TIDMDOM
RNS Number : 9051F
Domino's Pizza Group PLC
10 November 2022
10 November 2022 LEI: 213800Q6ZKHAOV48JL75
This announcement contains Inside Information
Domino's Pizza Group PLC ("DPG") - Trading statement
Continued market share gains and strong start to Q4
Domino's will roll out on Just Eat in the UK and Ireland
following very successful trial
GBP20m share buyback announced
Further shareholder returns expected in FY23 following German
disposal
Strategic highlights
-- Continued to gain UK takeaway market share(1) , which rose to
7.2% in Q3 22(2) from 6.4% in Q3 21(2)
-- Domino's to be rolled out on Just Eat nationally following a very successful trial
-- Trial has delivered incremental orders and customers
-- Full roll out expected to be completed by the end of 2022
-- Put option exercised over German associate investment
-- Cash proceeds of c.GBP80m - GBP90m(3) expected to be received
in H1 23 and to be flowed through the capital allocation
framework
-- As a result of strong recent momentum and confidence in the
future, new GBP20m share buyback programme, effective immediately,
in line with capital allocation framework and commitment to
distribute surplus capital to shareholders
-- 21 new stores opened this year, a further c.70 stores to be opened by the end of FY23
Q3 trading highlights
-- Q3 22 like-for-like system sales (excluding splits and the
change in the VAT rate) +2.4% (+0.9% in Q2 22)
-- Q3 22 total system sales +19.6% compared with the same period in 2019
-- Total orders year-to-date +0.7%, Q3 22 total orders down 1.9% due to a tough comparator
-- Delivery down 12.7% driven by a tough comparator
-- Collections up 28.1%, reflecting strategic focus on this channel, 5.1ppts above 2019 levels
-- FY22 EBITDA expected to be in the range of GBP125m -
GBP135m,(4) in line with current market expectations
Current trading
-- Strong start to Q4 22(2) with like-for-like system sales
(excluding splits and the change in the VAT rate) +10.4% in the
first 6 weeks and total orders +2.6%
-- Performance driven by strong national value campaigns,
operational service excellence, growth in collections and the
initial incremental benefit of being on the Just Eat platform
Elias Diaz Sese, Interim Chief Executive Officer, said:
"We continued to take market share and grew underlying sales in
the quarter, despite the tough comparator. I'm pleased that we have
made a strong start to our important final quarter. This has been
driven by a focus on service by our franchise partners, our focus
on digital, strong national value campaigns, collections growth and
the initial benefit of being on the Just Eat platform. We're
looking forward to our busiest weeks of the year with the men's
football World Cup and the festive season to come."
"I am delighted to announce two important strategic milestones
for our business. First, we have decided to roll out Domino's on
Just Eat across the UK and Ireland following a very successful
trial which delivered incremental customers and orders. I'd like to
thank our franchise partners for all their hard work to make this a
success. Secondly, we have exercised our option to sell our
investment in Germany, which will allow us to be solely focused on
accelerating our strategy in the UK and Ireland and delivering
further cash returns to shareholders."
"Having been on the Board for the past three years, and as a
shareholder, I am very confident the current strategy is the right
one and I am committed to execute it at pace. I've spent my first
month travelling and meeting with our franchise partners, suppliers
and colleagues, and I'd like to thank Dominic Paul and David
Surdeau for their support during the handover, and for their
tremendous contribution to Domino's during their time with us."
"As we look ahead to next year, we are well placed to succeed,
with our franchise partners' focus on service, alongside enhancing
our digital capabilities, offering our customers strong national
value campaigns, and growing our collection business. Combined with
the benefit of recent new store openings and the Just Eat platform
roll-out, further product innovation and continued alignment with
our franchise partners, we remain confident that our resilient,
asset-light business model will deliver market share gains, further
financial and strategic progress, and increased returns for our
shareholders."
Domino's will roll out on Just Eat in the UK and Ireland
In May 2022 we started a trial with Just Eat in 136 stores to
assess whether we can reach an incremental customer base while
delivering a similar contribution for our business. Early results
were encouraging so the trial was extended to nearly one third of
the store estate. Following continued success of the extended
trial, which has delivered incremental orders and customers, we
have now taken the decision to fully roll out on the Just Eat
platform in the UK and Ireland and have recently accelerated the
roll-out. As at 10 November 2022 1,061 stores are now live, and we
expect the roll out to be complete by the end of FY22. Our team
worked collaboratively with our franchise partners on the trial and
subsequent roll-out and we look forward to the benefits of being on
the Just Eat platform and the tailwind to growth in FY23.
Put option on German associate exercised with expected cash
proceeds of GBP80m - GBP90m(3)
We exercised our put option over our German associate
investment. We had a put option exercisable from 1 January 2021 to
31 December 2023 and the majority shareholders, Domino's Pizza
Enterprises Limited, had a call option exercisable from 1 January
2023. We believe that exercising our put option and disposing of
our interest in the associate will yield total cash receipts of
GBP80m - GBP90m(3) and will generate profit on disposal of between
GBP40m - GBP50m. We expect to receive the cash proceeds in H1 23
and will flow the profits through our capital allocation framework.
From the date of the put option exercise, the share of profits from
our German associate will no longer be recorded by the Group.
Further shareholder returns with new GBP20m share buyback
Following strong recent momentum and confidence in the future,
we are announcing a further GBP20m share buyback with immediate
effect.
We have a highly cash-generative, asset-light business model and
in March 2021 we launched a clear capital allocation framework. Our
first priority is to invest in the business to drive long-term
organic growth. We will continue to maximise shareholder returns
through a sustainable and progressive dividend policy and to
operate a disciplined approach to assessing additional growth
opportunities. Finally, operating within a target leverage range of
1.5x - 2.5x net debt to underlying EBITDA, we aim to maximise
returns with an annual allocation of surplus cash to
shareholders.
Since DPG launched the capital allocation framework in March
2021, GBP266m will have been returned to shareholders through
dividends and share buybacks.
Investment in growth
As a result of the growth investment framework agreed with our
franchise partners, DPG committed to invest an additional GBP20m.
DPG has recently started investment projects to develop and
implement two new cloud-based IT systems, an eCommerce platform and
an Enterprise Resource Planning ("ERP") system.
These projects will enable us to capture growth in the future,
drive further efficiencies and will impact the FY22 results as
follows:
-- eCommerce platform - c.GBP1.5m of costs which had previously
been expected to be capitalised in FY22 will now be expensed. In
addition, an impairment of GBP1.5m will be taken over assets which
will no longer be useful following the implementation of the
eCommerce platform
-- ERP - c.GBP3m of costs which had previously been expected to
be capitalised in FY22 will now be expensed. Furthermore, the
introduction of the ERP system will result in a further c.GBP0.5m
of accelerated depreciation in FY22
Q3 trading performance
Our franchise partners' focus on service, our focus on digital,
strong national value campaigns, collections growth and the initial
incremental benefit of being on the Just Eat platform have resulted
in DPG's share of the UK takeaway market increasing from 6.4% in Q3
21 to 7.2% in Q3 22.
-- Q3 22 like-for-like system sales (excluding the change in the
VAT rate) +2.4% (0.9% in Q2 22)
-- Q3 22 total system sales +19.6% compared with the same period in 2019
-- Total orders year-to-date +0.7%, Q3 22 total orders down 1.9% due to a tough comparator
-- Delivery down 12.7% driven by a tough comparator
-- Collections up 28.1%, 5.1ppts above 2019 levels reflecting strategic focus on this channel
System sales represent all sales made by both franchised and
corporate stores to consumers in the UK & Ireland.
Like-for-like system sales excluding split stores and the change in
the VAT rate, increased by 2.4% or by 1.3% including splits. The
VAT rate for Q3 22 was 20%, compared with 5% in Q3 21. Total system
sales were down 8.3% compared with Q3 FY21. The increase in the VAT
rate in the period compared with the same period last year drove
this decline. Like-for-like system sales across UK & Ireland
declined by 9.3%, excluding split stores, or by 10.2% including
splits, again driven by the increase in VAT. Compared with Q3 FY19,
system sales were 19.6% higher.
Q3 22 Q3 21 Change YTD 22(2) YTD 21(2) Change
System sales GBP344.7m GBP375.8m (8.3)% GBP1055.1m GBP1,128.1m (6.5)%
---------- ---------- ------- ----------- ------------ -------
LFL system sales
growth exc.splits)(4) (9.3)% +8.8% (7.4)% +15.6%
---------- ---------- ------- ----------- ------------ -------
VAT rate 20% 5% - - - -
---------- ---------- ------- ----------- ------------ -------
LFL system sales
growth ex VAT (exc.splits)(4) +2.4% +6.4% +2.4% +5.8%
---------- ---------- ------- ----------- ------------ -------
As expected, total orders were lower in July due to the tough
comparator with the knockout stages of the Men's Euro football
tournament and were muted in August given the 'staycation' impact
from the previous year. September was a stronger trading month, and
this momentum has continued into Q4.
Delivery orders declined 12.7% in the quarter due to a tough
comparator last year. Collections performed well and increased
28.1% in the quarter, driven by our strong value message and our
continued strategic focus on this channel.
UK & ROI LFL inc. splits (YOY Growth) Total (All Stores)
Sales Volume Price Orders (m) YOY Order
Growth
---------- ---------- --------- ----------- ----------
Total
---------- ---------- --------- ----------- ----------
Q1 (3.6)% (1.4)% (2.2)% 17.5m 5.5%
---------- ---------- --------- ----------- ----------
Q2 (11.4)% (5.8)% (5.6)% 16.9m (1.3)%
---------- ---------- --------- ----------- ----------
Q3 (10.2)% (6.5)% (3.7)% 16.9m (1.9)%
---------- ---------- --------- ----------- ----------
YTD (8.4)% (4.6)% (3.8)% 51.3m 0.7%
---------- ---------- --------- ----------- ----------
Delivery only
---------- ---------- --------- ----------- ----------
Q1 (8.4)% (7.5)% (0.9)% 12.7m (4.4)%
---------- ---------- --------- ----------- ----------
Q2 (16.0)% (12.4)% (3.6)% 11.6m (12.1)%
---------- ---------- --------- ----------- ----------
Q3 (14.7)% (13.0)% (1.7)% 11.0m (12.7)%
---------- ---------- --------- ----------- ----------
YTD (13.0)% (10.9)% (2.1)% 35.3m (9.7%)
---------- ---------- --------- ----------- ----------
Collection only
---------- ---------- --------- ----------- ----------
Q1 25.3% 30.5% (5.2)% 4.8m 45.4%
---------- ---------- --------- ----------- ----------
Q2 12.4% 22.8% (10.4)% 5.3m 34.7%
---------- ---------- --------- ----------- ----------
Q3 9.3% 17.2% (7.9)% 5.8m 28.1%
---------- ---------- --------- ----------- ----------
YTD 15.0% 22.9% (8.0)% 16.0m 35.2%
---------- ---------- --------- ----------- ----------
Domino's is a digital business and we have continued to enhance
our digital capabilities: 90% of system sales are through digital
channels and the app now accounts for 45.7% of system sales, an
increase of 3.7ppts compared with the same period last year. In the
same period in FY19 the app accounted for 34.8% of system sales. We
now have 5.6m active app customers, an increase of 5% over the last
6 months. App customers have a higher lifetime value than other
customers, primarily due to higher ordering frequency. We continue
to see opportunities to drive further app penetration amongst our
customer base and deliver increased levels of personalisation to
our customers.
New store openings
We have made good progress with our new store openings and as at
10 November 2022 we have opened 21 stores this year with 13
different franchise partners. Franchise partner appetite to open
new stores remains strong and we are building a good pipeline
following the growth investment framework we agreed with our
franchise partners. Planning consents are taking longer than
previously, and we now expect to open around 40 new stores in 2022
with a strong opening programme in Q1 23. We expect to open 50 new
stores in FY23 and remain on track to open 200 stores in the medium
term.
Current trading and outlook
In the first six weeks of Q4 like-for-like system sales
excluding split stores and VAT have increased by 10.4% driven by
our franchise partners' focus on service, our focus on digital,
strong national value campaigns, collections growth and the initial
incremental benefit of being on the Just Eat platform.
We expect underlying EBITDA to be in the range of GBP125m to
GBP135m, in line with current market expectations(5) , after the
investments we are making related to the growth investment
framework we agreed with our franchise partners, including the
additional project costs outlined above. Excluding the impact of
the additional investment project costs outlined above, underlying
EPS is also expected to be in line with current market
expectations.(6)
As during prior periods and in line with our agreement, we pass
through food cost inflation to our franchise partners on a lagged
basis. Due to the rapidly changing inflationary environment this
year, we began passing through these increases during the first
half of the year and will continue to pass these through in the
second half of this year and into FY23. We have proactively hedged
our gas and power requirements until the end of September 2024 and
fuel for our fleet has been hedged until the end of June 2023.
As we look ahead to FY23, we are well placed to succeed, with
our franchise partners' focus on service, alongside enhancing our
digital capabilities, offering our customers strong national value
campaigns, and growing our collection business. Combined with the
benefit of recent new store openings and the Just Eat platform
roll-out, further product innovation and continued alignment with
our franchise partners, we remain confident that our resilient,
asset-light business model will deliver market share gains, further
financial and strategic progress, and increased returns for our
shareholders.
FY22 Guidance
For the current financial year:
-- Underlying EBITDA to be in the range of GBP125m to GBP135m
-- Underlying depreciation & amortisation and impairment expected to be c.GBP22m
-- Underlying interest (excluding foreign exchange movements) in the range of GBP9m to GBP11m
-- Estimated underlying effective tax rate of c.17% for the full year
-- Capital investment of c.GBP21m which now reflects the updated treatment of project costs
-- Net Debt at year-end around c.GBP255m
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014 as it forms part of domestic
law of the United Kingdom by virtue of the European Union
(Withdrawal) Act 2018, as amended (together, "MAR").
The person responsible for making this notification is Adrian
Bushnell, Company Secretary.
For further information, please contact:
Domino's Pizza Group plc:
Will MacLaren, Head of Investor Relations - 07443 192 118
Brunswick:
Tim Danaher - 020 7404 5959
A conference call for investors and analysts will be held at
09:30 GMT today.
United Kingdom 0800 640 6441
United Kingdom (Local) 020 3936 2999
United States +1 855 9796 654
United States (Local) +1 646 664 1960
All other locations +44 20 3936 2999
Access code: 559625
Notes
1. Kantar Worldpanel, bespoke market definition. Covers period 11 July 2022 to 1 October 2022
2. Q3 FY22 is 13 weeks to 25 September 2022, Q3 FY21 is 13 weeks to 26 September 2021
Q4 FY22 is 13 weeks to 25 December 2022, Q4 FY22 is 13 weeks to
26 December 2021
YTD FY22 is 39 weeks to 25 September 2022, YTD FY21 is 39 weeks
to 26 September 2021
3. Comprises cash proceeds for the sale of equity of GBP70m -
GBP80m and the repayment of a GBP9m loan
4. Like-for-like excluding splits system sales performance is
calculated for UK & Ireland against the comparable period in
the prior year for mature stores which were not in territories
split in the year or comparable period
5. Current range of analyst forecasts for underlying EBITDA GBP126.0m - GBP136.7m
6. Current range of analyst forecasts for underlying EPS 18.7p - 20.8p
Investment in Germany
The Group has a 33.3% investment in Daytona JV Limited
('Daytona'), a UK incorporated company which owns the Master
Franchise Agreement and trading operations of Domino's Germany. The
remaining shareholding is owned by Daytona Holdco Limited, a UK
incorporated company, which is wholly owned by Domino's Pizza
Enterprises Ltd, based in Australia. The investment is treated as
an associate investment by the Group, and as at 30 June 2022 the
book value of the investment was GBP30.8m. During the year ended 26
December 2021, the Group recognised a share of profit of GBP5.0m
from the associate investment. The Group's interest is subject to a
put and call option. The put option is exercisable from 1 January
2021, and the call option is exercisable from 1 January 2023. From
the date of the put option exercise, the share of profits will no
longer be recorded by the Group. The consideration payable under
the option is based on an enterprise value of the operation
determined by an EBITDA multiple of the preceding calendar year,
subject to adjustments for one-off items, working capital, debt
levels and calculated for the share of equity held, as agreed at
the time of entry into the joint venture.
About Domino's Pizza Group
Domino's Pizza Group plc is the UK's leading pizza brand and a
major player in the Irish market. We hold the master franchise
agreement to own, operate and franchise Domino's stores in the UK
and the Republic of Ireland, and have associate investments in
Germany and Luxembourg. As of 10 November 2022, we had 1,247 stores
in the UK and Ireland.
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