Dominos Pizza Group plc 53 Weeks Ended 31 December 2017 Highlights - - PowerPoint PPT Presentation

53 Weeks Ended 31 December 2017

Domino’s Pizza Group plc

Highlights

David Wild, CEO

Financial performance

Rachel Osborne, CFO

Strategic and operational progress

David Wild, CEO

Q&A

David Wild Rachel Osborne Simon Wallis, COO

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Based on underlying performance at reported exchange rates on a 52 week basis, unless indicated otherwise. See definitions in Appendix 1. Investments for growth relate to capex (£46.6m) and M&A (£44.5m)

£1,079m

9.2%

4.8% £93.2m 95 £1,156m £94.4m 15.7p £91.1m

7.7% 15.1% 10.2% 13.9%

Rachel Osborne

Chief Financial Officer

£m FY2017 53 weeks FY 2017 52 weeks FY 2016 52 weeks % Growth System sales 1,179.6 1,155.7 1,004.2 15.1% Revenue 474.6 466.5 360.6 29.3% Underlying EBITDA 108.5 106.5 93.8 13.5% EBITDA (%) 9.2% 9.2% 9.3% (0.1)pt Depreciation and amortisation (12.6) (12.5) (7.6) 64.3% Operating profit 95.9 94.0 86.2 9.1%

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£m FY2017 53 weeks FY 2017 52 weeks FY 2016 52 weeks % Growth Interest 0.3 0.4 (0.5) Profit before tax 96.2 94.4 85.7 10.2% Tax (17.5) (17.2) (17.4) Profit after tax 78.7 77.1 68.3 13.0% Earnings per share (pence) 16.0 15.7 13.8 13.9% Non-underlying (15.0) (15.0) (3.1) Total profit after tax 66.8 65.3 65.2 0.2%

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• Recent decisions by the Supreme Court relating to

certain historic share scheme structures

• Gain on step acquisition in Nordics, offset by acquisition

costs

• Mainly conversion costs in Norway and Germany

£m FY2017 53 weeks Historic share schemes (11.0) Other non-underlying - M&A1 3.4 Other non-underlying – transformation2 (7.4) Total (15.0)

1. Nordics accounting adjustments on step acquisition £5.8m, Nordics acquisition costs £(1.7)m, London acquisition costs £(0.3)m, foreign exchange £(0.4)m 2. Dolly Dimples and Norway conversions £(4.4)m, Germany conversion costs £(0.7)m, Switzerland impairment £(0.8)m, Dublin impairment £(1.2)m, London acquisition amortisation £(0.2)m

• c. £5m cash outflow across 2017 and 2018

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Location 52 weeks 2017 (£m) 52 weeks 2016 (£m) Reported (%) Organic constant currency (%) UK 1,019.3 938.7 8.6%

• ROI

60.1 50.1 19.9% 11.3% Switzerland 19.1 15.4 24.1% 17.1% Nordics 57.21

• Group

1,155.7 1,004.2 15.1% 8.9%

Note: organic shows FY 2017 to FY 2016 excluding M&A. Pro forma shows FY 2017 to FY 2016 on a comparable basis, irrespective of ownership 1. From consolidation in April/May 2017. Pro forma sales for the 52 week period were £80.8m

UK & ROI International Group £m 52 weeks 2017 52 weeks 2016 % growth 52 weeks 2017 52 weeks 2016 % growth 52 weeks 2017 52 weeks 2016 % growth

System sales 1,079.4 988.8 9.2% 76.3 15.4 n/m 1,155.7 1,004.2 15.1% Revenue

Franchise revenue 387.5 345.1 12.3% 0.9

• 388.4

345.1 12.5% Corporate revenue 5.9

• 72.2

15.6 n/m 78.1 15.6 n/m

Total revenue 393.4 345.1 14.0% 73.1 15.6 n/m 466.5 360.6 29.3% Operating profit 93.2 86.5 7.7% 0.8 (0.3) 94.0 86.2 9.1%

Operating margin %

• f system sales

8.6% 8.7% (0.1)pt

• 8.1%

8.6% (0.5)pt

Operating margin %

• f revenue

23.7% 25.1% (1.4)pt

• 20.2%

23.9% (3.7)pt

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System sales margin Statutory revenue margin FY 2016 margin 8.7% 25.1% Cheese cash margin impact

• (0.9)pt

Net investment in customer value (0.1)pt (0.5)pt Overheads

• 0.2pt

Corporate stores (London)

• (0.2)pt

Total 8.6% 23.7%

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Free cash flow walkthrough (£m)

109%

• perating cash

conversion

92%

free cash flow conversion

95.9 12.6 (19.9) 17.5 (1.6) 104.5 (15.6) (0.7) 88.2

Underlying

• perating

profit Depreciation and amortisation Net capex excluding Warrington Working capital Other Underlying

• perating

cash flow Tax Interest Free cash flow

Free cash flow is defined as cash flow before major growth capex, M&A and dividends/share purchases

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SHARE PURCHASES ORGANIC GROWTH ORDINARY DIVIDENDS ACQUISITIONS

• Warrington to commence production April 2018

– total UK capacity now 1,600 stores

• Continued investment in IT; increasing investment

in corporate stores

• Plan to add commissaries/increase SCC scale in

international markets

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£m FY 2017

Warrington 27 Corporate stores 7 Other property/SCC costs 7 IT – recoverable 6 Total 47

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2.00 2.58 3.40 4.10 4.83 5.30 5.83 6.92 8.00 9.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Final dividend key dates:

15 March 2018

Ex-dividend date

16 March 2018

Record date

24 April 2018

Payment date Annual dividend – pence per share (adjusted for stock splits)

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Announced Completed Transaction Value Rationale

9/3/17 19/4/17 Increased stakes in Iceland, Norway and Sweden to 51%, 72% and 72% respectively £16.1m Taking majority control in new markets offering attractive growth 9/3/17 2/5/17 Acquired Dolly Dimple’s in Norway £4.0m Gaining scale in new market 11/8/17 6/10/17 Acquired 75% stake in biggest London franchisee £24.4m Developing operational expertise and accelerating growth in a key market 2017 cash flow £44.5m 19/10/17 8/1/18 JV acquired Hallo Pizza in Germany £10.8m Gaining scale in an established market 14/12/17 15/1/18 Increased stake in Iceland to 95% £26.8m Pre-empting put option and exercising increased control

Returns to shareholders

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Cash movement (£m)

Investment in the business

0.84x

Net debt/EBITDA (44.5) (89.2) (18.2) (37.6) (145.0) (34.6) (46.6) (40.4) (36.6) 10.2 (4.8) 108.1

2016 closing net debt Free cash flow excluding capex Total capex Acquisitions Dividends Share purchases Acquisition consolidation Other/non underlying 2017 closing net debt 2018 buyback Jan 2018 M&A Pro forma 2017 net debt

1.36x

Pro forma net debt/EBITDA

• 65-75 new stores in UK
• Warrington opening P&L impact of £3m - opex and depreciation
• Capital expenditure around £30m for 2018
• Warrington completion
• International commissaries
• IT assets
• Corporate stores in UK and International
• Medium-term net debt/EBITDA range of 1.75-2.5x
• Share buybacks of up to £50m (subject to the needs of the business) – including £18m already completed

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15%

System sales growth

95

New UK stores

14%

Underlying EPS growth

£45m

Invested in M&A

• 0.1pt

UK&I operating margin

1.36x

Pro forma net debt/EBITDA

1.8x

Dividend cover

£47m

Invested for organic growth

£88m

Free cash flow

47%

ROCE

12.5%

DPS growth

£37m

Share purchases

David Wild

Chief Executive Officer

# of households Penetration of delivery Frequency of delivery Spend

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8.6%

SYSTEM SALES GROWTH

13.7%

ONLINE SALES GROWTH

12.6%

COLLECTION SALES GROWTH

6.5%

ORDER GROWTH

1.9%

TICKET GROWTH

938.7

1,019.3

38.0 32.0 32.0 21.4

FY 2016 LFL excluding splits New store growth Immature store growth Split territories FY 2017 (52 weeks)

(£m)

23

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1. ASPA stands for Average Sales Per Address per week

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Donor stores (£) New stores (£)

2013 2017 2014 2017 2015 2017

+54% +46% +42% +37% +30% +28%

Split in 2014 Split in 2015 Split in 2016

32,836 34,484 37,956 37,666 36,076 31,951 16,070 16,354 14,839

• Donor stores recover sales quickly
• 2015 splits already recovered
• Benefits of improved service and spare

capacity

• Territory sales and ASPA significantly

increased

• Major efficiencies in labour and local

marketing

• New store typically costs £300,000
• Stores currently change hands on c.65x

AWUS

• £300k investment delivers an average £1m

increase in capital value in a split territory

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• London remains significantly under

penetrated

• 14% of DPG system sales; 25% of UK

delivered food market

• 3 corporate stores planned for 2018
• GPS, new promotions already trialled

Address count per store

27,807 23,433 London Rest of UK

ASPA

£0.72 £0.85 London Rest of UK

0.45 0.70 0.95 15,000 25,000 35,000 2011 2012 2013 2014 2015 2016 2017

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• Smaller towns are characterised by:
• High collection %, driving significant

labour efficiency

• Limited branded competition, driving

higher market share

• Address count reflects delivery

catchment: collection business attracted from a much wider area

• Part of a clear trend that lower address

counts deliver higher ASPA

Somerset town Welsh town UK average Opened: Dec 2015 Sept 2014

AWUS (£) 15,464 23,197 20,626 Address count 9,260 10,840 25,322 ASPA (£) 1.67 2.14 0.81 Collection % sales 43% 51% 21% Labour cost % sales 24.7% 22.1% 29.7% Nearby competition None McDs, KFC, Subway

Across mature stores (inc splits) ASPA rises as address counts fall

Mature ASPA (£) Addresses per store

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• New ‘Official Food of Everything’ campaign

landed strongly in H2: already at 3x recall of previous campaigns

• Brand spontaneous awareness up to 84%;

55% first mentions

• Good recovery in value for money perception

after ‘Dine for £9.99’ and 2018 ‘Winter Survival Deal’

20% 25% 30% 35% 40% 45% Week 1, 2017 Week 9, 2017 Week 17, 2017 Week 25, 2017 Week 33, 2017 Week 41, 2017 Week 49, 2017 Week 4, 2018

% of customers scoring us 5/5 for value

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• Domino’s is a digital business – 75.2% of UK sales are online
• Mobile is the fastest growing channel
• Mobile is growing at 27.4% YoY: mobile web at 60.6% and mobile app at 10.0%
• Continued investment to improve: software development velocity, customer journey, personalisation and

surfacing value

• Development of voice capacity, starting with Alexa

Traffic (m)

112.3 127.5 2016 2017

Online incidence (%)

71.8 75.2 2016 2017

Conversion rate (%)

32.8 33.0 2016 2017

Average ticket (£)

21.9 22.3 2016 2017

+14% +3.4pt +0.2pt +1.8%

• 471 stores live
• 323 stores now customer facing with enhanced tracker
• Labour improvement – 0.9% for franchisees
• Additional insurance benefit
• Overall Customer Satisfaction improvement +2.0%
• Full roll-out 2018

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• Mature store EBITDA (ex splits) maintained at c. £151k
• % margin decline offset by sales growth
• Return on new store investment remains compelling
• In absolute terms
• Compared to other potential uses of capital

EBITDA flat per store YoY1

151

9 15 4 8 151 14 22

EBITDA 2016 Order volumes Ticket increase Food Cost Inflation Labour Royalty & NAF Other Operating Expenses EBITDA 2017

1. Mature store EBITDA excluding donor stores

Labour costs:

• National living wage April 2018
• Apprenticeship levy
• Competition for drivers

Milk price trend

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Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Food costs +3-4% in 2018:

• Exchange rate stable after 2016 shocks
• Dairy softening after tough 2017,

expected flat YoY in H2

• Flour stable with low level of inflation

Key offsets:

• Volume – franchisees capture 75-80% of

value from incremental sales

• GPS
• DPG procurement scale and expertise

Domino’s stores have by far the best economics in the sector. Inflationary factors a much bigger issue for competitors

11.3%

LOCAL CURRENCY SYSTEM SALES GROWTH

28.8%

LOCAL CURRENCY ONLINE SALES GROWTH

10.0%

ORDER GROWTH

2

NEW STORES

• c. £24,000

AWUS (£)

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• Strong economic recovery
• Improved performance countrywide, not just Dublin focused
• First new stores for six years – more planned for 2018
• Significant growth opportunities from:
• Store growth – 75 store market potential – 4 openings planned for 2018
• Digital – penetration of sales at 57%

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Identify likely markets – Nordics/Baltics Identify local partner(s) Build profitable store level model and franchise Accelerate roll-out Invest in commissary to capture margin Scale through M&A opportunistically

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Urban population as at March 2017 taken from the World Data Bank 1. Q4 AWUS 2. Domino’s branded stores 3. Immature stores only

Location Urban population Total store potential 2017 Store count Market position Mature AWUS1 Shareholding Model Switzerland 6.1m 100 18 #2 £26k 100% Corporate Iceland 0.3m 30 23 #1 £38k 95% (Jan 18) Corporate Norway 4.2m 75 51 #3 £19k2 71% Corporate/ Franchised Sweden 8.4m 125 6 Start-up £17k3 71% Corporate

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17.1%

LOCAL CURRENCY SYSTEM SALES GROWTH

56.6%

LOCAL CURRENCY ONLINE SALES GROWTH

34.9%

ORDER GROWTH

(13.2)%

TICKET GROWTH

• c. £26,000

AWUS (£)

• Very strong price elasticity from new menu
• Store opening costs reduced
• Online adoption accelerating
• Growth and profitability opportunities from:
• Store growth – 100 store market potential – 5 openings planned for

2018

• Digital – penetration of sales at 55%
• Commissary investment

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1 At constant currency.

10.8%

PRO FORMA 2017 SALES GROWTH

23 (+2)

STORES

• c. £38,000

AWUS (£)

• Leading QSR in the market
• Highest AWUS in Domino’s system worldwide
• Mature store EBITDA >15%
• Growth opportunities from:
• Store roll-out – target of 30 in total – 2 openings

planned for 2018

• Delivery (currently 27% of orders)

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1 At constant currency.

94.6%

PRO FORMA 2017 DOMINO’S BRAND SALES GROWTH

27 (+14)

DOMINO’S STORES

• c. £19,000

AWUS (£)

• Strong growth driven by LFL (13.5%) and Dolly’s

acquisition/store conversions (up c. 50%)

• 9 conversions to date; 10 more in 2018
• Growth opportunities from:
• Store roll-out – target of 75 in total
• Franchising – already 7 stores franchised

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MARKET POTENTIAL

125

AWUS (£)

• c. £18,000

STORES

6 (+3)

• Fragmented market with no national pizza brand
• Significant population
• Attractive food and labour cost ratios
• 7-10 openings planned for 2018
• Small scale commissary investment in 2018

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HALLO PIZZA ACQUISITION

Footprint up by 60-65%

STORE POTENTIAL

500 in 3-4 years

JOEY’S STORES

Trading well post conversion

• Significant market opportunity
• MAF: up to €25m payable ahead of exit
• Put/call option could realise material exit value – value

enhancement from recent extension

• Delivered food is a strong and growing market
• Pizza is the number one delivered food; DPG is number one in pizza in several markets
• Our competitive advantages:
• Scale
• Brand
• Franchisees
• Digital
• End-to-end customer experience
• Vertical integration
• UK remains ripe for growth; International just starting the journey

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15%

TOTAL SALES GROWTH

95

NEW UK STORES

14%

EPS GROWTH

10.9%

(7.1% LFL)

UK CURRENT TRADING1

1. First 8 weeks of 2018

David Wild

Chief Executive Officer

Rachel Osborne

Chief Financial Officer

Simon Wallis

Chief Operating Officer

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• Appendix 1

Definitions Page 44

• Appendix 2

Analysis of UK & ROI operating profit Page 45

• Appendix 3

Group 10-year history: stores, system sales and Group profit Page 46

• Appendix 4

UK & ROI LFL sales growth by quarter Page 47

• Appendix 5

Forward-looking statements caution Page 48

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• Constant currency basis restates the prior year results to the current year’s average exchange rates
• System sales represent the sum of all sales made by both franchised and corporate stores in the United Kingdom, Republic of Ireland, Switzerland and Nordics to

consumers

• Like-for-like sales system sales are defined as system sales from stores that were opened before 27 December 2015 and have not been impacted by donating territory

to a new store (Split), compared to the corresponding 52-week period in the prior year

• Statutory revenues represent revenues directly attributable to DPG being derived from monies paid by franchisees for supply chain sales together with royalty payments

for use of the Domino’s brand, rental income from freehold and leasehold property, and corporate store sales to consumers

• Underlying performance measures are defined as statutory performance measures excluding amounts relating to and discontinued operations and non – underlying

items

• Underlying EBITDA – based on underlying operating profit, adding back depreciation and amortisation
• Underlying operating profit – Group operating profit before tax excluding non-underlying items
• Underlying profit before tax – Group profit before tax excluding non-underlying items
• Underlying basic earnings – Group EPS excluding non-underlying items
• Non-underlying items are defined as being items that are material in size, unusual or infrequent in nature, and are disclosed separately as non-underlying items in the

notes to the accounts

• Trade working capital is inventory, trade debtors and trade payables (including rents, payroll and tax)
• Dividend and earnings per share restated to reflect the 3 for 1 share split effective 27 June 2016
• “Investment for growth” is in the investment in International and UK JVs, plus tangible and intangible capex spend
• Free cash flow defined as underlying operating profit before depreciation & amortisation after working capital, ongoing business as usual capex, tax and interest
• AWUS and ASPA stand for Average Weekly Unit Sales and Average Sales Per Address respectively

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52 weeks ended 24 December 2017 (£m) 52 weeks ended 25 December 2016 (£m) % Change

System sales 1,079.4 988.8 9.2% Revenue 393.4 345.1 14.0% Of which supply chain centre 297.4 265.1 12.2% Net royalties 30.2 27.6 9.4% Supply chain centre margin 87.6 83.3 5.0% Net overheads, realty and incentives (18.8) (20.0) (6.0)% UK corporate stores 0.6

• UK joint ventures and associates

2.4 2.1 14.3% Depreciation (8.8) (6.5) 37.7% UK & ROI operating profit 93.2 86.5 7.7%

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553 608 665 720 787 835 872 931 1,013 1,192

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

350.8 406.9 485.3 530.6 598.6 668.8 766.6 877.2 1,004.2 1155.7 23.7 30.0 38.0 42.4 47.2 47.9 55.5 73.2 86.2 94.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Store count (continuing operations)

Note: System sales and Group underlying operating profit include German operations until 2014. 2015 onwards excludes Germany. The 53-week period in 2012 is underlying

Annual system sales and group underlying operating profit (£m)

Group system sales Group underlying operating profit

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13.7% 11.7% 7.6% 8.5% 10.5% 9.8% 12.9% 10.4%

Q1 Q2 Q3 Q4

12.7% 13.3% 6.2% 7.2% 3.5% 1.5% 8.1% 6.1%

Q1 Q2 Q3 Q4

UK LFL sales growth by quarter (excluding splits) ROI LFL sales growth by quarter (excluding splits)

2016 2017 2016 2017

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These 2017 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 business, and certain of Domino’s Pizza Group plc’s and the Group's plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which Domino’s Pizza Group plc operates. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates". By their very nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking

• statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the legal, regulatory and

competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; changes in interest and exchange rates; the impact of legal or other proceedings against, or which affect, the Group; changes in accounting practices and interpretation of accounting standards under IFRS; and changes in our principal risks and uncertainties. Any written or verbal forward-looking statements made in these annual results, our interim results, our Annual Report or the Domino’s website, or made subsequently, which are attributable to Domino’s Pizza Group plc or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date of these annual results, our interim results or our Annual Report, or on the date the forward-looking statement is made. Domino’s Pizza Group plc does not intend to update any forward-looking statements.