UK and Ireland underpin first-half growth at Domino's Pizza Group
Domino’s Pizza Group reported a 4.7% improvement in group system sales in its interim results on Tuesday, to £645.8m, underpinned by a 5.5% rise in system sales in the UK and Republic of Ireland, to £596m.
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The FTSE 250 company, which holds the master franchise for the US-based brand Domino’s Pizza in the UK, Ireland, Germany, Switzerland, Liechtenstein and Luxembourg, said like-for-like system sales in the UK, excluding the impact of split territories, grew 3.9% in the 16 weeks ended 30 June, slowing from 5.9% year-on-year.
It also holds significant minority interests in the master franchise holders in Iceland, Norway and Sweden.
In the Republic of Ireland, like-for-like system sales excluding the impact of split territories were ahead 6.9%, while operating profit from the UK and Ireland came in at £51.6m, up 7.1%.
The firm said its international operations remained “challenging”, with system sales in that geography down 3.4%, or up 0.4% on a constant currency basis.
It recorded an operating loss internationally of £6.4m, widening from the £1.8m loss it saw in the first half of 2018.
Overall underlying profit before tax was down 7.4% for the half-year at £42.3m, with underlying basic earnings per share 3.8% lower at 7.5p.
The board recommended an interim dividend of 4.2p, which was 3.7% higher than the half-year distribution paid in the prior financial year.
Net debt stood at £238.8m at period end, growing from £182.1m year-on-year, with the company’s net debt-to-EBITDA ratio standing at 2.2x, which the board said was impacted by a working capital build of £22m due to Brexit-related stock building and some “timing issues”, which were expected to unwind.
On the strategic front, Domino’s Pizza Group said active discussions with its UK and Ireland franchisees were continuing, leading to an impact on new store openings and some working practices.
The board said it remained committed to finding “sustainable, win-win solutions”, but anticipated that resolution would take time, likely into 2020.
A total of 13 stores were opened in the first half, of which seven were in the UK, taking the group total to 1,272.
Its digital presence was continuing to drive customer engagement, the board reported, with online now accounting for 82% of UK system sales.
During the period, it was announced that Emily Somers would be joining the company as its chief marketing officer, having previously been vice-president of marketing and food development at McDonalds.
Internationally, the company said its visibility remained “limited” with trading “challenging”, adding that it remained focussed on improving its operational capabilities and performance.
Full-year net debt was expected to fall between £220m and £230m, and no further share purchases were expected in the second half.
Finally, group chief executive officer David Wild had informed the board that he planned to retire, with a process to recruit a successor progressing.
“Our core UK and Republic of Ireland markets delivered a good performance,” said David Wild, adding that digital remained a “key driver of customer engagement”.
“Although a small part of our business, we are delivering pleasing operational improvements in our London corporate store estate.”
Wild explained that the company’s relationship with its UK and Ireland franchisees was “very important” to the long-term sustainable growth of the system.
“We are actively involved in detailed discussions and are giving these considerable focus and attention.
“Whilst dialogue is continuing, new store openings are being delayed and some of our working practices are being impacted.
“The situation is complex, and we expect resolution will take some time, likely into 2020,” Wild said, adding that Domino’s Pizza Group was “committed” to working with franchisees to agree sustainable solutions.
He said the performance of its international business was “very challenging”, with trading visibility remaining limited.
“The weakest performance was in Norway, although we also saw increasing losses in Sweden and Switzerland.
“Iceland profitability was impacted by the weak macroeconomic backdrop.
“We are very focused on improving our operational capability across our International markets and will provide a further update at our full year results.”