Domino's Pizza Group plc (DOM) Earnings Call Transcript & Summary

Hello. I'm Matt Shattock, and welcome to Domino's pre-AGM briefing presentation. This year's Annual General Meeting will be held on the 22nd of April 2021. The rules implemented by the U.K. government to limit the spread of COVID-19 mean that we will not be able to welcome shareholders to the AGM in-person. As we won't be able to make a presentation to you on the day of the AGM, we are providing this briefing 2 weeks ahead of the meeting so that shareholders are able to make an informed decision when casting their votes. A full copy of the company's annual report and notice of meetings are available on our website. I'd like to take a few moments to reflect on my first year at Domino's and share some highlights from the year. Our CEO, Dominic Paul, will then make a presentation on the group's performance in 2020 and share our plans for the future. Firstly, I'd like to say how honored I was to join the Board as Chair in March 2020 and how grateful I am to Senior Independent Director, Ian Bull, his leadership and support before and after my appointment. Domino's is one of the world's leading consumer brands, and this company is one of the most successful master franchisees in the global Domino's system. I joined the Board at a critical time just as the pandemic really started to take hold. As a business, we were privileged to have continued operating throughout the pandemic, serving our customers and communities. And we are proud to say that none of our colleagues were furloughed and the group did not access any loan funding from the U.K. government. I witnessed the real strength and power of the Domino's system, which harness the passion of our colleagues and the operational excellence of our franchisees to rise to the challenges we face together. The company and franchisees work tirelessly to deliver for our customers, while operating in a way which were safe for our colleagues and our customers alike. You can find more information about the company's response to COVID-19 in our annual report, which is available on our website. My first priority on joining the Board was to secure the appointment of a new CEO and CFO and to then start the process of reshaping the Board, introducing new skills and broader experience to the boardroom and improving the Board's diversity. We were delighted to welcome Dominic Paul to the company who took over as CEO on the 1st of May 2020. In Dominic, we have a business leader who has tremendous experience in our sector and in driving the performance of large consumer brands. Neil Smith joined the company as CFO in April 2020, initially on an interim basis and then on a permanent basis from September 2020. Neil is a seasoned and highly regarded CFO with strong PLC credentials who made an immediate impact on the business. Dominic reenergized the DPG leadership team as they drove a comprehensive agenda to both partner with our franchisees to operate effectively and safely during the pandemic, while at the same time crafting a comprehensive and integrated strategy, which set the future course of the business based on our shared purpose, clear values and bold vision. Solid progress has been made in reshaping the Board. In September 2020, Natalia Barsegiyan and Lynn Fordham joined the Board as Non-Executive Directors. This was followed by the appointment of Stella David, who joined the Board in February 2021. All 3 have highly relevant experience and impressive track records of creating shareholder value and are great additions to the Board. Despite the travel restrictions that operated in 2020 and continue to be enforced today, the Board quickly developed new working relationships and embraced the world of virtual meetings. I would like to thank my fellow directors for their hard work and collaborative spirit over the past year. Together, we sought to provide support and guidance to the executive directors and their leadership team colleagues as they focus on their aforementioned priorities of operating the business against the backdrop of the pandemic, working with the franchisees to build a strengthened relationship and developing a future growth strategy for the group. Alongside the growth strategy, the Board agreed a capital allocation philosophy which aims to amplify shareholder returns by establishing clear priorities for the use of capital, which are outlined on the following slide. In 2020, we made capital investments of GBP 19.4 million to drive organic growth. The Board has recommended a full year dividend of 9.1p per share, subject to approval at the AGM. And in addition, the Board enacted a share buyback program returning GBP 45 million of surplus cash to shareholders in 2021. Before I hand over to Dominic, I'd like to extend my thanks to our company's hard-working colleagues, our franchisee partners, our suppliers, our customers, our communities and our shareholders for all their support during this past year, which has truly been unprecedented. People like at the heart of our business and our purpose, and we take our responsibilities to each of our stakeholders very seriously indeed. I will now hand over to our CEO, Dominic Paul.

Thank you, Matt. I want to share with you how we have managed our business over this challenging year. And at this point, I'd like to thank everyone involved within the Domino's system for coming together and doing a fantastic job in trying circumstances over the past year. We worked successfully in close partnership with our franchisees to continue to operate safely through the various lockdowns and play our part in feeding the nation during the pandemic. The operational changes we made to keep colleagues and customers safe did mean we incurred some additional costs, but we have still been able to report a good set of financial results. Our data and insights team helped us to make the right data-driven decisions at the right time. For instance, reopening contact-free collection, menu rationalization and stopping cash payments. Our corporate stores provided us with an ability to trial and test operational changes quickly before rolling them out to the rest of the group. We also recognize the need to support our communities and key workers during this time. For example, we launched 2 GBP 4 million pizza giveaways to key workers across the country and have introduced the Domino's Partners Foundation, which will provide grants to colleagues either working directly for us or for our franchisees in times of hardship. As I said previously, it was, of course, a challenging year. But by pulling together, we were able to come through it in very good shape. Finally, helped by our sustainable business model with economies of scale and vertical integration, we were able to deliver a strong financial performance, which I will touch on now. I'm very pleased to say that we responded promptly to the challenges created by COVID-19, prioritizing the safety of our customers and people, whilst ensuring we were able to continue trading throughout the year. We've had strong U.K. and Ireland trading performance with system sales up 11.4% on a like-for-like basis. We've seen a further increase in penetration of our digital offering, with U.K. online sales up 23.9% and app sales up 26.2%. Online sales now account for 94.3% of delivery sales in the U.K., which demonstrates the strength of our digital offering. Our underlying profit before tax increased by GBP 2.4 million, including a charge of GBP 9 million COVID-19-related costs. We have generated GBP 99 million of free cash flow this year, albeit a large portion of that increase is a one-off benefit arising from timing of payments last year. We had announced at the full year results a new capital allocation philosophy, that will return GBP 88 million of generated cash flow to shareholders via a final dividend of 9.1p per share, totaling GBP 43 million and a share buyback program of GBP 45 million. We've seen significant changes at Board and executive leadership level. I think everyone will agree that with Matt Shattock as Chair, Ian Bull as SID and a number of great new NED appointments, the Board has been transformed this year with a much more wide-ranging experience and skill set. We have a clear focus to grow our core business in the U.K. and Ireland. So I am very pleased that we have made progress in exiting our directly operated international operations. The Norway disposal completed in May 2020. We announced that our full year results that contracts have been exchanged on the disposal of our Swedish business. And on the 29th of March, we announced that we had exchange contracts on the disposal of our Icelandic business. We are excited to have announced a multiyear strategic plan, which will drive growth across the business. We've stated a firm ambition to deliver GBP 1.6 billion to GBP 1.9 billion of system sales in the medium term. Now I know the status of the franchisee negotiations is a topic of great interest. And we have made an attractive offer to Domino's franchisees that we believe is in the best interest of all parties. We're engaged in a constructive dialogue but have not yet reached an agreement. However, we need to continue to move the business forward and strongly believe the strategic plan we have outlined can deliver material growth. In my first year with Domino's, it's been clear to me that we have a great platform to build from, a uniquely powerful brand, high digital participation and outstanding people and franchisees. This is a unique, sustainable business model with significant scale economies that delivers a great and consistent experience to customers. This gives me very strong confidence in the new strategy that we unveiled at our full year results, enabling us to build upon our proven strength in both delivery and collection and sharpen our value and quality proposition so that we can continue to drive growth and amplify the edge our proposition has over our competitive set. I am delighted to see the strong trading we saw at the end of 2020 has continued into the new year. On joining Domino's a year ago, we began a wide-ranging program assessing our internal capabilities, digital strategy, growth avenues and the optimal capital allocation policy for the group. In completing this exercise, it is clear that there are some real strength within the business, which provide a great platform for which to launch a new strategy and deliver future growth. Domino's is a brand that customers love. We are a leader in a growing delivery market. We are accelerating the pace of digital adoption for collections and delivery. We operate a world-class supply chain with high-quality franchisees, achieving best-in-class returns. We've spent some time debating our purpose. And what we are passionate about is to deliver a better future through food people love. This is supported by our vision to be the favorite food delivery and collection brand with pizza at our heart. It is appropriate that as we grow the business, we do so in the right way. And our values are important to us as they underpin everything we stand for as a company. As we look to grow, we will make sure we continue to do the right thing and work as one team. We will put our customers first, we are bold, and we celebrate success together. The 5 key objectives that will underpin the strategy are: one, nobody delivers like Domino's. We are a market leader and can build from a position of strength. Two, we will turbocharge our collection business where there is an opportunity to grow market share. Three, we will amplify our product quality and value through continued innovation and marketing effectiveness. Four, we will uphold our industry-leading economics by maintaining the world-class profitability of our system. And five, we will model excellence of the franchisor through increasing capability and attracting the best franchisees. I know that both I, the Board and the leadership team are hugely excited about the potential of our new strategy. In line with our values, we are boldly setting out our ambitions for the medium term, and we firmly believe that in that time horizon, we can grow system sales to GBP 1.6 billion to GBP 1.9 billion and our 200 new stores in the U.K. and Ireland. We look forward to updating you on our progress in the years ahead. Underpinning this strategy is a transformation program, which will be managed by our newly established transformation office and delivered by my executive leadership team. This new strategy will support the long-term success of the business and create value for all our stakeholders. But our strategy is not just limited to financials. It includes conducting business in a sustainable way, that not only value financial performance and returns, but recognizes the benefits of creating wealth through other forms of capital, including social and environmental capital. Alongside our strategic plan, we'll be working to drive forward our wider sustainability program and credentials. Important work has been done throughout the year to develop a more systematic understanding of our issues. We are committed to minimizing our environmental impacts, acting on climate change and providing our colleagues with opportunities so that they can prosper in a diverse, inclusive and safe workplace. We realize this is very much a journey. And during the course of 2021, we will refine our plans in this area and align our reporting with external frameworks, promoted by the Sustainability Accounting Standards Board, the SASB; and the Task Force on Climate-related Financial Disclosures, the TCFD. And I'll now hand you back to Matt Shattock.

Thank you, Dominic. Your leadership and accomplishments have been really impressive even before you complete your first year in the business. The AGM is an important event in the company's annual calendar. Even though we're not able to welcome shareholders to our meeting in person this year, we do encourage and welcome your engagement ahead of casting your proxy votes. If you want to ask the directors questions in connection with the business at the AGM, you can e-mail them to the company Secretary. We will respond to you directly and post the reply on our website. Proxy votes must be received by our registrar, Equiniti, by no later than 10:00 a.m. on the 20th of April. You can do this by completing and returning your proxy card or by voting online via the Sharevote website. If you do want to vote online, which is very quick and easy, you will need your voting ID and reference numbers shown on your proxy form together with the Sharevote website address. We appreciate you listening to this presentation, and hope you have found it to be informative. And we sincerely hope that by this time next year, we have all returned to some degree of normality and that we will be able to welcome you in person to the 2022 AGM. Thank you.