Domino's Pizza Enterprises Limited · ASX:DMP

Domino's Pizza Enterprises — H1 2017 Earnings Presentation

53 slides from Domino's Pizza Enterprises's earnings presentation, Feb 15, 2017

  1. Slide 1: Half Year Results

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  2. Slide 2: Presenters

    PRESENTERS Don Meij Group CEO & Managing Director Richard Coney Group CFO Nick Knight Australia & New Zealand CEO Andrew Rennie Europe CEO

  3. Slide 3: Group SSS, EBITDA, NPAT

    GROUP SSS% +9.4% EBITDA(1) +33.6% NPAT(1) +30.8% EPS(1) +28.6% DIVIDEND (CPS) +39.5% FREE CASH FLOW ($m) $8.7m RETURN ON CAPITAL EMPLOYED 21.6% RETURN ON EQUITY 29.6% (1) H1 17 Underlying comparison to H1 16 Underlying, including acquisitions from the date of DPE ownership – see slides 9 and 10 for

  4. Slide 4: Network sales up 26.8% to $1,166.1m

     Network sales up 26.8%, +$246.6m, to $1,166.1m  Revenue up 21.1%, +$94.1m, to $539.4m  EBITDA up 33.6%, +$29.2m, to $116.2m  NPAT (after Minority Interest) up 30.8%, +$14.0m, to $59.7m  EPS 67.4c, up 28.6% (statutory EPS up 13.7%)  Interim dividend 48.4 cps (50% franked), up 39.5% on H1 16, b

  5. Slide 5: Network sales growth FY17

    1,964 NETWORK SALES GROWTH FY17 JAPAN +10.9% EUROPE +57.1% 1,480 ANZ +18.4% 1,249 1,166 1,045 920 849 746 805 764 673 715 576 365 382 401 404 412 437 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  Strong Group SSS: 9.4%, excellent ANZ SSS: 17.4% and

  6. Slide 6: 76 stores added to the network in H1 17

     76 stores added to the network in H1 17  27 new stores opened in ANZ(1)  30 new stores opened in Europe(2): • Record organic new store growth in the first half • All Joey’s stores now fully converted to Domino’s • Sprint store conversions progressing well  19 new stores opened in Japan: • A con

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  8. Slide 8: The Group recorded excellent underlying EBITDA growth

     The Group recorded excellent underlying EBITDA growth of 33.6%. Group EBITDA margin continues to rise, up 2% from H1 16 and 4% since H1 15  ANZ again delivered outstanding EBITDA growth of 23.9%, whilst increasing margins  Underlying EBITDA growth was exceptional in Europe at 99.7%. EBITDA margi

  9. Slide 9: Conversion and integration costs

     Conversion and integration costs:  Including restructuring and rebranding 195 Joey’s and Pizza Sprint stores to Domino’s  All Joey’s stores in Germany have been converted to Domino’s  French Commissary relocation costs:  Relating to redundancy, make-good and write-off of equipment  The majori

  10. Slide 10: Further details regarding H1 17 significant charges

     Further details regarding H1 17 significant charges are outlined in the preceding slide  H1 16 significant charges are outlined in the H1 16 Market Presentation 10

  11. Slide 11: Underlying EPS 67.4c, +28.6% on H1 16

    105.4  Underlying EPS 67.4c, +28.6% on H1 16 (Statutory +13.7%)  Underlying EPS CAGR +28.6% over the last 10 years, 53.1 74.2 with 3 year CAGR +39.8% 54.6 40.5 41.5 37.2 29.9 67.4 30.0 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 19.9 17.4 14.2 12.2 9.2 9.0 5.4 FY07 FY08 FY0

  12. Slide 12: Continuing strong operating cash flows

     Continuing strong operating cash flows, despite the non- recurring impact of European conversion costs of $18.0m and additional working capital requirements: – Additional inventories in Japan held for the peak holiday period after New Year’s Day – Extra equipment inventories held in ANZ for the Pr

  13. Slide 13: Balance sheet: additional cash and inventories

     Additional cash as well as increased inventories, receivables and other assets relating to timing of the December period end and Japan holiday season  Goodwill reduction mainly due to Japan FX translation, with a weaker JPY vs AUD  Total borrowings increased by $11.1m, mainly due to additional E

  14. Slide 14: Gearing and returns

     Gearing increased at the end of FY16 as a result of Pizza Sprint and German acquisitions  Interest Coverage has decreased due to the additional interest cost associated with acquisition borrowings  Return on Equity and Return on Capital Employed have both improved as a result of continued strong

  15. Slide 15: Slide 15

  16. Slide 16: Unprecedented SSS and organic new store openings in H1 17

     Unprecedented SSS and organic new store openings in H1 17  Launched ‘Taste the Colour’ which was Domino’s biggest menu launch since 2009, with improvements to popular pizzas, as well as introducing new pizzas, sides, ingredients and desserts  As a result of Project 3/10 and the relentless passio

  17. Slide 17: World's first commercial pizza delivery by drone

     World’s first commercial delivery of pizza by Drone to a customer’s house in New Zealand, using DRU Drone by Flirtey  New Zealand opened its 100th store in Meadowbank, Auckland, during July  ANZ opened 27 new organic stores  Domino’s continues to invest in its team members, with the launch of T

  18. Slide 18: Extraordinary double digit SSS growth in ANZ

    17.4% $521.0m 15.9% 13.8% $439.9m 11.8% 10.6% $355.0m 8.7% $306.6m 6.9% $273.4m $279.0m 5.6% 4.5% 2.6% 0.4% 2012 2013 2014 2015 2016 2017 H1 12 H2 12 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16 H1 17  Extraordinary double digit SSS growth in ANZ  H1 17 total sales up 18.4%, +$81.1m, as a resul

  19. Slide 19: New menu items and ANZ store plans

     Thickshakes and premium ice-cream desserts were added to our menu, with a full rollout scheduled by June  Bolognese Garlic Baguette is the latest addition to our menu and is already proving to be a big hit with our customers  New food products are currently in test, with rollout scheduled to beg

  20. Slide 20: Record franchisee profitability

     Record profitability:  Franchisees have been sharing in the profitability of our business. Over the past two years, Australia same store EBITDA has increased by 31.7%, with Average AU EBITDA (Same Store) current store payback of 3-5 years $137k  After paying all staff and management wages, the a

  21. Slide 21: Looking forward: franchisee profitability

     Looking forward:  Management are confident that we have prepared and are delivering on proven & planned solutions, which will more than offset the impact of the Modern Award  As a result, Management continues to forecast further record profitability for Franchisees in FY17  Evidence of our stro

  22. Slide 22: Zero tolerance policy to unethical behavior

     Domino’s has a zero tolerance policy to unethical behavior, including under-payment of wages, or under-reporting of sales. We expect the highest standards from our Franchisees  Ongoing Proactive Compliance Program:  Domino’s has a dedicated auditing and compliance department, which investigates

  23. Slide 23: Enterprise agreement negotiations

     Negotiations have slowed for the following reasons:  The Coles decision in 2016 changed the way the “Better Off Overall Test” was applied  Therefore, the majority of work performed during the initial negotiations became redundant  The Fair Work Commission are yet to hand down their decision on

  24. Slide 24: Slide 24

  25. Slide 25: France update

    France:  The new Commissary and Head Office are now open. We expect logistics and labour synergies in the second half of the year  PULSE will be 100% rolled-out in the next 4 weeks  The pizza Sprint conversion is expected to be finalised by end of FY17  Domino’s France is leveraging its partners

  26. Slide 26: Germany, Netherlands and Belgium

    Germany:  All Joey’s stores in Germany were converted to Domino’s, six months ahead of schedule  Domino’s Germany opened a total of 213 stores  2,000th Domino’s Europe store opened in Hamburg  Germany are focusing on establishing a high volume mentality and testing: TV, radio, outdoor signage an

  27. Slide 27: Europe H1 17 sales up 64.7%

    €264.6m 265.0 8.0% 215.0 7.5% 7.5% 7.5% €160.7m 165.0 €132.1m 5.3% 4.6% 4.9% €115.7m €108.4m 4.0% 115.0 €95.3m 3.1% 2.3% 65.0 0.7% 15.0 2012 2013 2014 2015 2016 2017 H1 12 H2 12 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16 H1 17  H1 17 Sales up 64.7%, +€103.9m, as a result of stable SSS growth,

  28. Slide 28: Europe outlook: France

    Overall Europe:  Sales and profits on track for a record year  Organic new store openings are also on track for a record year France  PULSE rollout scheduled to be complete in March 2017  Launch of GPS Driver Tracker in FY18  Launch of: – MyPizz’ (Pizza Chef): An App to introduce new customers

  29. Slide 29: Germany, Netherlands and Belgium outlook

    Germany:  TV, Online and oOh! national campaign starting in Germany. This is already having a positive impact on sales  Introduction of additional new chicken products to the menu and enhancement of the pasta range  Similar to France, Germany will be launching: Pizza Chef, Quick Order + availabil

  30. Slide 30: Slide 30

  31. Slide 31: Japan December record sales

     December sales exceeded last year’s outstanding record, including a record sales day on Christmas Eve  42 stores set new monthly sales records in December; 35 stores set new weekly records, with 305 stores setting new daily records  Makuhari store broke a 25-year-old DPJ monthly sales record of

  32. Slide 32: Japan store construction and franchising

     Constructed 19 new stores in 6 months, ending H1 17 with 472 stores  We now have 160 franchised stores, including 36 Can Do! Partners stores, comprising 34% of the system  Relocated 9 stores to carry out friendly locations, along with remodeling 4 stores  Growing carry out sales: 50% of network

  33. Slide 33: Japan record first half sales

    ¥20,692.8m ¥20,748.6m ¥16,428.0m 14.4% 7.8% ¥9,424.1m 2.2% 1.3% -1.2% -1.8% -3.0% -4.7% (1) (2) (3) (2) 2014 2015 2016 2017 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16 H1 17 27th Week  Record sales in the first half of the year, despite rolling an additional week from H1 16  December YTD SSS were -4.7% on

  34. Slide 34: Japan will reach 500 stores by August

     Japan will reach 500 stores by August  Completion of PULSE rollout by February 2017  Launch of OneDigital in H2 2017  Beginning to implement Project 3/10  Relocation of 8 stores to carry out friendly locations in the second half  Continued growth of franchise stores, with a target of 37% fran

  35. Slide 35: Digital

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  36. Slide 36: ANZ online sales grew 32%

     ANZ online sales grew 32% over comparative periods  Zero Click App launch, enabling customers to order a pizza without even touching a button  New Offers App with enhanced moving imagery and video content, to really showcase the quality of our products  New Stickers App – first QSR in Australia

  37. Slide 37: France online sales grew 31%

    Within the next 4 weeks, 100% of stores in Europe will be using PULSE and OneDigital France:  France online sales grew 31% over comparative periods  Record online ordering, with the weekly average now regularly exceeding 50%. 60% targeted over the next 12 months  Launching many of ANZ’s digital t

  38. Slide 38: Germany, Netherlands and Belgium digital

    Germany:  Online sales in Germany are growing at an incredible rate and are targeted to be +60% in the next 6 months  Delivered a complete online system for Germany (in under 3 months)  Launched Pizza Tracker and Pizza Chef, with several further digital tools to be launched in the coming months N

  39. Slide 39: Japan digital sales growth

    Japan  Our highest digital sales recorded, with digital sales growing 19% during H1 17  Finalised development of PULSE for use in Japan  Continued development of OneDigital for use in Japan  Launched VePanel, an application to recover customer abandonment onsite  Launched Android Pay  Certifie

  40. Slide 40: Migrating online system to a global platform

     Migrating entire online system to a global, diverse and stable platform, reducing risk of system failure  Continuing to deliver convenient digital payment solutions, with the introduction of Apple Pay and Android Pay in-app and in-store  Continuous refinement of the customer experience through t

  41. Slide 41: Food

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  42. Slide 42: Journey to Supreme Quality

     Continued on our journey to Supreme Quality with 96% of our menu items now free from preservatives, artificial colours and artificial flavours Innovative ‘Taste the Colour’ products launched to the market :  BBQ Lamb and Bacon Pizza  New BBQ Meatlovers Pizza  Buttermilk Chicken Kickers  New Ch

  43. Slide 43: Europe: better for you products

    Domino’s Europe continued to focus on ‘better for you’ products and on core enhancements to ingredients France:  A new pizza in Les Signatures range: Signature Raclette & Jambon de Savoie: light fresh cream, mozzarella, raclette of Savoie, ham of Savoie, with crunchy pickles  2 new desserts:  Cho

  44. Slide 44: Netherlands/Belgium innovation

    Netherlands/Belgium:  Recently added another National Development Chef to the Netherlands, to assist with innovation  Launched Cheeseburger Pizza, Pick’n mix sides, Quattro Gusto and Burger Pizza range  Following successful trials in 3 Netherlands stores and 3 Belgium stores, ‘Fast Lane’ will rol

  45. Slide 45: Japan menu promotions

     Launched Chef's Quattro in the winter promotion window  Featured Mille Crêpes and Roasted Chicken as Christmas seasonal side items  Launched Quattro Fiesta in the summer media window, featuring Tex-Mex and Honey Mustard Canadian Bacon quadrants  Assembled four fan favorites into "Quattro Classi

  46. Slide 46: Store count: December 2016 to June 2025

    Australia DECEMBER 2016 JUNE 2025 NZ 2,048 STORES 4,650 STORES

  47. Slide 47: Reaffirming outlook of 4,650 stores by 2025

    POTENTIAL TO 2025 1,200 2,600 850 H1 17 STORE COUNT 738 Stores 838 Stores 472 Stores  Reaffirming Group future outlook of 4,650 stores by 2025  DPE continues to look at ways to accelerate growth through network expansion, leveraging innovation and acquisitions 47

  48. Slide 48: H1 17 underlying comparison

    (1) H1 17 Underlying comparison to H1 16 Underlying, including acquisitions from the date of DPE ownership 48

  49. Slide 49: Excellent Group SSS

     Excellent Group SSS  ANZ SSS continues to go from strength-to-strength. This is as a result of Franchisees’ continued commitment and focus towards activities and initiatives that management have put in place. ANZ will open 35+ new stores in the second half  Europe SSS starts H2 17 at a stable le

  50. Slide 50: Summary

  51. Slide 51: Strong first half in ANZ and Europe

     The ANZ and European markets have recorded another strong first half  Japan is trading within expectations, taking into consideration the timing of trading periods  OneDigital is now in all markets, with the exception of Japan, who receive it in H2 17  There is continued significant focus on en

  52. Slide 52: Upgraded EBITDA and NPAT guidance

     Management are confident record franchisee profitability will continue post Modern Award in Australia, based on the strategy and initiatives that we have in place  ANZ SSS% is upgraded to 14-16%, with Europe and Japan unchanged  As stated at our AGM, Management remains focussed and on track to a

  53. Slide 53: Forward looking statements

     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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