Domino's Pizza Group Plc · LSE:DOM
Domino's Pizza — Domino's Pizza UK & IRL — FY2007 Earnings Presentation
45 slides from Domino's Pizza's earnings presentation, February 2008
Slide 1: Preliminary Results for the 52 weeks ended 30 December 2007
Domino’s Pizza UK & IRL plc Preliminary Results for the 52 weeks ended 30 December 2007
Slide 2: The Team
The Team Stephen Hemsley Executive Chairman Chris Moore Chief Executive Officer Lee Ginsberg Chief Financial Officer 2
Slide 3: Financial Highlights for 2007
Financial Highlights for 2007 50% Another record year 40% 30% +43.8% +34.6% 20% +33.1% +23.4% 10% +14.7% 0% LFL sales growth System sales PBT pre-exceptionals* Diluted EPS Total Dividend pence per share * Pre-accelerated LTIP charge + other exceptionals 3
Slide 4: Profit and loss – IFRS adoption
Profit and loss – IFRS adoption 2007 2006 % increase £’000 £’000 System Sales 296,349 240,115 23.4 Operating profit * 18,828 14,185 32.7 Operating exceptionals (333) (499) - Profit on sale of stores 346 613 - Accelerated LTIP charge (174) - - Profit before interest and tax 18,667 14,299 30.5 Net int
Slide 5: Balance Sheet
Balance Sheet 2007 2006 £’000 £’000 Current Assets: 2007 2006 Non current assets 18,404 18,103 £’000 £’000 Inventories 2,340 1,818 Current assets 28,117 22,823 Receivables 10,071 9,632 Investment in Non current assets finance leases 857 864 held for re-sale 1,772 1,172 Prepaid lease charges 220 247
Slide 6: Statement of Changes in Equity
Statement of Changes in Equity 2007 2006 £’000 £’000 At beginning of year 8,986 12,088 Prior period effect of IFRS adoption - (70) 8,986 12,018 Proceeds from share issue 700 403 Treasury shares held by EBT (187) - Share buybacks (8,346) (10,457) Profit for year 13,239 9,996 Tax credit on employee sh
Slide 7: Cash flow statement
Cash flow statement 2007 2006 £’000 £’000 Profit before taxation 18,576 14,189 Net finance costs 91 110 Share of post tax profits of associates (158) (171) Amortisation and depreciation 1,545 1,815 Profit on disposal of non-current assets (346) (613) Share option and LTIP charge 880 344 Changes in w
Slide 8: Analysis of Borrowings
Analysis of Borrowings 2007 2006 £’000 £’000 Cash at bank 14,629 10,262 Revolving credit facility/bank overdraft (6,000) (6,000) Net Cash 8,629 4,262 DP Capital (2,448) (2,299) EBT loans (7,721) (7,500) Other (28) (45) Net debt (1,568) (5,582) Gearing % 15.9% 62.5% NOTE: New £25m existing credit fac
Slide 9: Cash returned to shareholders
Cash returned to shareholders 4 year total 2007 2006 2005 2004 £’000 £’000 £’000 £’000 £’000 Profit after tax 38,245 13,239 9,996 8,247 6,763 Share buybacks 28,289 8,296 10,161 8,222 1,610 Dividends 15,459 5,816 4,234 3,169 2,240 Total returned 43,748 14,112 14,395 11,391 3,850 % of profit after tax
Slide 10: Reported diluted earnings per share
Reported diluted earnings per share * 9 Compound increase of 33% 8 over last 5 years 7 8.24 6 5 6.12 4 Pence 3 4.83 3.96 2 2.62 1 0 2003 2004 2005 2006 2007 Earnings per share • All figures adjusted for share split 10
Slide 11: Dividends per share
Dividends per share * 5 Compound increase of 42% over last 5 years 4 4.40 3 3.06 Pence 2 2.27 1 1.64 1.09 0 2003 2004 2005 2006 2007 Dividends per share Linear (Dividends per share) * All figures adjusted for share split 11
Slide 12: IFRS – Minimal impact
IFRS – Minimal impact 1. P&L – PBT impact UK Gaap Effect of transition IFRS EPS to IFRS Impact £’000 £’000 £’000 - 52 weeks ended 30/12/07 18,438 138 * 18,576 0.09p - 52 weeks ended 31/12/06 14,292 (103) ** 14,189 (0.06)p * Assets held for resale less lease inducements spread over period of lease **
Slide 13: System Sales – The Growth Driver
System Sales – The Growth Driver 20% compound growth in system sales 350.00 20 300.00 30% compound growth in PBT £296.3m 18 16 £240.1m 250.00 14 +23% System Sales £’m £200.7m 12 200.00 £174.3m +20% 10 PBT £’m 150.00 £142.3m +15% 8 100.00 +23% 6 +20% 4 50.00 2 0.00 0 2003 2004(53 wks) 2005 2006 2007
Slide 14: System Sales Up 23.4%
System Sales Up 23.4% Like-for-like stores ‘Immature’ Stores 50 New Store up 14.7% up 27% Openings Weak More Ad Product Increased Optimised Service Competition, Wet Fund Quality & Focus on Customer Excellence Growing Summer Fire Power Innovation E-Commerce Database Market Stronger Team & Franchise C
Slide 15: Like-for-like sales 2007
Like-for-like sales 2007 Growth of 14.7% for the year 22.00% 19.7% 20.00% 17.6% 17.8% 18.00% 16.8% 16.1% 16.00% 15.3% 14.7% 13.8% 14.00% 13.3% 12.8% 12.2% 12.00% 9.5% 9.7% 10.00% 8.00% 6.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec mature store sales increase 15
Slide 16: Historical like-for-like sales growth
Historical like-for-like sales growth Average increase 16% 450 of 9.1% over last 5 years 14% 400 12% 14.7% 350 LFL store population 10% Sales growth 300 8% 9.7% 250 6% 7.4% 6.6% 7.1% 200 4% 2% 150 0% 100 2003 2004 2005 2006 2007 LFL sales growth LFL store population 16
Slide 17: Other sales highlights
Other sales highlights • 36 stores with sales in excess of £1 million • 9 out of Top 10 Domino’s Intnl. Stores for third consecutive year • Three weeks in December, mature store AWUS* exceeded £15k – Our 2017 target! * AWUS – Average Weekly Unit Sales 17
Slide 18: New Store Openings (net of closures)
New Store Openings (net of closures) Average 47 Openings Per Year over last 5 years 501 500 451 50 450 number of stores at year end 407 46 400 357 50 350 318 40 300 50 250 (1) (1) (0) (2) (0) 200 2003 2004 2005 2006 2007 ( ) = no. of closures Potential for 1,000 stores 18
Slide 19: 50 new stores in 2007 – how did we achieve it?
50 new stores in 2007 – how did we achieve it? • Re-focused the Business Development Team • Strengthened the Acquisitions department • Enhanced location analysis • Focus on existing franchisees; only 7 of the 50 stores opened with new franchisees • Built the pipeline • Smarter processes and organisa
Slide 20: System Sales Up 23.4%
System Sales Up 23.4% Like-for-like stores ‘Immature’ Stores 50 New Store up 14.7% up 27% Openings Weak More Ad Product Increased Optimised Service Competition, Wet Fund Quality & Focus on Customer Excellence Growing Summer Fire Power Innovation E-Commerce Database Market Stronger Team & Franchise C
Slide 21: More Ad Fund Fire Power
More Ad Fund Fire Power • £15m in 2007 (2006: £13m) • Increased spend on e-commerce • Competitive entry in April ‘07 • Online sales up 60.5% to £32.2m (2006: £20.1m) • Now over 20% of all UK delivered sales • Optimised Customer Database • c. 2 million ‘active’ customers • Major advantage of our busi
Slide 22: Product Quality & Innovation
Product Quality & Innovation Pizzas Sides Desserts • Communicating quality credentials • Removal of Hydrogenated Fats and MSG 22
Slide 23: Service Excellence
Service Excellence OTD Less Than 15 Minutes Mature Stores 80.00% 75.00% 70.00% 65.00% 60.00% 55.00% 50.00% 45.00% Nov Nov Jan Jun Jan Jun Jul Jul Mar Apr Mar Apr Feb Aug Sep Feb Aug Sep Oct Oct May Dec May Dec 2006 2007 23
Slide 24: The competition
The competition 2007 Net Stores Openings Sales - Domino’s 501 50 £296m - Pizza Hut* 255 (7) £104m - Perfect Pizza 100 (10) £ 18m - Papa Johns* 100 18 £ 23m - Others ** 2,000 n/a £312m - TOTAL 2,956 £753m * includes estimates for Ireland ** estimates/Mintel Home Delivery report (UK) 24
Slide 25: Home Delivery Market
Home Delivery Market £1,800 £250 £1,600 £’m Mintel UK Home Delivery (net) £’m Domino’s UK Home Delivery £1,400 £200 £1,200 £150 £1,000 £800 £100 £600 £400 £50 £200 £0 £0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mintel UK Home Delivery (£'000s) Domino's (less carryout and ROI) • Market
Slide 26: Consumer Spending
Consumer Spending • Domino’s classic option when trading down…offering better value for money than dine-out options • Exposure in 1991 recession; flat sales (45 stores, NAF c£300k) • Premium quality, great service, trusted brand for c. £6 per person • Consumer spending shows trend towards eating in
Slide 27: Consumer Spending (contd.)
Consumer Spending (contd.) • Bespoke research conducted to quantify consumer opinion • Consumers that come to Domino’s are driven by much more than just price • Brand strength protects against squeeze on disposable income (Quality, Service, Marketing spend) • NAF will ensure continued aggressive mar
Slide 28: £18m Ad Fund for 2008
£18m Ad Fund for 2008 • Continue focus on product quality and innovation • Five new product campaigns e.g. Steak Special • Over 300 million menus • 26+ weeks of TV advertising • Increasing focus on driving online sales • And the biggest sponsorship deal Domino’s has ever done… 28
Slide 29: Britain's Got Talent
Britain's Got Talent • ITV1’s flagship show, plus.. • Britain’s Got More Talent ITV2 • America’s Got Talent ITV2 • Step change for Domino’s Pizza • High profile to drive awareness and standout • BGT final last year had over 11m viewers 29
Slide 30: Outlook for store openings in 2008
Outlook for store openings in 2008 • Team is well placed to achieve 2008 target of 50 store openings • At 11th Feb 2008 – 35 with planning and franchisee vs. 2007 (+ 5 ) – 85 locations under negotiation vs. 2007 (+ 9 ) – Benefit of building pipeline • Rolling 150 Target Acquisition List • Early indi
Slide 31: Store refit programme
Store refit programme • New store modernisation programme – Last image update in 2000 – Improving design, ‘theatre’ and branding – Communicating core values » Quality, fresh, fun • Up to 100 stores to be re-fitted in 2008 – Cost of c£20k pre-store (funded by franchisee) – Up to 5 day closure for sto
Slide 32: New Store Design
New Store Design 32
Slide 33: Commissary update
Commissary update • Extension to Penrith – 100% additional capacity (to circa 200 stores at build-out) – Completion expected Q3 2008 – Cost of circa £4.0m • New Milton Keynes facility – 10 acres of land to be acquired • Capacity to service 500 stores at build-out (current MK circa 300 stores) • High
Slide 34: People
People • Smooth succession in place – Executive Chairman Stephen Hemsley – CEO Chris Moore • New Arrivals in Q1; – Legal Counsel/Company Secretary – Procurement Director – Both joining Domino’s Pizza Executive Team Team in place for growth to 1000 stores 34
Slide 35: Food cost pressures
Food cost pressures • Franchisee price increases of 4% – Effected mid-November 2007 – Fully recovered increases in: • Cheese, flour, meats and boxes • 2008 Food cost outlook – Flour • Settled below 100% anticipated increase • Contract locked in from 1/11/2007 – 31/12/2008 – Cheese • Current price le
Slide 36: Continuing strategy
Continuing strategy • Focus on roll out of Domino’s system in UK and Ireland • Build infrastructure for 1000 stores • Drive like-for-like sales growth • Operational leverage to drive net margin • Resulting cash generated to be returned to shareholders • Announcement of intention to move to Official
Slide 37: The financial model at build out
The financial model at build out At build out * 2001 2006 2007 (circa 2017) No. of stores 237 451 501 1,000 - 50 openings p.a. AWUS growth at 3% p.a. ** £8,422 £11,347 £12,539 £15,700 System sales £ 98m £ 240m £296m £ 820m Profit before tax £ 2.9m £ 14.2m £ 18.6m £ 73.8m PBT/System sales 3.0% 5.9% 6
Slide 38: The financial model at build out (contd.)
The financial model at build out (contd.) At build out * 2006 2007 (circa 2017) • PBT £14.2m £18.6m £73.8m • Share buybacks *** • Average no. of shares in issue 162.6m 158.0m 128.0m • EPS - pence 6.2p ** 8.4p 40.6p - CAGR 18% p.a. • Dividend - cover 2.1x 1.9x 2.0x - pence 3.1p ** 4.4p 20.3p COMPELLI
Slide 39: Current trading and prospects
Current trading and prospects • Strong start to year in first six weeks of 2008 – Like for like sales up 11.0% (2007: 14.3%) – Challenging comparatives for balance of year • E-commerce up 90.6% (2007: 36.2%) now 21% of delivered sales • Store opening pipeline more reassuring – On track to open 50 st
Slide 40: APPENDICES
APPENDICES APPENDIX 1 Analysis of Group turnover (Page A-1) APPENDIX 2 Earnings per share reconciliation (Page A-2) APPENDIX 3 Analysis of Group Operating Profit (Page A-3) (Pre-exceptionals) APPENDIX 4 The Franchisee Model (Pages A-4-A-5)
Slide 41: Analysis of group turnover
Analysis of group turnover 2007 2006 Variance £’000 £’000 £’000 Royalties 16,295 13,207 3,088 Store sales 6,588 6,861 (273) Franchise/TST/FDP fees 1,080 879 201 Commissary & E&S sales 79,242 64,879 14,363 Property sales 9,304 8,180 1,124 Computer sales 2,275 1,728 548 Other sales 2,910 2,262 648 Int
Slide 42: Earnings per share reconciliation
Earnings per share reconciliation At 30 December At 31 December 2007 2006 ’000 ’000 Profit attributable to shareholders £13,245 £10,084 Basic weighted average number of shares 157,975 161,967 (excluding shares held by EBT) Dilutive - Share options 1,760 2,342 - Reversionary interests 1,089 673 Dilut
Slide 43: Analysis of group operating profit (pre-exceptionals)
Analysis of group operating profit (pre-exceptionals) 2007 2006 Variance % £’000 £’000 £’000 Franchise Operations 7,212 4,814 2,398 49.8 Commissary 16,114 13,270 2,844 21.4 DP Realty 408 405 3 0.7 Central overheads * (5,136) (4,078) (1,058) 25.9 Other ** 230 (226) 456 - 18,828 14,185 4,643 32.7 * In
Slide 44: The Franchisee Model
The Franchisee Model 2007 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 45: The Franchisee Model (contd.)
The Franchisee Model (contd.) • Average mature store system sales £650,000 - £12,500 AWUS in 2007 • Average mature store EBITDA after: £ 95,000 - Food costs 27% - Labour 28% - NAF & Royalty 10.5% - Occupancy 6% - LSM 4% • Cash payback on investment 2.1 years (range 1.4 – 2.5) FRANCHISEE PROFITABILIT
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