Domino's Pizza Group Plc · LSE:DOM
Domino's Pizza — FY2017 Earnings Presentation
50 slides from Domino's Pizza's earnings presentation, March 2018
Slide 1: Domino's Pizza Group plc – 53 Weeks Ended 31 December 2017
Domino’s Pizza Group plc 53 Weeks Ended 31 December 2017
Slide 2: Highlights
Highlights David Wild, CEO Financial performance Rachel Osborne, CFO Strategic and operational progress David Wild, CEO Q&A David Wild Rachel Osborne Simon Wallis, COO
Slide 3: Highlights
£1,079m 9.2% 4.8% £93.2m 7.7% 95 £1,156m 15.1% £94.4m 10.2% 15.7p 13.9% £91.1m Based on underlying performance at reported exchange rates on a 52 week basis, unless indicated otherwise. See definitions in Appendix 1. Investments for growth relate to capex (£46.6m) and M&A (£44.5m) 3
Slide 4: Rachel Osborne, Chief Financial Officer
Rachel Osborne Chief Financial Officer
Slide 5: FY2017 income statement
FY2017 FY 2017 FY 2016 £m % Growth 53 weeks 52 weeks 52 weeks System sales 1,179.6 1,155.7 1,004.2 15.1% Revenue 474.6 466.5 360.6 29.3% Underlying EBITDA 108.5 106.5 93.8 13.5% EBITDA (%) 9.2% 9.2% 9.3% (0.1)pt Depreciation and amortisation (12.6) (12.5) (7.6) 64.3% Operating profit 95.9 94.0 86.2
Slide 6: FY2017 profit before tax to earnings per share
FY2017 FY 2017 FY 2016 £m % Growth 53 weeks 52 weeks 52 weeks Interest 0.3 0.4 (0.5) Profit before tax 96.2 94.4 85.7 10.2% Tax (17.5) (17.2) (17.4) Profit after tax 78.7 77.1 68.3 13.0% Earnings per share (pence) 16.0 15.7 13.8 13.9% Non-underlying (15.0) (15.0) (3.1) Total profit after tax 66.8 65
Slide 7: Non-underlying items
FY2017 £m 53 weeks • Recent decisions by the Supreme Court relating to Historic share schemes (11.0) certain historic share scheme structures • Gain on step acquisition in Nordics, offset by acquisition Other non-underlying - M&A1 3.4 costs Other non-underlying – transformation2 (7.4) • Mainly conve
Slide 8: System sales by location
52 weeks 2017 52 weeks 2016 Reported Organic constant Location (£m) (£m) (%) currency (%) UK 1,019.3 938.7 8.6% - ROI 60.1 50.1 19.9% 11.3% Switzerland 19.1 15.4 24.1% 17.1% Nordics 57.21 - - - Group 1,155.7 1,004.2 15.1% 8.9% Note: organic shows FY 2017 to FY 2016 excluding M&A. Pro forma shows FY
Slide 9: UK & ROI and International results
UK & ROI International Group 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks £m 2017 2016 % growth 2017 2016 % growth 2017 2016 % growth System sales 1,079.4 988.8 9.2% 76.3 15.4 n/m 1,155.7 1,004.2 15.1% Revenue Franchise revenue 387.5 345.1 12.3% 0.9 - - 388.4 345.1 12.5% Corporate revenue 5
Slide 10: UK & ROI operating margin bridge
System sales margin Statutory revenue margin FY 2016 margin 8.7% 25.1% Cheese cash margin impact - (0.9)pt Net investment in customer value (0.1)pt (0.5)pt Overheads - 0.2pt Corporate stores (London) - (0.2)pt Total 8.6% 23.7% 10
Slide 11: Free cash flow walkthrough (£m)
Free cash flow walkthrough (£m) 12.6 17.5 104.5 95.9 (1.6) 88.2 (19.9) (15.6) (0.7) Underlying Depreciation Net capex Working Other Underlying Tax Interest Free cash operating and excluding capital operating flow profit amortisation Warrington cash flow 109% 92% operating cash free cash flow convers
Slide 12: Capital Allocation
CAPITAL ALLOCATION
Slide 13: Capital allocation priorities
SHARE PURCHASES ORGANIC GROWTH ACQUISITIONS ORDINARY DIVIDENDS 13
Slide 14: Capital expenditure 2017
£m FY 2017 Warrington 27 Corporate stores 7 Other property/SCC costs 7 • Warrington to commence production April 2018 IT – recoverable 6 – total UK capacity now 1,600 stores Total 47 • Continued investment in IT; increasing investment in corporate stores • Plan to add commissaries/increase SCC scale
Slide 15: Annual dividend per share
Annual dividend – pence per share (adjusted for stock splits) 9.00 8.00 6.92 5.83 5.30 4.83 4.10 3.40 2.58 2.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Final dividend key dates: Ex-dividend date Record date Payment date 15 March 2018 16 March 2018 24 April 2018 15
Slide 16: Acquisitions and stake increases in 2017
Announced Completed Transaction Value Rationale 9/3/17 19/4/17 Increased stakes in Iceland, £16.1m Taking majority control in new Norway and Sweden to 51%, 72% markets offering attractive and 72% respectively growth 9/3/17 2/5/17 Acquired Dolly Dimple’s in £4.0m Gaining scale in new market Norway 11
Slide 17: Cash movement and net debt
Cash movement (£m) Investment in the business Returns to shareholders 108.1 (46.6) (44.5) (34.6) (40.4) 10.2 (36.6) (4.8) (89.2) (18.2) (37.6) (145.0) 2016 closing Free cash Total capex Acquisitions Dividends Share Acquisition Other/non 2017 closing 2018 buyback Jan 2018 M&A Pro forma net debt flow
Slide 18: 2018 outlook and guidance
• 65-75 new stores in UK • Warrington opening P&L impact of £3m - opex and depreciation • Capital expenditure around £30m for 2018 • Warrington completion • International commissaries • IT assets • Corporate stores in UK and International • Medium-term net debt/EBITDA range of 1.75-2.5x • Share buyb
Slide 19: Financial summary
15% System sales growth -0.1pt UK&I operating margin £88m Free cash flow 95 New UK stores 1.36x Pro forma net 47% ROCE debt/EBITDA 14% Underlying EPS growth 12.5% DPS growth 1.8x Dividend cover £45m Invested in M&A £37m Share purchases £47m Invested for organic growth 19
Slide 20: David Wild, Chief Executive Officer
David Wild Chief Executive Officer
Slide 21: Delivered food market drivers
# of households Penetration of delivery Frequency of delivery Spend 21
Slide 22: Competitive environment: delivering a superior end-to-end customer experience
COMPETITIVE ENVIRONMENT: DELIVERING A SUPERIOR END- TO-END CUSTOMER EXPERIENCE NATIONAL BRAND LOCAL/TACTICAL PROCUREMENT PRICE ORDERING cooK DELIVER MARKETING MARKETING QUALITY PLATFORM » » » » » » ge $$ $Y $ $ $Y PF 2 Dominos:
Slide 23: UK system sales growth
SYSTEM ONLINE COLLECTION ORDER TICKET SALES GROWTH SALES GROWTH SALES GROWTH GROWTH GROWTH 8.6% 13.7% 12.6% 6.5% 1.9% 32.0 (£m) 1,019.3 32.0 21.4 38.0 938.7 FY 2016 LFL excluding splits New store growth Immature store Split territories FY 2017 (52 weeks) growth 23
Slide 24: ASPA (average sales per address)
1. ASPA stands for Average Sales Per Address per week 24
Slide 25: Territory splits
• Donor stores recover sales quickly Split in 2014 Split in 2015 Split in 2016 • 2015 splits already recovered • Benefits of improved service and spare capacity +54% +42% +30% • Territory sales and ASPA significantly +46% +37% +28% increased • Major efficiencies in labour and local 16,354 16,070 mar
Slide 26: London opportunity
• London remains significantly under Address count per store penetrated 27,807 23,433 • 14% of DPG system sales; 25% of UK delivered food market • 3 corporate stores planned for 2018 London Rest of UK • GPS, new promotions already trialled ASPA £0.85 £0.72 London Rest of UK 26
Slide 27: Smaller towns
Somerset town Welsh UK town average Opened: Dec 2015 Sept 2014 AWUS (£) 15,464 23,197 20,626 • Smaller towns are characterised by: Address count 9,260 10,840 25,322 ASPA (£) 1.67 2.14 0.81 • High collection %, driving significant Collection % sales 43% 51% 21% labour efficiency Labour cost % sales 2
Slide 28: Marketing and brand awareness
% of customers scoring us 5/5 for value • New ‘Official Food of Everything’ campaign 45% landed strongly in H2: already at 3x recall of 40% previous campaigns 35% • Brand spontaneous awareness up to 84%; 30% 55% first mentions 25% 20% • Good recovery in value for money perception Week 1, Week 9, Wee
Slide 29: Digital business
Traffic (m) Online incidence (%) Conversion rate (%) Average ticket (£) 127.5 22.3 33.0 75.2 112.3 32.8 21.9 +14% 71.8 +3.4pt +0.2pt +1.8% 2016 2017 2016 2017 2016 2017 2016 2017 • Domino’s is a digital business – 75.2% of UK sales are online • Mobile is the fastest growing channel • Mobile is growi
Slide 30: Enhanced order tracker
• 471 stores live • 323 stores now customer facing with enhanced tracker • Labour improvement – 0.9% for franchisees • Additional insurance benefit • Overall Customer Satisfaction improvement +2.0% • Full roll-out 2018 30
Slide 31: GPS rollout
GPS Rollout ~~
Slide 32: Mature store EBITDA
• Mature store EBITDA (ex splits) maintained at c. £151k • % margin decline offset by sales growth • Return on new store investment remains compelling • In absolute terms • Compared to other potential uses of capital EBITDA flat per store YoY1 22 14 9 151 15 151 4 8 EBITDA 2016 Order volumes Ticket
Slide 33: Cost inflation and store economics
Labour costs: Food costs +3-4% in 2018: Key offsets: • National living wage April 2018 • Exchange rate stable after 2016 shocks • Volume – franchisees capture 75-80% of • Apprenticeship levy • Dairy softening after tough 2017, value from incremental sales • Competition for drivers expected flat YoY
Slide 34: Republic of Ireland
LOCAL CURRENCY LOCAL CURRENCY SYSTEM SALES ONLINE SALES GROWTH GROWTH ORDER GROWTH NEW STORES AWUS (£) 11.3% 28.8% 10.0% 2 c. £24,000 • Strong economic recovery • Improved performance countrywide, not just Dublin focused • First new stores for six years – more planned for 2018 • Significant growth o
Slide 35: International expansion model
Build profitable store level model and franchise Identify likely Identify local Accelerate markets – partner(s) roll-out Nordics/Baltics Invest in commissary to capture margin Scale through M&A opportunistically 35
Slide 36: International markets overview
2017 Urban Total store Store Market Mature Location population potential count position AWUS1 Shareholding Model Switzerland 6.1m 100 18 #2 £26k 100% Corporate Iceland 0.3m 30 23 #1 £38k 95% (Jan 18) Corporate Corporate/ Norway 4.2m 75 51 #3 £19k2 71% Franchised Sweden 8.4m 125 6 Start-up £17k3 71%
Slide 37: Switzerland
LOCAL CURRENCY LOCAL CURRENCY SYSTEM SALES ONLINE SALES GROWTH GROWTH ORDER GROWTH TICKET GROWTH AWUS (£) 17.1% 56.6% 34.9% (13.2)% c. £26,000 • Very strong price elasticity from new menu • Store opening costs reduced • Online adoption accelerating • Growth and profitability opportunities from: • St
Slide 38: Iceland
PRO FORMA 2017 SALES GROWTH STORES AWUS (£) 10.8% 23 (+2) c. £38,000 • Leading QSR in the market • Highest AWUS in Domino’s system worldwide • Mature store EBITDA >15% • Growth opportunities from: • Store roll-out – target of 30 in total – 2 openings planned for 2018 • Delivery (currently 27% of ord
Slide 39: Norway
PRO FORMA 2017 DOMINO’S BRAND SALES GROWTH DOMINO’S STORES AWUS (£) 94.6% 27 (+14) c. £19,000 • Strong growth driven by LFL (13.5%) and Dolly’s acquisition/store conversions (up c. 50%) • 9 conversions to date; 10 more in 2018 • Growth opportunities from: • Store roll-out – target of 75 in total • F
Slide 40: Sweden
MARKET STORES POTENTIAL AWUS (£) 6 (+3) 125 c. £18,000 • Fragmented market with no national pizza brand • Significant population • Attractive food and labour cost ratios • 7-10 openings planned for 2018 • Small scale commissary investment in 2018 40
Slide 41: Germany and Joey's Pizza
HALLO PIZZA STORE JOEY’S STORES ACQUISITION POTENTIAL Trading well Footprint up 500 in post conversion by 60-65% 3-4 years • Significant market opportunity • MAF: up to €25m payable ahead of exit • Put/call option could realise material exit value – value enhancement from recent extension 41
Slide 42: Summary and current trading
TOTAL SALES GROWTH NEW UK STORES EPS GROWTH UK CURRENT TRADING1 15% 95 14% 10.9% (7.1% LFL) • Delivered food is a strong and growing market • Pizza is the number one delivered food; DPG is number one in pizza in several markets • Our competitive advantages: • Scale • Brand • Franchisees • Digital •
Slide 43: Q&A
David Wild Chief Executive Officer Rachel Osborne Chief Financial Officer Simon Wallis Chief Operating Officer
Slide 44: The Official Food of Everything
YS Dominos: ) THE OFFICAL FOOD OF L EVERYTHING
Slide 45: Appendix contents
• Appendix 1 Definitions Page 44 • Appendix 2 Analysis of UK & ROI operating profit Page 45 • Appendix 3 Group 10-year history: stores, system sales and Group profit Page 46 • Appendix 4 UK & ROI LFL sales growth by quarter Page 47 • Appendix 5 Forward-looking statements caution Page 48 45
Slide 46: Definitions
• Constant currency basis restates the prior year results to the current year’s average exchange rates • System sales represent the sum of all sales made by both franchised and corporate stores in the United Kingdom, Republic of Ireland, Switzerland and Nordics to consumers • Like-for-like sales sys
Slide 47: Analysis of UK & ROI operating profit
52 weeks ended 52 weeks ended % Change 24 December 2017 (£m) 25 December 2016 (£m) System sales 1,079.4 988.8 9.2% Revenue 393.4 345.1 14.0% Of which supply chain centre 297.4 265.1 12.2% Net royalties 30.2 27.6 9.4% Supply chain centre margin 87.6 83.3 5.0% Net overheads, realty and incentives (18.
Slide 48: Group 10-year history
Store count (continuing operations) 1,013 1,192 835 872 931 720 787 608 665 553 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual system sales and group underlying operating profit (£m) 94.0 86.2 Group system sales Group underlying operating profit 73.2 55.5 42.4 47.2 47.9 1155.7 38.0 1,004.2
Slide 49: UK & ROI LFL sales growth by quarter
UK LFL sales growth by quarter (excluding splits) 2016 2017 12.7% 13.3% 8.1% 7.2% 6.2% 6.1% 3.5% 1.5% Q1 Q2 Q3 Q4 ROI LFL sales growth by quarter (excluding splits) 2016 2017 13.7% 12.9% 10.5% 11.7% 10.4% 9.8% 8.5% 7.6% Q1 Q2 Q3 Q4 49
Slide 50: Forward-looking statements caution
These 2017 annual results, our interim results, our Annual Report and the Domino’s Pizza website may contain certain "forward-looking statements" with respect to Domino’s Pizza Group plc and the Group's financial condition, results of operations and business, and certain of Domino’s Pizza Group plc’