Final Results
Domino's Pizza UK & IRL PLC
28 February 2005
For Immediate Release 28 February 2005
Domino's Pizza UK & IRL plc
Preliminary Results
For the 53 weeks ended 2 January 2005
Domino's Pizza UK & IRL plc ('Domino's Pizza' or the 'Company') is pleased to
announce its preliminary results for the 53 weeks ended 2 January 2005. A
summary of key points follows.
• Pre-tax profit up 34.9% to £8.8m (2003: £6.5m)
• Underlying operating profits up 40.6% before sale of assets and
exceptional charges to £9.1m (2003: £6.5m)
• Earnings per share:
- Basic earnings per share up 46.7% to 13.23 pence (2003: 9.02p)
- Diluted earnings per share up 51.0% to 12.67 pence (2003: 8.39p)
• Total dividend up 50.0% to 5.25p per share for the year (2003: 3.50p per
share)
• System sales up 22.5% to £174.3m (2003: £142.3m)
• 40 new delivery stores opened (2003: 50) and one store closed, bringing
year-end store count to 357 (2003: 318)
• Like-for-like sales of mature stores up 6.6% (2003: 7.4%)
• Commencement of share buyback programme with 800,000 shares acquired at a
cost of £1.6m (2003: £nil).
Stephen Hemsley, Chief Executive of Domino's Pizza, commented:
'2004 was another very successful year for your Company with sales reaching
record levels both system-wide and at store level. Profitability also continued
to grow very strongly as the benefits of our high operational gearing became
still more apparent.
'Trading in the first six weeks of the current year has got off to a good start
with like-for-like sales up 6.6%. Our store opening programme is also well on
track to achieve our targets. We have made a promising start to 2005 and
therefore look forward to the year with confidence.'
For further information, please contact:
Domino's Pizza
Stephen Hemsley - Chief Executive 07917 178406 (28 February 2005)
Lee Ginsberg - Finance Director 01908 580604/611 (thereafter)
Bernadette Ahmed - PR 07909 928016
Buchanan Communications
Richard Oldworth/Isabel Podda 020 7466 5000
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 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 the first Irish store opened in 1991. As at 2 January 2005, there
were 357 stores in the UK and Ireland.
Chairman's Statement
For us here at Domino's Pizza in the UK and Ireland, bigger seems to present us
with more opportunities to get better at what we do. As our store numbers grow,
so do our system-wide sales. In 2004, total sales from all stores reached a
record-setting £174.3 million, a £32 million increase over 2003. And, keep in
mind, 2003's system-wide sales grew by £23 million after breaking the then
2002's record. Simply put, more stores mean more sales.
At the close of 2004 we celebrated the launch of our 357th store and our system
is now bigger than those of our two nearest competitors combined. We still
foresee a time when up to 1000 Domino's Pizza stores will be operating in the UK
and Ireland.
As the number of stores increases, the associated costs per store are reduced.
For example, consider our National Advertising Fund (NAF) which finances our
marketing campaigns and is made up of contributions from all stores. The NAF
provides for the continuation of our very successful relationship with The
Simpsons on Sky One as well as all of our TV advertisements and campaigns in
support of new product developments. In 2004 our National Advertising Fund grew
to £7 million, up from £5.7 million in 2003. When one considers that the costs
incurred in a nationwide advertising campaign are the same whether there are ten
or one hundred or even one thousand stores, it's easy to see that the returns
and cost-effectiveness are going to be significantly improved with each new
store that opens.
Our opportunities for future growth are more exciting than ever. More
residential property is being built all over the country and in those new houses
demand for, and access to, in-home entertainment is still on the rise. Demand
for home-delivered pizza is following suit as people seek to enjoy more time in
their homes. A quick look at the growth in our e-commerce business is clear
evidence that more people are logging on, ordering a pizza and sitting down at
home to enjoy as much leisure time there as possible.
Our e-commerce business is a success story in its own right, generating £8.2m in
sales during 2004, a 41% increase over 2003. This success comes despite the
fact that our IT infrastructure, which we revamped in 2004, had spent a good
part of the year under construction. The resulting work saw a new and enhanced
website and an improved interactive TV ordering platform on Sky Active, both
aimed at making our customers' ordering experience more convenient, enjoyable
and much faster.
At Domino's we benefit from a robust community of franchise partners, whose
ranks grew to 147 from 128 between 2003 and 2004. Many of these hard-working
people have become millionaires since joining our team and their success has
been earned the old-fashioned way - through hard work and passion for their
business, as well as their adherence to Domino's stringent quality standards
which benefit the whole system as well as the individual.
This year, I am delighted to welcome two significant new appointments to our
Board. Firstly, I should like to welcome Lee Ginsberg who joined us as Finance
Director on 1 November 2004. Lee has extensive experience in the leisure and
retail industry and is a very positive addition to the Company's strong senior
management team.
Also recently appointed is John Hodson who joined us as Non-Executive Director
on 14 February 2005. John's skills are certain to be an excellent asset to the
Company.
With heartfelt gratitude, I must also recognise two accomplished men who have
been instrumental in our success: Yoav Gottesman and Gerald Halpern. Yoav has
helped us navigate our path to success and my brother Gerald has worked beside
me for the past 11 years, providing insight that helped to give our business a
strong foundation for growth. Yoav retired from the Board in May 2004 and Gerry
will be retiring from our Board of Directors at the upcoming Annual General
Meeting.
In closing, I should like to say 'thank you' to everyone in the Domino's team
for a job well done again this past year. We couldn't have reached the peaks
we've reached without the outstanding people in each of our support departments
and in each of our stores. And, of course, we thank you, our shareholders, whose
confidence in us allows us to grow stronger each year. It is you who provide us
with the resources to accomplish ever greater triumphs year after year and who
make it possible for us to raise the benchmark at the start of each new year.
We simply couldn't do it without you. We will work hard to earn your continued
confidence in 2005.
Colin Halpern
Chairman
Chief Executive's Report
Introduction
2004 was another very successful year for your Company with sales reaching
record levels both system-wide and at store level. Profitability also continued
to grow very strongly as the benefits of our high operational gearing became
still more apparent. Whilst we opened fewer new stores in 2004 than in 2003,
our priority remains to only open in the right locations with the right
operators, and this we achieved.
Our strong cash generation continued and, as indicated in previous statements,
this will be returned to shareholders as long as it does not impact on the
growth of the business. As a result, the share buy back programme was commenced
during 2004 and it is proposed to significantly increase the dividend payment
for the year.
Our continuing success results from a strong and talented management team who
have an in-depth of understanding of the market in which we operate. Their
innovative approach has helped to further strengthen our leadership position.
System Sales
System sales, which are the sales of all stores in the Domino's system in the UK
and Republic of Ireland, rose by 22.5% to £174.3m (2003: £142.3m) in the 53
weeks ended 2 January 2005. Like-for-like sales in the 268 stores open for more
than twelve months grew by 6.6% (2003: 7.4%).
In 2005 Domino's Pizza celebrates 20 years in the UK market. In the last five
years alone, total system sales have grown by over 174.5% from £63.5m in 1999 to
£174.3m in 2004. This is an annual compound growth rate of 22.4%.
System Expansion & Managing Growth
In 2004 we opened 40 new stores (2003: 50) and closed one (2003: one). As a
result, the year-end store count in the UK and Ireland increased to 357 stores
(2003: 318).
Forty new stores in 2004 was, however, a disappointment as we had set ourselves
an internal target to repeat the 50 new store openings we achieved in 2003.
There were two reasons for the shortfall. Firstly, as foreshadowed in my
Interim statement, uncertainty arising from long-awaited changes in the planning
Use Classes Order, which will result in Domino's Pizza stores requiring A5
(rather than A3) class, has caused delays in our obtaining the necessary
consents.
The legislation that gave rise to these changes was announced in early 2004 but,
after an extraordinary delay, it has only recently been confirmed that the new
classes system will come into effect on 21 April 2005. Whilst we do not welcome
the still stricter planning controls, we hope the elimination of uncertainty
will allow the planning process to become more predictable.
It is the strategy of the Company to expand the system as quickly as possible.
We will not however, do this at any price and the quality of the franchisees
that operate new stores continues to be of paramount importance.
This highly selective approach to expansion is the second reason for our opening
fewer stores in 2004 than in the previous year. During 2004, although we saw
another record number of applications from potential new franchisees, aided by
our winning the British Franchise Association Franchisor of the Year award,
there remained a lack of suitable franchisees in regions that we have identified
for expansion and where we have secured new sites. We, therefore, declined to
open a number of stores where there was neither a new franchisee of the standard
required nor an existing franchisee ready to operate multiple stores. I am
pleased to report that most of these sites have now opened or are scheduled to
open in the first quarter of 2005 with franchisees who will be a credit to the
system.
Trading Results
Group turnover, which includes the sales generated by the Group from royalties,
fees on new store openings, food sales and rental income, as well as the
turnover of corporately owned and operated stores, grew by 20.5% to £74.2m
(2003: £61.6m).
Group operating profit grew by 53.2% to £9.1m (2003: £6.0m) although there was
an exceptional charge of £532,000 in 2003 related to a tender offer and the
establishment of an Employee Benefit Trust ('EBT'). Excluding this, Group
operating profit grew by 40.6%. During 2004 the Group incurred a loss on the
sale of fixed assets of £47,000 compared with a profit of £775,000 in the
previous year, almost all of which related to corporate store disposals in both
years.
Interest paid rose to £0.4m (2003: £0.3m) as the result of a full year interest
charge on the EBT. Net interest costs are covered 33.7 times by operating
profits (2003: 29.3 times). After taking account of these items, profit before
tax was up 34.9% to £8.8m from £6.5m.
The tax charge fell from 30% to 23% principally as a result of the
non-recurrence of the tax effect of the previous year's store disposals; the
relief available on the rollover of capital gains made in earlier years and the
tax relief available to the Company on the exercise of employee options. As a
result of the reduced tax charge, profits after tax were up 47.7% to £6.7m
(2003: £4.6m).
Earnings per Share and Dividend
Basic earnings per share were up 46.7% to 13.23 pence from 9.02 pence. Diluted
earnings per share increased by 51.0% to 12.67 pence from 8.39 pence.
As a result of the strong cash generation during the year, the Board is pleased
to recommend a further significant increase in the dividend payment which, if
approved, will give a final dividend of 3.05 pence per share (2003: 2.18 pence
per share). This would give a total dividend for the year of 5.25 pence per
share, a 50.0% increase over the 3.50 pence per share declared for 2003. The
proposed dividend is 2.5 times covered by profits after tax (2003: 2.6 times).
Subject to shareholders' approval the final dividend will be payable on 29 April
2005 to shareholders on the register on 12 April 2005.
Cash Flow and Balance Sheet
2004 has been another encouraging year in terms of our balance sheet and cash
flows. Net cash inflow from operating activities reached £9.9m, up from £8.0m in
2003. This increase was attributable in the main to the higher operating profits
which were £3.1m up on 2003.
The Group continues to generate increasingly strong cash flows and the model is
proving to be even more robust as profitability grows and capital expenditure
levels have reduced now that the infrastructure is in place. At the year end the
Group had cash on hand of £4.8m (2003: £3.7m). The increase in cash on hand this
year was even more reassuring given the underlying cash flows. During 2004 we
spent £2.1m more than last year on fixed assets, primarily due to the purchase
of the long leasehold interest of the commissary in Naas. Furthermore, we bought
back shares at a cost of £1.6m, had higher outflows of £0.6m in tax and £0.9m in
dividends but still increased cash balances by £1.1m.
During the year options over 2.4m shares were exercised generating a cash inflow
of £1.1m (2003: £1.0m).
Towards the end of the year, the Employee Benefit Trust ('EBT') granted further
reversionary interests in 600,000 of the Company's shares which were purchased
by the EBT at a cost of £1.2m. This was financed by a further bank loan of £1.2m
guaranteed by the Company. The EBT now holds a total of 3,599,921 shares by the
bank debt of £6.4m (2003: £5.3m). The Company has adopted the accounting
treatment of UITF 38, Accounting for AESOP Trusts. The full cost of the shares
has been deducted from shareholders' funds, with the debt being consolidated
into the Group's balance sheet.
During the year DP Capital extended the leasing support provided to franchisees
for the fit-out of new stores and the refit of existing stores, with new
advances of £0.9m. After repayments, the balance outstanding at the year-end
from this activity was £2.9m (2003: £3.1m). These facilities are financed by a
limited recourse loan facility and the amount drawn down at the year-end stood
at £2.6m (2003: £2.7m).
At the year-end, the Group had consolidated debt of £9.0m (2003: £8.0m) all of
which related to the EBT loan and financing for DP Capital referred to above.
After taking into account cash balances, net borrowings at the year-end stood at
£4.2m (2003: £4.2m) representing 31.7% (2003: 39.7%) of shareholders' funds.
Although adoption of IFRS will only be mandatory for AIM listed companies from
2007, we have already made a preliminary assessment of the impact on the Group.
Our evaluation has highlighted that the adoption of IFRS is not expected to have
any significant impact on the Group's reported results.
Corporate Stores
In recent years we have been exploring different structures to enable our
shareholders to benefit from the significant profitability and exceptional
returns on capital that can be obtained from a well-run Domino's Pizza store.
Past experience has shown us that corporate ownership can dull the
entrepreneurial spirit that is essential to that success, and impose overheads,
that in a smaller business, might be avoided. We have, therefore, been
exploring a number of alternatives, including joint ventures, to see if the
partnership of corporate strength and the entrepreneurialism of a franchisee who
has invested his or her own money into the business can reproduce the success
experienced by so many of our franchisees. The results to date from our current
joint ventures have been encouraging and, as a result, we have determined to
incorporate most of the existing corporate stores into joint ventures.
We will attempt to establish as many of the joint ventures as possible using
third party debt funding so that your Company's role will be that of an equity
partner. This will enable us to maximise our returns and obtain the return of
much of the capital previously invested. This will then become available for
reinvestment in the core business or returned to shareholders.
Leading the Market
In 2004, the take-away and home-delivered food market was estimated by Mintel to
be worth £5.2bn, of which home delivery now constitutes 24%. The total value of
the home delivered food market in the UK has increased in value by 62% since
1999 and is now estimated to be around £1.2bn. Pizza currently accounts for 43%
of the home delivered food market and we estimate that Domino's can claim to
deliver approximately one in ten home delivered meals in the UK.
Research suggests that the home delivery market will be worth in excess of
£1.8bn by 2009 and this growth will be driven by continued pressure on
consumers' time coupled with increasing access to convenient technologies that
offer online, interactive and SMS ordering of home delivered food.
There has been considerable recent debate on the issue of healthy eating which
has prompted us to review our responsibilities in this area. We believe that we
have a role to play in supporting Government efforts to increase public health
and awareness of nutritional issues. Your Company believes that its main
responsibility is to provide customers with high quality food, about which they
can access full information, and provide a menu which includes options to suit
different lifestyles and dietary needs. The introduction in 2004 of reduced fat
cheese, 'Delight' mozzarella, is a demonstration of this approach in action and
we will continue to reinforce our commitment in these areas.
Through constant and close monitoring of the world in which we operate, and
through innovation and practical changes that benefit our customers, I am
confident that Domino's Pizza will continue to strengthen its leadership of the
home delivered food market.
Building the Brand
Brand-building activity continued to be an important focus in 2004, both
externally to customers and internally to our own people.
The strength of our National Advertising Fund was leveraged with creative, high
impact and closely targeted campaigns throughout the year, culminating in a
highly successful launch for our new gourmet pizza, Double Decadence(TM). These
campaigns benefited from the continued support of our sponsorship of The
Simpsons on Sky one which ensures our brand has a continuous presence in homes
across the UK and Ireland at peak pizza-ordering time.
Direct mail and local store marketing, which includes the distribution of over
150 million menus each year, are mainstays of our marketing activity and are
complemented by the efforts of our franchisees to foster local loyalty through
positive community relations campaigns.
Our e-commerce platforms go from strength to strength with sales in 2004 ahead
by 41% on the prior year. Sales through the internet and interactive TV
accounted for 5.2% of sales in the UK (2003: 4.5%).
Current Trading and Prospects
Trading in the first six weeks of the current year has got off to a good start
with like-for-like sales up 6.6%. In the same period, e-commerce sales are 49%
ahead of last year. Our store opening programme is also well on track to achieve
our targets.
Our strategy remains the roll-out of new stores and the growth of like-for-like
sales, whilst maintaining tight control of overheads. Achievement of this
strategy will allow us to generate significant amounts of cash which, in the
absence of any business need, will be returned to shareholders. We have made a
promising start to 2005 in the achievement of all these objectives and,
therefore, look forward to the year with confidence.
Conclusion and Thanks
At the heart of your Company's success is our highly-focused approach- the
delivery of hot, high quality pizza on time. Fulfilling this simple promise
every day is a dedicated team of corporate and in-store team members to whom I
offer my thanks and respect.
In particular, I should like to thank our franchisees. These men and women are
the engine of our organisation and their enterprise, enthusiasm and
round-the-clock dedication sets the pace for the rest of our business.
Stephen Hemsley
Chief Executive
Group profit and loss account
for the 53 weeks ended 2 January 2005
53 weeks 52 weeks
ended 02 ended 28
Jan 2005 Dec 2003
Notes £000 £000
Turnover
Turnover: group and share of
joint ventures' turnover 77,254 64,369
Less: share of joint ventures' turnover (3,039) (2,812)
Group turnover 74,215 61,557
Cost of sales (43,815) (34,101)
Gross profit 30,400 27,456
Distribution costs (8,404) (7,805)
Administrative expenses (12,963) (13,253)
Administrative expenses - exceptional - (532)
Administrative expenses (12,963) (13,785)
Group operating profit 9,033 5,866
Share of operating profit in joint venture 120 105
Amortisation of goodwill on joint venture (15) (5)
105 100
Total operating profit: group and share of joint 9,138 5,966
venture
(Loss)/profit on sale of fixed assets (47) 775
Profit on ordinary activities before interest and
taxation
9,091 6,741
Interest receivable 100 81
Interest payable and similar charges (370) (285)
Profit on ordinary activities before taxation 8,821 6,537
Tax on profit on ordinary activities (2,058) (1,958)
Profit on ordinary activities after taxation 6,763 4,579
Minority interests (32) (20)
Profit for the financial year attributable to
members of the parent company 6,731 4,559
Dividends on equity shares 2 (2,688) (1,757)
Profit retained for the financial year 4,043 2,802
Earnings per share - basic 3 13.23p 9.02p
- diluted 12.67p 8.39p
There are no recognised gains and losses other than the profit reported above.
Group balance sheet
at 2 January 2005
At 02 Jan At 28 Dec
2005 2003
£000 £000
Fixed assets
Intangible assets 1,520 1,430
Tangible assets 14,595 12,293
Investments in joint venture:
Share of gross assets 1,449 1,582
Share of gross liabilities (1,066) (1,243)
383 339
Total fixed assets 16,498 14,062
Current assets
Stocks 2,700 1,843
Debtors:
amounts falling due within one year 10,735 9,197
amounts falling due after more than one year 2,721 3,036
13,456 12,233
Cash at bank and in hand 4,824 3,721
Total current assets 20,980 17,797
Creditors: amounts falling due within one year (15,121) (13,380)
Net current assets 5,859 4,417
Total assets less current liabilities 22,357 18,479
Creditors: amounts falling due after more than one year (8,102) (7,119)
Provision for liabilities and charges (857) (630)
13,398 10,730
Capital and reserves
Called up share capital 2,740 2,660
Share premium account 4,241 3,290
Share Capital Redemption Reserve 40 -
Own shares held by Employee Benefit Trust (6,360) (5,160)
Profit and loss account 12,655 9,890
Equity shareholders' funds 13,316 10,680
Minority interest 82 50
13,398 10,730
Group statement of cash flows
at 2 January 2005
53 weeks 52 weeks
ended 02 ended 28
Jan 2005 Dec 2003
Notes £000 £000
Net cash inflow from operating activities 4(a) 9,943 8,010
Returns on investments and servicing of finance
Interest received 100 81
Interest paid (308) (183)
Interest element of finance lease payments (7) (8)
(215) (110)
Taxation
Corporation tax paid (2,021) (1,407)
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (200) (239)
Payments to acquire tangible fixed assets (3,905) (1,783)
Receipts from sales of tangible and intangible fixed
assets 417 4,075
Receipts from repayment of joint venture loan 108 78
Payments to acquire finance lease assets and advance
of franchisee loans (946) (2,030)
Receipts from repayment of finance leases and franchisee
loans 1,098 936
(3,428) 1,037
Acquisitions and disposals
Purchase of subsidiary undertaking and un-associated
businesses (280) 30
(280) 30
Equity dividends paid (2,235) (1,297)
Net cash inflow before financing 1,764 6,263
Financing
Issue of ordinary share capital 1,071 1,009
New long-term loans 3,299 6,757
Repayments of long-term loans (2,198) (8,984)
Repayment of capital element of finance leases
and hire purchase contracts (23) (49)
Purchase of shares by Employee Benefit Trust (1,200) (5,160)
Purchase of own shares (1,610) -
(661) (6,427)
Increase/(Decrease) in cash 4(b) 1,103 (164)
Notes to the accounts
at 2 January 2005
1. Accounting Policies
Basis of preparation
The preliminary announcement has been prepared on the basis of the accounting
policies set out in the Group's statutory accounts for the fifty-three weeks
ended 2 January 2005.
2. Dividends
53 weeks 52 weeks
ended 02 ended 28
Jan 2005 Dec 2003
£000 £000
Equity dividends on ordinary shares:
Interim paid 2.20p (2003: 1.32p) 1,157 674
Final proposed 3.05p (2003: 2.18p) 1,531 1,083
2,688 1,757
3. Earnings per ordinary share
The calculation of basic earnings per ordinary share is based on earnings of
£6,731,000 (2003: £4,559,000) and on 50,883,095 (2003: 50,568,399) ordinary
shares.
The diluted earnings per share is based on earnings of £6,731,000 (2003:
£4,559,000) and on 53,108,892 (2003: 54,376,497) ordinary shares. All of the
difference relates to share options, which takes into account theoretical
ordinary shares that would have been issued, based on average market value of
all outstanding options likely to be exercised.
Notes to the accounts
at 2 January 2005
4. Notes to the statement of cash flows
(a) Reconciliation of operating profit to net cash inflow from operating
activities
53 weeks 52 weeks
ended 02 ended 28
Jan 2005 Dec 2003
£000 £000
Operating profit 9,033 5,866
Depreciation charge 1,386 1,210
Amortisation charge 133 180
LTIP charge 333 328
(Increase) in stocks (857) (433)
(Increase) in debtors (1,505) (707)
Increase in creditors 1,420 1,566
9,943 8,010
(b) Reconciliation of net cash flow to movement in net debt
53 weeks 52 weeks
ended 02 ended 28
Jan 2005 Dec 2003
£000 £000
Increase/(Decrease) in cash 1,103 (164)
Cash inflow from increase in loans (3,278) (6,757)
Repayment of long-term loans 2,177 8,984
Repayments of capital element of finance leases and hire
purchase contracts
23 49
Inception of finance leases - (47)
Movement in net debt 25 2,065
Net debt at 29 December 2003 (4,243) (6,308)
Net debt at 2 January 2005 (4,218) (4,243)
5. Financial Information
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the 53 weeks ended 2 January 2005. The
financial information for the 52 weeks ended 28 December 2003 is derived from
the statutory accounts 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) or (3) of the
Companies Act 1985. The statutory accounts for the 53 weeks ended 2 January
2005 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
The company news service from the London Stock Exchange
Latest directors dealings
- 4 hours ago Origin Enterprises (CDI)
- 4 hours ago Origin Enterprises (CDI)
- 5 hours ago SSP Group
- 6 hours ago Latham (James)
- 6 hours ago LSL Property Services