, and then go on to achieve our three to five-year outlook and we’re already well above that in the ANZ business today.
Then when we look at the store count growth, you’ll see that the last two years really do stand out. And it’s not only because we had the tailwinds of COVID, although they were definitely supportive, but it’s the fact that we rebuilt teams. We talk a lot about the four teams that we built into Germany into France, the extra people we caught on into Japan. And the fact that we are now with project Ignite, you’re going to see the store growth accelerate in Australia, New Zealand this year as well and additionally, with our new program, the Mobile Pizza Kitchen.
So we’re still quite bullish on store growth because it’s not just only the fact that earnings at store level are higher than pre-COVID, but it’s the fact that the teens, we have more people in the field executing against more, and the only portion against that is any other surprises that may flow anywhere in the world.
So at this point in time, if you come with me now onto Slide 10, we talk a lot about this, the age of delivery and I’m really proud to say that Europe has been able to increase delivery counts by over 30% since the pre-pandemic and the APAC region is up 42.8%. That’s our engine. That’s the numbers that we look at. It is interesting that there’ll be windows in time, like right now, where carryout is actually accelerating in some markets like Australia, New Zealand with the price sensitive consumers. So we are seeing an acceleration of carrier for the first time in those markets, but when we look at the longer term picture, we’re very obsessed. It’s in our hag [ph] as an organization about being the dominant QSR and delivery in each of our markets.
If you come onto Slide 11, you can access our performance over this period when you look at the fact that we’ve got more customers, more frequency, we’re a much larger network and therefore we’ve delivered more earnings. And that’s what we’re trying to highlight on this page.
On Slide 12, this slide clearly shows our trajectory; whilst we didn’t surpass the extraordinary results of last year, we still were 14.1% above the previous year and 20% and 41% over the last five years, and we do expect that whilst it is a tale of two halves this year with the weaker first quarter in Europe and Japan rolling those numbers, but we’ve so commonly talked about, I think that the next nine months will be strong and you’ll see that clearly flow through, into the second half rolling these weaker numbers we’ve just rolled.
On Slide 13, you can see that we’ve nearly doubled our network sales not quite and in the last five years, and we’ve been able to take our online sales up, 220%. On Slide 14, the size and scale of the network and I’m really proud that we’ve been able to announce the new acquisition today. That’s been nurtured for three and a half years and that’s going to really make sure that we are delivering and actually will be the over-deliver on the numbers that we were giving as an outlook as milestones and I’ll talk to that at the end of the presentation.
And you can see that despite COVID despite inflation supply chain issues, I mean, I’m really proud of this team and all of the other team that aren’t here on this call that they’ve been so agile and they’ve been able to navigate and move because it has been extraordinarily challenging, getting ovens and make lines and getting delayed counsels.
Yet, you can see that acceleration of store growth in Europe and Asia, which we expect to remain strong and ANZ for a number of years will now also due to project ignite and all the initiatives that Dave and Adam and all of the leadership team and franchisees have been applying the ANZ business. I think Dave can feel really proud today that the ANZ business is the superstar.
As we speak in current trading. If you come onto Slide 16, you can see there that that, our earnings are still stronger than, and for our franchisees, we, our ambition is that they should be still even stronger than this unit economics drive our business. So, whilst on one end, they’re better than the pre pandemic earnings. We have higher expectations and we are just a much more knowledgeable business.
We battle worn from the last three years and I think we’ve learned a ton and we’re going to be applying that. And the great news is our most sophisticated investors. Our franchisees, if you just look at that six or more stores, it’s really accelerating. And we are, we are seeing, franchisees with 10 stores to 25 stores becoming quite a mature and strong group within our business. And, and that trend, we will continue to expand noting always.
We continue to raid that group for our future leaders, our future CEOs and CEOs, because this, when you’ve got, when you can run a, a multi-unit business successfully and you’re one of the best practice, then we, we can teach the other skills in a public company, but that’s, that’s the core differentiator for DPE.
So at this point in time, I’m going to hand over to Richard to go through in more detail of the financials. Thank you.
Richard Coney
Thank you, Don. If we just move to the next slide. As you can see, our revenue is in line with network sales growth up 4.1%. Impact and EPS are down 12.5% and a half percent, but positive 16.8% and 15.5% over a three-year period. A dividend of $0.01565 [ph] per share is down 9.8% but up 35.5% over the three years as a result of that, both our profit growth and also we increased our pay-out ratio during this period from 70% to 80%.
On to the next slide, coming to our geographic summary; Europe has had a very challenging second half as a result of the Ukraine crisis, pushing up inflation to levels, not seen in decades. The full year is now down 11% after being up 11.5% in the first six months. ANZ was up 2.8% notwithstanding its continued $10 million investment into our franchisees and store rollout with project Ignite and Asia, although the lowest performer on a one-year basis down 23.1%, it actually performs the best versus pre-COVID up 59.5%.
If we come to the next slide some detail on our non-recurring costs of $8.8 million. As you can see, we’ve noting that we’ve had an additional $2 million in the second half relating to the class action. Now totaling $3.5 million for the full year and 3.2 million in acquisition costs predominantly for Taiwan and also today’s announcement of the Malaysia, Singapore and Cambodia acquisition. In addition, there were actually some costs associated with our assessment of the master franchise, which in the end we concluded was not a right fit for DPE at this time, moving to the next slide, a cash flow.
As I explained it the half year, we have an unwinding of our working capital position due to the extra trading week. This is purely a timing and as you can see in the prior halves those numbers, we’re still well ahead of the prior two years and also higher inventories that we’ve had to hold both for our store construction build phase, making sure we have enough ovens and make lines to open all of the stores that we’ve opened in the last, especially in the last couple of months.
Also ensuring we have sufficient food supplies to, to ensure our stores can keep trading. Our net CapEx of $137.6 million is tracking per hour outlook of between a $100 million to $150 million and so if Nathan, if you could go back to the cash flow and our loan book, although increasing, due to our growth and accelerated sell down in stores in Japan, continues to recycle returning 37.5 million.
Now moving to the CapEx this, this obviously as per normal, provides more detailed breakdown of our group CapEx full position of $137.6 million. You can see our CapEx, which recycles is up significantly on the prior year from $30.5 million to $59.5 million gross CapEx split between gross CapEx of $132.5 million, which is predominantly our corporate stores and primarily in Japan franchise loans for new and existing stores and franchise acquisitions predominantly in European ANZ.
This is partially offset by record cash inflows of 73 million arising from franchisee loan, repayments and proceeds on sale of corporate stores. In addition, we have more than doubled our investment in digital CapEx spend of going from $43 million up from $18.1 million. And obviously as Don highlighted, we’ve, we’ve, just launched our new native ordering app and next generation platforms along with our new GPS driver platform was a key part of this investment.
Moving to Slide 23, our balance sheet our net that increased by 242.1 million noting obviously the acquisition of 79.4 million for Taiwan. Also our other current liabilities increase primarily due to Germany put call reclassification from current non-current liabilities of 127.4 million noting. DPS call option is available from January next year.
If we now move to slide the next slide, Slide 24 return on equity and capital employed remains strong at 42.3% and 16.8%. And our net debt and leverage remain conservative with interest coverage of over 33 times and leverage of 1.7 times, noting with the Malaysia and Singapore transaction, this will increase to 2.2 times on a pro forma basis.
And then moving to Slide 25, our group underlying EPS has already highlighted EPS was down 12.6% for FY 21, but on a two year basis still positive 6.2%. And over a 10 year period, our KG is tracking at 17.8%. And I’ll pass you over to our next speaker, Nathan.
Nathan Scholz
I have to confess that we have an agreement within the executive team today that any person who’s on mute has to make a $50 donation to Domino’s give for good our charity. And so that’s my first $50. So obviously inflation is a core topic for all of our investors as it is for our customers and our franchisees. And let me take you through that. But first if we note that we consider this phase inflation and growth, because ultimately growth is the solution to these historic challenges.
Now we’ve been responding to price increases across the board since January, largely in energy, labor and food. And these cost increases are ongoing with more labor and food costs in AZ, from July and visible to us increases to come in Europe, this calendar year and while dominoes isn’t immune to cost increases. And nor is this the first time our franchisees have had derived to this challenge, a menu offering our best in class operations and our incentive programs for franchisees already in place provide us flexibility and response.
The inflationary period has reinforced the importance of our barbell menu strategy. Giving customers choices from inflation busting offerings at one end to premium ingredients where we democratize good food with things like tiger prawns rack lead and our new burger pizza offering, which you saw at the start of this presentation at the other end of that barbell menu strategy. And those allow customers to trade in from other meal options, including fast casual restaurants. Now, as we noted, customers are also experiencing inflation and we are seeing behavior changes, including a recent increase in carry out for more value focused customers. So we believe we have the multi-layered approach, including menu and strategy to respond to these times. And let me take you through those now.
So as Don mentioned earlier, unit economics are the core of our business and overcoming inflation is essential to those unit economics and requires this multilayer response. Now people may sometimes consider where the $5 pizza company, particularly from an Australian perspective, but the reality is our menu. And the occasions we serve are much more complex, not just in Australian New Zealand, but in all of our markets. And you can actually see the range of meal choices and occasions that we’re speaking to when on Slide 59. So let me be clear.
We have had to increase prices and we will need to do some more, but we can confidently say to our customers when they’re choosing where to enjoy a hot, fresh meal and compare us to their other meal choices, dominoes is always going to provide Supreme value to compete for their hard earned dollar.
Now I’d like you to take you through management’s thinking. And our goal is to give you a sense of the significant work that’s underway, but without providing a roadmap to competitors in our markets, we’ve implemented a number of initiatives focused on all aspects of the inflationary response, and our CEOs will take you through those. And they start with cost initiatives to keep cost pressures as low as possible for our stores, and then the past these savings onto our customers.
And then we add onto those with customer focused initiatives to take and also earn additional ticket. So lay it up. The goal is to continue to deliver strong franchisee profitability with suitably attractive store payback that delivers more store openings while still giving a win for our customers. So the key question then how a customer’s responding? Well, this is a unique time and we believe that customers recognize costs are increasing at such a pace and scale that some prices do need to go up, but they’re also seeing price increases everywhere in their daily lives.
So to win customers, we have to provide Supreme value and that is great value relative to all of the other choices customers have when they’re choosing their meal, whether it’s a meal for one or feeding their family, and whether that’s from QSR or making a meal from scratch from their groceries.
One of the interesting things that started to emerge in APAC is that customers are making these new choices in a NZ. For example, we’re seeing a recovery of carry out for those customers who are more price sensitive for delivery customers, where we’ve added a 6% delivery service fee we’re taking ticket, but customers are also choosing marginally less in their basket. And that means where the fee on an order would’ve grown ticket by 70 cents. The flow through and ticket is about 25 cents because slightly less food in that order. And this is really important for franchisees, customers and shareholders because it’s customers exercising choice, franchisees lifting ticket and protecting franchisee profitability.
In February, we talked about more for more, a key aspect of our inflation response, the value max range, which we talked about at that time at $3 more per pizza is now outperforming the value range, and that gives franchisees more ticket and margin, and it gives customers a better quality meal, a larger pizza, more ingredients and more leftovers, which is a win-win for franchisees and customers. It’s also important to highlight with cost inflation. The expectation may have been that same store sales must be materially higher than headline inflation just to maintain profits. But as we’re seeing, we can beat inflation and get a customer account growth within three to 6% of same store sales because of the ordering decisions customers are making, we believe franchisee profitability will rise in the next nine months from October to June as we roll through these programs, as we’ve already seen in Australia, New Zealand and in Japan.
And to talk you through Asia, I’ll hand you over to Josh Kilimnik, our CEO of Asia Pacific.
Josh Kilimnik
Yeah. Thanks Nathan and thanks for the $50 donation. Appreciate. I’ve been off mute for about the last five minutes just to make sure, but look I’m feeling, feeling good about where we are and what we’ve built over the last, sort of two to three years through these COVID time.
So by backtrack to, yeah, the February announcement I am feeling good about it because we’re about to go through, we said it was going to be a lumpy period. It was — and we’re nearly at the end of that and come, 1st of October, we are through that period. So really, really proud of where we’ve come as a business and currently we’re operating 1,103 stores in the region. We built about 170 stores — 148 stores in in the last 12 months.
If you then add the acquisition on that of Taiwan. And now the new acquisition that we, in the laser Cambodian Singapore, that’s 792 stores that we now have over five markets now that we didn’t have pre COVID. And I think that’s reflective of our approach to the business. And, I’m quite excited what we can do in each one of these markets. And certainly as we recycle the rebasing period come October.
So if you come to me now to the next page network sales are up six by 7% on a constant currency basis and about 14.3 on a local currency basis. But I look at the three year compounding number as my guide because it was such a, a lovely period. And I’m really proud of the 75.9% growth over the last three years even is down as we roll some very different trading conditions, Bob yesterday.
And just as a reminder, I mean, we were really the only option available for delivery or safe option for delivery and carry and customers flock to us through this time. The good news is our business is materially stronger than pre COVID. And that’s been part of our core focus throughout this whole time. Been very transparent about what we’ve been doing in the market.
Now we have grown rapidly over 40% of our sales come from our new stores. And as these new stores and carve out stores become more mature, you will see accelerated profit and growth outta those stores. So if we go to the next page, please, Nathan underlying performance in in Japan, it’s, it’s really encouraging to rebuilds after the lifting of the state of emergency. We said previously that it will be a little bit bumpy, but the good news, it’s only one more month to go.
And the 01 of October, and we’re confident that we’re going to have a positive sale sales period for us in Japan throughout the year we’ve been, reducing our costs. Now, that’s not unusual. We’ve been doing that every year in the business since I’ve arrived in Japan. But it has held us in good Steve, especially as it relates to Christmas and half two. And in fact, Christmas had 400, records, sales stores during that period and as Christmas floors this year, which is on a Saturday and Sunday, we expect we’re going to have more records going forward. We’ve been moving price throughout the year.
We’ve been doing that. We’ve been very transparent about doing that. We’ve been aided by our Baba strategy, which has been — which hasn’t changed through COVID period. And just as a reminder, our strategy is really aimed at, sort of assessing all the occasions that people want to use our brand and when we’re moving price, we can actually look at what segments are more elastic than others.
And we’ve been aided by that, and then aided by, big platforms and big layers, like buy, get one free and half price carrier where we don’t project an actual hard pricing number, and we’re able to change the back end. And that’s been received really well by all our customers.
The other part of that of course, is the operations side of because lifting price, you also need to maintain and actually make operations better. So we’ve been talking about how we’ve been improving our operations. If you look at our delivery times pre COVID our pizza scores, our customer sentiment, our MP it’s remarkably better.
We’re actually delivering about three minutes better than we work pre COVID. And that’s been part of the heavy lifting and all the work we’ve done over the last couple of years in the business. So this puts us in a really good place to accelerate growth over the next few years.
In relation to Taiwan, we’ve seen strong growth and not only in stores and sales and this has been — it’s a challenging environment. It actually lags the rest of the world in terms of COVID, it hasn’t opened up completely. There’s still lockdowns from time to time there’s quarantine. So it’s been challenging finding stores, but we actually have had a records store growth and for the market that we’re operating in, and it’s proven to us that there’s plenty more work to be done there.
And I’m really looking forward to embedding more of the DPE cultures in there, embedding our tech stack and really leveraging across now Japan and probably leveraging across the other markets that we’re going to acquire. We’re already using creative assets from Japan in Taiwan, and that’s part of what we want to do in this twin region focus.
We’re also thrilled that we’re doing things the right way. We’ve established, a [indiscernible] Dominoes Foundation, Japan. We want to be a company that supports the industries and communities around us, and we’ve raised about $180,000 for the agriculture, dairy and fishery sectors in Japan. It’s a real source of pride for everybody in our business and really excited to be part of that and to continue that journey.
At this point, I’m going to hand over to our new CEO of ANZ, Mr. David Burness.
David Burness
Thanks, Josh and good morning, everybody. I’m a long time in Domino’s, but first time in this chair for the market call, so happy to, to join you, and you can see there that in the ANZ region, we finished the year on 883 stores, which is 23 new stores open for the year. And if we go to Slide 34 you can see the numbers and it’s already been discussed that in the ANZ business, we had increasing network sales of 3.5% doing just over $1.3 billion in sales, and that has dropped to increasing EBIT as well with an EBIT of $121 million verse, $117 million in FY ’21. So 2.8% increase in EBIT, which over the three-year basis is an increase of 7.9%.
And if we go to Slide 35, we’ve already sort of highlighted, where this has occurred, but I’ll try and give a little bit more color on it. One of the things to, to bear in mind with that increase in EBIT is that we’ve had headwinds in in this year, like many markets and one of the things, not a headwind as such, but in investment is projected night where we’ve invested 10 million into our franchisees to ensure continued confidence from the franchisees and continued growth from them. And, we’ve seen good early signs of that.
In fact, we had 30 corporate stores that were re franchised over the course of the year which shows that the franchisees are confident, regardless of some of those inflation challenges we’ve got, we also we open 23 stores, but as we note there, 20 of those stores are actually in half two of the year. So it really feels as though we’ve got some momentum when it comes to new stores and included in those new stores as some new store concepts as well, that are really driving confidence with franchisees.
I’m going to talk about one of those new types of stores in a, in a moment. And we’re also that momentum seems to be flowing into this year as well. So, in the first half of FY ’22, we only opened three stores. Well, we’ve opened four stores already, just seven weeks into the year with another 11 stores under construction. So really strong pipeline to, to start the year.
Now, one thing that we did have to deal with this year was that the New Zealand market was closed for the whole market for a two week period. And in fact, the majority of the market was closed for a full month in August of this year. So that’s a really big hole in the budget to have to find. And, as we highlighted before we, we did manage to find that across the back half of the year. So, very happy to do that and, we’ve talked about the barbell strategy, both Nathan and Josh talked about that we’ve applied that same strategy to our promotions and pricing in the ANZ region.
Nathan talked about the Supreme value chart earlier and, and, and the concept of more, for more, which we’ve spoken about a lot, we’ve done that through our through our value max campaign where, it’s a range of pizzas rather than talking about just $5 pizzas. We’re now talking about a better quality pizza that is $8 that we believe is, a really good value for the customer, but it’s also a really good value for the franchisees. And we’re now selling more of those pizzas than we are the $5 value range pizzas.
However, we talk about inflation crushes in that Supreme value chart, and we know that that $5 pizza still is that inflation crush for that in a time when, we know our customers are concerned about their own EBITDA, we continue to have that that value message through our hunger savers. But again, it’s not a $5 message. It’s a message around value, and we call it hunger savers.
And that’s been our barbell approach that has enabled us to be able to do, to take the price that we need to take at the same time and one of those initiatives to take price is our delivery service fee, where we’re charging a 6% delivery service fee, which early signs on that so far. So good. Now it’s interesting to note that from the time that we’ve rolled, that we’ve been able to invest that some of that money into better operations, our delivery service times have decreased.
Since we started the delivery service fee and our net promoter scores have actually increased. So customers certainly are not, or they’re rewarding us with better net promoters score to, to reward that better service and so far customer accounts were outperforming expectations. We knew that there was a risk of some customer account decrease as we rolled that delivery service fee, but so far, very good and we continue to watch that closely. And the last point that we made on Slide 35 is Domino’s for Good, one of our values is do the right thing because it’s the right thing to do.
We were really thrilled that the Queensland Community Foundation awarded us the corporate philanthropists of the year because of all the work we’ve been doing in our give for good charity, a lot of growth in Australia, in the give for good charity and, we’re excited to say that we’ve also launched that as a registered charity in New Zealand also. So we’ll continue to do good things there, just moving on to the next page.
One thing I wanted to highlight another one of our values is crush convention. And we’ve talked about, different types of stores that we’re opening to be able to grow to our goal, our store openings in ANZ. One of them that’s really exciting is this idea of a mobile pizza kitchen.
Now, it’s probably a bit hard to appreciate how good this thing is from the, the photo that you’re looking at. Now, it looks like a, just a food truck, but, believe me, it’s, it’s more than a food truck. This thing is a store on wheels. It’s got two full ovens in the, in the truck. It’s got a make line, it’s got a cold room. It really is a store on wheels. The first one is, is open and trading in Lismore in Northern new south Wales for folks that know the area would know that the Lismore area was heavily flooded, many businesses closed and, very cautious about reopening the Lismore area.
Well, this thing’s on wheels, so it can roll in. It’s a fully functioning store doing the sales, like a normal store. It has a store number attached to it and these trucks, and we’ve got two already in action with another 10 odd order. And we’re really excited to see what this can do because it can give us access to areas that we otherwise wouldn’t get access to.
And on that note, I’d like to, to hand over to our next speaker Andre Wolde on Europe.
Andre Wolde
Well, thanks, David, Stoffel and myself stuff is also on the call where not as happy about our results in Europe, as you can be. And, and Josh can be about results in, in APAC. Having said that there’s a, there’s a lot of learnings from APAC that we’re already rolling out in, in Europe and seeing, seeing the first results for the year Europe ended in 1,401 stores opening 123 over the 12 months. And if I can take you to the next slide the pleasing part of this is on the, on the right side of the page that we are a lot better business than we were pre COVID. But the tough side is on the in the middle of the page.
As a week after we talked last our life in Europe changed quite dramatically with the start of the war in the UK pushing innovations getting to record low consumer confidence levels over all the market. We have in in Europe so that resulted in a network sales increase over 4.3% over the full 12 months, but an EBIT that is 11% lower year. We’ll get some more details on that later when we when we take you to the, to the per market slide.
So Nathan, if you can take us to Slide 39 where from an operational perspective, Benelux in Germany did very well be, was has grown significantly. And as Don has already said was had an outstanding results. France was one of the areas where we struggled to get sales up, because just before all this hit, we changed our menu offering which did not resonate at all with the lower consumer confidence and, and, and the really price sensitive consumer con because we went to a Domino’s signature range, which was the more expensive side of pizzas, very good quality, beautiful pizzas, but it just do, did not resonate at that moment with the with the French customer.
Second point on France, you see the project golf, which, which helped us a lot in France to lower our carbon footprint did something else too. It’s been instrumental in negating some of the increases yet we had in logistic costs in, in Europe helping the franchisees to offset other cost increases for their P&L. And we’re going to roll that out from next month into the Netherlands as well based on the success it has next through that’s through that as an ESG initiative.
We achieved meaningful process progress in Europe with our dominoes for good including the introduction of the Nutri [ph] score which is a score for customers to see how their quality of the product and how actually good it is for them talking about doing dominoes for good and it’s pass our commitment to transparency and quality of our product. We also have expanded our partnership with compassion in world farming to now also include a better poor commitment in addition to the better chicken commitment that we introduced in 2020.
And from here, I’d like to hand over to Stoffel to talk about Germany and Denmark.
Stoffel Thijs
Thank Andre, and good morning to everybody on the call. I’ll start off with, with Germany. We’ve seen network sales and same store sales grow compared to last year, we’ve opened a record number of 46 stores, but unfortunately EBIT was below last year’s number main drivers have been a step up in royalty. We’ve been reporting on this in previous calls that to open the market to turn around the market and do the conversions of hello pizza and Joey’s pizza. We had some reduced royalties from our us parent company.
We’ve now had the final step up in the last half, this financial year which obviously is a headwind for us in the PNLs and the other reason causing a step back in EBITDA that same seal slowed down compared to the good trajectory of growth that we were on in the, the past two and a half years, as Nathan said at the start, our way of dealing with inflation and inflation is real in Germany is growth.
And that’s why I’m very, very proud to, to say to you today that we’ve crushed convention in Germany because we see our competitors step away from deals, from offers towards because customers, even though these are times that customers purchasing power is going down. So they, they they’re open for good deals. We do pizza Germany and our franchise partners have decided to double down on our most successful deal.
The Domino’s duo used to be Tuesdays and Wednesdays, the second pizza for only two euros. And we are now going to expand it to be valid from Monday till Thursday. So additional two days, starting in September of domino pizza dominoes, duo at loved and learned deal that we’ve had for three years now. So we expect that we can turn around this, this, the, the slowdown of sales growth, which has still been positive to better positive numbers.
As we’re battling inflation in Germany, I’ll move on to Denmark now. Where in Denmark, we go back to, well, stay on this slide. That’s fine. So in Denmark we’ve bought a business for two and a half million euros in 2019. But we shouldn’t forget that we bought a business that was closed on the back of a, of a food scandal reputational crisis for the business. And the Danish team has been building customer confidence up ever since it’s been a hard job and that came with operational losses.
Last this year we report 12 12 million Aussie dollars of losses. That’s money that we’ve invested into the business in training up teams, opening new stores and turning around customer customer appreciation of the brand. We’ve really doubled down in the last period, with a campaign that we call clear the slate, the campaign focuses on that we are new owners on the super, super hygienic standards, the best within our business exceptional delivery fee performance with a hundred percent E fleet and premium quality ingredients. Part of this beer campaign is our first ever TV app and Nathan, if you want to play that now, that would be great.
So as you can see we’re really owning up to things that have happened in the past and that we need to change other part of this. This campaign is that we’re actually giving ourselves trust pilot reviews saying that we need to do better. This campaign has really touched the hearts of the, of the Danish. We see our trust pilot score has jumped up in the last in the last week, since it’s gone on air.
And I want to use the opportunity to thank Kelly and the Danish team for their, for their courage of putting this on television. Some of the questions that came in is we’ve lost 12 million this year. That’s up $7 million from $7 million last year. Differences basically that we’ve opened more stores and we’re converting more mindset of, of consumers. We believe that we broke the back of it.
We’ve, invested this summer in this camp, this campaign and we’ll keep doing so we won’t take our food of the throttle. We’ll be doing more television putting great product on television. Next launch will be the cheesy crust. Something that here in the Australian markets is known for a long time, but we can really own because it’s a novelty in the Danish market. We’ll have next that we’ll be doing some great customer value campaigns.
We have been working in the other company countries, so between great product great product, great value, and our next will be launched new app the, the same app as that we’re using across all our markets with the difference. That is the very first app for Denmark.
Speaking about the app, I’ll hand over to Don may to tell you more about this new app.
Don Meij
Thank you, Stoffel. Yeah, so many of you would’ve already and hopefully have used our new app faster, easier, fresher, more convenient, and it’s absolutely hitting the ground running. It’s now the dominant platform for ordering throughout our business web has typically been dominant. I think it’s a really important statistic because I know many shareholders and analysts track our business on web traffic.
Please make sure that you’re also monitoring app traffic because it’s now the dominant platform in Australian New Zealand. It’s grown exceptionally well in the Benelux and it’s just getting promoted in, in the coming weeks, in the rest of the European businesses soon to come to Japan Taiwan, Luxembourg and Denmark. So, we’re getting a higher spend. It’s definitely helping us with inflation as well. We are getting a higher frequency.
We get higher NPS scores, better loyalty from our customers. And this is just the beginning. We’ve had a three and a half year drought in our technology for consumers and we literally have a pipeline that we’re now thinking how we’re actually going to be able to communicate how many really cool features that will come. And there’s one of the best features that we’ve got on is going to be launched just before Christmas for Australia, New Zealand consumers. So watch this space. We intend to make sure that it becomes the growing platform. Something like 90% of our online sales in the coming two years. All right, let’s talk about the, the third phase.
If you come with me now onto Slide 43, the age of delivery, we’ve talked about this for a number of years now that we, we absolutely believe that that delivery is the most convenient way to get QSR fast food and that in the coming years it’s going to be the fastest growth part of QSR. And we intend to make sure that we leverage our expertise.
Something that’s unique about dominoes is everything we do is designed to be delivered, whether that’s the customer consuming in their home when they pick it up. But particularly when we send those orders to the, to the home, unlikely all other QSR, everything is specifically designed that way, and that’s a competitive advantage. And for us, it all starts with that franchisee profitability, that unit economics, that’s where we’re obsessed that when franchisees are able to achieve strong unit economics, which even now the average for the group is in and around 3.5 times the investments for a three and a half year payback. So that’s, we want to continue to improve that by considering the inflation environment we just delivered upon, we’re still quite strong.
When a franchisee is really profitable, they, they fortress that buy bringing their stores closer to the customer because it’s just more profitable to do. So. Being closer to the customer allows us to be faster, more convenient, deliver a hotter fresher pizza, which then improves the customer experience, which drives our customer lifetime value. One of the areas we’ve got the most sophisticated data on today is how we’re building out all of the little metrics that drive that customer lifetime value and it’s really inspiring and it’s the whole data, part of our business has become a genuine competitive advantage today.
And inside that we are con constantly trying to reduce our delivery costs because we believe that the biggest challenge to our business in the coming decade will be a shortage of delivery drivers in the age of delivery, not enough people to be able to deliver the number of packages and we win by doing more deliveries per hour, which I’ll show on the next slide with all of those efficiencies. It allows us to fuel profitability with franchisees in that beautiful flywheel that virtuous cycle just continues to flow.
If we come on to Slide 44, we sort of show this data in a really important way because, our top 10% of stores are heading into the direction of what we’re aiming for over the next decade. In fact, the Netherlands is the benchmark and the top 10% that we’ve been able to achieve that with the last seven and eight years of project three 10 work that if we can get down to a 10-minute run time, that basically means that we’re averaging between the five to six deliveries per hour. And you most, the industry today is one to three, but you can also see where we lag in the bottom.
We’ve got a lot of work to do so that’s where the business would’ve existed as a whole in nearly all of our markets only just seven or eight years ago. But, all of our progress and everybody in between is the real focus because ultimately we’d love to be the wage leader. We want to be able to pay more, any more than anybody else in the market because we’re more efficient and we can, do more deliveries per hour and therefore keep our costs, our benefits to the consumer in the right space.
If you come with me now on to Slide 45, I want to pass over to David to just talk about our path to excellence.
David Burness
Thanks, Don. And look, this is something I’m really excited to talk about. Of all the things I love about Domino’s this is something that I’m, I’m really personally passionate about. And I mean, something that, is critical to any business, the most important thing in, in any business as its people, but what’s unique to dominoes is our philosophy of promote from within, we really have that story of driver to franchisee and beyond, and it’s, it’s so clear in our business. Right through to Don may, I’ve lived that story, my whole working life and not only that I’ve seen that story passed on to others. I’ve had more than 10 of my store managers that started as a pizza maker or a delivery driver in a store.
Who’ve now gone on to become some of our really good franchisees, including my own daughter. She started as a wobble border and a pizza maker and one of my stores years ago, and, and today is a three store franchisee and those franchisees that know that process of growing their team from within to become franchisees they know what it looks like. They know what it feels like, and they’re really good at doing it. And when you look through our successful stores, that’s where our best franchisees come from the most profitable franchisees and know that then know how to grow others.
Now, what we’re doing through this program of path to excellence is we are going to systemize that process. We’re bringing it to life through a program. It’s a proprietary training platform. It’s actually, it’s built on a on a successful platform from the Japanese business called mammoth.
But more than that, as I say, the muscle memory, the processes, the habits that exist in our best franchise stores, we’re going to make those really easy to adopt for all franchisees across the system. It’s live in ANZ now. So, we have stores that have been trailing it for the last couple of months and it will actually be live throughout all 880 stores in the next two months in ANZ. And then we’ll continue to grow it through FY 23 and then it will then spread to other markets through FY ’23 and ’24.
And I’d like to hand over now to Marika Stegmeijer, who’s going to talk about some of the right stuff we’re doing with dominoes for good.
Marika Stegmeijer
Thank you, Dave. Good morning, everyone. In addition to the updates provided by my colleagues so far, I’m pleased to inform you today about the progress we’ve achieved on group level with our dominoes for good work. It’s important to know that the start of this part of the presentation, that the progress for achieved this year as a result of a dedicated leadership team, many engaged team members and external partners who share our passion to do the right thing, because it’s the right thing to do.
And this past year as achievements clearly demonstrate that usually is a shared responsibility in our company and not just my responsibility, I’m going to join DP. I noticed that we’ve done many great things in the past but we did not have a global structure in place that helped us to achieve common goals and a meaningful, measurable impact for our stakeholders.
Therefore, one of my priorities in FY ’22 was to build a structure and together with our leadership team shape our strategy and set companywide targets. I’m pleased to share that that is indeed what we achieved last year. Firstly, we developed our ESG vision based on stakeholder feedback.
We invited many team members, many stakeholders to participate, including franchisees for many, from our various markets, young team members, of course our globally ship team and our board. And we launched this vision globally, enrolled this out across our markets and with dominance for good, we believe in a better slide for everyone because we want to achieve a positive impact for all of our stakeholders by 2030, as a reminder for this audience, our dominance for good work consists of five main pillars. And you heard about several examples earlier today in the presentation. It’s about our people, our customers, our food, our environment, and our community.
And I will elaborate a bit more about the work we’re doing with respect to our environment in a minute, as you can see in the graph here we’ve improved female leadership in our APAC region and we are getting closer to 40% female leadership. So for, for two or 40% female leadership target across all regions important to note that the GT was expanded to include additional roles in FY ’22, there’s been no reduction in the number of female leaders on that level.
However, we of course keen to further improve female leadership, especially on our global leadership team level. In addition to the modern slavery statement we’ve conducted, we’ve released for Australian market. We also conducted a research on responsible sourcing. We completed that research and rub level renowned process of setting up a global due diligence procedure for this in FY ’22.
We’ve also fully developed our E D organizational structure before for this reason we established an T steering committee, which oversees for good work and key decisions on group level. Most of its members are actually in the call here today. In addition to the global working group, we have already in place each market almost each market also has a local working group with representation from key departments.
They are in fact, our key ambassadors and they make sure that dominance food really becomes part of everybody’s job in this company. And last year, we also released our first sustainability report moving on to the next slide as part of our dominance food, good vision. We want to give as much as we can for the good of our planet. Not as little as we can get away with. And we believe that science based targets will help us do the right thing and help us measure and report on our progress consistently over time.
As you may remember, during our AGM last November, we announced our commitment to science based targets in June. We submitted these targets to the science based target initiative. And as part of this exercise, we completed a corporate footprint baseline measurement. We developed an environmental strategy and climate roadmap important to note and good for you to know. After officially committing to science based targets, companies are allowed to submit their targets. Within 24 months, we managed to do this in less than eight months.
And to me, this clearly shows the commitment of this company to move forward with our donors work. Our targets also important for you to know are based on keeping global warming to 1.5 degrees, which is the motion issue, targets target that’s out there currently globally and reaching science based net emissions by 2050 with intermediate targets for 2030, the targets are now being validated and that will take a couple of months.
Once these targets are validated, we will communicate them to you. And moving forward, we intent to report on our climate progress based on these targets. Moving on to the next slide, as you can see in this slide, our basement results are dominated by scope three categories. They represent 97% and 99.7% of total footprints for carbon and water respectively. This was rather typical for our rather common for a food company.
We found that our main hotspots and all impact categories are mostly dominated by purchase goods, followed by utilities and logistics. And we decided that in order to achieve a science based target, we will focus on three main areas which are sustainable stores and operations, responsible sourcing, and sustainable product innovation. And for each focus area, we’ve now set targets and have identified the most important actions and we also established just established global centers of excellence for each focus area.
These centers of excellence will be dedicated with a task of identifying sustainable innovations that can be implemented across our markets that will reduce our environmental impact. And of course also ensure that there are still an attractive solution for our franchisees wrapping this part up, looking ahead, our focus further coming 12 months can be summarized in four main points.
We want to further develop and implement our strategy to also include water and biodiversity targets. We want to improve EC data management reporting. We want to have a solve measurement system in place that helps us track our progress on our metrics. We want to ensure responsible business conduct and refer.
We intend to further implement our responsible sourcing policy in due diligence process, FFR 23. And lastly, you want to communicate and engage with our key stakeholders because we want to better understand the stakeholders needs and opportunities to have a positive impact. We look forward to sharing more information about our progress in the sustainability report that will release latest scale in the year. And of course, we’re very keen to hear your feedback on our achievements.
Thank you and now hand over back to Don Meij.
Don Meij
Thank you, Marika. Congratulations, incredible progress in such a short period of time at this time. I’m actually going to hand over to Josh to just talk about the latest M&E.
Josh Kilimnik
Yeah. Hi everyone. If we can go to the next slide yeah, really please, to announce that our intention to acquire Malaysia, Singapore, Cambodia, some three and a half years ago where we started this journey and we’ve come to this point a lot of due diligence not just from a financial point of view, but from a fit, whether we could do what we needed to do in this market and also being respectful in which is a very, very important thing in this region. So three and a half years later, we deliver our next acquisition and, obviously with Taiwan before this is we’re very excited about it. We are the second largest pizza chain in each one of these markets.
And of course the first thing for anytime we acquire a business is to become number one. So that is our first goal. Of course it’s 287 corporate owned stores and I’m sure you, you understand, we’ve got a sizeable corporate business in Japan, so we’re going to be leveraging a lot of that knowledge outta there, but also just building upon what they’re already doing in the market, which is, which is similar, but we feel that we can bring added expertise there. It really does extend our twin region focus and we’re going to leverage a lot of our knowledge across the business, our infrastructure.
We’ve learned a lot, Japan and Taiwan is we’ve been continuously learning with Japan. We’ve brought that to Taiwan and we’re going to keep we’re going to inter introduce a lot of our things into that business. Things like our digital stack our operational knowhow, our marketing expertise to grow the unit sales and the unit economics, which is really the thing that will accelerate the store expansion. We’re excited about franchising there it’s corporate stores, and one way to think about that is that each of those stores has about two to two and a half managers.
So you’ve got about five to 600 store managers who potentially might want to be franchisee. So we’re going to be working hard to grow that part of the business, and that will come with recycling of capital of those corporate stores, but will give us that second engine room, which is what I’ve always spoken about with Japan, about having two engine rooms with corporate and franchise started and each, help the other one grow by finding new efficiencies and new ways to grow in the market.
Other great news is for retained all the leadership and that’s important because, there’s a, there’s a lot of people in those leadership teams have been there for 10 years plus, and we’ve also retained the CEO who will be helping us out. And he’s a 22 year veteran in the business and grew it from where it is now. It was actually Shakey’s pizza. And now it’s been, it was converted over to dominoes and he’s been growing that business ever since also announcing that Ringo Johannes who’s leading the business and another 25-year veteran of ours.
Well, we’re bringing all the Domino’s Pizza enterprises, knowhow, the high volume mentality and all the things that we know in the business to make sure that, we can grow sustainably in the region. So very excited about this. One, of course, 5% EPS approved is, is great as well. So excited and look forward to bringing you more about this market in the coming announcements.
So I’m going to head over to Don now to bring us home. Thank you.
Don Meij
Thank you, Josh. And it’s obviously always an honor that we are able to bring talent the 25 year’s experience to another new market. So it feels really good if you come with me now on slide 52, just looking at those milestones clearly with the acquisitions. We are well on truly on track to exceed those milestones. And that’s quite exciting for shareholders. I would hope if we look at Slide 53, you can see there that we’re reconfirming our three to five year outlook for same source sales, including in this year and for net CapEx to be between the range of 3% to 6%. It’ll come in that flow.
As I mentioned with the first quarter being softest, as we roll to more normalized figures, obviously with a cautious tone that we’ve lived now for three years with some pretty dramatic ebbs and flows and there could always be that that change in the, in the market that that we need to adapt to. When we look at the now ad of Taiwan, Singapore, Malaysia, and Cambodia, we still are going to be opening the material store count, but when you and the numbers that we were already forecasting, but the base just got bigger by, roughly 460 stores. So we now just saying that three to five year outlook more looks like eight to 10%. It was just added a bigger base.
If we have a look at going forward, the way our cost structures are built, it’s important that we, we literally start reporting in the two twin region strategy in the way that we run the business with Europe and APAC, because the way things work now with, for, to be illustrative to shareholders, we want to be able to show it as, as the right cost structures and the way that we are running the business.
So from 12 months from now, the ANZ business will be rolled in to be reported under APAC, but we acknowledge for shareholders that will continue to report for the next 12 months with that. And we would also like to highlight, this is outlook. It’s not guidance and the way that we can best see the business today.
So in closing, when we think about when we traded through COVID, it’s probably the last time we’re going to really refer to it in that way, that during those initial stages, we, we faced a choice to become defensive. As some retailers may have chosen to do, or to invest in grow large and be more sustainable. And I think slide eight really in this deck really reinforces that we, we chose a latter. I’m really proud to say today that we added those 865 stores in four countries, by the end of by the end of this calendar year, the benefits of that are quite clear.
We’re substantially bigger delivery business. We’ve been cultivating and growing our stronger, more sophisticated franchisees and maximizing the opportunities of expanding our advertising and accessibility. We’re getting closer and close to the customer, and we’re getting better and better at getting to those customers with inflation since January, this year, obviously my 35 years like this, about any chief executive that operates today, we haven’t seen these sort of numbers, but I’m really proud that we’ve now got a roadmap.
Whilst it’s never guaranteed that the things that, that work in one part of the world work in the other, but we, we are feeling quite confident that the initiatives that have been rolled out Australia, New Zealand and Japan will flow through in Europe, in the coming month and subject to anything new, we will, we’ll be able to consume that inflation, strong franchise E profitability, good consumer benefits, and therefore good earnings to ourselves that we can continue our journey.
This is the age of delivery ensuring that our franchisees and that ourselves, that we’re poised to do that, we’re constantly focused on that that flywheel for now and into the future centered around those unit economics. If you come with, with me on slide 55, we are, we still believe that we’ll be able to deliver 3% to 6% at same store sales, both this year for the next three to five years as an outlook and management, we believe that our customers have the choice and with our barbell strategy, with our really big, heavy, heavy push into new products, technology and pricing initiatives, we’re quite, we feel that we’re, we are a lot more certain today than we were just only three months ago. Ironically, we’re in a very interesting window where actually some of our biggest commodities and of cheese and grain or wheat have actually come off to more normalized periods.
It could be just the window and time. But we’d actually been forecasting and all of our budgets that by January, we’re going to take another material increase that may not end up being the case with the current benefits that we are likely to, that could achieve with cheese. And we, the new organic store growth is still going to be eight to 10% on average, over the next three to five years, we built the teams.
We think teams, in fact, we even still just slightly increasing those teams with the new markets. We expect to hit the ground running in the three new markets as we did in Taiwan, really impressed with how quickly the team Taiwan were able to turn on stores and, and apply all of our high volume mentality, very excited about the path to excellence. It’s a, it’s going to, I believe be another competitive advantage.
Today we employ approximately a hundred thousand people at any one time throughout the network. And as we intend to more than double that this is another tool that will, will help to strengthen our business. And we can’t well, wait to Josh and I are up next week in Malaysia, single Cambodia to talk for the first time beyond the senior executive, to all on the team and welcome them to the Domino’s Pizza enterprises network and all of the great things that we can share with investments in them and the investments in, in bringing new technology, the data that we have, the product development, the buying power.
So, I hope that we can get them as excited as we have in the rest of our business. Finally, I’d like to say that, as a business I hope you could see from Marika’s presentation and listening to the CEOs that ESG is not on the back burner at DPE that despite the short term pressures that may come in any one time, we’re absolutely committed. And you’ll see that as we continue to present, I look at all the new products that we’re bringing to market. It runs through our ESG lens, does if it’s a future product that belongs in our network does it better the planner better sustainability? Is it better for our team members our franchisees and then therefore flow through to our shareholders.
So at this point in time, I’m going to hand back to Nathan to lead the question and answer. Thank you very much.
Nathan Scholz
Thank you very much for that, Don. So as Don noted, we are now going to move into the Q&A section. I’m just going to stop sharing the presentation slides. And I note that we have, obviously we’ve covered a lot of ground today, and we have a lot of questions as well. I have promised our chief of communications and corporate affairs that I will have Don to his next appointment at 12. But what we will do is we’ll get some of those questions for Don out of the way first, and then we’ll be able to continue on with the other speakers so that everyone will get their chance. I’m not going to name names in terms of who’s lodged many, many questions. But I do know that some of our analysts are doing multiple results today.
So what I will do as we’re going through the Q&A, I’ll call out who has asked the questions. So keep an ear out for your name being called. So you’ll be able to hear the answer you’ve asked for. Transcript recording of this will also go up on our website afterwards.
Question-and-Answer Session
Operator
Q – Nathan Scholz
So maybe if we hit the first question that was lodged, which is from Sean Cousins food inflation and I’ll refer all of these to Don in the first instance, food inflation, what is the status of food hedging and when do hedges run off, so that the full impact is felt, how does DMP food basket inflation compare to DPZ, which they were reporting at 13% to 15% and can you discuss with reference to each division?
Don Meij
Yeah, look, there’s 10 markets out there, Sean. So we’ve resisted putting just, confusion into the marketplace. What I can say is that in many cases, because of the size and scale, particularly in Europe of the inflation that the actual longer contracts were just brought forward. If we wanted supply, we had to take the price and you saw a little bit of that in the last half in Europe.
So we’ve mostly taken the first half inflation through our business. There is a step up of wages, wage, significant in Germany, which has been going in stages and we’ve finished in the September period and energy by market, franchisees negotiate their own energy contracts. So when energy becomes, when it rolls to the new prices, they’re very material and that’s still flowing through in, in the current half, largely in Europe, but across the board we’ve taken, when we look at from January to July, the big, the big numbers, we are forecasting a little bit in September.
That’s probably not going to hit us in September, quite as bad. In fact, Andre took the decision with our procurement team to do a shorter contract on a couple of our big ones. And that’s actually good luck or good fortune, let’s call it good luck. Even though Andre’s intelligent, man but we’ve now been able to we are actually going to end up potentially benefiting in the September quarter, we were full costing.
The next biggest increase would’ve been January, but once again, the new uncertainty that it could even be lower because of the fact that, grain flows into protein, grains down so much cheeses down so much at the moment; so a little bit unknown. We have built in wage inflation expecting that governments, we got a surprise in Japan only a few weeks ago.
Fortunately, we had a lot of we were already well ahead in what we’d already put in our plan. So that was, that was easy consumed. But yeah, it’s a volatile time. But I can say to you, Australian New Zealand is actually ahead at a store unit economics. And at our own level, Japan is out ahead store in economics. Parts of Europe are already getting ahead and it would be our expectation that all going well will be ahead and have consumed it all by the end of September.
Nathan Scholz
Thank you, John. A question from Michael Samos [ph] why is network sales growth currently year to date worse than Saint sales growth when you’ve opened so many stores? And what does that mean for network sales growth in FY ’23? If you’re going to be in the 3% to 6%, same-store sales growth range.
Don Meij
Yeah, a big part of that’s obviously FX. Another big part of that, that doesn’t include Taiwan right now, but it will include Taiwan as soon as we roll owning Taiwan last year. And of course it’s then the split stores. And so on that stores that are not in that and with the number of stores that we’ve opened up in recent times, there’s stores that are removed the more mature markets, a big quantums of same store sales which is a fair part of Europe and a fair, obviously Australian New Zealand that Japan, a lot of splits in the last year and that would’ve been reflected in that same store sales figure.
So the outlook going forward I think that we get to a more normalized state from October, but we don’t, I’m not a currency expert and with interest rates staying low in Japan and Europe, our internal expectations is that FX will still be a headwind in the coming 12 months, but you might know better than I do on FX.
Nathan Scholz
Thank you, Don. A couple questions also from Michael on the Southeast Asian acquisition announced today. And again, I’ll refer this to Don in the first instance is the EBITDA on acquired Southeast Asian markets pre or post ASB 16 given rent on corporate stores, not insignificant.
And also Michael is noted that they’re delivering EBITDA network sales of 11.8%, which is much lower on the full vertical margin in other territories of more like 20%. So can the acquired territories move towards that sort of level, perhaps I don’t know if you wanted to pause that out different speakers.
Don Meij
I’ll start with the last part of that question first is, yeah, we do have expectations that with the efficiencies, with our high volume mentality, we’re quite excited that we will be able to deliver similar margins, noting that we do on the core business, that they have a 1% higher royalty than most of our business or new stores, not the case, but I might hand over to Richard. Richard, if you just want to answer the first part of that question, or even Josh, if we caught Richard by surprise,
Richard Coney
Sorry, Don, missed, missed sorry.
Nathan Scholz
Sorry the question? Richard was just in terms of whether the acquisition the EBITDA is pre or post ASB 16, given rent on corporate store is not insignificant.
Richard Coney
It’s pre ASB 16, so it’s not including — so it hasn’t got the benefit of ASB 16, removing the rent. So it’s pre ASB 16.
Don Meij
And Josh, maybe you could answer the second part, restate that Nathan of that question.
Nathan Scholz
Yeah. So just the — obviously we spoke about the vertical margins there. The other part of Michael’s question was just in terms of franchising, obviously Josh, you alluded to the franchising, those Southeast Asians, Michael asked, is there an established path to it? And how much of the economics do you need to share with franchisees?
Josh Kilimnik
Yeah, look, great question. We’re going to be creating that model from scratch. We already there, there’s already margin there that we can do. We negotiated good royalty rates for DPZ. So, we’re going to be exploring that pretty quickly. We see that pathway to getting to that profitability when we start that it takes, it takes we’re going to need to grow volume.
I think as we look at those synergies across the group, that’s what we are going to be able to bring. And that’s going to create some of the margin that we need to then go and franchise this business. So, more to come on that we’ve got to get in there and look under the bond even further and see what we’ve got, but that’s going to be the — that’s going to be a key part of the strategy going forward.
And, noting in that similar story to Japan, we brought a very similar model. It was all corporate, didn’t have the same margin and it just took us a couple of years to build that up through the initiatives that we put in place, but yeah, same expectations. And in our own business plans, we’ve done various ways that that flows through and it feels like we should map the rest of our business.
Don Meij
Just jumping in, obviously a franchise business is pure royalty versus a corporate store business. You got the big, very large revenues. So if you look at network versus network sales, it probably looks reasonably strong. So just be careful with that analogy as we franchise,
Nathan Scholz
Thank you for those answers. Now just in terms of one final one here from Michael, and I think we’ve answered some of this in the presentation, but worth restating. So Don, how are customers react into price increases so far? Is there some offset from trading down and what do you expect price to contribute to sales growth in FY ’23 expecting more or less net inflation drag and next year versus this?
Don Meij
It’s an interesting question. At the beginning of our price increases in France was an example and actually gave us a little bit of surprise that we went a little fast and the consumer didn’t take it in the early phases, but as we’ve now flowed through into June, July, August, we can see that the way that we’re launching products, if I do the barbell in Australia, which you can, Michael just relate directly to the cheeseburger and the burger pizzas are some of our highest price pizzas.
If you buy the menu price, burger pizza, it, I think it is the most expensive pizza on our menu and built into that is all of that quality, but also the margin that helps to cover with inflation and it’s been highly successful embarrassingly.
We ran out of toppings last weekend and are refilling the, the warehouses this week because it was so far ahead of our forecast. On the other end, you’ve got the pepperoni pizza in the hunger savers and interestingly that many of the value range have migrated up into the value max, which is now bigger than the value range. And that’s $8 pizzas instead of $5 pizzas with more ingredients.
Then you’ve got the technology getting a better conversion at the moment. We’ve just launched push notifications, which is also giving us how silly, right; EPE dominated were supposed to be pretty sophisticated in our technology, but we weren’t, we, we weren’t using a native app and we weren’t doing push notifications. And just turning that on just in the last little while was like, that’s all told us, this is fantastic. So we’re getting the short of it is that we’ve got really good sales growth, good customer count growth.
And I know to a lot of shareholders, they say, well, if you pass on 8% in price increase, wouldn’t that be an 8%? Well, it’s not kind of working that way because as Nathan clearly showed, you’re getting a, a fast growth in carry out customers and customer may choose not to buy a cheesy process time around or an extra topping with someone, but just there’s a slight different variation in their basket.
Particularly against the COVID inflated baskets where people were getting a delivery and really filling up the basket. So we’re, we’re seeing that and almost, but the Australian New Zealand business is definitely the benchmark followed by Japan right now. And I expect that you heard stock specifically on Germany, really good strategy.
I think getting the best offer, actually expanding it, but that is a second piece of two as well. The first one will, will need to go up in amongst that, along with some of the other product innovation we’re doing. So I hope that answers that I answer all that pieces Nathan or any other executive want to jump in.
Nathan Scholz
Okay. We’re going to move on to the next question. Because I’ve got, I’m conscious, I’ve got Don for one last question before I need to send him off to his next appointment. I’m just going to move to the question from Craig Wilford who asked, can you talk through the outlook for franchisee profitability? Based on Slide 16, it looks like franchisee profitability still trending down over the next six months. So will the company provide any assistance to support more marginal franchisees?
Don Meij
It’s not our likely intent. There’ll be little windows, like we’ve always said in the past, as I said with what, we’ve the roadmap that we’ve shown in Australia and New Zealand and Japan right now is that store profitability is higher than this time last year, despite all of those inflation, because of the great product innovation, the technology and initiatives like the delivery service fee.
So in the European business definitely did have a drag in this last half relative to the recent two years, but we expect that if, if these projects work the way they have in Australia, New Zealand, then it won’t be as, as required. So yeah, it is our expectations that we will grow unit economics over the 12 months window. Be it that in this calendar year, there is some drag also this quarter until we roll September with the, like for likes in Japan, France, Germany.
Nathan Scholz
Okay. Thank you, Don. I’m going to free you up for your next appointment and we’ll just sorry, we’ll continue on with that, Don. But I know Don is back to back at a number of meetings, including a group lunch now, today. So I’m sure many of the people on this call will see him shortly. So thank you Don for your time today. And we’ll continue on with the next question. However, we have a number of questions from analysts regarding Denmark.
So I’ll wrap up a few of them. Alexander [ph] has asked what’s the composition of the $12 million in costs. What were the costs last year? And what’s the outlook for the market moving forward towards profitability? Similarly, Craig Wilford is asking the same kind of question. Can you clarify the loss? From FY ’21, what’s expected for ’23, Brian, Raymond also staff, everyone wants to know how quickly can Denmark losses turn around, could this Reba extend into FY ’23 and FY ’24? So if we can start with you Stoffel.
Stoffel Thijs
Yeah. Thank you very much, Nathan. I understand the question and it’s the question we ask ourselves is how quick can we turn this around? And what we believe is that with the current initiatives and what we’re seeing today is we’re really positive. There’s a way out how long it’s going to take us. Exactly; that’s very hard to quantify, but the good things that we see is that the customer, the customer are opinion towards the brand of dominoes is changing by the feedback that our customers are giving us.
And we know that today’s customers are tomorrow’s profits. So with that, we firmly believe that we can turn around this trend and that we’ve seen the worst of it. So we in no way shape or form like loss making markets, and we see it as a significant drag on a European result.
So we are working with all guns blazing on turning this around we’ll we’ve got great food innovation that didn’t touch on this that will also move into sub franchising in the market where we’ll have great local entrepreneurs that help us build the brand further out.
So I’m very bullish very bullish on this. Last part, what I probably didn’t touch on is how the build-up what’s built up of the, the cost here. It’s us investing in the customer base, it’s investing in additional store openings and building the teams up. And we see that we turn this around just like anywhere else with more customers driving higher sales we’ll tick, we’ll take over a hundred percent corporate today, corporate stores today we’ll tick over the breakeven point. And we can start building the market to which full potential of 150 stores in Denmark.
Nathan Scholz
Okay. Thank you so much. Stoffel a question from Sean cousins organic stroke is store growth has been reduced from to eight to 10% from nine to 12% which was raised from seven to 9% last year. What was the impact of higher inflation and lower franchisee profitability and will DMP provide increased incentives to franchise, to open stores?
I’m sure and I think we Don touched on this in his presentation. The move to eight to 10% is merely simply because, we’re opening the similar number of stores on our forecasts. But it’s now as a percentage it’s based on that larger base, which now includes Taiwan and the three markets that we’ve announced the acquisition of today, but you should see a similar number of stores that will be opening. Sean has also asked what does DMP bring to an emerging market acquisition?
Given historical acquisitions have been in developed markets with hard currencies could more emerging market territory acquisitions occur. So perhaps if Josh, if I hand to you to cover that in terms of both emerging markets and the currency.
Josh Kilimnik
Yeah, sure. If you just answer at the currency part first, I mean, yes, it’s a different currency. It’s not as a, not a hard, hard currency as you’d say, but it’s very stable against that and so we’re not worried about that. Typically what we can bring is, I actually think it’s quite exciting.
As we try to cement our number one position there as we drive towards it is that know markets like that can’t typically afford some of the, the bigger things and with our size and scars, we can actually get, first class apps, first class tech stacks and a range of other things. So there’s also an ability here to think about this as a lower cost of doing business for some of the, the other things that we do across DPS a group.
So that’s the other way to think about this? It could offer us some synergies across the whole group. I think overall, I think Singapore’s actually a very stable currency think about the food buying that we do. I mean, they’ve still got to buy the same mozzarella mozzarellas mozzarella, right. And that’s all driven by commodity pricing.
We can actually bring those types of synergies to this market and that’s the type of things, but then it’s really about our knowhow and what we can do around franchising around operations. This is a family business with, with respect. We are going to, we are in favor of growth, so we’re going to be investing, ahead of that to try to build a strong business.
There’s also other things; this is a commissary style model. There’s probably some backer house dough manufacturing that we should be doing to lower cost. So kind of a similar playbook to Japan where we, where we harmonize freight across the business, where we looked at ways to find lower cost of doing business. These are the things that we bring to the market. And that we’ve got no height, knowhow and expertise in. So very excited about pushing those initiatives through those markets.
Nathan Scholz
Thank you, Josh. Just staying on Asia for a while. So how much did FY ’22 earnings benefit from COVID and Malaysia, Singapore Cambodia. And is this the right earnings based to use when modeling the acquisition going forward? Richard, do you want take this one?
Richard Coney
Sorry, say that, sorry.
Nathan Scholz
Yes. How much did FY ’22 earnings benefit from COVID and Malaysia, Singapore, Cambodia, is this the right earning space to use when modeling the acquisition going forward?
Richard Coney
So well, probably Josh, you can chime in, but we they’re very similar to us. And in that they’ve, they’ve got all of those COVID being a delivery business they’ve got all of the COVID benefits in that period and had had an extraordinary year. And probably part of the challenge is us when we were doing the due diligence of this business, not trying to wanting to pay for that, let’s call it out of cycle benefits from COVID.
So, yeah, so it, it was just a very similar situation to what, what we’ve experienced in, especially in Japan. And I think Taiwan, Josh, but maybe if you jump in on that, but that’s absolutely. That’s how I think about it.
Josh Kilimnik
Yeah. I think it’s fair. It’s a fair question, and by the way, what you didn’t see behind this is we spent a lot of time on this question ourselves. So if we look at how long we’ve been working on this deal, which is three and a half years, but more specifically over the last couple of years, we really took our time on this. So it’s a fair question.
We think it’s the right — we landed on the right number and we, we can see that there’s a there’s a business to build here based on the foundations that are already there. So yeah, all those questions are we, we had to answer in our own head and for our board as well.
Nathan Scholz
Okay. Thank you. I might just change gears to Italy for a moment. A couple of questions from analysts. Don’t have names in front of me at the moment. Sorry. What was it about the Italian master franchise that made it not the right fit for DMP at this time? We’ve had a few people ask that including Alice ESE, perhaps Andre, if I can pass over you were very closely involved in looking at that business. What was the reason it’s not the right fit at this time?
Andre Wolde
Yeah, I’ve been working on potentially acquiring Italy just as long as Josh has been working on senior board Cambodia and at this time meant basically two things. Stale already talks about Denmark. We have a, a market in our portfolio in, in Europe, that’s loss, making and Italy. Would’ve been also loss making for the first couple of years.
I think it would’ve gone to profitability way, way faster with the debris thinking it was already on a store basis level pretty positive, especially in the bigger city regions. But then with the added costs of commissaries and offices the total company was lost making. We just couldn’t get to a deal that we thought was the right deal when, when the business was still healthy and we, when we couldn’t get there, management made some decisions that didn’t improve the business.
And so later on it wasn’t a great fit for us at this moment, but the market is a 50 million plus market stores were actually doing very well, Italians eat a lot of pizza and they also want variety. And they definitely once in a while want an American pizza or American thick shake or all the things that we can add to be experienced and not always a traditional Italian pizza and especially for the that’s especially true for the younger population.
I think with what we could have done and added to the business with our technology, because they had very or no, I can’t say no technology, but
Nathan Scholz
Thank you, Andre. I’m going to stay in Europe just for a little bit, and then we’re going to go to store openings after that. So just in Europe Alexander has asked what has made inflation more difficult to mitigate than in APAC? Is it just about the volume of it, can you talk us through that?
Andre Wolde
Yeah, well, inflation apart from it being higher in, in our European markets, we actually tackled inflation really early and started in France. But the learnings there were that maybe we were too early because it hadn’t really sink in with customers that prices also in supermarkets were growing up, saw a number of 18% in, in the Netherlands.
So we probably were too early and the barbell message didn’t stack up because at the same time we were promoting this high end pizza range. So we took a step back and might have gotten a little bit frugal in, in in initially raising prices in other markets. But what we said when you combine raising prices at this moment, because customers really understand that.
But then provide more in days that you can have real good value with your second piece of EUR2. That is, and we’ve seen, we, we’re seeing that we’re seeing that in the be likes that’s the winning combination and that’s what we have to do in France. But we, we did, based on the first result in France, we did get a little bit skidish. We were absolutely first DP market to do it. But just shows you that
Nathan Scholz
Thank you. Andre, you just mentioned obviously the, the French menu and that premium offering Brian Raymond has asked why didn’t the, that French menu resonate with French carry customers. And he’s asked that our use of the term that, that carry was impaired co post COVID. Does that mean that it can’t be rectified?
Andre Wolde
Oh, 100% believe it can be rectified. We will roll out some really good value deals for customers. There is a change in behavior and still in markets of France but other European markets as well. You see that even though everything should be back to normal universities are still, my sons are not going there every day as they used to. They go there once a week.
Offices are still empty for a couple of days, so that there is a different consumer behavior and we’re working towards that. But no, at no point do I think that we can’t get back carry out in France, as, we have these two crazy days as we call them the Mardi and LDI Fu and they, they are still outperforming the other days of the week, especially if we if we add some TV commercials to that.
Nathan Scholz
Just staying in Europe Brian Raymond has asked as a delivery service fee being implemented outside of ANZ. Now, Brian, the answer is no. But his question is if, if not, is that this appropriate for the European market, given the inflationary pressure,
Andre Wolde
It’s definitely not this appropriate and we are testing. We’re taking an approach that we’re going to test this. There’s, there’s very, there’s in the six markets in Europe, there’s different pricing models. And for instance, a large part of the French market already uses delivery fees. There’s different structures of pricing in there has been there forever. And in, in software in Germany is going to test a, a service fee, which will be initially in the test lower than the one in Anza.
But we leave nothing off the table, everything that we can, that we can test. And which seems to be a good idea. We will definitely test and we have aggregators in, in Europe as well as they have well up to seven, eight different lines that you additions to the total of food baskets of fees and service fees and payment fees and delivery fees. So it’s not abnormal for the customer. So we’re definitely going to look at that as one of the ways to battle inflation. Yes.
Nathan Scholz
Now Richard Barwick [ph] has asked we’re growing the network. So we added 294 new stores and then 156 stores in Taiwan that was 450 stores that was shorter, the 50 short of the 500 stores that we said at the half year that we intended to open. So what was the miss in which countries missed the target? And do we have many closures planned for FY ’23?
Don Meij
Maybe if I start with Josh first and then Andre as to where the miss was? So we built quite a lot of stores in the, in that region. We, we had planned to build more and it was just more of a timing thing where we, it pushed over there was some things that we had to it’s just the way things fall sometimes. Certainly in that region AZ was fairly similar, might pass to Dave he’s, he’s got some thoughts on this, but it’s more of just things pushed into the next half.
And we had I remember looking at it thinking we were going to have, 14 stores, 15 stores open before the end of the year, but they all got pushed just through timings alone, just getting the, the sites in place, getting the construction and all those sorts of things, anything going on that day?
Andre Wolde
Yeah. If you look at AZ, we were 23 stores for the year three and half, one 20 and half two. And, and, and what we found in half one was that we couldn’t get our construction and development teams on the road. Some of the stores that we’re opening, their conversions of independent pizza shops and in cases like that, you’re literally knocking on someone’s door, talking to the owner of the business about whether they’d like to sell it or convert the store and to do that, you’ve got to have people on the ground.
So once we got our construction and development teams, mobile, borders stopped being locked down. We saw that really accelerated in half two. And we’re seeing that continue now into, to FY ’23. So yeah, we’re much more confident about this year than last.
Yeah. And then in Australia, we’ve got 11 stores under construction. Now, if you look at the APAC, sorry, Japan and Taiwan, we’ve got about, sort of 15 stores, 16 stores under construction. I mean, these are, these are just timing things. We had a similar thing in Taiwan where we couldn’t get to sites. We couldn’t get even the, the leasing companies to turn up either. So that sort of push it out.
We’re going to get — we wanted to get 21. We didn’t quite get there. And those things push. We also have to, in Taiwan, as it relates, we had to invest into our development teams. And, and that was only recently that they’ve had a development department. So they were running on a very small, small overhead there. So we put those people in place now, and then we’ll start growing appropriately but probably over to Europe.
Don Meij
Yeah. What, we are seeing in Europe is that the window of store openings has become larger mostly to utilities. We were sort of expecting with the way end of COVID measurements that we would get in a normal rhythm of timing for getting electricity and gas in in stores. But it’s actually became a long, also these companies have staffing issues making sure that we’re connected.
Secondly, permitting has not become easier over the last years actually it’s become a lot harder. So we have to have a very field pipeline to overcome those win window issues. And sometimes you just have a gap in your opening calendar and, and that they just don’t fall because they get pushed forward. Same as in in APEC, I guess, stuff have anything to add to that?
Andre Wolde
I don’t know. Thank you. Sorry. I had to come off mute, so I don’t have to donate $50. I do not know it’s exactly what you were saying. There’s just the headwinds that we are facing everybody is. And we see the appetite for stores. We believe that with growing the initiatives we’re taking to grow sales with growing sales, we grow profits on both our sides of the French disease side. And if we grow profits, we put on an extra layer of opening intent with our franchisees.
Nathan Scholz
[indiscernible] asked how many stores we’re targeting to roll in an FY ’23. Obviously we’ve said today that we’re looking for eight to 10%. So that puts us above 270. Maybe Josh and Andre. Again, you can give some sort of a flavor. I know we’ve talked about, we’re expecting a first half skew to APAC in the pack today. So maybe we start there, Josh, and then Andre can tell us your plans as well.
Don Meij
Yeah, well, we plan to open, we don’t plan to slow down in Japan where we are growing looking to grow a lot more is in the, the more, sort of Greenfield areas, green space or white, whichever way you want to call it which actually then will take pressure off some of the other businesses or the other stores that we have in the bigger capital cities.
We detailed that quite heavily in the investor tour in Asia as well. We try to open stores before Christmas. It’s a very big trading period for us. So I don’t see us deviating from that in and that, that relates to Taiwan as well, which is also as a big trading period for Christmas. So you should say more of the same,
Same for Europe. We won’t, we won’t take our foot off the pedal and we will just continue to find locations and open stores, look for maybe smaller acquisitions, distressed smaller chains which also have to battle inflation struggling with getting staff or, or paying staff the amount that they need to pay these days on an early base.
So no, we we’re looking for every opportunity to get the French’s appetite is still there. So the eight to 10% for us in Europe is we also look at a little bit more obviously because we still have markets that are not even close to their full potential.
So the key question then and follow up from Richard Barwick [ph] on that is just franchisee appetite. Maybe if you could describe as it, has there been a slowdown from franchisee appetite? Are we still seeing a high level?
Andre Wolde
If I can start with that, the franchise appetite is still, there is, there’s still a lot of confidence, but there’s also a lot of unknowns. There’s a lot of franchisees that expected. Okay. Once COVID is over, things are back to normal and they’ve gotten even worse after, after COVID, or even more, more interesting as to say so, yes, franchisees think about what’s their next play, what’s their next store and if, if everything goes hug do is easier to open stores than, than they have these inflations to overcome.
But, I think in general, franchisees of seeing what we were able to do during COVID, what we’re able to do in the early days of inflation, how our, what our thinking is, how we think about battling this with this multilayered approach, they see that we are having initiatives to reduce their costs. Project golf is one of the, that Springs to mind that we that we are smart about increasing prices and at the same time still delivering great value so that the, I think the confidence of franchisees in the system, how resilient it is in also tough times makes that they still want to open stores.
Nathan Scholz
Josh, I saw everyone light up and come off mute for that question. So Josh next then Dave, and then stop. We might go to Dave first. We got said on the last question, so, Dave, do you want to frame it Dave overview for France as the appetite?
David Burness
Yeah, I think that there was probably a pause on appetite around may, June until they saw how we handled the inflation in ANZ. And I think that, we’ve talked about the fact that we’ve, we’ve, we’ve seemed to have navigated that inflation pretty well in July. And I think the appetite is, is back now for franchisees who are looking to expand.
We went on the road and did a, what we call a road show throughout June and we went to every capital city. The executive team went on the road and spoke to most franchisees in the system. And once we mapped out the strategy for FY ’23, that it was a combination of a pricing strategy and an operation strategy. We pulled the franchisees after that as to their confidence in the strategy and that, that rate at over 83% confidence in that strategy. So, that confidence in the strategy will then transfer into confidence into expansion.
Yeah, very similar for the Japanese franchisees and the Taiwanese franchisees. It’s all about the strategy. It’s about how we communicate it. It’s about more frequent communications, which is what Dave’s been doing in a, in Australia, getting them comfortable because they’ve got to be comfortable in our plan so that they can invest in the business, not only in their existing stores, but for any future store growth, we haven’t seen it drop off.
In fact, once people see the plan and see what we want to do and, and see this, period as a, as an opportunity to not only gain market share, but to, to go in the opposite direction of everybody else in the QSR landscape. And to really capitalize on it, they get — they’re quite excited by that and excited by the differentiated plan that we have.
And then you layer in things like technology, and they can see how we can capture people within our ecosystem now and talk to them in a, in a way that they want to be spoken to with the content that those customers want. They can — they’re starting to be starting to feel the excitement come from beyond. So I, I expect a lot more franchisee growth in all their markets.
Nathan Scholz
Yeah. So, I’ll finish it off then. As they’ve said, like it’s about, it’s about the strategy and got a good uptake in Germany, on our strategy from the franchisees. And then there is no shut thing as, as the franchisee or the opinion of different franchise partners. It’s a mixed bag. And some of the guys that are probably more entrepreneurial, more optimistic, they understand that with the risks and the challenges of the current market it’s actually opportunity.
So, what they’ll see is that because we are the most efficient delivery service, if the cost of goods goes up, if the cost of labor goes up, it’s actually a competitive advantage against the competition because they spend more time on the roads and deliver the pizzas to their customers.
So they actually increase their prices more, which makes our prices look more attractive in consumer’s eyes. There’s other franchisees that say, yep, I believe all that and I’ll see, what’s going to happen in the next couple of months and then I’ll sign up and that’s fine.
Josh Kilimnik
Right. It’s a mixed bag of people. So yeah, we see appetites we see some people that are a bit hesitant for this moment in time. They’ve already grew through it. We probably a few months behind and where Dave is in his journey with the Australian team. So I’m confident in opening the stores.
Nathan Scholz
Thank you so much. I’m, we’re going to have to wrap up shortly because we’ve gone well over, and this is the first year that we have not been able to burn through all of the questions. Richard, I’ve got a couple of questions in terms of the acquisition in Southeast Asia from Richard Barwick, Lisa just asking the acquisition associated 5% EPS secretion is that 5% post-funding Richard is saying that seems to imply just a 1% cost of debt.
And so can you confirm what that cost of debt that you’re assuming and the potential earn out seems significant. So what kind of EBITDA would have to be to in order for that to be paid out? I know Richard’s very keen to talk about the cost of debt.
Richard Coney
Yeah. So look, we’re basically funding this as we’ve highlighted from our, from cash and debt facilities. We’ve already got commitments from our current banking syndicate to, to fund the acquisition. Yes, the interest costs are in line with our current funding costs. So is relatively low accessing leveraging our Japanese and European banks that have relatively low risk margins and funding costs.
So yes, it is that EPS secretion is after funding. So I can confirm that. And in terms of the earn out, look we’ve — that’s a worst case scenario, sorry, that’s a, that’s a top, maybe Josh, if you maybe go into the little bit more detail on that, but in terms of the earn out yeah. It will be delivered if they achieve the multiples that we’ve included.
Andre Wolde
Remember, we get the benefit on yeah. We get the benefit on the other side of that as well. So, you kind of might think that’s a scary number, but in if you look at it, we’d be happy to pay the earn out because we’ll be benefiting on the other side of that as, as well. So I don’t, I don’t really see it as a problem. I’m not sure who asked that might have been Richard, but I don’t see this as the issue. I mean, that’s, that’s what we, we want to even go and exceed that if we can. But, in the pack it’s 11 times multiple that’s right. I’ll be better.
Nathan Scholz
I’m just going to oh, sorry. A quick question. For Josh then just in terms of, and because I know I’ve got to free you up, how long you’ve retained?
Josh Kilimnik
Sorry. I might want to add that’s 11 times multiple pre OUS on EBITDA.
Nathan Scholz
Thank you, Richard. The retention Josh of local management. How long have you been able to retain management for,
Richard Coney
We typically retain for, for one year we’ve got the, the CEO chant who was the previous CEO. We’ve got him in place for a couple of years. But I think that’s the standard amount of time we would retain for.
Nathan Scholz
Thank you for that, Josh. I’m just going to finish with one question. And as I said, unfortunately, have we have not been able to get through all of the questions today? So I’m, we’ll take some of those on notice. Sam [ph] from City has asked when Don mentioned that ANZ, same for sales and ’23 to date are well above.
Can you please confirm if he was referring to well above positive or well above the 3% to 6% target? I can say that he was referring to well above the 3% to 6% that our outlook is Dave, maybe if you wanted to give some color just in terms of I don’t know if every person who’s still on this call is still 179 participants dial in if every one of those has tried the burger pizza, but maybe David, if I hand over to you.
Don Meij
Yeah, so interesting is that the sales growth is not just increase in price because, we talked about the 6% delivery service fee, for example, but we’re actually tracking up customer account. If we take the last four to five weeks, our customer account is up and our sales are up. So, some of that is a return to pick up because we’re seeing, quite a bit of growth in pick up customer account. But I can confirm that it’s not just price increase. We are seeing customer account increase as well.
Nathan Scholz
Terrific. Well thank you. And I appreciate everybody’s patience today. And as I said, there’s been a lot of people on this call. I’m going to finish up now. And say how delighted we are to be seeing people in person this week, which we’ll do over a number of meetings. Thank you so much for your attendance and as I said for your patience with my zoom skills, which are now going to leave Domino’s for good foundation, charity foundation, $50, better off for my muting.
So congratulations to all of the other speakers for not having to make that donation today, but I’m sure that will be kicking in, in their own way. So thank you all very much. We look forward to meeting you in person. Have a great day.
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