Dominos pizzaprelimspresentation201115 feb_2012

Dominos Pizza UK Preliminary Results

  1. Company Spotlight
    Dominos Pizza UK Preliminary Results
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    Dominos pizzaprelimspresentation201115 feb_2012
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    • 1. Preliminary Results for the 52 weeks ended 25 December 2011
    • 2. The Team Lance Batchelor Chief Executive Officer Lee Ginsberg Chief Financial Officer 2
    • 3. Agenda • Initial impressions and the view so far • 2011 • The numbers • 2011 • Food cost overview • Marketing activity • Store openings • Commissary • More on the business, including Germany • Summary and Q&A 3
    • 4. Financial Highlights for 2011 30% Another record year 20% +20.6% +18.6% +14.6% * 10% +9.3% +3.0% 0% LfL sales growth System Sales PBT * Diluted EPS * Total dividend pence per share * Pre-exceptionals and Germany 4
    • 5. System Sales – The Long View £600 £45.0 £42.2 £38.0 £40.0 £500 £35.0 £530 £29.9 £400 £30.0 £485 System Sales £m £23.4 £25.0 PBT * £m £300 £407 £18.7 £20.0 £351 £14.3 £200 £15.0 £11.2 £296 £8.8 £240 £10.0 £6.5 £100 £4.2 £201 £2.9 £5.0 £2.2 £174 £142 £76 £98 £119 £0 £0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 System Sales £m PBT * £m 5
    • 6. Like-for-Like Sales and Store Growth – The Long View 25.0% 700 21.2% 604 600 20.0% 553 501 500 MAture Store Sales Growth 450 14.7% LFL Store Population 15.0% 404 400 357 11.9% 11.2% 317 9.7% 10.0% 300 10.0% 268 8.4% 7.4%235 7.1% 6.6% 200 214 191 5.0% 3.0% 100 AWUS AWUS £8,683 £19,017 0.0% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 LFL Sales Growth LFL Store Population 6
    • 7. Profit and Loss (Pre-exceptionals) 52 weeks ended 52 weeks ended % increase 25 December 2011 26 December 2010 £’000 £’000System sales 530,636 485,282 9.3Operating profit 42,373 38,035 11.1Net interest (217) (28) -Profit before tax 42,156 38,007 10.9Taxation (11,141) (10,878) (2.4)Profit after tax 31,015 27,129 14.3Dividends per share: - Pence 12.30p 10.20p 20.6 - Cover 1.56x 1.64xEarnings per share: - Basic 19.48p 17.36p 12.2 - Diluted 19.24p 16.75p 14.9 SOLID GROWTH BUT SKEWED BY GERMAN INVESTMENT 7
    • 8. Profit and Loss (Exceptional Items) 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010 £’000 £’000Operating exceptionals - Acquisition costs relating to DP Germany (1,232) - - Onerous lease provision (938) - - Impairment of stores (837) (665) * - Irish rebate support - (485) - Accelerated LTIP charge - (467) - Restructuring/reorganisation costs - (755) (3,007) (2,372)Non-operating exceptionals - Unwinding of discount – DP Leasing (360) (420) - Loss on sale of assets - (11) (360) (431)Tax exceptional - Reduction in deferred tax asset & impact of (1,182) (261) exceptionals 8 * Milton Keynes commissary
    • 9. Profit and Loss (Pre-exceptionals and Germany) HEALTH OF THE CORE BUSINESS 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010 % change £’000 £’000 Group LFLs 3.0% 11.9% System Sales 530,636 485,282 9.3% Profit Before Tax 43,555 38,007 14.6% Diluted EPS 19.86p 16.75p 18.6% STRONG UNDERLYING OPERATIONAL GEARING 9
    • 10. Profit and Loss (Pre-exceptionals and Germany) HEALTH OF THE CORE BUSINESS 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010 Operating profit % * 20.9% 20.2% Profit before tax/system sales 8.2% 7.8% PROGRESSION OF COMMISSARY MARGINS AND CONTROL OF COSTS 10 * Operating profit/statutory revenue
    • 11. Segmental Results * 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010All £’000 Germany Ireland UK Total Germany Ireland UK TotalOperating profit/(loss) (1,110) 4,261 39,118 42,269 - 4,476 33,340 37,816Amortisation of intangibles (231) - - (231) - - - - (1,341) 4,261 39,118 42,038 - 4,476 33,340 37,816% Growth pre-amortisation - (4.8%) 17.3% 11.8% ROI MARGINAL PROFIT DECLINE BUT CORE * Pre-exceptionals & net interest UK MARKET STRONG 11
    • 12. PBT*/System Sales % - The Margin Progression 12.5 12.0 11.5 10.5PBT/System Sales % 9.5 40 bpts p.a. 8.2 8.5 7.8 7.3 7.5 6.7 6.3 6.5 5.9 5.5 4.5 2006 2007 2008 2009 2010 2011 2020 Analysts consensus * Pre-exceptionals and Germany 12
    • 13. Balance Sheet At 25 December 2011 At 26 December 2010 Current Assets: £’000 £’000 At 25 Dec At 26 Dec 2011 2010 Non-current assets 99,043 80,556 £’000 £’000 Inventories 3,878 5,054 Current assets 54,345 54,127 Receivables 24,343 16,014 Investment in Non-current assets finance leases 1,532 1,793 held for sale - 938 Prepaid lease charges 165 138 Total Assets 153,418 135,621 Cash 24,427 31,128 54,345 54,127 Current Liabilities Current liabilities (62,587) (40,178) Trade & other (29,444) (31,707) Deferred income (136) (77) Non-current liabilities (31,167) (53,781) Fin. liabilities (26,529) (1,793) Deferred Total Liabilities (93,754) (93,959) consideration (2,164) (4,346) Tax liabilities (4,248) (2,255) Provisions (66) - Net Assets 59,664 41,662 (62,587) (40,178) 13
    • 14. Statement of Changes in Equity At 25 December At 26 December 2011 2010 £’000 £’000 At beginning of year 41,662 21,576 Proceeds from share issue 5,792 1,594 Share buybacks (2,219) (4,715) Profit for year 26,746 24,036 Tax credit on employee share options 41 1,036 Share options and LTIP charge 1,499 1,432 Exchange translation differences (917) (286) Dividends (18,025) (13,632) Share buyback obligation - (10,592) Contingent consideration 3,432 - 58,011 41,633 Minorities 1,653 29 59,664 41,662 14
    • 15. Cash Flow Statement 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010 £’000 £’000 Profit before taxation 38,789 35,204 Impairment 837 82 Net finance costs 577 448 Share of post tax profits of associates (335) (219) Amortisation and depreciation 3,280 2,815 Loss on disposal of non-current assets - 11 Share option and LTIP charge 1,499 1,432 Changes in working capital (9,173) 1,275 Cash generated from operations 35,474 41,048 Taxation paid (3,992) (5,456) Net cash generated by operating activities 31,482 35,592 Net cash used by investing activities (16,938) (10,514) Cash inflow before financing 14,544 25,078 Financing activities (21,070) (17,841) Net (decrease)/increase in cash (6,526) 7,237 Opening cash balance 31,128 23,997 Foreign exchange loss on cash and cash equivalents (175) (106) Cash at end of year 24,427 31,128 15
    • 16. Analysis of changes in working capital • Significant “one-off” change in receivables • £3.1m increase in NAF – Red or Black sponsorship – Timing of payments for Campaign One 2012 •£3.7m due to e-commerce platforms – Earlier settlement to franchisees – Funds collected on franchisees’ behalf • £1.5m due to more stores – Debtors’ days constant WILL NOT ARISE IN 2012 16
    • 17. Analysis of Borrowings * At 25 Dec 2011 At 26 Dec 2010 £’000 £’000 Cash at Bank 24,427 31,128 Revolving Credit Facilities (25,000) (25,000) Net Cash (573) 6,128 DP Capital (2,689) (2,732) EBT loan (12,035) (12,035) Adjusted Net Debt (15,297) (8,639) Adjusted Net Debt/EBITDA 0.4 0.2 * Excludes non-recourse loans, share buyback obligation and Germany minority interest shareholder loan 17
    • 18. Available Debt Facilities Expiry Utilised at Undrawn at Facility Date 25 Dec 11 25 Dec 11 Term Purpose £’m £’m £’m 25.0 * 20 Dec 2012 25.0 - 5 years Multi-purpose 5.0 31 Dec 2013 2.7 2.3 5 years DP Capital 13.0 * 31 Jan 2014 12.0 1.0 7 years EBT 43.0 39.7 3.3 Cash and cash equivalents at 25 Dec 2011 24.4 Surplus available headroom at 25 Dec 2011 27.7 • Negotiations commenced on refinancing • In place in H2 2012 * LIBOR + 50bpts SIGNIFICANT FIRE POWER 18
    • 19. Capital Expenditure 2012 - 2015 2011 2012 2013 2014 2015 £’m Actual Forecast Maintenance 3.8 3.0 3.0 3.0 3.0 Expansionary 9.2 2.8 - 2.5 - West Ashland 0.9 - - - - HQ 6.6 - - - - Naas 0.5 - - - - Penrith - - - 2.5 - Germany - 2.8 Pulse EPOS system 1.2 - - - - Website development 0.9 - - - - Total Capex 13.0 5.8 3.0 5.5 3.0 RISING FREE CASH FLOWS AND REDUCING CAPEX 19
    • 20. Cash Returned to Shareholders Five year total 2011 2010 2009 2008 2007 £’000 £’000 £’000 £’000 £’000 £’000Profit after tax * 108,621 31,015 27,129 21,574 15,664 13,239Share buybacks 26,687 2,219 4,715 7,624 3,783 8,346Dividends 55,974 18,025 13,632 10,466 8,035 5,816Total returned 82,661 20,244 18,347 18,090 11,818 14,162% of profit after tax 76% 65% 68% 84% 75% 107%Total capex 62,510 13,012 11,602 22,508 11,428 3,960 ANALYSTS’ FORECASTING c.£250m FREE CASH FLOWS OVER NEXT FIVE YEARS** * Pre-exceptionals ** Consensus forecasts 20
    • 21. Diluted Earnings Per Share * Compound increase of 24% +18.6% over last five years 21 20 +24.2% 19 18 17 16 +26.0% 15 19.86 14 13 +28.6% 12 11 10 +39.1% 16.75 9 8 13.49 7 Pence 6 5 10.71 4 3 8.33 2 1 0 2007 2008 2009 2010 2011 Diluted earnings per share Linear (Diluted earnings per share) * Pre-exceptionals and Germany 21
    • 22. Dividends Per Share * Compound increase of 29% +20.6% 13 over last five years 12 +31.6 % 11 10 +31.3% 9 12.30 8 +34.1% 7 10.20 6 +43.8% 7.75 5 Pence 4 3 5.90 2 4.40 1 0 2007 2008 2009 2010 2011 Dividends per share Linear (Dividends per share) 22
    • 23. Food Cost Outlook • Benefits of strategy to lock into longer term contracts • Created more price stability • Overall 3% increase from rising commodities in 2011 • Cheese, dough and chicken biggest impact • Not all passed on to franchisees • Absorbed some of the increases, notably cheese 23
    • 24. Food Cost Outlook (cont’d) • Outlook for 2012 •69% of food basket already covered • At same/lower prices than 2011 •Cheese outlook • Stable pricing for Q1 2012 • Outlook for 2012 •1% to 2% for year • Far more stable • Energy costs • West Ashland locked in during 2010 to March 2013 24
    • 25. The Pizza Delivery Market New openings in End of year store 2011 count Domino’s continues to Domino’s 58 720 outgrow the competition: Pizza Pizza Hut -16 288 (delivery) * Papa John’s** 31 183 Perfect Pizza* -20 90 Others* n/a 2000 TOTAL 121 2971 *company estimates - includes estimates for Ireland where applicable and RBDs ** includes estimates for Ireland inc. non delivery stores – and exc. Haven/Butlin stores 25
    • 26. Customers 16.9% 17.0% 16.2% 16.0% 15.0% 14.1% 14.0% 13.0% £20.00More and more people are choosing £19.47 12.0% £19.50 11.0% £19.00 £18.51 Domino’s Pizza: £18.50 £18.00 £18.13 10.0% 2009 2010 2011 Penetration (% HHs purchased in last 210 £17.50 days) – 4.3m households ordered from £17.00 £16.50 45 Domino’s (2010: 4.0m) £16.00 2009 2010 2011 40 35.5 35.3 35.7 Average Ticket (gross) – Mature store catchment grew to 17% 35 (2010:16.5%) 30 25 – Avg. ticket up to £19.47 (2010: £18.51) 20 2009 2010 2011 Re-order Frequency – Order frequency stable at 35 days 26
    • 27. Franchisees • Our superb franchisees are the engine of our growth – 3750 enquiries – Five new franchisees accepted into network – c£15m spent on opening new stores – £600k average resale value of a store – Average 5.7 stores each (2010: 5) – 54% of stores owned by franchisees with 10+ stores – 35 single store franchisees (2010: 47) 27
    • 28. Marketing in 2011 – Record marketing budget driven by system growth – Major awareness build behind new launches – Brand building campaign with a quality focus – Red or Black sponsorship successfully launched Gourmet range – First ever “Global Domino’s Day” 28
    • 29. Future Marketing £200 50.0% 46.5% £180 45.0% £160 40.0% £140 35.5% 35.0% Ecommerce sales £m• We will get ever better returns for our £120 £100 28.2% £183.1 30.0% 25.0% marketing investment: £80 23.1% £128.0 20.0% £60 15.9% 15.0% £78.5 – Online will grow to > 66% delivered sales 12.3% £40 10.0% £55.9 £20 £32.2 5.0% £19 – Increasing budget from system growth £0 2006 2007 2008 2009 2010 2011 0.0% – Increasing use of targeted email, Facebook and Ecommerce Net sales (£m) % of Uk delivered Sales Twitter – Deepening and customising the relationship – Mobile now 14% of online sales, growing fast – Domino’s is an online business – TV and traditional marketing still has a role 29
    • 30. Stores 58 UK & ROI 720 750 Number of stores at year end 665 650 608 Introduced a new look in 2011 550 501 553 58 57 450 55 – Global best practice store design 350 52 50 250 – Opened a record 58 UK/ROI stores, plus 150 four in Germany 50 2007 2008 2009 2010 2011 – Total 726 stores at year end (2010: 665) – 133 stores had sales over £1m (2010: 115) – Average household count per store now 29k – Trialling new formats (Tesco, food court, community, stadiums) – Closed three stores 30
    • 31. Product Innovation Great products provide more and more reasons to choose Domino’s – Stuffed Crust launched Summer 2011: now over 12% of sales – Gourmet range launched Autumn 2011: now over 5% of sales – NPD team now established and more to come 31
    • 32. Commissary Update • West Ashland operating to plan • Realising production efficiencies • Longer term developments • Feasibility for next commissary in UK • Identify location, size and spend • Complete initial study by end of 2012 • Resilience key issue • Sale of Milton Keynes commissary • No plans to dispose in 2012 • Commercial viability of procurement process 32
    • 33. Commissary Update (cont.) • Germany • Sufficient capacity in Berlin to support 10-15 stores » Installed dough mixing equipment • Plans for » Regional commissary in Dusseldorf/ Cologne area • To support 2012 openings • New Head Office • Opened end November 2011 • Total spend of c.£7.5m • In line with budget 33
    • 34. Germany LaunchIn June 2011 we entered the German market - a huge opportunity – Inherited two stores in Berlin – Opened four stores in 2011 – Established our management team – Started menu and marketing development – Infrastructure established 34
    • 35. Outlook for Germany• In 2012: – Open at least 12 stores, tripling our estate to 18+ (incl 12 corporate stores, providing our test bed for product and service development) – We will welcome our first UK and German franchisees to the market, opening at least six stores – Build our Western Region Commissary – Continue to evolve our menu and marketing – Map the location of our first 50 stores, based on TEMPELHOF demographic profiling – Reach store level operating profitability on our original six stores 35
    • 36. Outlook for UK/ROI • In 2012 we will: – Open 60 stores – Consolidate our position as the world’s best operating market – Shift an increasing proportion of our marketing budget to smart, online channels, as well as to local spend. We expect the majority of delivered sales to be online in 2012 – See commodity prices stabilise 36
    • 37. Longer term outlook (2020) • UK/ROI : 1200+ stores • Germany: 400+ stores • Become an online business with 80% delivered sales and marketing online 37
    • 38. Trading update 2012 has started out well: • First seven weeks LFLs up 3.7% – UK is up 3.8% LFL, up slightly on Q4 2011 – ROI is up 2.3% LFL, growing again • Germany: three stores leases signed, two franchisees onboard • Trading conditions continue to be challenging • Set for another year of good growth When you sell great pizza, you get great results 38
    • 39. Q&A 39
    • 40. APPENDICESAPPENDIX 1 The Financial Model at 2020(Pages A-1 – A-2)APPENDIX 2 The Franchisee Model(Pages A-3)APPENDIX 3 Analysis of Group Turnover(Page A-4)APPENDIX 4 Analysis of Group Operating Profit(Page A-5)
    • 41. The Financial Model at 2020 2001 2007 2009 2010 2011 At 2020*No. of stores 237 501 608 665 726 1,200+ - 60 openings p.a.AWUS growth at 3% p.a. £8,422 £12,539 £13,801 £15,002 £15,452 £20,747System sales £ 98m £ 296m £ 407m £485m £530m £ 1,295mProfit before tax** £ 2.9m £ 18.7m £29.9m £38.0m £43.5m £155.0mPBT/System sales 3.0% 6.3% 7.3% 7.8% 8.2% c.12.0% +100% +46%• Stores double – profits grow four-fold• Circa 9.5% of incremental sales to profit (commissary 6.5% + net royalty 2.8%)• Significant operational gearing »Commissaries »Central infrastructure * Independent analyst research – not a forecast A-1 ** Pre-exceptionals + Germany
    • 42. The Financial Model at 2020 (cont’d) AT LEAST 10 YEARS OF CASH GENERATIVE ORGANIC GROWTH 2009 2010 2011 At 2020 *• PBT ** £29.9m £38.0m £43.5m £155.0m• Share buybacks ***• Average no. of shares in issue 159.9m 161.8m 161.7m 128.0m• Diluted EPS** - pence 13.49p 16.75p 19.86p 92.0p - CAGR 19% p.a.• Dividend - cover 1.74x 1.64x 1.61x 1.4x - pence 7.75p 10.20p 12.30p 65.71p * Independent analyst research – not a forecast ** Pre-exceptionals + Germany A-2 *** To achieve cash neutral position at 2018. Circa 20% of equity.
    • 43. The Franchisee Model 52 weeks ended 52 weeks ended 25 December 2011 26 December 2010 % variance £’000 £’000Average sales (AWUS)* £ 15,458 £ 15,000 + 3.1%System sales £803,816 £780,000 + 3.1%EBITDA £106,380 £105,276 + 1.0% + £1,103VAT adjusted in 2010 - EBITDA +13.9% COMPELLING STORE LEVEL ECONOMICS A-3 * VAT at 20%/17.5% in 2010
    • 44. Analysis of Group Turnover 52 wks ended 52 wks ended 25 Dec 2011 26 Dec 2010 Variance Variance £’000 £’000 £’000 %Royalties 29,238 26,692 2,546 9.5Store sales 1,670 1,117 553 49.5Franchise/TST/FDP fees 980 1,038 (58) (5.6)Commissary sales 157,064 138,271 18,793 13.6Property sales 14,839 13,828 1,011 7.3Computer sales 3,796 3,244 552 17.0Other sales 3,388 4,638 (1,250) (27.0)Inter-company sales (1,112) (679) (433) (63.8)Total sales 209,863 188,149 21,714 11.5 A-4
    • 45. Analysis of Group Operating Profit* 52 weeks ended 52 weeks ended 25 Dec 2011 26 Dec 2010 Variance Variance £’000 £’000 £’000 %Net Royalty 14,846 13,588 1,258 9.3Commissary Margin 42,619 37,481 5,137 13.7Realty 787 1,254 (467) (37.3)Subsidiaries 391 352 38 10.8Net Overheads (15,264) (14,861) (403) (2.7)Associates 335 219 117 53.4Net Interest (159) (27) (132) (485.6UK & Irl PBT 43,555 38,007 5,548 14.6German Segment Results (1,399) - (1,399)Group PBT 42,156 38,007 4,149 10.9 A-5
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