28th Feb 2005 07:01
Domino's Pizza UK & IRL PLC28 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 toannounce its preliminary results for the 53 weeks ended 2 January 2005. Asummary 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 reachingrecord levels both system-wide and at store level. Profitability also continuedto grow very strongly as the benefits of our high operational gearing becamestill more apparent. "Trading in the first six weeks of the current year has got off to a good startwith like-for-like sales up 6.6%. Our store opening programme is also well ontrack to achieve our targets. We have made a promising start to 2005 andtherefore 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 LondonStock Exchange (symbol: DOM). Domino's Pizza Group Limited is the UK's leadingpizza delivery company and holds the master franchise to own, operate andfranchise Domino's Pizza stores in the UK and Ireland. The first UK store openedin 1985 and the first Irish store opened in 1991. As at 2 January 2005, therewere 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 uswith 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 arecord-setting £174.3 million, a £32 million increase over 2003. And, keep inmind, 2003's system-wide sales grew by £23 million after breaking the then2002's record. Simply put, more stores mean more sales. At the close of 2004 we celebrated the launch of our 357th store and our systemis now bigger than those of our two nearest competitors combined. We stillforesee a time when up to 1000 Domino's Pizza stores will be operating in the UKand Ireland. As the number of stores increases, the associated costs per store are reduced.For example, consider our National Advertising Fund (NAF) which finances ourmarketing campaigns and is made up of contributions from all stores. The NAFprovides for the continuation of our very successful relationship with TheSimpsons on Sky One as well as all of our TV advertisements and campaigns insupport of new product developments. In 2004 our National Advertising Fund grewto £7 million, up from £5.7 million in 2003. When one considers that the costsincurred in a nationwide advertising campaign are the same whether there are tenor one hundred or even one thousand stores, it's easy to see that the returnsand cost-effectiveness are going to be significantly improved with each newstore that opens. Our opportunities for future growth are more exciting than ever. Moreresidential property is being built all over the country and in those new housesdemand for, and access to, in-home entertainment is still on the rise. Demandfor home-delivered pizza is following suit as people seek to enjoy more time intheir homes. A quick look at the growth in our e-commerce business is clearevidence that more people are logging on, ordering a pizza and sitting down athome to enjoy as much leisure time there as possible. Our e-commerce business is a success story in its own right, generating £8.2m insales during 2004, a 41% increase over 2003. This success comes despite thefact that our IT infrastructure, which we revamped in 2004, had spent a goodpart of the year under construction. The resulting work saw a new and enhancedwebsite and an improved interactive TV ordering platform on Sky Active, bothaimed at making our customers' ordering experience more convenient, enjoyableand much faster. At Domino's we benefit from a robust community of franchise partners, whoseranks grew to 147 from 128 between 2003 and 2004. Many of these hard-workingpeople have become millionaires since joining our team and their success hasbeen earned the old-fashioned way - through hard work and passion for theirbusiness, as well as their adherence to Domino's stringent quality standardswhich benefit the whole system as well as the individual. This year, I am delighted to welcome two significant new appointments to ourBoard. Firstly, I should like to welcome Lee Ginsberg who joined us as FinanceDirector on 1 November 2004. Lee has extensive experience in the leisure andretail industry and is a very positive addition to the Company's strong seniormanagement team. Also recently appointed is John Hodson who joined us as Non-Executive Directoron 14 February 2005. John's skills are certain to be an excellent asset to theCompany. With heartfelt gratitude, I must also recognise two accomplished men who havebeen instrumental in our success: Yoav Gottesman and Gerald Halpern. Yoav hashelped us navigate our path to success and my brother Gerald has worked besideme for the past 11 years, providing insight that helped to give our business astrong foundation for growth. Yoav retired from the Board in May 2004 and Gerrywill be retiring from our Board of Directors at the upcoming Annual GeneralMeeting. In closing, I should like to say 'thank you' to everyone in the Domino's teamfor a job well done again this past year. We couldn't have reached the peakswe've reached without the outstanding people in each of our support departmentsand in each of our stores. And, of course, we thank you, our shareholders, whoseconfidence in us allows us to grow stronger each year. It is you who provide uswith the resources to accomplish ever greater triumphs year after year and whomake 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 continuedconfidence in 2005. Colin HalpernChairman Chief Executive's Report Introduction 2004 was another very successful year for your Company with sales reachingrecord levels both system-wide and at store level. Profitability also continuedto grow very strongly as the benefits of our high operational gearing becamestill 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 rightoperators, 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 thegrowth of the business. As a result, the share buy back programme was commencedduring 2004 and it is proposed to significantly increase the dividend paymentfor the year. Our continuing success results from a strong and talented management team whohave an in-depth of understanding of the market in which we operate. Theirinnovative 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 UKand Republic of Ireland, rose by 22.5% to £174.3m (2003: £142.3m) in the 53weeks ended 2 January 2005. Like-for-like sales in the 268 stores open for morethan twelve months grew by 6.6% (2003: 7.4%). In 2005 Domino's Pizza celebrates 20 years in the UK market. In the last fiveyears 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 aresult, 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 ourselvesan internal target to repeat the 50 new store openings we achieved in 2003.There were two reasons for the shortfall. Firstly, as foreshadowed in myInterim statement, uncertainty arising from long-awaited changes in the planningUse Classes Order, which will result in Domino's Pizza stores requiring A5(rather than A3) class, has caused delays in our obtaining the necessaryconsents. 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 newclasses system will come into effect on 21 April 2005. Whilst we do not welcomethe still stricter planning controls, we hope the elimination of uncertaintywill 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 franchiseesthat operate new stores continues to be of paramount importance. This highly selective approach to expansion is the second reason for our openingfewer stores in 2004 than in the previous year. During 2004, although we sawanother record number of applications from potential new franchisees, aided byour winning the British Franchise Association Franchisor of the Year award,there remained a lack of suitable franchisees in regions that we have identifiedfor expansion and where we have secured new sites. We, therefore, declined toopen a number of stores where there was neither a new franchisee of the standardrequired nor an existing franchisee ready to operate multiple stores. I ampleased to report that most of these sites have now opened or are scheduled toopen in the first quarter of 2005 with franchisees who will be a credit to thesystem. 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 theturnover 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 wasan exceptional charge of £532,000 in 2003 related to a tender offer and theestablishment of an Employee Benefit Trust ("EBT"). Excluding this, Groupoperating profit grew by 40.6%. During 2004 the Group incurred a loss on thesale of fixed assets of £47,000 compared with a profit of £775,000 in theprevious year, almost all of which related to corporate store disposals in bothyears. Interest paid rose to £0.4m (2003: £0.3m) as the result of a full year interestcharge on the EBT. Net interest costs are covered 33.7 times by operatingprofits (2003: 29.3 times). After taking account of these items, profit beforetax was up 34.9% to £8.8m from £6.5m. The tax charge fell from 30% to 23% principally as a result of thenon-recurrence of the tax effect of the previous year's store disposals; therelief available on the rollover of capital gains made in earlier years and thetax relief available to the Company on the exercise of employee options. As aresult 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. Dilutedearnings 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 pleasedto recommend a further significant increase in the dividend payment which, ifapproved, will give a final dividend of 3.05 pence per share (2003: 2.18 penceper share). This would give a total dividend for the year of 5.25 pence pershare, a 50.0% increase over the 3.50 pence per share declared for 2003. Theproposed 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 April2005 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 cashflows. Net cash inflow from operating activities reached £9.9m, up from £8.0m in2003. This increase was attributable in the main to the higher operating profitswhich were £3.1m up on 2003. The Group continues to generate increasingly strong cash flows and the model isproving to be even more robust as profitability grows and capital expenditurelevels have reduced now that the infrastructure is in place. At the year end theGroup had cash on hand of £4.8m (2003: £3.7m). The increase in cash on hand thisyear was even more reassuring given the underlying cash flows. During 2004 wespent £2.1m more than last year on fixed assets, primarily due to the purchaseof the long leasehold interest of the commissary in Naas. Furthermore, we boughtback shares at a cost of £1.6m, had higher outflows of £0.6m in tax and £0.9m individends but still increased cash balances by £1.1m. During the year options over 2.4m shares were exercised generating a cash inflowof £1.1m (2003: £1.0m). Towards the end of the year, the Employee Benefit Trust ("EBT") granted furtherreversionary interests in 600,000 of the Company's shares which were purchasedby the EBT at a cost of £1.2m. This was financed by a further bank loan of £1.2mguaranteed by the Company. The EBT now holds a total of 3,599,921 shares by thebank debt of £6.4m (2003: £5.3m). The Company has adopted the accountingtreatment of UITF 38, Accounting for AESOP Trusts. The full cost of the shareshas been deducted from shareholders' funds, with the debt being consolidatedinto the Group's balance sheet. During the year DP Capital extended the leasing support provided to franchiseesfor the fit-out of new stores and the refit of existing stores, with newadvances of £0.9m. After repayments, the balance outstanding at the year-endfrom this activity was £2.9m (2003: £3.1m). These facilities are financed by alimited recourse loan facility and the amount drawn down at the year-end stoodat £2.6m (2003: £2.7m). At the year-end, the Group had consolidated debt of £9.0m (2003: £8.0m) all ofwhich 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 from2007, 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 haveany significant impact on the Group's reported results. Corporate Stores In recent years we have been exploring different structures to enable ourshareholders to benefit from the significant profitability and exceptionalreturns on capital that can be obtained from a well-run Domino's Pizza store.Past experience has shown us that corporate ownership can dull theentrepreneurial spirit that is essential to that success, and impose overheads,that in a smaller business, might be avoided. We have, therefore, beenexploring a number of alternatives, including joint ventures, to see if thepartnership of corporate strength and the entrepreneurialism of a franchisee whohas invested his or her own money into the business can reproduce the successexperienced by so many of our franchisees. The results to date from our currentjoint ventures have been encouraging and, as a result, we have determined toincorporate most of the existing corporate stores into joint ventures. We will attempt to establish as many of the joint ventures as possible usingthird party debt funding so that your Company's role will be that of an equitypartner. This will enable us to maximise our returns and obtain the return ofmuch of the capital previously invested. This will then become available forreinvestment 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 tobe worth £5.2bn, of which home delivery now constitutes 24%. The total value ofthe home delivered food market in the UK has increased in value by 62% since1999 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 todeliver 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 onconsumers' time coupled with increasing access to convenient technologies thatoffer online, interactive and SMS ordering of home delivered food. There has been considerable recent debate on the issue of healthy eating whichhas prompted us to review our responsibilities in this area. We believe that wehave a role to play in supporting Government efforts to increase public healthand awareness of nutritional issues. Your Company believes that its mainresponsibility is to provide customers with high quality food, about which theycan access full information, and provide a menu which includes options to suitdifferent lifestyles and dietary needs. The introduction in 2004 of reduced fatcheese, 'Delight' mozzarella, is a demonstration of this approach in action andwe will continue to reinforce our commitment in these areas. Through constant and close monitoring of the world in which we operate, andthrough innovation and practical changes that benefit our customers, I amconfident that Domino's Pizza will continue to strengthen its leadership of thehome delivered food market. Building the Brand Brand-building activity continued to be an important focus in 2004, bothexternally to customers and internally to our own people. The strength of our National Advertising Fund was leveraged with creative, highimpact and closely targeted campaigns throughout the year, culminating in ahighly successful launch for our new gourmet pizza, Double Decadence(TM). Thesecampaigns benefited from the continued support of our sponsorship of TheSimpsons on Sky one which ensures our brand has a continuous presence in homesacross the UK and Ireland at peak pizza-ordering time. Direct mail and local store marketing, which includes the distribution of over150 million menus each year, are mainstays of our marketing activity and arecomplemented by the efforts of our franchisees to foster local loyalty throughpositive community relations campaigns. Our e-commerce platforms go from strength to strength with sales in 2004 aheadby 41% on the prior year. Sales through the internet and interactive TVaccounted 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 startwith 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 achieveour targets. Our strategy remains the roll-out of new stores and the growth of like-for-likesales, whilst maintaining tight control of overheads. Achievement of thisstrategy will allow us to generate significant amounts of cash which, in theabsence of any business need, will be returned to shareholders. We have made apromising 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- thedelivery of hot, high quality pizza on time. Fulfilling this simple promiseevery day is a dedicated team of corporate and in-store team members to whom Ioffer my thanks and respect. In particular, I should like to thank our franchisees. These men and women arethe engine of our organisation and their enterprise, enthusiasm andround-the-clock dedication sets the pace for the rest of our business. Stephen HemsleyChief Executive Group profit and loss accountfor the 53 weeks ended 2 January 2005 53 weeks 52 weeks ended 02 ended 28 Jan 2005 Dec 2003 Notes £000 £000TurnoverTurnover: group and share of joint ventures' turnover 77,254 64,369Less: share of joint ventures' turnover (3,039) (2,812) Group turnover 74,215 61,557Cost of sales (43,815) (34,101) Gross profit 30,400 27,456Distribution 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 105Amortisation of goodwill on joint venture (15) (5) 105 100 Total operating profit: group and share of joint 9,138 5,966venture(Loss)/profit on sale of fixed assets (47) 775 Profit on ordinary activities before interest andtaxation 9,091 6,741Interest receivable 100 81Interest payable and similar charges (370) (285) Profit on ordinary activities before taxation 8,821 6,537Tax on profit on ordinary activities (2,058) (1,958) Profit on ordinary activities after taxation 6,763 4,579Minority interests (32) (20) Profit for the financial year attributable tomembers 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 sheetat 2 January 2005 At 02 Jan At 28 Dec 2005 2003 £000 £000Fixed assetsIntangible assets 1,520 1,430Tangible assets 14,595 12,293Investments 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 assetsStocks 2,700 1,843Debtors: amounts falling due within one year 10,735 9,197 amounts falling due after more than one year 2,721 3,036 13,456 12,233Cash 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 reservesCalled up share capital 2,740 2,660Share premium account 4,241 3,290Share 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 financeInterest received 100 81 Interest paid (308) (183)Interest element of finance lease payments (7) (8) (215) (110) TaxationCorporation tax paid (2,021) (1,407) Capital expenditure and financial investmentPayments to acquire intangible fixed assets (200) (239)Payments to acquire tangible fixed assets (3,905) (1,783)Receipts from sales of tangible and intangible fixedassets 417 4,075Receipts from repayment of joint venture loan 108 78Payments to acquire finance lease assets and advanceof franchisee loans (946) (2,030)Receipts from repayment of finance leases and franchiseeloans 1,098 936 (3,428) 1,037 Acquisitions and disposalsPurchase of subsidiary undertaking and un-associatedbusinesses (280) 30 (280) 30 Equity dividends paid (2,235) (1,297) Net cash inflow before financing 1,764 6,263 FinancingIssue of ordinary share capital 1,071 1,009New long-term loans 3,299 6,757Repayments of long-term loans (2,198) (8,984)Repayment of capital element of finance leasesand 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 accountsat 2 January 2005 1. Accounting Policies Basis of preparation The preliminary announcement has been prepared on the basis of the accountingpolicies set out in the Group's statutory accounts for the fifty-three weeksended 2 January 2005. 2. Dividends 53 weeks 52 weeks ended 02 ended 28 Jan 2005 Dec 2003 £000 £000Equity 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) ordinaryshares. 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 thedifference relates to share options, which takes into account theoreticalordinary shares that would have been issued, based on average market value ofall outstanding options likely to be exercised. Notes to the accountsat 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 5,866Depreciation charge 1,386 1,210Amortisation charge 133 180LTIP 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 8,984Repayments of capital element of finance leases and hirepurchase contracts 23 49Inception of finance leases - (47) Movement in net debt 25 2,065Net 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 theCompany's statutory accounts for the 53 weeks ended 2 January 2005. Thefinancial information for the 52 weeks ended 28 December 2003 is derived fromthe statutory accounts for that year, which have been delivered to the Registrarof Companies. The auditors reported on those accounts; their report wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. The statutory accounts for the 53 weeks ended 2 January2005 will be finalised on the basis of the financial information presented bythe Directors in this preliminary announcement and will be delivered to theRegistrar of Companies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Dominos