dominos pizzaprelimspresentation201115 feb_2012
DESCRIPTION
Dominos Pizza UK Preliminary ResultsTRANSCRIPT
Preliminary Results for the 52 weeks ended 25 December 2011
Lance Batchelor Chief Executive Officer
Lee Ginsberg Chief Financial Officer
The Team
2
• Initial impressions and the view so far
• 2011
• The numbers
• 2011
• Food cost overview
• Marketing activity
• Store openings
• Commissary
• More on the business, including Germany
• Summary and Q&A
Agenda
3
+3.0%
+9.3%
+14.6% *
+18.6% +20.6%
0%
10%
20%
30%
LfL sales growth System Sales PBT * Diluted EPS * Total dividend pence per share
* Pre-exceptionals and Germany
Financial Highlights for 2011
Another record year
4
System Sales – The Long View
5
£76 £98 £119 £142
£174
£201
£240
£296
£351
£407
£485
£530
£2.2 £2.9
£4.2 £6.5
£8.8
£11.2
£14.3
£18.7
£23.4
£29.9
£38.0
£42.2
£0.0
£5.0
£10.0
£15.0
£20.0
£25.0
£30.0
£35.0
£40.0
£45.0
£0
£100
£200
£300
£400
£500
£600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
PB
T *
£'m
Syst
em
Sal
es
£'m
System Sales £'m PBT * £'m
Like-for-Like Sales and Store Growth – The Long View
21.2%
11.2%
7.4% 6.6%
7.1%
9.7%
14.7%
10.0%
8.4%
11.9%
3.0%
191 214
235
268
317
357
404
450
501
553
604
0
100
200
300
400
500
600
700
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
LFL
Sto
re P
op
ula
tio
n
MA
ture
Sto
re S
ale
s G
row
th
LFL Sales Growth LFL Store Population
AWUS £8,683
AWUS £19,017
6
52 weeks ended 52 weeks ended % increase
25 December 2011 26 December 2010
£’000 £’000
System sales 530,636 485,282 9.3
Operating profit 42,373 38,035 11.1
Net interest (217) (28) -
Profit before tax 42,156 38,007 10.9
Taxation (11,141) (10,878) (2.4)
Profit after tax 31,015 27,129 14.3
Dividends per share:
- Pence 12.30p 10.20p 20.6
- Cover 1.56x 1.64x
Earnings per share:
- Basic 19.48p 17.36p 12.2
- Diluted 19.24p 16.75p 14.9
SOLID GROWTH BUT SKEWED BY GERMAN INVESTMENT
Profit and Loss (Pre-exceptionals)
7
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010
£’000 £’000
Operating exceptionals
- Acquisition costs relating to DP Germany (1,232) -
- Onerous lease provision (938) -
- Impairment of stores (837) (665) *
- Irish rebate support - (485)
- Accelerated LTIP charge - (467)
- Restructuring/reorganisation costs - (755)
(3,007) (2,372)
Non-operating exceptionals
- Unwinding of discount – DP Leasing (360) (420)
- Loss on sale of assets - (11)
(360) (431)
Tax exceptional
- Reduction in deferred tax asset & impact of (1,182) (261) exceptionals
* Milton Keynes commissary
Profit and Loss (Exceptional Items)
8
HEALTH OF THE CORE BUSINESS
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010 % change
£’000 £’000
Group LFLs 3.0% 11.9%
System Sales 530,636 485,282 9.3%
Profit Before Tax 43,555 38,007 14.6%
Diluted EPS 19.86p 16.75p 18.6%
Profit and Loss (Pre-exceptionals and Germany)
9 STRONG UNDERLYING OPERATIONAL GEARING
HEALTH OF THE CORE BUSINESS
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010
Operating profit % * 20.9% 20.2%
Profit before tax/system sales 8.2% 7.8%
PROGRESSION OF COMMISSARY MARGINS AND
CONTROL OF COSTS
Profit and Loss (Pre-exceptionals and Germany)
10 * Operating profit/statutory revenue
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010
All £’000 Germany Ireland UK Total Germany Ireland UK Total
Operating profit/(loss) (1,110) 4,261 39,118 42,269 - 4,476 33,340 37,816
Amortisation of intangibles (231) - - (231) - - - -
(1,341) 4,261 39,118 42,038 - 4,476 33,340 37,816
% Growth pre-amortisation - (4.8%) 17.3% 11.8%
ROI MARGINAL PROFIT DECLINE BUT CORE
UK MARKET STRONG
Segmental Results *
11 * Pre-exceptionals & net interest
PBT*/System Sales % - The Margin Progression
4.5
5.5
6.5
7.5
8.5
9.5
10.5
11.5
12.5
2006 2007 2008 2009 2010 2011 2020 Analysts'
consensus
5.9 6.3
6.7
7.3
12.0
7.8
40 bpts p.a.
PBT/Syst
em
Sale
s %
12
8.2
* Pre-exceptionals and Germany
At 25 December 2011 At 26 December 2010 Current Assets: £’000 £’000
At 25 Dec At 26 Dec
2011 2010 Non-current assets 99,043 80,556 £’000 £’000
Inventories 3,878 5,054 Current assets 54,345 54,127 Receivables 24,343 16,014
Investment in Non-current assets finance leases 1,532 1,793 held for sale - 938 Prepaid lease
charges 165 138 Total Assets 153,418 135,621 Cash 24,427 31,128 54,345 54,127
Current Liabilities Current liabilities (62,587) (40,178)
Trade & other (29,444) (31,707)
Deferred income (136) (77) Non-current liabilities (31,167) (53,781)
Fin. liabilities (26,529) (1,793)
Deferred Total Liabilities (93,754) (93,959) consideration (2,164) (4,346)
Tax liabilities (4,248) (2,255)
Provisions (66) - Net Assets 59,664 41,662
(62,587) (40,178)
Balance Sheet
13
At 25 December At 26 December
2011 2010
£’000 £’000
At beginning of year 41,662 21,576
Proceeds from share issue 5,792 1,594
Share buybacks (2,219) (4,715)
Profit for year 26,746 24,036
Tax credit on employee share options 41 1,036
Share options and LTIP charge 1,499 1,432
Exchange translation differences (917) (286)
Dividends (18,025) (13,632)
Share buyback obligation - (10,592)
Contingent consideration 3,432 -
58,011 41,633
Minorities 1,653 29
59,664 41,662
Statement of Changes in Equity
14
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010
£’000 £’000
Profit before taxation 38,789 35,204
Impairment 837 82
Net finance costs 577 448
Share of post tax profits of associates (335) (219)
Amortisation and depreciation 3,280 2,815
Loss on disposal of non-current assets - 11
Share option and LTIP charge 1,499 1,432
Changes in working capital (9,173) 1,275
Cash generated from operations 35,474 41,048
Taxation paid (3,992) (5,456)
Net cash generated by operating activities 31,482 35,592
Net cash used by investing activities (16,938) (10,514)
Cash inflow before financing 14,544 25,078
Financing activities (21,070) (17,841)
Net (decrease)/increase in cash (6,526) 7,237
Opening cash balance 31,128 23,997
Foreign exchange loss on cash and cash equivalents (175) (106)
Cash at end of year 24,427 31,128
Cash Flow Statement
15
• Significant “one-off” change in receivables
• £3.1m increase in NAF
– Red or Black sponsorship
– Timing of payments for Campaign One 2012
•£3.7m due to e-commerce platforms
– Earlier settlement to franchisees
– Funds collected on franchisees’ behalf
• £1.5m due to more stores
– Debtors’ days constant
WILL NOT ARISE IN 2012
Analysis of changes in working capital
16
At 25 Dec 2011 At 26 Dec 2010
£’000 £’000
Cash at Bank 24,427 31,128
Revolving Credit Facilities (25,000) (25,000)
Net Cash (573) 6,128
DP Capital (2,689) (2,732)
EBT loan (12,035) (12,035)
Adjusted Net Debt (15,297) (8,639)
Adjusted Net Debt/EBITDA 0.4 0.2
* Excludes non-recourse loans, share buyback obligation and Germany minority interest shareholder loan
Analysis of Borrowings *
17
Expiry Utilised at Undrawn at
Facility Date 25 Dec 11 25 Dec 11 Term Purpose
£’m £’m £’m
25.0 * 20 Dec 2012 25.0 - 5 years Multi-purpose
5.0 31 Dec 2013 2.7 2.3 5 years DP Capital
13.0 * 31 Jan 2014 12.0 1.0 7 years EBT
43.0 39.7 3.3
Cash and cash equivalents at 25 Dec 2011 24.4
Surplus available headroom at 25 Dec 2011 27.7
• Negotiations commenced on refinancing
• In place in H2 2012
SIGNIFICANT FIRE POWER
Available Debt Facilities
18 * LIBOR + 50bpts
2011 2012 2013 2014 2015
£’m Actual Forecast
Maintenance 3.8 3.0 3.0 3.0 3.0
Expansionary 9.2 2.8 - 2.5 -
West Ashland 0.9 - - - -
HQ 6.6 - - - -
Naas 0.5 - - - -
Penrith - - - 2.5 -
Germany - 2.8
Pulse EPOS system 1.2 - - - -
Website development 0.9 - - - -
Total Capex 13.0 5.8 3.0 5.5 3.0
Capital Expenditure 2012 - 2015
RISING FREE CASH FLOWS AND REDUCING CAPEX 19
Five year total 2011 2010 2009 2008 2007
£’000 £’000 £’000 £’000 £’000 £’000
Profit after tax * 108,621 31,015 27,129 21,574 15,664 13,239
Share buybacks 26,687 2,219 4,715 7,624 3,783 8,346
Dividends 55,974 18,025 13,632 10,466 8,035 5,816
Total returned 82,661 20,244 18,347 18,090 11,818 14,162
% of profit after tax 76% 65% 68% 84% 75% 107%
Total capex 62,510 13,012 11,602 22,508 11,428 3,960
ANALYSTS’ FORECASTING c.£250m FREE CASH FLOWS OVER NEXT FIVE YEARS**
* Pre-exceptionals
** Consensus forecasts
Cash Returned to Shareholders
20
0 1 2 3 4 5 6 7 8 9
10 11 12 13 14 15 16 17 18 19 20 21
2007 2008 2009 2010 2011
Diluted earnings per share Linear (Diluted earnings per share)
+39.1%
Compound increase of 24%
over last five years
8.33
13.49
10.71
16.75
Pence
Diluted Earnings Per Share *
19.86
+28.6%
+26.0%
+24.2%
+18.6%
* Pre-exceptionals and Germany 21
Dividends Per Share *
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2007 2008 2009 2010 2011
Dividends per share Linear (Dividends per share)
Compound increase of 29%
over last five years
4.40
5.90
7.75
10.20
Pen
ce
12.30
+34.1%
+31.3%
+31.6 %
+20.6%
+43.8%
22
• Benefits of strategy to lock into longer term contracts
• Created more price stability
• Overall 3% increase from rising commodities in 2011
• Cheese, dough and chicken biggest impact
• Not all passed on to franchisees
• Absorbed some of the increases, notably cheese
Food Cost Outlook
23
• Outlook for 2012
•69% of food basket already covered
• At same/lower prices than 2011
•Cheese outlook
• Stable pricing for Q1 2012
• Outlook for 2012
•1% to 2% for year
• Far more stable
• Energy costs
• West Ashland locked in during 2010 to March 2013
Food Cost Outlook (cont’d)
24
The Pizza Delivery Market
New openings in 2011
End of year store count
Domino’s
Pizza
58 720
Pizza Hut
(delivery) *
-16
288
Papa John’s** 31 183
Perfect Pizza* -20 90
Others* n/a 2000
TOTAL 121 2971
*company estimates - includes estimates for Ireland where applicable and RBDs
** includes estimates for Ireland inc. non delivery stores – and exc. Haven/Butlin stores
25
Domino’s continues to
outgrow the competition:
Customers
26
More and more people are choosing
Domino’s Pizza:
– 4.3m households ordered from
Domino’s (2010: 4.0m)
– Mature store catchment grew to 17%
(2010:16.5%)
– Avg. ticket up to £19.47 (2010: £18.51)
– Order frequency stable at 35 days
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
2009 2010 2011
14.1%
16.2%
16.9%
Penetration (% HHs purchased in last 210 days)
20
25
30
35
40
45
2009 2010 2011
35.5 35.3 35.7
Re-order Frequency
£16.00
£16.50
£17.00
£17.50
£18.00
£18.50
£19.00
£19.50
£20.00
2009 2010 2011
£18.13
£18.51
£19.47
Average Ticket (gross)
Franchisees
27
• Our superb franchisees are the engine of our
growth
– 3750 enquiries
– Five new franchisees accepted into network
– c£15m spent on opening new stores
– £600k average resale value of a store
– Average 5.7 stores each (2010: 5)
– 54% of stores owned by franchisees with
10+ stores
– 35 single store franchisees (2010: 47)
Marketing in 2011
28
– Record marketing budget driven by
system growth
– Major awareness build behind new
launches
– Brand building campaign with a
quality focus
– Red or Black sponsorship successfully
launched Gourmet range
– First ever “Global Domino’s Day”
Future Marketing
29
• We will get ever better returns for our
marketing investment:
– Online will grow to >66% delivered sales
– Increasing budget from system growth
– Increasing use of targeted email, Facebook and
– Deepening and customising the relationship
– Mobile now 14% of online sales, growing fast
– Domino’s is an online business
– TV and traditional marketing still has a role
£19 £32.2
£55.9
£78.5
£128.0
£183.1
12.3%
15.9%
23.1%
28.2%
35.5%
46.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
£0
£20
£40
£60
£80
£100
£120
£140
£160
£180
£200
2006 2007 2008 2009 2010 2011
Eco
mm
erc
e sa
les
£'m
Ecommerce Net sales (£'m) % of Uk delivered Sales
Stores
30
Introduced a new look in 2011
– Global best practice store design
– Opened a record 58 UK/ROI stores, plus
four in Germany
– Total 726 stores at year end (2010: 665)
– 133 stores had sales over £1m (2010: 115)
– Average household count per store now 29k
– Trialling new formats (Tesco, food court,
community, stadiums)
– Closed three stores
50
150
250
350
450
550
650
750
2007 2008 2009 2010 2011
UK & ROI
501 58 55
58
553 608
665 720
50 52
Num
ber
of
store
s at
year
end
57
Product Innovation
31
Great products provide more and more
reasons to choose Domino’s
– Stuffed Crust launched Summer 2011:
now over 12% of sales
– Gourmet range launched Autumn
2011: now over 5% of sales
– NPD team now established and more
to come
•West Ashland operating to plan • Realising production efficiencies
•Longer term developments • Feasibility for next commissary in UK
• Identify location, size and spend
• Complete initial study by end of 2012
• Resilience key issue
• Sale of Milton Keynes commissary • No plans to dispose in 2012
• Commercial viability of procurement process
Commissary Update
32
•Germany • Sufficient capacity in Berlin to support 10-15 stores
» Installed dough mixing equipment
• Plans for
» Regional commissary in Dusseldorf/ Cologne area
• To support 2012 openings
• New Head Office • Opened end November 2011
• Total spend of c.£7.5m
• In line with budget
Commissary Update (cont.)
33
Germany Launch
34
In June 2011 we entered the German
market - a huge opportunity
– Inherited two stores in Berlin
– Opened four stores in 2011
– Established our management
team
– Started menu and marketing
development
– Infrastructure established
Outlook for Germany
35
• In 2012:
– Open at least 12 stores, tripling our estate to 18+ (incl 12
corporate stores, providing our test bed for product and
service development)
– We will welcome our first UK and German franchisees to
the market, opening at least six stores
– Build our Western Region Commissary
– Continue to evolve our menu and marketing
– Map the location of our first 50 stores, based on
demographic profiling
– Reach store level operating profitability on our original
six stores
TEMPELHOF
Outlook for UK/ROI
36
• In 2012 we will:
– Open 60 stores
– Consolidate our position as the world’s best
operating market
– Shift an increasing proportion of our
marketing budget to smart, online
channels, as well as to local spend. We
expect the majority of delivered sales to
be online in 2012
– See commodity prices stabilise
Longer term outlook (2020)
37
• UK/ROI : 1200+ stores
• Germany: 400+ stores
• Become an online business with 80% delivered sales
and marketing online
Trading update
38
2012 has started out well:
• First seven weeks LFLs up 3.7%
– UK is up 3.8% LFL, up slightly on Q4 2011
– ROI is up 2.3% LFL, growing again
• Germany: three stores leases signed, two franchisees
onboard
• Trading conditions continue to be challenging
• Set for another year of good growth
When you sell great pizza, you get great results
Q&A
39
APPENDIX 1 The Financial Model at 2020
(Pages A-1 – A-2)
APPENDIX 2 The Franchisee Model
(Pages A-3)
APPENDIX 3 Analysis of Group Turnover
(Page A-4)
APPENDIX 4 Analysis of Group Operating Profit
(Page A-5)
APPENDICES
2001 2007 2009 2010 2011 At 2020*
No. of stores 237 501 608 665 726 1,200+
- 60 openings p.a.
AWUS growth at 3% p.a. £8,422 £12,539 £13,801 £15,002 £15,452 £20,747
System sales £ 98m £ 296m £ 407m £485m £530m £ 1,295m
Profit before tax** £ 2.9m £ 18.7m £29.9m £38.0m £43.5m £155.0m
PBT/System sales 3.0% 6.3% 7.3% 7.8% 8.2% c.12.0%
+100% +46%
• Stores double – profits grow four-fold
• Circa 9.5% of incremental sales to profit (commissary 6.5% + net royalty 2.8%)
• Significant operational gearing
»Commissaries
»Central infrastructure
A-1
The Financial Model at 2020
* Independent analyst research – not a forecast
** Pre-exceptionals + Germany
2009 2010 2011 At 2020 *
• PBT ** £29.9m £38.0m £43.5m £155.0m
• Share buybacks ***
• Average no. of shares in issue 159.9m 161.8m 161.7m 128.0m
• Diluted EPS** - pence 13.49p 16.75p 19.86p 92.0p
- CAGR 19% p.a.
• Dividend - cover 1.74x 1.64x 1.61x 1.4x
- pence 7.75p 10.20p 12.30p 65.71p
* Independent analyst research – not a forecast
** Pre-exceptionals + Germany
*** To achieve cash neutral position at 2018. Circa 20% of equity.
The Financial Model at 2020 (cont’d)
A-2
AT LEAST 10 YEARS OF CASH GENERATIVE ORGANIC GROWTH
52 weeks ended 52 weeks ended
25 December 2011 26 December 2010 % variance
£’000 £’000
Average sales (AWUS)* £ 15,458 £ 15,000 + 3.1%
System sales £803,816 £780,000 + 3.1%
EBITDA £106,380 £105,276 + 1.0%
+ £1,103
VAT adjusted in 2010
- EBITDA +13.9%
COMPELLING STORE LEVEL ECONOMICS
The Franchisee Model
A-3 * VAT at 20%/17.5% in 2010
52 wks ended 52 wks ended
25 Dec 2011 26 Dec 2010 Variance Variance
£’000 £’000 £’000 %
Royalties 29,238 26,692 2,546 9.5
Store sales 1,670 1,117 553 49.5
Franchise/TST/FDP fees 980 1,038 (58) (5.6)
Commissary sales 157,064 138,271 18,793 13.6
Property sales 14,839 13,828 1,011 7.3
Computer sales 3,796 3,244 552 17.0
Other sales 3,388 4,638 (1,250) (27.0)
Inter-company sales (1,112) (679) (433) (63.8)
Total sales 209,863 188,149 21,714 11.5
Analysis of Group Turnover
A-4
52 weeks ended 52 weeks ended
25 Dec 2011 26 Dec 2010 Variance Variance
£’000 £’000 £’000 %
Net Royalty 14,846 13,588 1,258 9.3
Commissary Margin 42,619 37,481 5,137 13.7
Realty 787 1,254 (467) (37.3)
Subsidiaries 391 352 38 10.8
Net Overheads (15,264) (14,861) (403) (2.7)
Associates 335 219 117 53.4
Net Interest (159) (27) (132) (485.6
UK & Irl PBT 43,555 38,007 5,548 14.6
German Segment Results (1,399) - (1,399)
Group PBT 42,156 38,007 4,149 10.9
Analysis of Group Operating Profit*
A-5