Domino's Pizza Enterprises Limited · ASX:DMP
Domino's Pizza Enterprises — H1 2018 Earnings Presentation
52 slides from Domino's Pizza Enterprises's earnings presentation, Feb 14, 2018
Slide 1: Period Ending 31st December 2017
Period Ending 31st December 2017 AUSTRALIA+ NEW ZEALAND- BELGIUM « FRANCE « THE NETHERLANDS - JAPAN + GERMANY
Slide 2: Presenters
Don Meij Group CEO & Managi Richard Coney Group CFO | Nick Knight Australia & New Zeal Andrew Renni DPE Europe CEO Josh Kilimnik Japan President & CI
Slide 3: Group results headline metrics
NETWORK SALES GROWTH % +7.1% GROUP SSS % +4.0% EBITDA GROWTH(1) +5.4% NPAT GROWTH - UNDERLYING(1) +5.5% NPAT GROWTH - ADJUSTED FOR SHARE BUY-BACK(1) +7.0% (1)(2) EPS GROWTH +5.8% DIVIDEND (CPS) +20.0% FREE CASH FLOW ($m) $45.9m RETURN ON CAPITAL EMPLOYED 19.2% RETURN ON EQUITY 32.7% (1) H118 Underly
Slide 4: H1 18 financial summary
▪ Network Sales up 7.1%, +$82.8m, to $1,248.9m ▪ Revenue up 5.2%, +$28.3m, to $567.6m. Note Japan Corporate stores FX headwinds affecting revenue ▪ EBITDA up 5.4%, +$6.2m, to $122.4m; 2 year EBITDA up +40.7%, +$35.4m ▪ NPAT up 5.5%, +$3.3m on H1 17, to $62.9m; 2 year NPAT up +39.9%, +$18.2m ▪ Adjust
Slide 5: Network sales growth by half
(1) 2,318 1,964 1,480 1,249 1,249 1,156 1,163 1,036 928 805 849 746 717 763 671 578 363 384 397 408 415 433 H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 2011 2012 2013 2014 2015 2016 2017 2018 ▪ ANZ – strong network sales growth, despite rolling +17.4% SSS from H1 17. H2 18 S
Slide 6: New organic stores added in H1 18
▪ 70 new organic stores added to the network in H1 18 ➢ 25 new organic stores opened in ANZ(1) ➢ 35 new organic stores opened in Europe(2): • 8 Sprint Stores converted to Domino’s, with the remaining stores to be converted by the end of FY18 ➢ 10 new organic stores opened in Japan: • A continued foc
Slide 7: NPAT guidance
NPAT GUIDANCE ▪ Management maintains NPAT (after MI) guidance of “in the region of 20%” for FY18, as a result of the significant upside we foresee in H2 18 GROUP ▪ As guided at the AGM, H1 18 was forecast to be appreciably lower than H2 18 ▪ ANZ and Europe achieved results slightly ahead of our earl
Slide 8: Europe and Japan outlook
EUROPE ▪ Excellent sales across Europe in H1 18, increasing brand awareness in France, Franchisee profits at record levels in Germany and further lunch diversification in the Netherlands and Belgium, have been the highlights ▪ Now that OneDigital is operational in all markets, including France, we f
Slide 9: Half-on-half sales growth excluding Germany
Forecast 1,179.6 1,133.5 1,046.1 1,052.5 241.3 252.2 235.4 334.4 272.9 300.8 521.0 516.2 557.8 H1 17 H2 17 H1 18 H2 18 Forecast ▪ The above slide illustrates half-on-half sales growth across the Group, normalised to exclude Germany (Domino’s and Hallo stores) (1) H1 and H2 sales for Japan and Europe
Slide 10: Current trading by region
ANZ ▪ Strong SSS growth in the first 5 weeks of H2 18. SSS will accelerate in H2 18, as a result of: ‒ a continued focus on both online and offline ‒ an exciting pipeline of new products ▪ Management are forecasting another strong year of new organic store openings, driven by existing Franchisees, o
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Slide 12: EBITDA by segment
(1) ▪ Group: Underlying EBITDA growth of +5.4% ▪ ANZ: Strong EBITDA growth of +16.2% ▪ Europe: Continued strong underlying EBITDA growth of +16.3%, EBITDA margin continues to rise, +4.7% from H1 16 ▪ Japan: EBITDA reduction of -24.3%, driven by: – Depreciation of the Yen vs. AUD, resulting in an EBI
Slide 13: Non-recurring costs
▪ Further details regarding H1 18 non-recurring costs are outlined in the following slide 13
Slide 14: H1 18 non-recurring costs detail
ANZ ▪ Professional fees associated with protecting our operational IP $3.4m ▪ Professional, advisory and compliance costs associated with the nationwide IR audit process $0.7m Europe ▪ France – continued conversion of Pizza Sprint stores to Domino’s $0.9m. Conversions to be complete by the end of FY
Slide 15: Underlying EPS
133.6 ▪ Underlying EPS 71.3c, +5.8% on H1 17 (Statutory EPS 66.5c, +17.5%) ▪ Underlying EPS CAGR +28.2%, over 3 years 105.4 66.2 ▪ Underlying EPS CAGR +22.8%, over 10 years 53.1 74.2 54.6 40.5 41.5 37.2 29.9 71.3 30.0 67.4 21.6 25.0 19.8 52.4 21.6 15.7 17.6 12.8 14.1 33.8 12.6 8.4 24.7 8.7 17.4 19.9
Slide 16: Cash flow
▪ H1 18 Operating cash flow up 66.2% vs H1 17 to $81.9m ▪ Free cashflow (before Japan MI purchase) increased to $45.9m from $10.0m ‒ Negative working capital predominately caused by timing of marketing campaign spend across all regions ‒ Continued new store growth & digital investment in each region
Slide 17: Balance sheet
▪ Receivables and inventories increased in Japan (Christmas holiday trading peak) ▪ Other current & non-current assets have increased due to additional Franchisee loans and timing of marketing expenditure ▪ Trade & other payables increased in Japan (Christmas holiday trading peak) ▪ Other current li
Slide 18: Gearing and returns
▪ Gearing ratios have increased, due to the combined impact of: ‒ $87.1m share buy-back ‒ $41.8m Japan MI purchase ▪ Leverage ratio still low at 1.3x earnings ▪ Net debt +$116.3m ▪ Return on Equity has improved to 32.7%, as a result of share buy-back, strong profit growth & additional profit contrib
Slide 19: Australia and New Zealand
AUSTRALIA AND NEW ZEALAND
Slide 20: Digital Innovation, Operational Excellence, Food Innovation
DIGITAL INNOVATION OPERATIONAL EXCELLENCE FOOD INNOVATION 20
Slide 21: ANZ network sales and SSS
17.4% $557.8m 15.9% $521.0m 13.8% $439.9m 11.8% 10.6% 10.0% $355.0m 8.7% $306.6m 6.9% $273.4m $279.0m 5.6% 4.5% 3.7% 2.6% 0.4% H1 12 H1 13 H1 14 H1 15 H1 16 H1 17 H1 18 H1 12 H2 12 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16 H1 17 H2 17 H1 18 ▪ H1 18 network sales up +7.1%, +$36.8m, due to conti
Slide 22: ANZ store openings
Achieved: ▪ Opened 25 new organic stores, finishing H1 18 with 799 stores ▪ 96% of our new stores were opened by existing Franchisees, or their employees, demonstrating the continued confidence in our business model and brand Looking Forward: ▪ Another strong year of store openings planned in FY18,
Slide 23: Project 3-10 and Operations 360
Project 3-10 – safer, more efficient deliveries, ensuring food is hot, fresh and fast Achieved: ▪ Over 75% of new stores were opened via store splits, bringing the customer closer to the store, reducing delivery times and increasing food freshness ▪ E-Bike roll-out continues, replacing scooters & ca
Slide 24: Enterprise Bargaining Agreement and wages audit
Enterprise Bargaining Agreement (EBA) ▪ Existing EBAs were terminated on 24 January 2018, as reported previously ▪ The new EBA has been voted up by team members by an overwhelming majority of voters, and an application for its approval has been lodged with the Fair Work Commission ▪ Strategic produc
Slide 25: Deloitte project and Fair Work Ombudsman
Deloitte project ▪ The comprehensive action plan that was developed to implement the recommendations from the Deloitte report is close to completion ▪ Key parts of the action plan involved the development of a new monitoring and investigative process which will utilise sophisticated systems and meth
Slide 26: ANZ food innovation
Achieved: ▪ 16” New Yorker Range – launched New Yorker style pizzas, a sharing meal loaded with cheese ▪ Delivered Domino’s first dessert pizza, adding to dinner orders ▪ Free your Flavour campaign highlighted exciting new ingredients, including avocado – a first for the ANZ menu ▪ Following extensi
Slide 27: ANZ digital innovation
Achieved: ▪ 13% online sales growth half-on-half, with online growing significantly faster than offline ▪ Following its successful European launch, introduced Order Anywhere, letting customers order Domino’s directly to outdoor areas, like the park or beach ▪ Multiple enhancements to the successful
Slide 28: Europe
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Slide 29: Digital Innovation, Operational Excellence, Food Innovation
DIGITAL INNOVATION OPERATIONAL EXCELLENCE FOOD INNOVATION 29
Slide 30: Europe network sales and SSS
€298.0m €264.6m 8.0% 7.5% 7.5% 7.7% 7.5% €160.7m 5.3% 4.9% €132.1m 4.6% €108.4m €115.7m 4.0% €95.3m 3.1% 2.5% 2.3% 0.7% H1 12 H1 13 H1 14 H1 15 H1 16 H1 17 H1 18 H1 12 H2 12 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16 H1 17 H2 17 H1 18 ▪ H1 18 network sales up 12.6%, +€33.4m ▪ France: Strong SSS
Slide 31: France operations
Achieved: ▪ Opened 12 organic new stores and converted a further 8 Pizza Sprint stores, adding to our market-leading position ▪ Domino’s now operates more than three times as many stores as the next biggest pizza company ▪ Best Pizza Award in France in 2017 for Domino’s Pizza(1) ▪ Increasing awarene
Slide 32: France food innovation
Achieved: ▪ Reworked all the pizza recipes and launched the French version of “Taste the colour” #dévorezlemeilleur, highlighting the quality of our ingredients ▪ Excellent performance of the “Pizza Burger” campaign in September and October, with a record mix of 20% Looking Forward: ▪ Introducing Ci
Slide 33: France digital innovation
Achieved: ▪ 40% online sales growth half-on-half ▪ Over 140,000 Promo’s App installs since launch in May 2017 ▪ Surpassed 1 million email newsletter subscribers in September 2017 ▪ Significant improvements to website conversion rates throughout H1 18 as a result of ongoing AB testing and platform en
Slide 34: Germany: Hallo Pizza acquisition
Achieved: ▪ On the 5th January 2018 the DPE majority owned joint venture completed the acquisition of the 170 store Hallo Pizza chain ▪ The acquisition increases our footprint in Germany by c. 60-65% and increases our European store presence by c. 15-20% ▪ Franchisees owning 115 stores have already
Slide 35: Germany operational excellence
Achieved: ▪ Best performing Franchisees now recording record profits ▪ Phase two of the conversion to High Volume Mentality is now well under way and progressing well ▪ New job/careers page launched for stores, designed to attract the next generation of Dominoids Looking Forward: ▪ Scale benefits fr
Slide 36: Germany food innovation
Achieved: ▪ New flavour pizzas introduced, including: ‒ Greek-style pizza, with minced lamb, shepherd’s cheese, red onion, garlic, tzatziki and spring onions – 49,000 sold in November and December alone ‒ Smoky Chicken, with spicy BBQ chipotle sauce, chicken breast, red onions, cherry tomatoes and m
Slide 37: Germany digital innovation
Achieved: ▪ 64% online sales growth half-on-half, with record OLO percentages. Some weeks exceeding 70% ▪ Achieved regular Starship Robot Deliveries from two stores in Germany, with a third to launch soon ▪ Over 100,000 Promo’s App installs since launch in May 2017 and surpassed 750,000 email newsle
Slide 38: Netherlands and Belgium operations
Achieved: ▪ Opened 23 organic new stores, a first half record ▪ A very strong SSS in H1, in both the Netherlands and Belgium ▪ Using cutting edge technology, Domino’s improved upon its existing Global weekly record average delivery time, to 5 minutes and 43 seconds, in the Nieuwerkerk aan de IJssel
Slide 39: Netherlands and Belgium food innovation
Achieved: ▪ Removed all artificial colourings and flavourings from pizza toppings in both the Netherlands and Belgium ▪ Introduced pizzarolls, based on its success in Germany ▪ Introduced sandwiches in the Netherlands, strengthening our lunch offering Looking Forward: ▪ Continuous improvement of con
Slide 40: Netherlands and Belgium digital innovation
Achieved: ▪ 49% online sales growth half-on-half. This represents faster growth than the previous half – Belgium alone achieved the highest online sales growth in Europe of 83% half-on-half ▪ 41% growth in unique users to OLO and the website half-on-half ▪ Over 195,000 Promo’s App installs in Nether
Slide 41: Japan
Slide 42: Digital Innovation, Operational Excellence, Food Innovation
DIGITAL INNOVATION OPERATIONAL EXCELLENCE FOOD INNOVATION 42
Slide 43: Japan network sales and SSS
¥20,692.8m ¥20,748.6m ¥21,037.9m ¥16,428.0m 14.4% ¥9,424.1m 7.8% 3.6% 2.2% 1.3% -1.2% -1.9% -3.0% -4.7% (1) H1 14 H1 15 H1 16 H1 17 H1 18 H1 14 H2 14 H1 15 (2) H2 15 H1 16 (3) H2 16 H1 17 H2 17 H1 18 ▪ H1 18 network sales +1.4%, +¥289.3m. Sales were softer than anticipated in December, largely due t
Slide 44: Japan achievements: 500th store
Achieved: ▪ Celebrated 500th store opening in Japan during September, ending H1 18 with 503 stores ▪ Record sales of ¥21b in the first half of the year ▪ Highest daily sales record of ¥637m for the network, on Christmas Eve ▪ Multiple records broken in December: ➢ 195 stores set new daily sales reco
Slide 45: Japan looking forward: Mission 20
Looking Forward: ▪ Developing a new store design: Mugen 4.0 ▪ Mission 20 is a key part of our strategy for Japan, designed to drive online delivery sales, reduce delivery times and increase average ticket ▪ Establishing a methodology to gain new customers through active Franchisee engagement ▪ Testi
Slide 46: Japan food innovation
Achieved: ▪ Relaunched Hot Sub as Pizza Sando ▪ Launched Sukiyaki Pizza, which recorded a strike rate of up to 25% ▪ Tactical promotion on side menu to increase customer awareness ▪ Great new food options: – ¥500 Pizza – Ultimate Pizza – Curry and bread stick – Choco Lava Cake Looking Forward: ▪ Tes
Slide 47: Japan digital innovation
Achieved: ▪ Launched OneDigital, enabling Japan to leverage technologies and strategies from other Domino’s markets ▪ Record monthly OLO in October 2017 of 64.2% ▪ Half-on-half online sales growth of 6.5% ▪ Mission 20 launched on the OneDigital platform, setting a market first and helping set apart
Slide 48: Store growth: 2,193 to 4,650 stores
Australia DECEMBER 2017 JUNE 2025 NZ 2,193 STORES 4,650 STORES
Slide 49: Future outlook to 2025 store count
FUTURE OUTLOOK TO 2025 1,200 2,600 850 H1 18 STORE COUNT 799 Stores 891 Stores 503 Stores ▪ Management believes that there is significant future growth potential in our existing organic businesses over the next 7 years ▪ We are therefore reaffirming our Group future outlook of 4,650 stores by 2025 ▪
Slide 50: Outlook footnotes
(1) New store additions include the acquisition of 170 Hallo Pizza stores, with c. 40-45 Domino’s or Hallo stores closing over time, due to the proximity between stores, in some locations (2) Excluding incremental interest costs associated with share buy-back (3) Including 100% of Japan’s earnings (
Slide 51: FY18 outlook and guidance
▪ Forecasting another record performance year for the Group ▪ Management maintains our guidance of “in the region of 20%” 51
Slide 52: Disclaimer
▪ Domino’s Pizza Enterprises Limited (Domino’s) advises that the information in this presentation contains forward looking statements which may be subject to significant uncertainties outside of Domino’s control ▪ Domino’s does not undertake any obligation to provide recipients of this presentation
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