Final Results
Domino's Pizza UK & IRL PLC
15 February 2002
For Immediate Release 15 February 2002
Domino's Pizza UK & IRL plc
Preliminary Results
For the year ended 30 December 2001
Domino's Pizza UK & IRL plc ('Domino's Pizza' or the 'Company') is pleased to
announce its Preliminary Results for the year ended 30 December 2001. A summary
of key points follows.
Financial
• System sales up 29.4.% to £98.4m (2000 : £76.1m)
• Like-for-like sales up 21.4% (2000: 4.8%)
• Group turnover up 35% to £43.8m (2000 : £32.5m)
• Operating profit up 31% to £3.1m (2000 : £2.4m)
• Pre-tax profit up 31% to £2.9m (2000: £2.2m)
• Earnings per share:
Basis earnings per share up 53.3% to 4.0p (2000: 2.61p)
Fully diluted earnings per share up 53.4% to 3.88p (2000: 2.53p)
• Total dividend up 66.3% to 1.33p per share (2000: 0.80 per share)
Business
• First year for new chief executive Stephen Hemsley, appointed 1 January
2001
• 1 in 5 of the UK's home delivered pizzas served up by Domino's, now UK
No 1 for pizza delivery in sales and units
• 24 new delivery stores opened (2000: 22)
• Total number of stores at year end - 237 (2000: 215)
• Currently employing in excess of 5,500 team members corporately and in
franchised stores
Board Changes
• Andrew Mallows, finance director of Domino's Pizza Group Limited, a
subsidiary of Domino's Pizza UK & IRL plc, appointed as Company Secretary.
• Gerald Halpern resigned as a director of Domino's Pizza UK & IRL plc on
8th January 2001
Stephen Hemsley, Chief Executive of Domino's Pizza commented:
'A determined focus on quality and standards of our pizzas, our stores and our
people has generated an outstanding set of results for 2001 and these confirm
our leadership of the UK home delivery pizza market in both sales and units. I
am delighted to report that trading has been strong at the start of 2002 with
like-for-like sales up 20.5%.'
For further information, please contact:
Contact:
Domino's Pizza 01908 580672
Stephen Hemsley, Chief Executive
Bernadette Eddisford, Press Office 07909 928016
Buchanan Communications 020 7466 5000
Richard Oldworth / Isabel Petre
Notes to editors: -
Domino's Pizza Group Limited is a wholly owned subsidiary of Domino's Pizza UK &
IRL plc, which is quoted on the Alternative Investment Market of the London
Stock Exchange (Symbol: DOM). Domino's Pizza Group Limited is the UK's leading
pizza delivery company by sales and holds the master franchise to own, operate
and franchise Domino's Pizza stores in the UK and Ireland. The first UK store
opened in 1985 and there are currently 241 stores in the UK and Ireland.
Domino's Pizza is world leader in pizza delivery and was founded in the United
States in 1960. There are currently more than 7,100 stores open across 64
international markets employing over a quarter of a million people.
Chairman's Statement
As a company grows, there is always a great temptation to venture beyond one's
intended course and travel down new and exciting paths, especially when that
intended course has been successfully travelled. This is true of any successful
company, and Domino's is no exception.
Yes, we've toyed with the idea of entering new arenas - exploring new
challenges. But we always come back to the fact that what we do best is make
great pizza. And we always return to the point that, though we've already become
market leader in the pizza-delivery business in the UK, there are still plenty
of ways to do what we do even better. There are always ways we can work harder,
smarter and faster - and continue to build shareholder value. That's what we
focused on in 2001, and what we will continue to focus on in 2002 and beyond.
In 2001, we delivered our fresh-baked pizzas to more than one million satisfied
households. And, in 2001, we controlled over 20% of the pizza delivery market.
Though we consider these impressive figures, our goal is to reach more than 2.5
million households by 2006, and to continue to grow our market share. Our goal
for 2006 is to have 500 Domino's stores open throughout the UK and Ireland. To
support this rapid growth, we will be opening an additional commissary in June
2002 that will complete our needs through this phase of our growth.
But growing in store count is only half the picture. Increasing same-store-sales
is at least as important. That's why, two years ago, we implemented an
aggressive refurbishment programme to ensure that all our stores are kept up to
the latest standards and designs. All our units must convey the image and
appearance we want and the efficiency we need to stay market leaders. By the end
of 2001, the average age of a Domino's store was less than two years. This
includes the units we built within the past three years as well as our
previously built units, most of which have undergone recent refurbishment. We
now require all Domino's stores in our system to be refurbished or rebuilt every
five years.
Another important factor in growing our market share has been our tremendously
successful television advertising campaign. In last year's annual report I
mentioned the success of the 18-day, January 2001, TV advertising campaign,
which boosted same store sales by 18%. During 2001, we were not only able to
sustain this rapid growth, but were able to accelerate same store sales over
2000 by 21.4% for the entire year. This growth is a result of greater brand
awareness driven by four additional TV advertising campaigns, sponsorship of the
Simpsons and our presence on all e-commerce interactive platforms. Speaking of
e-commerce, our Internet ordering system has placed Domino's at the cutting edge
of technology and has made it even easier and faster for our customers to
communicate with our stores.
We like to talk about what is needed to grow a business - excellent concept,
money, bricks and mortar and equipment - all of which are important. But the
true story behind any successful business is its people. We at Domino's have
some of the greatest, most dedicated people - our franchisees and our corporate
staff alike - and together they have created a powerful team. The results of
2001 are their true badge of achievement. We know that to keep these incredible
people aboard our team, we need to reward them for their hard work. That's why
we have one of the most widely distributed share option plans of any company of
our size. At the end of 2001, 292 employees were in our share option plans out
of a total of 810. Many of our franchisees are also shareholders in Domino's.
So you see, there is much that has gone into making Domino's such a success so
far. But that doesn't mean we are sitting back and resting by the way side. We
are aggressively pursuing the course to optimal shareholder value, constantly
increasing market share and improved operations. We believe that we can sustain
our growth without any substantial increases in our current share capital. If we
can achieve this goal, it will allow us to drive per share earnings and
dividends over the coming years.
We thank you for your commitment to Domino's and we pledge our continued
devotion to you, our valued shareholders.
Chief Executive's Report
In my first year as the Company's Chief Executive I am pleased to report that
Domino's continued to build on the solid foundation established in earlier
years, achieving record sales and profits. The year was particularly notable for
the increase in profits of 31% and the like-for-like sales increase of 21.4%.
This outstanding achievement can be attributed to a determined focus on
enhancing the quality and standards of our pizza delivery service and the
support of a highly original and targeted terrestrial television advertising
campaign. These improvements, which have continued in the current year, give us
great confidence for the future.
Sales
The impressive sales performance and store opening programme in 2001gives
Domino's clear leadership of the home delivery pizza market in the UK, in terms
of both total sales and number of stores.
System sales, which are the sales of all stores in the Domino's system in the UK
and Republic of Ireland, rose by 29.4% to £98.4m (2000: £76.1m) in the year
ended 30 December 2001. Average weekly unit sales grew 19.0% (2000: 3.1%) to
£8,422 from £7,075. Like-for-like sales in the 191 stores open for more than
twelve months in both periods grew by 21.4% (2000: 4.8%).
System Expansion
In 2001, 24 delivery stores (2000: 22 stores) were opened and two were closed
(2000: eight including six experimental stores). The closures included the one
remaining experimental store, taking the year-end store count to 237 delivery
stores.
During the year 44 stores, representing over 20% of the opening store portfolio,
were re-imaged. This increases the total number of stores with new image to
124. These improvements have had a positive effect on quality perceptions
among customers and are an important strand in the Company's drive to improve
standards that have contributed so significantly to the year's sales increases.
In addition to providing stores with a more modern environment, re-imaging also
sets standards for in-store equipment and ensures that stores are capable of
handling ever-increasing volumes. Re-imaging will therefore continue to be a
high priority and we will work closely with our franchisees to complete the
re-imaging programme across the entire system as quickly as possible.
Trading Results
Total group turnover in the 52 weeks to 30 December 2001 grew by 34.7% to £43.8m
over the £32.5m achieved in the 53 weeks to 31 December 2000. This increase
reflects the growth in royalty income from franchisees and higher sales to
stores of fresh dough and other food ingredients. It also reflects the growing
contribution made by the increasing population of corporate stores.
Total group operating profit was up 31.4% to £3.14m from £2.39m. In 2001 the
Company saw the first increase in the rate of royalty paid to Domino's Pizza
International Inc. in the USA under the Master Franchise agreement. Under this
agreement the rate increased to 2.2% in May 2001, 2.5% in January 2002 with a
final increase to 2.7% due in January 2003. Were an adjustment made to exclude
the increase in the royalty payment, operating profit would have increased by
49.4% on a system sales increase of 29.3%. This indicates the growing economies
of scale that are available as system sales grow and the increasing contribution
corporate stores are making to operating profits.
The interest charge increased in the year to £0.35m (2000: £0.27m) as a result
of higher average borrowing throughout the year. The total interest charge was
covered 9.1 times by operating profit (2000: 9.1 times)
Profit before tax was up 30.7% to £2.86m from £2.19m. The Group has adopted the
new Accounting Standard on Deferred Taxation FRS 19. Accordingly, the Group's
tax charge was 30% of profits and comparative tax charge figures have been
restated taking the tax charge for 2000 from the originally stated 26.5% to
40.3%.
Earnings per share and dividend
Basic earnings per share were up 53.3% to 4.00 pence from a restated 2.61 pence
(2000: originally reported as 3.21 pence pre implementation of FRS19). Fully
diluted earnings per share increased by 53.4% to 3.88 pence from 2.53 pence
(2000: originally reported as 3.11 pence pre implementation of FRS19).
The Board is pleased to propose a final dividend for the year of 0.76 pence per
share (2000: 0.43 pence per share). This brings the total dividend for the year
to 1.33 pence per share (2000: 0.80 pence per share), a 66.3% increase over the
previous year. The proposed dividend is covered three times by profit after tax
(2000: four times). At the time of the flotation in 1999 the Directors took a
cautious view on the level of distribution but with the progress that has now
been achieved they are confident that this level of dividend cover is
sustainable.
Subject to shareholders' approval the final dividend will be payable on 30th
April 2002 to shareholders on the register on 12th April 2002.
Cash Flow & Balance Sheet
Operating activities generated net cash of £4.5m (2000: £2.5m restated). This
strong cash flow was sufficient to virtually fully fund capital expenditure of
£2.6m and a significant increase in the dividend paid.
Included within the financial investments was a net increase of £0.9m in finance
lease assets, which arise within a subsidiary company, DP Capital which provides
financing to franchisees to assist in the building and refurbishment of stores.
The leasing book, which at the year-end stood at £1.6m (2000: £0.8m), is
funded by back-to-back bank loans of £1.4m (2000: £0.5m) that have limited
recourse to the rest of the group. All such borrowing is reflected in the
consolidated balance sheet.
As a result of the adoption of FRS 19 certain balance sheet values have also
been restated and, as a consequence, reserves as at 31 December 2000 were
reduced by £182,000. At 30 December 2001, the Company had net borrowings of
£5.8m (2000: £5.7m) against shareholders funds of £9.6m (2000: £8.4m restated),
a capital-gearing ratio of 60.0% (2000: 67.6% restated).
Corporate Stores
Until the flotation of the Company in 1999, the purpose of Corporate Stores was
to provide training facilities for new franchisees and an environment in which
to turn around under-performing stores before selling them back into the
franchise community. However, with the prospect of an increase in the royalty
payment due to Domino's in the USA, it became necessary to retain more of the '
downstream' profit available from owning and operating Domino's stores. The
Company therefore embarked on a strategy of buying-in and opening more stores
corporately, a process that resulted a portfolio of 31 stores by the end of 2000
and 34 stores by the end of 2001. During 2001 one further corporate store was
acquired, two new stores were opened and 10 stores were refurbished at a total
cost of £1.1m.
The focus for Corporate Stores in 2001 was to increase the return from the
previous investment in stores and to fine tune the infrastructure costs to
ensure that, whilst the Company continued to exercise adequate control, it
achieved this in a cost effective way. Considerable progress was made during
the year, with an increase in the direct operating profit generated from
corporate stores of 340%, to £787,000 from £179,000. Further improvements to
the infrastructure were made towards the end of 2001 and we are confident
further progress will be made in 2002.
Franchise Operations
Franchise Operations is responsible for the operation of the Domino's franchise
in the UK and Republic of Ireland. This involves the combined efforts of many
people in a number of different departments whose individual contribution is
vital to the achievement of our overall goal. I should, however like to focus
on three departments.
Improving the standards in our stores has had a significant impact on the
success of the business in 2001. Much of the credit for implementing this
programme must go to a newly created department, Flawless Execution, whose role,
much as the name suggests, is to ensure that the Domino's system is executed
flawlessly in all our stores up and down the country. This has been achieved by
a considerably more pro-active approach in both informing franchisees of the
standards required and in actively assisting them to achieve these requirements
in their stores. We have also introduced a formal assessment procedure by which
any franchisee that wishes to expand is actively assessed for suitability. By
these initiatives we are seeking to only expand with those franchisees that
share our vision of still higher standards.
A second key department that will make a vital contribution to our future
accelerated growth plans is Property. This dedicated team of professionals are
responsible for the identification and acquisition of new sites, planning,
design, construction and re-imaging of stores. If we are to achieve our
ambitious growth plans we will need to significantly accelerate the rate of new
openings. The property team has therefore been strengthened and further
recruitment is under way. It is expected that these additional resources should
boost the number of openings in the current year and beyond.
The final key area that I should like to focus on this year is our Commissary
business. Commissary manufactures Domino's fresh dough that is delivered
together with all other fresh food ingredients to all stores three times per
week, fifty-two weeks per year. This is a hugely demanding undertaking that
imposes a cost burden on the Domino's system compared to the use of frozen
ingredients. However, we consider this is necessary if we are to enable our
stores to provide customers with the highest quality pizza made from fresh
ingredients. Recently two new commissaries have been constructed, in Milton
Keynes and Naas in the Republic of Ireland. A third new commissary is under
construction in Penrith and is due to become operational during the first half
of this year. This final development means that the Company's infrastructure
will be sufficient to support our plans to grow to 500 stores with only modest
additional investment.
Brand-building
During the course of the year, several developments have helped to consolidate
the brand's leadership position. The national launch of the hot pizza delivery
system HeatWaveTM at the end of 2000 was an industry first and, backed by TV
advertising throughout last year, customers have been impressed by the prospect
of getting a hot pizza delivered any time, every time. The innovation has not
remained unnoticed by competitors some of whom are now introducing similar
systems.
The HeatWaveTM message has also been used effectively in our sponsorship of The
Simpsons on Sky TV which continues to go from strength to strength. In the
last 12 months, the penetration of multi-channel TV has grown by 15%, now in 43%
of all UK homes. The Simpsons is the most popular programme on multi-channel TV
and the Company's sponsorship of the programme runs until 2004.
During 2001, gross sales via our e-commerce channels reached £3.6million, a 39%
increase on 2000. 60% of e-commerce sales come from interactive TV where
Domino's continues to be the only food delivery company to offer a national
ordering service. The number of households that can access interactive TV
continues to climb. Sky Active is now available in 5.7 million UK homes
(January 2001:4.7 million), while the NTL and Telewest interactive services are
now in an additional 1.8 million UK homes.
The incremental cost of running these activities across an expanding estate is
negligible; national TV advertising, The Simpsons sponsorship and our e-commerce
presence cost the same for 237 stores as they would for 500 stores. As sales
expand, more advertising funds are generated and a bigger advertising fund means
more national TV, which in turn leads to more sales.
Additionally, this activity serves to 'prepare the terrain' for new stores which
are opening more strongly than ever before.
Strategy
We believe that the potential exists for 500 Domino's stores to be open by 2006.
The investment made in infrastructure over the last few years, which will be
largely completed by mid-2002, provides the infrastructure necessary to support
500 stores. This imposes a significant additional fixed cost on the business
whilst it remains under-utilised. However the marginal contribution generated
by sales growth going forward should improve significantly. This improved
incremental contribution can be seen in the 2001 results, when adjusted for the
royalty increase. We are therefore committed to accelerating the rate of store
openings, continuing to drive like-for-like store sales by continued investment
in marketing, particularly terrestrial television, and the enhancement of
profitability by the continued expansion of the corporate store portfolio.
Over recent years we have also reviewed opportunities to invest in Domino's
businesses outside of our existing territories, but have been unable to satisfy
ourselves that these represent an effective use of resources. Such reviews
continue and were we to identify an opportunity that offered significant future
potential, whilst not diverting us from the prize available in our existing
markets, we would consider such an investment.
Appointment of Andrew Mallows as Company Secretary
It is with great pleasure that I announce the appointment of Andrew Mallows as
Company Secretary. Andrew is finance director of Domino's Pizza Group Limited,
our principal trading subsidiary, and has served the business well over the last
five years. His progression reflects the valued contribution he has made to the
business as well as the high levels of skill, integrity and professionalism that
he brings to the role.
Current trading and prospects
Trading at the start of 2002 has been buoyant with like-for-like sales up 20.5%
(2001: 19.3%). As stated in the introduction to this statement, a continued
emphasis on quality and standards together the impact of terrestrial television
advertising has generated results that secure the Company's position as the
leader in home delivered pizza. With such a strong start to the year we look
forward to another successful year.
Finally, I should like to acknowledge the important contribution made by all
team members working for Domino's Pizza in the UK and Ireland. Whilst the
Domino's Pizza formula remains simple, in order for it to succeed, there must be
consistent attention to detail and an unfailing application of the highest
standards. The Company is therefore fortunate to have a close-knit team of
dedicated professionals who apply these high standards consistently day-in,
day-out and without them we could not have reported such outstanding results
today. I am grateful to them and remain convinced that the principles of
quality and high standards that are valued by our team members will continue to
lie at the heart of our future development and success.
Stephen Hemsley
Chief Executive
GROUP PROFIT AND LOSS ACCOUNT
for the 52 weeks ended 30 December 2001
Re-stated
2001 2000
£000 £000
TURNOVER
Turnover: group and share of
joint ventures' turnover 45,185 33,652
Less: share of joint ventures' turnover (1,360) (1,121)
------ ------
GROUP TURNOVER 43,825 32,531
Cost of sales (23,132) (17,071)
------ ------
GROSS PROFIT 20,693 15,460
Distribution costs (7,150) (5,409)
Administrative expenses (10,230) (7,938)
Other operating (expenses) / income (169) 279
----- -----
GROUP OPERATING PROFIT 3,144 2,392
Share of operating profit in joint venture 75 70
Amortisation of goodwill on joint venture (5) (5)
----- -----
70 65
----- ------
PROFIT ON ORDINARY ACTIVITIES BEFORE
INTEREST AND TAXATION 3,214 2,457
Interest receivable 78 60
Interest payable and similar charges (430) (328)
------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2,862 2,189
Tax on profit on ordinary activities (858) (882)
------ ------
PROFIT FOR THE FINANCIAL YEAR 2,004 1,307
Dividends on equity shares (668) (400)
------ ------
PROFIT RETAINED FOR THE FINANCIAL YEAR 1,336 907
------ ------
Earnings per share - basic 4.00p 2.61p
- diluted 3.88p 2.53p
GROUP BALANCE SHEET
at 30 December 2001
Re-stated
2001 2000
£000 £000
FIXED ASSETS
Intangible assets 2,484 1,992
Tangible assets 12,181 11,459
Investments
Investments in joint venture:
Share of assets 757 739
Share of liabilities (480) (491)
------ ------
277 248
------ ------
------ ------
TOTAL FIXED ASSETS 14,942 13,699
------ ------
CURRENT ASSETS
Stocks 1,260 1,194
Debtors:
amounts falling due within one year 6,665 5,922
amounts falling due after more than one year 1,756 1,283
------ ------
8,421 7,205
Cash at bank and in hand 3,231 998
------ ------
TOTAL CURRENT ASSETS 12,912 9,397
------ ------
CREDITORS: amounts falling due within one year (10,203) (8,103)
------ ------
NET CURRENT ASSETS 2,709 1,294
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES 17,651 14,993
------ ------
CREDITORS: amounts falling due after more than one year (7,632) (6,429)
PROVISION FOR LIABILITIES AND CHARGES (421) (182)
------ ------
9,598 8,382
------ ------
CAPITAL AND RESERVES
Called up share capital 2,518 2,500
Share premium account 2,192 2,046
Profit and loss account 4,888 3,836
------ ------
Equity shareholders' funds 9,598 8,382
------ ------
GROUP STATEMENT OF CASHFLOWS
at 30 December 2001
Re-stated
2001 2000
£000 £000
NET CASH INFLOW FROM OPERATING ACTIVITIES 4,475 2,489
------ ------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 78 60
Interest paid (304) (283)
Interest element of finance lease payments (11) (19)
------ ------
(237) (242)
------ ------
TAXATION
Corporation tax paid (617) (594)
------ ------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire intangible fixed assets (68) (54)
Payments to acquire tangible fixed assets (2,560) (2,971)
Receipts from sales of tangible and intangible fixed assets 5 391
Receipts from repayment of joint venture loan 36 -
Payments to acquire finance lease assets and advance of franchisee loans (1,007) (1,164)
Receipts from repayment of finance leases and franchisee loans 445 169
------ ------
(3,149) (3,629)
------ ------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking and un-associated businesses (160) (2,937)
Net overdraft acquired with subsidiary - (194)
------ ------
(160) (3,131)
------ ------
EQUITY DIVIDENDS PAID (501) (329)
------ ------
NET CASH OUTFLOW BEFORE FINANCING (189) (5,436)
------ ------
FINANCING
Issue of ordinary share capital 164 -
Share issue costs - (56)
New long-term loans 2,330 3,520
Repayments of long-term loans - (1,500)
Repayment of capital element of finance leases
and hire purchase contracts (72) (111)
------ ------
2,422 1,853
------ ------
INCREASE / (DECREASE) IN CASH 2,233 (3,583)
------ ------
GROUP STATEMENT OF CASHFLOWS
at 30 December 2001
1. Accounting Policies
Basis of preparation
The accounts are prepared under the historical cost convention and in accordance
with applicable accounting standards. The group has adopted the new Accounting
Standard on Deferred Taxation FRS 19. Comparative tax charge figures have been
re-stated following the adoption of this Standard. The total reduction to
reserves at 31 December 2000 was £182,000.
2. notes to the statement of cash flows
(a) Reconciliation of operating profit to net cash inflow from operating
activities
Re-stated
2001 2000
£000 £000
Operating profit 3,144 2,392
Depreciation charge 1,044 768
Amortisation charge 146 88
Other operating expenditure / (income) 168 (279)
(Increase) in stocks (66) (417)
(Increase) in debtors (690) (1,345)
Increase in creditors 729 1,282
------ ------
4,475 2,489
------ ------
3. DIVIDENDS
2001 2000
£000 £000
Equity dividends on ordinary shares:
Interim paid 0.57p (2000: 0.37p) 285 185
Final proposed 0.76p (2000: 0.43p) 383 215
---- ----
668 400
------ ------
4. earnings per ordinary share
The calculation of basic earnings per ordinary share is based on earnings of
£2,004,000 (2000: £1,307,000) and on 50,043,018 (2000: 50,000,000) ordinary
shares. The diluted earnings per share is based on 51,561,552 (2000:
51,645,120) ordinary shares which takes into account theoretical ordinary shares
that would have been issued, based on average market value if all outstanding
options were exercised.
5. FINANCIAL INFORMATION
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the 52 weeks ended 30 December 2001. The
financial information for the 53 weeks ended 31 December 2000 is derived from
the statutory account for that year, which have been delivered to the Registrar
of Companies. The auditors reported on those accounts; their report was
unqualified and did not contain a statement under section 237(2) of (3) of the
Companies Act 1985. The statutory accounts for the 52 weeks ended 30 December
2001 will be finalised on the basis of the financial information presented by
the Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting.
This information is provided by RNS
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