Dominos 2020 Interim Results Tuesday, 11 th August 2020 Transcript produced by Global Lingo London - 020 7870 7100 www.global-lingo.com
Dominos 2020 Interim Results Tuesday, 11 th August 2020 Overview Dominic Paul CEO, Domino’s Pizza Welcome Hello, and good morning, everyone. I am sorry we cannot be in person today, but hopefully you can all hear and see me clearly. And I do hope you and your families are keeping well. I am joined this morning, at an appropriate distance, of course, by Neil Smith, our Interim CFO, and Bethany Barnes, who is our Head of Investor Relations, who you will not be able to see in this shot, but she will be asking your questions later. Agenda So let us turn to the agenda for today. I am going to start by sharing my first impressions of the business since I joined, our priorities for the year and to give you a quick summary of our first half performance. Neil will then talk you through the financials in detail. I will then come back and update you more fully on our operational performance and share with you the strategy work we have commenced, before we then go to Q&A. The Q&A session today will, of course, be slightly different to normal. You should be able to see a tab on your screen, where you can type in any questions you have at any time during the presentation. Please tell us your name and who you work for at the start of the question. When we move to the Q&A session, Bethany will then read out your questions in turn and Neil and I will then answer them. First Impressions: A Resilient & Strong Core Business So let us turn to my first impressions. Now, joining a business during a global pandemic is not without its challenges. Getting to know the teams and the culture through a screen is unusual, to say the least. It has, however, offered me a unique chance to see the system during an unprecedented trading backdrop. I have been hugely impressed by the strength of the operational capabilities across our system, our supply chain and the customer engagement with the brand during the period. There are five key strengths of the business, which I will cover in more detail later on. Firstly, the brand is incredible. The level of customer awareness and engagement are world-class. And we need to do everything we can to protect and further enhance this. Secondly, we have highly experienced franchisees, who have tremendous passion for the brand and for the system. Thirdly, our supply chain is exceptional. This is the backbone of the system, and its performance during the COVID-19 crisis has been remarkable. Our model is dynamic and highly responsive. I will spend a bit of time later on talking you through some of the rapid changes the system made to ensure we could keep trading and keep our people safe. And finally, we have a highly cash-generative model, which Neil will talk through in his section in a moment. www.global-lingo.com 2
Dominos 2020 Interim Results Tuesday, 11 th August 2020 I am proud of the strength of our performance through this crisis and it demonstrates that when we work together with our franchisees and put our customers and our people at the heart of everything we do, we win. And as we look to the future and formulate our future growth strategy, I can see significant potential, which we look forward to talking to you about in more detail when the time is right to do so. First Half Performance So, let us touch on the first half performance. I am sure you have all read through our statement already this morning. But I did think it will be useful to share with you a quick summary of our first half performance. We saw UK like-for-like accelerate over the lockdown period and this was despite us moving to delivery only, so switching off collection, which accounted for over 20% of sales. Our Irish business, which accounts for 5% of system sales, saw its performance more impacted by lockdown and also faced some very strong comparatives. The strength of our business during the lockdown period, which was essentially our quarter two, was remarkable, with UK delivery like-for-like sales up 31% and total delivery orders up 24%. The crisis has also accelerated our evolution to a truly digital business, and that is most clearly seen in the performance of our app with sales up 26%. Ensuring the business traded safely meant that we incurred £6 million of COVID-19-related costs in making sure our supply chain could service stores and work safely, costs we chose to incur to support our franchisees, mainly through funding orders of safety equipment, and also running pizza giveaways to play a small part in thanking the amazing key workers of this country. These costs mean that first half profitability declined year-on-year, but they were the right actions to take. Most importantly, the actions we took and the difficult decisions we made to steer the business safely through the crisis have resulted in customer satisfaction at all-time highs. Our Business Priorities Before I hand over to Neil, I wanted to share with you how we have been managing the business during the first half and how we are thinking about our future. Upon joining, we quickly established three priorities through the COVID-19 crisis. One, keep serving our customers and looking after our people. This came first throughout and meant changing many ways of working and incurring some costs to enable us to keep trading. Secondly, build brand preference and helping our communities. We ensured our customer communications were appropriate and informative. We worked hard to further enhance the brand and we did whatever we could to help our communities and key workers during this time. And thirdly, coming together with our franchisees. We tried to use this period to start to rebuild our relationship with our franchisees, significantly increasing our communication, openness and transparency. We have also started work to plan our future. As you know, the relationship with our franchisees is challenging, and this situation dates back several years. I firmly believe that www.global-lingo.com 3
Dominos 2020 Interim Results Tuesday, 11 th August 2020 the way to resolve this situation and realign with our franchisees requires a long-term strategic plan, which this business certainly had for some time now. We have, therefore, commenced a detailed and wide-ranging strategy project in order to reignite growth of the system. I am now going to hand over to Neil to walk you through the financials. Financial Performance Neil Smith Interim CFO, Domino’s Pizza Welcome Thanks, Dominic, and good morning everyone. It is a pleasure to be here this morning to present the financial results for the first half the year for Domino’s Pizza Group . You may observe some subtle changes in the slides this morning, but we have not made any radical changes to disclosures. Bethany and I would welcome any feedback from the analysts and investor community on future disclosures and reporting. Income Statement Let us start with the income statement. This slide refers to underlying numbers, so excludes non-underlying charges and charges from our discontinuing international activities. We will cover those items later. Underlying UK & Ireland EBITDA is broadly in line with last year, at £57.6 million, and within this number, we have two significant impacts. Firstly, we have adopted IFRS 16 this year with no change to our comparatives. This benefits EBITDA in the year-to-date by £3.6 million as we effectively remove lease charges and replace them with incremental depreciation. Secondly, we charge £6.2 million of COVID-related costs in the period. I will provide more details on those costs in a moment. At the profit before tax level, the IFRS 16 benefit is only £0.2 million due to increased depreciation of finance charges. And if we adjust the PBT for the IFRS 16 benefit and remove the COVID cost, then we would see normalised PBT grow by around 7% year-on-year. Our tax rate in the first half is 16%, which benefits from some prior year adjustments. Excluding these adjustments, the effective tax rate for the full year is estimated at 19%. The resultant underlying basic EPS is 8.7p, broadly in line with last year. And given the extraordinary circumstances prevalent in the first half, a very robust performance. COVID-19 related costs As I mentioned, we have incurred some significant incremental costs related to COVID in the first half, totalling £6.2 million. A significant investment, but the right thing to do in order to ensure that business could continue to trade throughout to COVID lockdown period, whilst protecting our employees, our franchisees and our customers. To trade safely, we ’ve made significant changes to our supply chain processes, including changes to shift patterns so that deliveries were made when stores were closed; moving to single driver deliveries to maintain social distancing; and pay premiums to our teams in recognition of their increased workload. www.global-lingo.com 4
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