Domino's Pizza Group Plc · LSE:DOM
Domino's Pizza — Investor Day (January 2019)
64 slides from Domino's Pizza's investor day presentation, Jan 7, 2019
Slide 1: Investor Seminar
INVESTOR SEMINAR 7 January 2019 e 9 & Dominos:
Slide 2: Q4 Update, FY18 Out-turn and Initial 2019 Outlook
Q4 UPDATE, FY 18 OUT-TURN AND INITIAL 2019 OUTLOOK * Continued strong trading in the UK & ROI * 59 openings across the two markets * International disappointing * Sales development in several markets * Business integration issues in Norway * Underlying PBT now expected to be at the lower end of the
Slide 3: The Purpose of Today
THE PURPOSE OF TODAY 1. Brief investors on the nature of the franchise business model and the attractions of Domino’s to franchisees in the UK Illustrate the forecast growth of the UK delivered food market Explain how Domino’s will take its share of that growth Hear first impressions from Scott Bush
Slide 4: Agenda
AGENDA The investment proposition The Domino’s franchise model The UK market and growth potential Ops Director interview Q&A Y Dominos’ p THe OFICIAL FOOD OF LEVERYTHING oi & Go BO =
Slide 5: The Investment Proposition
THE INVESTMENT PROPOSITION
Slide 6: Investment Case: Markets
INVESTMENT CASE: MARKETS Food delivery: rapid growth Pizza: popular and profitable International: additional growth * Convenience, home * The #1 delivered food: made * Newer markets with big demand entertainment and value fresh, infinite choice for pizza * Increased industry marketing ~* Travels wel
Slide 7: Investment Case: Our Business Model
INVESTMENT CASE: OUR BUSINESS MODEL Integrated business model __ Virtuous circle of scale, Low capital, high returns brand and growth ¢ End-to-end control of * >1,100 stores in UK, deep ¢ Shared investment with customer experience presence franchisees * Vertical integration of food * Brand recogniti
Slide 8: Group History: Strong & Consistent Growth
GROUP 10 YEAR HISTORY: STRONG & CONSISTENT GROWTH Store count (continuing operations) 1013 1,192 : 7 LI 7 C i 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual system sales and group underlying operating profit (£m) 86.2 94.0 I Group systemsales -O- Group underlying operating profit 73.2 ; 55
Slide 9: Driven by UK & ROI Performance
DRIVEN BY UK & ROI PERFORMANCE 95 100 1400 90 80 1200 mmm Sales —@=EBIT 1101 2 70 & 989 #1000 60 2 2 E ) a o 50 V E 800 Ee a g2 40 w ES % 600 94 26 30 407 400 351 i \ 10 200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 e 9 $ Domino's’ ee
Slide 10: Significant & Growing Cash Returns
SIGNIFICANT & GROWING CASH RETURNS Annual dividend per share grown by 18% CAGR over last 10 years iH 7 “a I | ‘| | | : | a a 2009 2010 2011 2012 2013 2014 2015 2016 2017 o os & Dominos:
Slide 11: 10 Year Cash Returns of £325m
10 YEAR CASH RETURNS OF £325M 30 20 Zoe ee 10) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 mEquity Dividends Paid ™Purchase of Own Shares * 10year cumulative total cash returns equate to £325m or >100% of 2008 market cap. * Nearly £100m more in 2018 ° $ Domino’:
Slide 12: The Domino's Franchise Model
THE DOMINO’S FRANCHISE MODEL
Slide 13: What Is a Restaurant Franchisor?
WHAT IS A RESTAURANT FRANCHISOR? What it does What it doesn’t do * Controls and promotes the brand ¢ Directly operate many restaurants * Invests in and runs the supply * Set retail pricing chain * Make money from selling pizza to * Identifies and works with customers entrepreneurs who open and run r
Slide 14: The Franchisor Financial Model
THE FRANCHISOR FINANCIAL MODEL Standard restaurant model Capital intensity Medium Low Value drivers Price and volume Volume Margin Retail Wholesale Operating leverage High fixed cost High variable cost ROIC Good/Vvolatile Excellent/stable es 9 gg Dominos: a
Slide 15: Franchisee and DPG Responsibilities
FRANCHISEE DPG National marketing (inc digital Physical store | local marketing DEMAND CREATION marketing) Create menus CUSTOMER JOURNEY Store & in home menu distribution Browse Website I App In store & Telephone Purchase Online checkout Store collection I Store delivery Collect/Deliver Feed Us Back
Slide 16: Our Agreement with DPI - The MFA
OUR AGREEMENT WITH DPI - THE MFA Key terms * 10 years, perpetual renewal * Royalty fee 300bps less 30bp discount * Discount conditional on meeting store growth plan * 350 new stores in last renewal * Minimum 1,346 by 2026 ¢ DPI regularly conduct inspections Consequences * Stable environment for long
Slide 17: Franchisees' Agreements with Us - The SFA
FRANCHISEES’ AGREEMENTS WITH US - THE SFA Key terms 10 year term Royalty currently 5.5%, uncapped * 20% of any increase goes to DPI, under the MFA NAF up to 5%, (currently 4%); E-commerce fee up to 1% (currently 0.75%) but any surplus goes to NAF Store opening fee £15k plus £5k LSM v2 (80% of agreem
Slide 18: System Profit Drivers
SYSTEM PROFIT DRIVERS DPG- COST PLUS Franchisees - RETAIL MINUS ¢ We sell supplies to franchisees on * Franchisees set retail prices and lowest cost provider terms, but market promotions prices rise and fall with the market * Prices mainly driven by supply side factors: eg weather, exchange rates *
Slide 19: Why Be a Domino's Franchisee?
WHY BE A DOMINO'S FRANCHISEE? * Leading brand ¢ Superior business model * World class supply chain * Highly profitable system * Strong and defensive store economics * Growth opportunity e 9 $ Domino's’ a
Slide 20: Customers Rate Our Brand Very Highly
CUSTOMERS RATE OUR BRAND VERY HIGHLY 80% 60: 40: 20. Overall satisfaction Hl 2018 survey HE 2016 & 2017 survey x er < 2 2 See ok OE Og : 8 sb 5 Ob Ey 6 = oa 3 Bil ve 3 fo (OO Ea ha + Bs fn = Ql = e bs a ss . IN 0. Domino's Just Eat Pizza Papa Uber Deliveroo Hut = John's Eats. -504 -604 Esha 8% NPS s
Slide 21: Clear Number One for Brand Awareness
CLEAR NUMBER ONE FOR BRAND AWARENESS All Mentions - Spontaneous Recall 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 82% 71% 39% 19% 1% —=— wW2 W3 W4 W5 W5B W6 W7 W8 W9 WIO Wit Wi2 W13 W14 WI5 — Domino's ——Pizza Hut ——Papa John's —— Others ——Pizza Express — Just Eat —Perfect Pizza 2 Dominos:
Slide 22: Control of the End-to-End Customer Experience
BUSINESS MODEL: CONTROL OF THE END-TO-END CUSTOMER EXPERIENCE IS A KEY DIFFERENTIATOR NATIONAL BRAND LOCAL/TACTICAL PROCUREMENT PRICE ORDERING cook DELIVER MARKETING ) MARKETING ) QUALITY ) ) PLATFORM ) ) ge $$ $Y $$ $ $Y PF JUST JUST JUST Gy LOCAL LOCAL LOCAL LOCAL EES INDEPENDENT INDEPENDENT INDEP
Slide 23: World Class Supply Chain
WORLD CLASS SUPPLY CHAIN * £38m investment in Warrington * 1,400 store capacity across two sites * 3-4 deliveries per store per week: 99.9% accuracy * Increased efficiency consistently shared with franchisees + °, $ Domino's’
Slide 24: Highly Profitable System
HIGHLY PROFITABLE SYSTEM Total UK system profitability 250.0 80% 70% 200.0 60% 5 & 150.0 50% 5 A 40% & a 2 9 100.0 30% & & 24.9 & 20% 500 ag 445 58.2 58.5 10% 0.0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 mmm Franchisee EBITDA £& mmm DPGEBITDA£ = —==Franchisee Split of Profits tf °, $ Dom
Slide 25: Strong Store Economics (1) - Pro Forma P&L
STRONG STORE ECONOMICS (1) - PRO FORMA P&L po |S or%ofsales |Notes AWUS c. £20,000 Food 28-30% Labour 28-30% Mileage c.4% Royalty 5.5% NAF 4% Local marketing 3-4% Occupancy c.5% Other opex c.6% Average across all stores Cyclical Upward pressure currently; 50% variable Variable SFA; variable SFA; var
Slide 26: Fluctuation in Labour and Food Over Time
FLUCTUATION IN LABOUR AND FOOD OVER TIME 34.0% 32.0% 30.0% 28.0% 26.0% 24.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Pt Food % Labour% = = Averagefood% = = Average labour % * Food and labour fluctuate between 28-30% * Current pressures are labour-related e 9 $ Domino's’ ee
Slide 27: Strong Store Economics (2) - Evolution Over Time
STRONG STORE ECONOMICS (2) - EVOLUTION OVER TIME Proportion of new and immature stores*: 12.9% 16.8% 18.6% £144.9k — ¢141.8k £137.3k £119.1k £99.1k £99.3k £91.4k £93.3k. £95.7k £84.2k : : 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBITDA per store - all stores * Top 10 franchisees Domine’:
Slide 28: Strong Store Economics (3) - Payback and Value
STRONG STORE ECONOMICS (3) - PAYBACK AND VALUE Virgin territory Split territory Split store with bank financing Franchisee capital £300-350k £300-350k £100-120k Total donor stores EBITDA loss - - £100-200k £100-200k temporary Mature store EBITDA £120-150k £120-150k £120-150k Payback 3-4 years 5-6 ye
Slide 29: DPG Supports Franchisees in Numerous Ways
DPG SUPPORTS FRANCHISEES IN NUMEROUS WAYS * Scale/purchasing - every franchisee enjoys the procurement scale benefits of >1,100 stores across the UK * Supply chain - 3-4 deliveries into each store, per week; 99.9% accuracy; fresh dough * IT platform investment - £10m investment in new e-commerce and
Slide 30: The Domino's Store Model Is Capital-Light and Defensive
THE DOMINO'S STORE MODEL IS CAPITAL-LIGHT AND DEFENSIVE Domino’s offers a compelling combination * Lower fixed property costs: of reasonable upfront costs and * Built for delivery - small footprint attractive EBITDA ; ¢ Not prime - lower rent per sq ft and Other branded pizza outlets much less busin
Slide 31: How Have Franchisees Progressed Over Time?
HOW HAVE FRANCHISEES PROGRESSED OVER TIME? Top 10 franchisees: stores * Top 10 franchisees’ store base up 4x in last 10 aT years; sales up 6x * Average EBITDA per store for the system up 2008 >60% over that time * Combined asset values of >£800m at current fe) 200 400 600 800 . multiples Top 10 fran
Slide 32: Summary
SUMMARY Globally successful brand * High return franchise model * Structure of agreements aligns all parties Profitable, cash generative stores and continued good returns on new investment * Differentiated and defensive economic model e 9 $ Domino's’ ee
Slide 33: UK Growth Potential
UK GROWTH POTENTIAL
Slide 34: UK Delivered Food Market Is Worth £6.7bn Today
UK DELIVERED FOOD MARKET IS WORTH £6.7BN TODAY 2018E 2018E 2018E growth rate growth rate growth rate 3% 6% 4% es 9 6 & Dominos: zi Source: E¥-Parthenon Analysis, ONS, M&C Allegra
Slide 35: Penetration of Delivery, Frequency of Order
D C B A Spend / No. of Frequency of Order Penetration of Delivery Order H’holds • • • • • • • on Delivery Forecast effect
Slide 36: Sizing the Market & Its Growth
SIZING THE MARKET & ITS GROWTH pixerc | Frsemt | caer 2014 2017 2018E 2022F ('18E~22F) fay Neoreeneiss 27.2 28.0 28.3 29.3 0.9% @) oe 51% 55% 56% 58% 1.3% le Monthly Frequency «< ) "oF Ordering 1.45 1.81 1.90 2.26 4.4% Delivery* {D) Average Spend per £173 £18.5 £18.8 £20.0 1.7% “ Order . . . . es 9
Slide 37: UK Delivery Market Forecast to Grow at 8% CAGR
UK DELIVERY MARKET FORECAST TO GROW AT 8% CAGR 92 IS 6.7 < a 4.2 2014 2018E 2022F % of in and out of home food & drink spend 2.3% 3.9% 4.6% +t 9, $ Dominos: Source: E¥-Parthenon Analysis.
Slide 38: Pizza Remains the Clear Favourite
PIZZA REMAINS THE CLEAR FAVOURITE Q: What cuisines do you order through delivery? 2016, 2017, 2018 Survey Respondents 100%-4 80+ 3S . ses Pizza represents c. 28% bed a 804 ae of the delivered food BBY market 404 Sen 5 oO 2 Py 2 el © .8 204 1 2 BS xtc = BH = x “Pizza Chinese Indian Kebabs Burger Fish
Slide 39: Strength of Pizza Brands Influences Customers' Purchasing Process
STRENGTH OF PIZZA BRANDS INFLUENCES CUSTOMERS’ PURCHASING PROCESS Q: After deciding you wanted delivery, what did you do first? Please refer to the last time you ordered delivery m™Chose a brand m™Chose a cuisine ™ Decided on aggregator 100% 90 80' 70 60 50' 40 30 20 10 0% Rk XX FX XXXL All Indian B
Slide 40: Why Is Pizza Enduringly Popular?
WHY IS PIZZA ENDURINGLY POPULAR? For customers: Made fresh to order Infinitely customizable Travels well and retains heat Eat with hands, out of the box Great value, especially for groups M01 For pizza restaurants: Easy to make from a limited number of ingredients Simple to transport quickly High %
Slide 41: UK Growth Avenues
UK GROWTH AVENUES LFL growth New stores Capacity utilisation Virgin territory Technology Hybrids New channels Splits e 9 $ Domino's’ ee
Slide 42: Winning Everywhere: Strong ROI for Shareholders
• Winning Strong ROI for everywhere • shareholders • • Leveraging Best unit • scale economics Attracting more investment
Slide 43: LFL - Significant Capacity to Grow
LFL - SIGNIFICANT CAPACITY TO GROW ASPA: 2018 mature stores 3.50 3.00 2.50 2.00 1.50 1.00 = - 0.00 Average Best * Huge range of ASPA-19p to £2.90 * Allstoresup to average:+£220m * Allstores up to max:+>£2bn 1. __ASPA stands for Average Sales Per Address per week 43 60.0% 50.0% 40.0% 30.0% 20.0% 10.0
Slide 44: Driving LFL - A Technology Leader
DRIVING LFL - A TECHNOLOGY LEADER 900 x ° ° UK Online sales (£m) wo > a [2) 3} 3} 75% 782 72%, 67% 60 674 556 36% 425 27% 326 259 17%, 176 122 53 7 I l o ff 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 80% 70% 60% 50% 40% 30% Penetration (%) 20% 10% 0% DPG is one of the most successful “bricks-
Slide 45: Driving LFL - Menu and Offers
DRIVING LFL- MENU AND OFFERS * Aimto keep menu simple and not too long * Maintain newness through limited term offer pizzas * Meatfielder (World Cup) - peak mix 7% * Cheeseburger - peak mix 9% * Both supported by very strong social media campaigns * Offers continue to target £20 price point, collect
Slide 46: Driving LFL - New Channels
DRIVING LFL - NEW CHANNELS % of deliveries via aggregators Existing customers would order Domino’s more frequently if we listed on an aggregator 60% 70% 50% 60% 50% 40% 40% 30% 30% 20% 20% 10% | 10% 0% 0% — = | | 16-24 25-34 35-44 45-54 55and Over Decrease Decrease Staythesame _ Increase Increase si
Slide 47: Confidence in 1,600 Store Potential
CONFIDENCE IN 1,600 STORE POTENTIAL 25000 * New/immature AWUS shows limited » 20000 correlation to address count 3 15000 * Newstores ARE smaller but ASPA is 3 higher 5 10000 * Material increase in new/immature “ 5000 | AWUS over last seven years * Very low failure rate ° 2011 2012 2013 2014 2015 201
Slide 48: Smaller Address Catchments Working Very Well
SMALLER ADDRESS CATCHMENTS WORKING VERY WELL * Smaller towns are characterised by: * High collection %, driving significant Somerset town Welsh UK labour efficiency town average (2017) * Limited branded competition, Dec 2015 Sept 2014 driving higher market share AWUS (£) 15,464 23,197 20,626 * Towns
Slide 49: Hybrids and Splits - Benefits for All Stakeholders
HYBRIDS AND SPLITS - BENEFITS FOR ALL STAKEHOLDERS CUSTOMERS FRANCHISEES/DPG IMPROVES SERVICE TO CUSTOMERS v v REACHES NEW CUSTOMERS FOR DELIVERY! v v INCREASED COLLECTION POTENTIAL v v LABOUR & MARKETING EFFICIENCY v GROWS SYSTEM SALES AND ASPA! v FORTRESS STRATEGY v $ Dominos:
Slide 50: Splitting Is an Economically Rational Choice
SPLITTING IS AN ECONOMICALLY RATIONAL CHOICE One store, no competitor entry One store, competitor from year 5 cox 400 Sm Cumulative capital (£900) 60% 700 50% —ROIC % 600 300 40% 40% 500 400 30% 200 300 20% 20% WH “ WAH vs ae || Lt ee 0% ° 0% ° 12 3 4 5 6 7 8 9 10 123 4 5 6 7 8 9 10 Year Year * Inap
Slide 51: Exeter
EXETER Sales £5.5m £5.0m £5.0m £4.8 £4.5m £4.5m £4.0m &£4.0m £3.5m . 3.0m £2.9m ¢ Exeter increased from one to three stores £2.5m *24m 2014-2015 som ii LJ * 2018 sales +106.5% vs 2013 2013 2014 2015 2016 2017 2018 e ASPA improved by 59 4% . (o} pelivery Ti . * Significant service improvements in the
Slide 52: Nottingham
NOTTINGHAM £12.0m £11.0m £10.0m £9.0m £8.0m £7.0m £6.0m £5.0m 23.0 &7.1m £6.3m a i Sales £11.2m £10.5m £9.6m £9.0m I : 2013 2014 Delivery Time 25.2 2013 2018 2015 «2016 = 2017 2018 Leg Time 10.0 9.5 9.5 9.0 8.5 7 8.0 ° 15 7.0 6.5 6.0 2013 2018 Nottingham increased from 6 to 10 stores 2013-2015 2018
Slide 53: Significant Fortressing Effect on AWUS
SIGNIFICANT FORTRESSING EFFECT ON AWUS +14.5% +22.6% AWUS per store in fortress towns significantly outperforms the UK as a whole, post splits Much harder for competitors to make inroads Exeter Nottingham ™2015 ™2018 e 9, $ Dominos: _
Slide 54: Summary
SUMMARY * UK delivered food market set to grow at 8% CAGR to 2022 * Domino’s has plenty of room to grow - LFL and new stores * Technology has been and will be a differentiator ¢ Aggregators can help us reach new customers * Fortress towns preserve returns for franchisees - stronger for longer e 9 $
Slide 55: Ops Director Interview
OPS DIRECTOR INTERVIEW
Slide 56: Three Common Misconceptions
THREE COMMON MISCONCEPTIONS
Slide 57: Misconception: The UK Store Base Is Near Maturity
MISCONCEPTION: THE UK STORE BASE IS NEAR MATURITY * New stores: higher ASPA offsetting lower address counts - AWUS consistently c. £15,000 ¢ Market share opportunities remain: Pizza Hut was a net closer of stores in 2018 * Delivered food market is growing at 8%; 300k new houses a year; more and more
Slide 58: Misconception: Franchisees Aren't Making a Return from New Investment
MISCONCEPTION: FRANCHISEES AREN'T MAKING A RETURN FROM NEW INVESTMENT ¢ Recent high rate of openings has diluted average profitability - c.19% of top 10 franchisee stores were new/immature in 2017; just a short term issue ¢ Returns remain market-leading by any absolute measure * Broad-based growth:
Slide 59: Misconception: Aggregators Will Erode Domino's Market Position
MISCONCEPTION: AGGREGATORS WILL ERODE DOMINO'S MARKET POSITION ¢ Customers who want pizza are more likely to choose their restaurant first than for any other cuisine ¢ Aggregators are another acquisition channel - opportunity to target a younger cohort * No-one in the market can compete with Domino’
Slide 60: Management Q&A
MANAGEMENT Q&A
Slide 61: Appendices
APPENDICES
Slide 62: Procurement % of 2018 Category COGS
Sourced From (%) Temperature Regime (% of Procurement Category) Procurement % of 2018 EU (Non Ambient Chilled Frozen Non UK Thailand Other Packaging Category COGS UK) Food Food food perishable • Cheese 28.0% 100% 0% 92% 8% 0% 0% Chicken 17.0% 23% 77% 0% 0% 100% 0% 0% Other Meat 13.5% 100% 0% 67% 33%
Slide 63: Forward-Looking Statements Caution
FORWARD-LOOKING STATEMENTS CAUTION This presentation, our 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 bu
Slide 64: YS Dominos:
YS Dominos: ) THE OFFICAL FOOD OF L EVERYTHING