Domino’s Pizza Group plc Preliminary Results Thursday, 5 th March 2020 Transcript produced by Global Lingo London - 020 7870 7100 www.global-lingo.com
Domino’s Pizza Group plc Preliminary Results Thursday, 5 th March 2020 Introduction David Wild CEO, Domino’s Pizza Today’s Agenda Good morning everyone. We are joined today by Ian Bull, our Interim Chairman. Elias Diaz, who joined our Board in the autumn is also here. And Bethany Barnes will present the financial results in a moment. We are also joined by the members of UK LT and a group from the UK finance team, who have done the most fantastic job in David ’ s absence in getting these results delivered on time. So I would like to pay tribute to them for their hard work to get us here with these results, a good audit and so on. The agenda for today is that Ian will kick off with giving his perspectives on the business before Bethany takes us through the numbers, and then I will come back and look in some detail at the UK and Ireland business performance before the three of us take any questions that you may have, either as a result of the presentation or from the results. So with that, I will hand over to Ian. Perspectives on the Business Ian Bull Interim Chairman, Domino’s Pizza Welcome Good morning, everybody. Thank you, David, and thanks for joining us today, both in London here and those online. Strength of the Core Business Model So I wanted to spend a few minutes, if I may, just talking a little bit about why I was excited to join Domino ’ s. We have a strong brand, strong sector dynamics. The food delivery market is growing year-on-year. The collection market is growing healthily double-digit. We have a strong business model, vertical integration of food manufacturing, distribution and sales. We have some exceptional franchisees and the model is pretty highly cash generative and pretty capital-light really. So it is a great business model. And despite some well-known challenges, Q4 and trading have been pretty encouraging, as I am sure you have seen. So let us not forget also the other attraction, I think, is the potential for growth, capitalising on both geography and fortressing opportunities. I think it is collection opportunities and day- part opportunities. It is technology-enabled at both customer and operational levels, and, of course, the mutually beneficial relationship with franchisees so that we are all together growing the system. This has been a challenging year But I do not think there is any getting away from the fact this has been a challenging year. And I just want to say a few words about where we are. There are a number of points there www.global-lingo.com 2
Domino’s Pizza Group plc Preliminary Results Thursday, 5 th March 2020 on the slide. I am not going to draw us through all of those because many of them are pretty self-evident. There is a couple I actually wanted to pick out however. The performance of International has been pretty disappointing, and we have to acknowledge that. And David and Bethany will cover a little bit in more detail on that, but you have seen already what we have done in Norway. There has been a number of operational challenges, not least the tragic passing of David B over the Christmas period. And the external environment, both for us and for franchisees is presenting same challenges. But I repeat, despite all those challenges, the core businesses performed with a pretty solid 3.7% like-for-like sales growth in the year. Decisive action being taken So we will make progress, and that starts with some decisive actions. As you have seen, there is a huge amount of work going on behind the scenes. And trust me, there is a lot of work going on. The Norway transaction is the key example of some decisive action, but in a risk-adjusted orderly fashion, which is the way we want to do that, and I think it is what we hopefully indicated to you. And we will continue on the international transaction process in a similar measured way. The Board is evolving. Over the last 10 months or so, we have had the departure of Stephen and Ebbe and the addition of Elias and Usman, and Elias is with us this morning. We are reengaging with the franchisee community, and that is at all levels and out and about in their businesses. And we are making progress on attracting a chair, and we will update you in due course on this front. And I just want to say that this is all underpinned by two mainly important things. Firstly, strong support from our US franchise holder. We are getting a lot of support from our friends. And secondly, we have some really great people back at the ranch. And I think David touched a little bit in terms of how we have dealt with a very difficult situation. Our four priorities So here are the four short to medium-term priorities that we, as a Board, are united behind and putting considerable effort into. Number one, and it would not be a surprise, is recruiting a world-class Chair, CEO and CFO and overseeing a managed Board succession. Secondly, reinforcing our UK and Ireland business with some ambitious plans to be the best master franchisor in the system. Now we recognise that there are some experience and capability gaps that is going to help us do that, and we are clearly getting on with some of those areas as well. But we have already started with a Strategy Insights Director and a new Interim CIO. Thirdly, rebuilding relationships with our important franchisee partners. Now we recognise that improving the relationship with franchisees is critical to moving forward at pace. And I have to say, this relationship building is best done out of public arena and without an external running commentary. But considerable time and energies are going into this, so that it works www.global-lingo.com 3
Domino’s Pizza Group plc Preliminary Results Thursday, 5 th March 2020 for both parties. And clearly, the new leadership of a new Chair and a new CEO will be instrumental in this. And the fourth area, finding the right owners for our brand in the international territories. So I hope you can see, on the one hand we have got plenty to do, but with a renewed vigour, a clear set of priorities. And we are getting on with it. And with that, I would like to hand over to Bethany. Financial Performance Bethany Barnes Head of Investor Relations, Domino’s Pizza Welcome Thank you, Ian, and good morning, everyone. I will start with the income statement before moving on to investment and cash flow. I will then touch on franchisee profitability before handing to David. Treatment of international operations Before I walk through the financials, a quick reminder on the accounting treatment of international operations. Following the announcement that we will be exiting the markets, all four, together with international central costs, have been classified as discontinued operations on the income statement, and as disposal groups held for sale in the balance sheet. Comparatives have been represented accordingly. Although we therefore presented the operations as a single line on the income statement, we have also given you a breakdown of system sales and EBIT by country in case helpful for your modelling. But to reiterate, these are excluded from underlying results. UK & Ireland performance This chart breaks out our UK and Ireland top line performance. System sales grew 4.8%, a solid result. The growth in corporate store revenue was driven by the full year contribution of the six Have More Fun stores we purchased at the start of the second half of 2018. As you know, we restated revenues, the factor in NAF, the National Advertising Fund, and the e-commerce fund at the half year, which were previously not included. We administer these funds for franchisees and the revenues are matched to costs incurred. DPG earns no margin on this activity. In UK and Ireland, EBIT margin as a percentage of sales was 8.5%, in line with our long-term target. UK & ROI LFL sales growth We were pleased to report UK like-for-like, excluding splits, above 3% for all four quarters. This is driven by our digital capabilities and the entrepreneurship and expertise of our franchisees, in particularly around local campaigns. In Ireland, we saw a strong first half followed by a weaker second. The relatively small size of our Irish business means sales here are inherently more volatile, and we also saw ongoing macroeconomic uncertainty weighing on sales. We continue to believe that the ex-splits basis www.global-lingo.com 4
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