Domino's Pizza Group Plc · LSE:DOM
Domino's Pizza — FY2008 Earnings Presentation
47 slides from Domino's Pizza's earnings presentation, Feb 17, 2009
Slide 1: Preliminary Results for the 52 weeks ended 28 December 2008
Domino’s Pizza UK & IRL plc Preliminary Results for the 52 weeks ended 28 December 2008 TAKING A BIGGER SLICE
Slide 2: The Team
The Team Chris Moore Chief Executive Officer Lee Ginsberg Chief Financial Officer 2
Slide 3: Financial Highlights for 2008
Financial Highlights for 2008 50% Another record year 40% 30% +34.1% 20% +28.6% +24.7% 10% +18.4% +10.0% 0% LFL sales growth System sales PBT pre-exceptionals* Diluted EPS pre- Total dividend pence per exceptionals * share * Move to the Official List + other exceptionals 3
Slide 4: Profit and loss
Profit and loss 2008 2007 % increase £’000 £’000 System Sales 350,771 296,349 18.4 Operating profit pre-exceptionals 23,739 18,828 26.1 Net interest paid (378) (91) ( -) Profit before tax pre-exceptionals 23,361 18,737 24.7 Exceptional items: - (Loss)/Profit on sale of stores (156) 346 - - Admission
Slide 5: Balance Sheet
Balance Sheet 2008 2007 £’000 £’000 Current Assets: 2008 2007 Non current assets 27,660 18,404 £’000 £’000 Inventories 2,542 2,340 Current assets 35,784 28,117 Receivables 13,650 10,071 Investment in Non current assets finance leases 858 857 held for sale 736 1,772 Prepaid lease charges 132 220 Tota
Slide 6: Statement of Changes in Equity
Statement of Changes in Equity 2008 2007 £’000 £’000 At beginning of year 9,897 8,986 Proceeds from share issue 653 700 Treasury shares held by EBT (4,308) (187) Share buybacks (3,783) (8,346) Profit for year 15,664 13,239 Tax (charge)/credit on employee share options (59) 214 Share options and LTIP
Slide 7: Cash flow statement
Cash flow statement 2008 2007 £’000 £’000 Profit before taxation 22,149 18,576 Net finance costs 378 91 Share of post tax profits of associates (187) (158) Amortisation and depreciation 1,958 1,545 Loss/(Profit) on disposal of non-current assets 156 (346) Share option and LTIP charge 1,106 880 Chang
Slide 8: Analysis of Borrowings
Analysis of Borrowings 2008 2007 £’000 £’000 Cash at bank 18,602 14,629 Revolving credit facilities (12,300) (6,000) Net Cash 6,302 8,629 DP Capital (2,424) (2,448) EBT loan (12,035) (7,721) Other (17) (28) Net debt (8,174) (1,568) Net debt/EBITDA 0.3 0.1 8
Slide 9: Available debt facilities
Available debt facilities Effective Utilised at Undrawn at Facility Date 28 Dec 08 28 Dec 08 Term Purpose £’m £’m £’m 6.0 * Feb 2008 4.0 2.0 364 days Working capital 25.0 * Dec 2007 8.3 16.7 5 years Multi-purpose 5.0 Dec 2008 2.4 2.6 5 years DP Capital 13.0 * Mar 2008 12.0 1.0 7 years EBT 49.0 26.7
Slide 10: Cash returned to shareholders
Cash returned to shareholders 5 year total 2008 2007 2006 2005 2004 £’000 £’000 £’000 £’000 £’000 Profit after tax 53,909 15,664 13,239 9,996 8,247 6,763 Share buybacks 32,122 3,783 8,346 10,161 8,222 1,610 Dividends 23,494 8,035 5,816 4,234 3,169 2,240 Total returned 55,616 11,818 14,162 14,395 11,
Slide 11: Diluted earnings per share
Diluted earnings per share * 12 11 Compound increase of 28% 29% 10 over last 5 years 39% 9 10.71 8 27% 7 6 18% 8.33 Pence 5 5.99 4 3 4.72 2 4.00 1 0 2004 2005 2006 2007 2008 Dilted earnings per share Linear (Dilted earnings per share) * pre-exceptionals 11
Slide 12: Dividends per share
Dividends per share * 7 Compound increase of 38% 6 over last 5 years 34% 5 5.90 44% 4 35% 4.40 Pence 3 38% 3.06 2 2.27 1 1.64 0 2004 2005 2006 2007 2008 Dividends per share Linear (Dividends per share) * All figures adjusted for share split 12
Slide 13: System Sales – The Growth Driver
System Sales – The Growth Driver 19% compound growth in system sales 400.00 25 £350.8m 350.00 24% compound growth in PBT £296.3m 20 300.00 £240.1m +18% System Sales £’m 250.00 15 £200.7m 200.00 £174.3m +23% PBT £’m 150.00 +20% 10 +15% 100.00 +23% 5 50.00 0.00 0 2004(53 wks) 2005 2006 2007 2008 Syste
Slide 14: System sales up 18.4%
System sales up 18.4% 52 new stores: £7m 51 immature stores: £26m Average sales* up 26% Average sales up 20% 450 mature stores: £317m Average sales up 10% 450 mature stores 51 immature stores 52 new stores * Increase on stores opened in 2007 14
Slide 15: Like-for-like sales 2008
Like-for-like sales 2008 18.0% Growth of 10.0% for the year 16.0% 15.3% 14.8% 14.0% 11.9% 12.0% 11.2% 11.2% 11.0% 10.7% 10.4% 9.3% 10.0% 10.0% 8.0% 6.5% 6.0% 5.1% 3.7% 4.0% 2.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec mature store sales increase 15
Slide 16: Cumulative mature store sales increase
Cumulative mature store sales increase 2 year run rate 35 32.4% 30 27.5% 25.4% 14.8% 24.8% 25 24.0% 23.4% 24.4% 24.1% 24.2% 22.9% 21.8% 10.7% 20.9% 3.7% 5.1% 9.3% 20 11.2% 11.9% 10.4% 15.3% 6.5% 11.0% % 15 11.2% 17.8% 10 17.6% 13.8% 15.3% 16.1% 16.8% 19.7% 12.2% 13.4% 12.8% 5 9.5% 9.7% 0 Jan Feb Mar
Slide 17: Historical like-for-like sales growth
Historical like-for-like sales growth 25 500 21.4% 450 20 400 LFL store population Sales growth % 14.7% 350 15 11.2% 11.2% 300 9.7% 10.0% 9.7% 10 6.6% 7.4% 250 6.6% 7.1% 6.3% 5.5% 200 4.4% 5 150 0 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 LFL sales growth LFL store population 17
Slide 18: Key Drivers of Like-for-Like Growth
Key Drivers of Like-for-Like Growth The Underlying Market Percentage of each age group ordering UK Home Delivery Market from Domino’s 2001 to 2007 35% £1,800 £250 £1,600 30% £200 £1,400 25% £1,200 £150 £1,000 20% £800 £100 15% £600 £400 £50 10% £200 5% £0 £0 2003 2004 2005 2006 2007 2008 2009 2010 2
Slide 19: The competition
The competition 2008 Net Stores Openings Net Sales - Domino’s 553 52 £351m - Pizza Hut/PHQ* 258 3 £104m - Perfect Pizza* 110 - £ 18m - Papa Johns* 118 10 £ 30m - Others * 2,000 n/a £312m - TOTAL 3,039 £815m * company estimates - includes estimates for Ireland where applicable 19
Slide 20: Key Drivers of Like-for-Like Growth
Key Drivers of Like-for-Like Growth 13.5% £16.50 13.0% 13.3% £16.00 £16.23 12.5% £15.50 12.0% 12.3% £15.00 £15.23 11.5% 11.7% £14.50 11.0% £14.00 £14.20 10.5% £13.50 11% 10.0% £13.00 2006 2007 2008 2006 2007 2008 45 Penetration Average Ticket 40 42 35 37 34 30 25 20 H2 2006 H2 2007 H2 2008 19 last 6
Slide 21: Key Drivers of Like-for-Like Growth
Key Drivers of Like-for-Like Growth Continuous service improvements % OTD <15 minutes 85% 80% 75% 70% 65% 60% 55% Oct Mar Jan Jun Jul May Nov Dec Apr Aug Feb Sep 07 mature store 08 mature store Average Delivery Time in 2008: 23.3 minutes 21
Slide 22: Key Driver of Like-for-Like Growth
Key Driver of Like-for-Like Growth Product Quality and More Ad Fund fire power • Product Quality and Innovation • 555,888, BOGOF • Steak Special • Meatball Mayhem • Texas BBQ • American Hot • Premiere Pizza/Potato Skins/Kickers with hot sauce • Ad Fund £18m in 2008 (2007: £15m) • BGT sponsorship 22
Slide 23: Key Driver of Like-for-Like Growth
Key Driver of Like-for-Like Growth More Ad Fund fire power • Britain’s Got Talent – ITV1 flagship show, plus.. – ITV2;BGMT & AGT – Step change for Domino’s Pizza – BGT final had c.14m viewers – 3rd biggest TV audience in 2008 • Media deflation – c.10% in 2008 – 25% cheaper in first 6 weeks ‘09 • Wit
Slide 24: E-commerce: 74% increase in online sales
Key Drivers of Like-for-Like Growth E-commerce: 74% increase in online sales £60,000,000 Average ticket 20% higher 25.00% £50,000,000 than regular orders 20.00% £40,000,000 15.00% £30,000,000 10.00% £20,000,000 5.00% £10,000,000 £0 0.00% 2003 2004 2005 2006 2007 2008 e-commerce net sales (£) % of de
Slide 25: Customer Dynamics (UK only)
Key Drivers of Like-for-Like Growth Customer Dynamics (UK only) • We delivered to 2.7 million customers – 31% entirely new to the brand – 14% returning from pre-2007 • New customers came from a wider range of household types than seen in H1 • Spending the same as existing customers • Continued growt
Slide 26: Other Sales Highlights
Other Sales Highlights • Of the 8,700 Domino’s stores worldwide, 38 of the top 50 are in the UK and Ireland • 10 out of Top 10 Domino’s International Stores • 47 stores with sales in excess of £1 million (2007: 35) • Over 50 million pizza bases sold 26
Slide 27: New Store Openings
New Store Openings Average 48 Openings Per Year 553 550 501 52 500 451 number of stores at year end 450 50 407 400 46 357 350 50 300 40 250 (1) (0) (2) (0) (0) 200 2004 2005 2006 2007 2008 ( ) = no. of closures Potential for at least 1,000 stores 27
Slide 28: Store Growth in 2008
Store Growth in 2008 Smarter Strengthened processes acquisitions and organisation Team Existing Better franchisee planning demand environment Site availability 28
Slide 29: Business Development outlook for 2009
Business Development outlook for 2009 • Banks remain confident to lend to a Domino’s franchise • Well placed to achieve 2009 target of 50 store openings • At 10th Feb 2009 – Pipeline numbers ahead of last year • Rolling 150 Target Acquisition List • Continued gradual improvement in planning environm
Slide 30: Potential for 1000 + stores
Potential for 1000 + stores • Current average households in Mature Store Delivery Area = c.30,000 • Ten stores opened last year with <15,000 households. AWUS: £13k • 18 of 52 store openings were delivery area splits (16 of which were voluntary) 30
Slide 31: Area Splits
Area Splits Cardiff 1 (1997): 110,000 Households Cardiff 1& 2 (1999): 110,000 Households Cardiff 1-5 (today): 157,000 Households Cardiff 1-6 (2011): 157,000 Households 31
Slide 32: Area Splits
Area Splits Birmingham (current): 756,000 Households 18 stores Birmingham (current + target): 961,000 Households 25 stores Birmingham (current + target + future): 1,195,000 Households 40 stores 32
Slide 33: Store refit programme
Store refit programme • New store modernisation programme – Last image update started in 2000 – Improving design, ‘theatre’ and branding – Communicating core values » Quality, fresh, fun • Up to 100 stores to be re-fitted in 2009 – Cost of c£25k per store (funded by franchisee) – Up to 4 day closure
Slide 34: Commissary update
Commissary update • Extension to Penrith – 100% additional capacity • To circa 200 stores at build-out – On track for completion • Quarter 2 2009 – On budget at a capital spend of circa £4.0m – Resilience to wider capacity in system until new Milton Keynes facility in use • Key processes will be aut
Slide 35: Commissary update (contd.)
Commissary update (contd.) • New Milton Keynes facility – 10 acres of land acquired – Construction well underway – Capacity to service 500 stores at build-out • Higher capacity to cover growing sales – Technological investment/automation • Potential benefits after commissioning – Estimated completio
Slide 36: Commissary update (contd.)
Commissary update (contd.) • Future developments to support 1,000 stores – Irish commissary expansion • Additional space at current facility • Previously anticipated £7m capital spend in 2010 – Deferred to 2012/13 – Further medium size commissary in UK • Estimated spend of circa £15m in 2013/2014 •
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Slide 39: 2009 food cost outlook
2009 food cost outlook • Fixed price contracts in 2008 – Vast majority of food basket hedged • Now out of 2008 contracts – Just at the time of falling commodity prices in Q4 2008 • Early benefits of lower food costs in 2009 – Sufficient volumes/pricing secured – Passed on to franchisees • Eg. Cheese
Slide 40: 2009 food cost outlook (contd.)
2009 food cost outlook (contd.) – Flour • Locked in 2009 anticipated volume • Dough +/- 6% of food cost – Now secured at lower levels than 2008 – Cheese • Falling prices for Q1 and Q2 • Cheese +/- 7% of food cost • Significantly lower than 2008 cost – Pressures more from product sourced in USD and E
Slide 41: Current trading and prospects
Current trading and prospects • Exceptional start to year in first six weeks of 2009 – Like for like sales up 15.0% (2008: 11.0%) – Challenging comparatives for balance of year • Store opening pipeline looking good – On track to open 50 stores • Product quality, execution and growing NAF key – TV ma
Slide 42: APPENDICES
APPENDICES APPENDIX 1 The Financial Model at 2018 (Pages A-1 – A-2) APPENDIX 2 The Franchisee Model (Page A-3 – A-4) APPENDIX 3 Mature Store AWUS Banding (Page A-5)
Slide 43: The financial model at 2018
The financial model at 2018 At build out 2001 2006 2007 2008 (circa 2018) No. of stores 237 451 501 553 1,050 - 50 openings p.a. AWUS growth at 3% p.a. £8,422 £11,347 £12,539 £13,493 £17,605 System sales £ 98m £ 240m £ 296m £ 351m £ 920m Profit before tax* £ 2.9m £ 14.2m £ 18.7m £23.4m £ 83m-£92m PB
Slide 44: The financial model at 2018 (contd.)
The financial model at 2018 (contd.) At build out * 2006 2007 2008 (circa 2018) • PBT £14.2m £18.7m £23.4m £92.0m • Share buybacks *** • Average no. of shares in issue 162.6m 158.0m 156.9m 128.0m • Diluted EPS** - pence 6.2p 8.4p 10.71p 51.0p - CAGR 19% p.a. • Dividend - cover 2.1x 1.9x 1.7x 1.5x -
Slide 45: The Franchisee Model
The Franchisee Model 2008 average store cost to an existing franchisee was: £ Store construction costs 155,000 (range £115k - £190k) Acquisition and legal costs 15,000 (range £9k - £20k) 170,000 Franchisee fee 13,000 (range £3,750 - £15k) Project management fee: - Acquisition fee 5,000 (range £1,500
Slide 46: The Franchisee Model (contd.)
The Franchisee Model (contd.) • Average mature store system sales £700,000 - £13,493 AWUS in 2008 • Average mature store EBITDA after: £100,000 - Food costs 27% - Labour 28% - NAF & Royalty 10.5% - Occupancy 6% - LSM 4% • Cash payback on investment 2.0 years (range 1.4 – 2.5) FRANCHISEE PROFITABILIT
Slide 47: Mature Store Turnover by AWUS banding
Mature Store Turnover by AWUS banding 100% 4% 3% 1% 1% 1% 0% 0% 3% 8% 4% 8% <£5k 13% 17% 16% 25% 20% 24% 29% 29% £5k-£7k 75% 34% 42% 42% 31% 42% £7k-£10k 43% 42% 50% 39% 43% £10k-£15k 42% 32% 33% 25% 28% 31% £15k-£20k 26% 22% 18% 16% 10% 10% 9% 9% 7% >£20k 7% 7% 8% 6% 4% 2% 3% 0% 0% 0% 1% 2% 3% 2000