Domino's Pizza (ASX:DMP)

Don Meij
CEO & MD
Market Cap (AUD): 3.45B
Sector: Consumer Discretionary
Last Trade (AUD): 38.58 -1.65 (-4.27%)
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1. About

Domino's Pizza Enterprises Ltd is the largest pizza chain in Australia in terms of both network store numbers and network sales. It is also the largest franchisee for the Domino's Pizza brand in the world.

Domino's holds the exclusive master franchise rights for the Domino's brand and network in Australia, New Zealand, Belgium, France, The Netherlands, Japan, and Germany. The Domino's brand is owned by Domino's Pizza, Inc, a listed US company. Domino's Pizza Enterprises now extends across seven countries, with more than 2,200 stores and is the leading international Domino's franchisee.

2. Business model

     

The Company operates the following divisions:[1]

 

Divisions

Revenue ($’000)

% of Revenue

% of Profit (before Int., Tax, Depn & Amort)

Profit drivers[2]

ANZ

$341,089

29.6%

53.5%

  • ANZ achieved EBITDA of $127.5 M, which represents an increase of 12.0% from prior year. Revenue increased by 4.2% which was driven by SSS growth of 4.5% in the current year

Europe

$407,168

35.3%

25.1%

  • Europe EBITDA increased by 80.1% and revenue increased by 25.1%, compared with the prior year, while underlying EBITDA increased by 25.0%. This was driven by SSS growth of 5.7% for the year, the opening of 68 new organic stores and the acquisition of Hallo Pizza
  • Netherlands and Belgium continued excellent SSS in both countries, with online sales +29.6% and +67.8% respectively
  • France SSS growth was softer than anticipated, however benefited from a 30.6% growth in online sales

Japan

$405,695

35.2%

21.4%

  • Japan EBITDA decreased by 8.1% and revenue decreased by 3.0%, compared with the prior year. Contributing towards the decrease in EBITDA and revenue were softer network sales over the busy December holiday trading period and depreciation of the Yen vs. AUD

3. Strategy

 

Investment Case[3]

  • Clear market leader in all countries, with a geographically diverse portfolio
  • Leadership has long tenure, with deep franchising experience
  • A globally recognised QSR innovator
  • Capital-light store model, with strong Franchisee returns
  • Hybrid Franchise/Corporate model optimising benefits of both platforms:
  1. Franchising: capital light, with entrepreneurial innovation
  2. Corporate stores: leading best practice, accelerating growth & ability to further leverage scale

 

Well-Balanced High-Performance Portfolio

ANZ

  • Clear market leader
  • Best-in-class unit economics
  • High operating leverage
  • World-leading healthy franchise system

Europe

  • High growth, market-leading platform
  • Significant store runway
  • Strategic footprint, with adjacent acquisitions possible
  • Market highly fragmented, offering an opportunity to gain market share

Japan

  • Large Corporate store system
  • High cash flow business
  • Significant potential to improve returns
  • Goal to increase footprint by +60% within the next 7 years

 

Targeting Long-Term Shareholder Value Creation

  • Targeting sizable store additions and sales growth, as the Company strengthen and deepen its position as market leader
  • Market position forecast to strengthen as the Company continue to focus on operational execution, through Project 3-10
  • Strong balance sheet, with exceptional cash conversion
  • Long runway of store growth and continued prospects for acquisitive growth
  • Consistent history of strong dividends
  • Strong track-record of significant shareholder returns, with 10-year EPS CAGR of 24.1% Excellent EPS growth prospects into the future

4. Markets

 

The Company operates in markets including:[4]

 

Industry (Australia)

Industry Revenue (2017)

Growth Rate (annual 13-18)

Fast Food Services

$20 billion

3.7%

5. Competition

 

  • Retail Food Group Limited (ASX: RFG)[5]
  • Arcland Service Holdings Co Ltd (TYO: 3085)
  • iBuyNew Group Ltd (ASX: IBN)

6. History

 

2006[6]   

Australia's Domino's Pizza serves up 600 stores

 

2007   

Buys European Pizza Chains

 

2008   

DMP purchases Pinkys Pizza

 

2013   

Acquisition of 75% Interest in Domino's Pizza Japan

 

2016   

Domino’s completes German store integration – cements market leadership

Completion of Joey's Pizza Acquisition

Completion of Pizza Sprint Acquisition

 

2017   

Domino’s pizza German joint venture to acquire Hallo pizza in Germany

 

2018   

Completion of Hallo Pizza acquisition

7. Team

 

Board of Directors[7]

 

Jack Cowin – Chairman

Ross Adler – Non-Executive Director and Deputy Chairman

Don Meij – Group Chief Executive Officer/ Managing Director

Grant Bourke – Non-Executive Director

Lynda O'grady – Non-Executive Director

Uschi Schreiber – Non-Executive Director[8]

 

Executive Team – Group

 

Don Meij – Group Chief Executive Officer/ Managing Director

Allan Collins – Group Chief Marketing Officer

Craig Ryan – General Counsel and Company Secretary

David Klages – Group Human Resources Manager

John Harney – Group Chief Procurement Officer

Mallika Krishnamurthy – Head Of Global Business Intelligence

Michael Gillespie – Group Chief Digital And Technology Officer

Richard Coney – Group Chief Financial Officer

Terry Powell – Group Chief Information Officer

 

Executive Team – Australia /New Zealand

 

Nick Knight – Ceo Australia & New Zealand

Brett Moore – Head Of Franchise Operations

Lynn Carruthers – ANZ Chief Financial Officer

Rian Bell – Chief Development Officer

 

Executive Team – Europe

 

Andrew Rennie – CEO, Europe

Andre Ten Wolde – COO, Europe

Aubert Loury – Head Of Procurement, Europe

Colm Connolly – Chief Information Officer, Europe

Richard De Gruijter – CFO Europe

Thomas Fredon – Head Of Logistics, Europe

 

Executive Team – France

 

Andrew Bradley – President and CEO

Mael Barth – Director General

 

Executive Team – Germany

 

Stoffel Thijs – CEO Germany

 

Executive Team – Netherland/Belgium

 

Misja Vroom – CEO

 

Executive Team – Japan

 

Josh Kilimnik – President And Chief Executive Officer

Eric Yutaka Tai – Executive Vice President, Chief Financial Officer

Hiroshi Kakiuchi – Executive Vice President, Corporate Operations

Saeed Khan – Executive Vice President, Chief Information Officer

Shin Sasaki – Executive Vice President

Todd Reilly – Chief Marketing Officer


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/2018 (ended 01 July)[9]

 

Divisions

Revenue ($’000)

% Change

Profit (before Int., Tax, Dep & Amort) ($’000)

% Change

Australia/NZ

$341,089

3.5%

$127,495

12.0%

Europe

$407,168

25.1%

$59,713

 80.1%

Japan

$405,695

3.0%

$51,081

(8.1%)

Total

$1,153,952

7.5%

$238,289

17.7%

9. Risk

 

Financial Risk Management[10]

 

Liquidity Risk

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, continuously monitoring the forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity management framework for the management of the Group’s short medium and long-term funding and liquidity management requirements.

 

Market Risk

Foreign Currency Risk

The Group’s activities expose it primarily to the Euro and Japanese Yen currencies and to interest rate risk through its borrowings. The Group’s foreign operations are carried out in New Zealand, Japan and Europe, which exposes the Group’s investments to movements in the AUD/NZD, AUD/JPY, and AUD/EUR exchange rates. The Group mitigates and manages the effect of its translational currency exposure by borrowing in NZ dollars, Japanese Yen and Euro.

The Group enters into a variety of derivative and non-derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including;

  • Interest rate swaps to mitigate risk of rising interest rates
  • Cross currency interest rate swap to mitigate rising interest rates and foreign exchange fluctuation
  • Debt to manage currency risk
  • Forward foreign exchange contracts to hedge the exchange rate risk of purchases

 

Interest Rate Risk

The Group’s exposure to changes in market interest rates relates primarily to the Group’s debt obligations that have floating interest rates.

The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swaps. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. From a Group perspective, any internal contracts are eliminated as part of the consolidation process, leaving only external contracts.

 

Credit Risk

Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument or customer contract that will result in a financial loss to the Group. The Group is exposed to credit risk from its operating activities (primarily from customer receivables and from its financing activities, including deposits with financial institutions, foreign exchange transactions, and other financial instruments).

References

  1. ^ Annual Report 2018, P. 39-40
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/fy18-appendix-4e-annual-report-1948842.html
  2. ^ Annual Report 2018, P. 05
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/fy18-appendix-4e-annual-report-1948842.html
  3. ^ Investor Presentation 2018, P. 37
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/fy18-full-year-market-presentation-1948660.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=2005
  5. ^ https://quotes.wsj.com/AU/XASX/DMP
  6. ^ https://www.asx.com.au/asxpdf/20060927/pdf/3yp76yxlnk200.pdf
    https://www.asx.com.au/asxpdf/20070102/pdf/310cggnpr25s3j.pdf
    https://www.asx.com.au/asxpdf/20080303/pdf/317t9bz1cj0tpp.pdf
    https://www.asx.com.au/asxpdf/20130813/pdf/42hmm1kpm190w0.pdf
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-re-german-store-integration-1489949.html
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-completion-of-joey-s-pizza-acquisition-857587.html
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-re-pizza-sprint-acquisition-850728.html
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-regarding-acquisition-of-hallo-pizza-1710475.html
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-regarding-hallo-pizza-1774123.html
  7. ^ https://investors.dominos.com.au/board-of-directors/
    https://investors.dominos.com.au/executive-team/
  8. ^ https://www.listcorp.com/asx/dmp/dominos-pizza/news/announcement-regarding-appointment-of-non-executive-director-2033500.html
  9. ^ Annual Report 2018, P. 39-40
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/fy18-appendix-4e-annual-report-1948842.html
  10. ^ Annual Report 2018, P. 81, 83, 85
    https://www.listcorp.com/asx/dmp/dominos-pizza/news/fy18-appendix-4e-annual-report-1948842.html