stephen hemsley chief executive - domino's pizza group plc

Stephen HemsleyChief Executive

1 November 2007

Management changesDomino’s Pizza UK & IRL plc

• Succession plans ratified by Board– From start of 2008 financial year– Stephen Hemsley - Executive Chairman– Colin Halpern - Non-executive Vice Chairman– Chris Moore - Chief Executive

• Significant strength of Executive Team

Well placed to manage rollout to 1,000 stores

2

Store OpeningsDomino’s Pizza UK & IRL plc

• Better progress in Q3– 10 openings (2006: 7)

• YTD openings– 30 (2006: 26)

• 480 stores at 30 September (2006: 434)• Improved position since interim guidance

On track to open circa 45 stores

3

Cost pressuresDomino’s Pizza UK & IRL plc

• Franchisees food cost 25% of sales– Cheese - 5.9%– Dough - 5.3%– Meats - 7.5%– Vegetables - 1.5%– Other - 4.8%

• Average selling price £12.50 (plus VAT)

• Food cost therefore £3.125

• Assume a 20% cost increase (£0.625)

• Can be fully recovered by a 5% price increase

• Any price rises increase royalty and NAF contributions

4

Cost pressures (contd.)Domino’s Pizza UK & IRL plc

• Global pressure on food prices

• Main pressure for Domino’s is on cheese and wheat (flour)– Cheese up £1,060 per tonne since June. No further significant increase

expected. All additional cost passed on to franchisees from 1/11/07– Wheat likely to be 75 – 100% higher in new contract starting January 2008.

Equates to an increase of 15 - 21% in dough price to franchisee.

• Pressure on meat prices being negated through supply chain re-engineering

• Economies of scale (20%+ compound growth) reduce cost pressure

5

Chris MooreDeputy Chief Executive

1 November 2007

6

The road to 1000 stores

7

At build out *2001 2006 (circa 2017)

No. of stores 237 451 1,000- 50 openings p.a.

AWUS growth at 3% p.a. ** £8,422 £11,347 £15,700System sales £ 98m £ 240m £ 820mProfit before tax £ 2.9m £ 14.3m £ 73.8mPBT/System sales 3.0% 6.0% 9.0%

+100% +50%• Stores double – profits grow six-fold• c.8% of incremental sales to profit (commissary 5.5% + net royalty

2.8%) • Significant operational gearing

• Commissaries• Central infrastructure

9

The financial model at build out

* Independent analyst research – not a forecast** Average Weekly Unit Sales

Domino’s Pizza UK & IRL plc

At build out *2006 (circa 2017)

• PBT £14.3m £73.8m• Share buybacks ***• Average no. of shares in issue 162.6m 128.0m• EPS - pence 6.4p ** 40.6p

- CAGR 18% p.a.• Dividend - cover 2.3x 2.0x

- pence 3.1p ** 20.3p

COMPELLING 11 YEARS OF CASH GENERATIVE ORGANIC GROWTH * Independent analyst research – not a forecast** Restated for share split*** To achieve cash neutral position at 2017. Circa 20% of equity.

10

The financial model at build out (contd.) Domino’s Pizza UK & IRL plc

AWUS: a 10 year perspectiveDomino’s Pizza UK & IRL plc

£6,700

£11,347

£20,000

£0

£3,000

£6,000

£9,000

£12,000

£15,000

£18,000

£21,000

1997 2006 2017

Mature AWUSOBS: This does not constitute a forecast

11

Sales momentum for all storesDomino’s Pizza UK & IRL plc

AWUS by Store Opening Year

£3,000

£8,000

£13,000

£18,000

£23,000

£28,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Opened in 1997 Opened in 1998 Opened in 1999 Opened in 2000 Opened in 2001

Opened in 2002 Opened in 2003 Opened in 2004 Opened in 2005 Opened in 2006

Opened in 2007 Linear (Opened in 1997) Linear (Opened in 2000) Linear (Opened in 1999) Linear (Opened in 2001)

Linear (Opened in 2002) Linear (Opened in 2004) Linear (Opened in 1998) Linear (Opened in 2003) Linear (Opened in 2005)

12

YTD sales growth by age of storeDomino’s Pizza UK & IRL plc

Sales momentum continues in older stores

0%

5%

10%

15%

20%

25%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2007 sales growth of stores opened in each year

Mature AWUS growth YTD

13

Sales above average in older storesDomino’s Pizza UK & IRL plc

£5,000

£7,000

£9,000

£11,000

£13,000

£15,000

£17,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

AWUS of stores opened in each year

Mature AWUS£ YTD

14

Mature Store AWUS bandingDomino’s Pizza UK & IRL plc

2% 2% 6% 7% 11% 11% 10%15%

20%12% 10%

18%

26%

28%33% 36%

42%

44%

25% 32%

39%

43%

42%

42%42%

34%

30%

30%31%

29%

20%17%

13% 12% 8% 6%

18%25%

8%4% 3% 1% 0% 1% 1%

0%

25%

50%

75%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007

<£5k

£5k-£7k

£7k-£10k

£10k-£15k

£15k+

2007 YTD: other years show FY trading

15

The size of the opportunityDomino’s Pizza UK & IRL plc

6%

23%

56%66%

100%

0%

20%

40%

60%

80%

100%

All Adul

ts 15+

Under 55

years

Ever ha

d hom

e deliv

ery

Ever ha

d pizz

a hom

e deliv

eryEver

had D

omino

's hom

e deliv

ery

Coverage of approx. 47% of UK & IRL households

Source; Mintel Home Delivery Report, 2004

16

The penetration gameDomino’s Pizza UK & IRL plc

Overall: 12.5%

15% 4%11%

1km 2km 3km

17

The size of the opportunity (contd.)Domino’s Pizza UK & IRL plc

6%

23%

56%66%

100%

50%

75%

0%

20%

40%

60%

80%

100%

All Adul

ts 15+

Under 55

years

Ever ha

d hom

e deliv

ery

Ever ha

d pizz

a hom

e deliv

eryEver

had D

omino

's hom

e deliv

ery

Coverage of approx. 47% of UK & IRL households

Source; Mintel Home Delivery Report, 2004Source: Ipsos-UK US market study, Feb 2006

U.S.

mar

ket

U.S.

mar

ket

18

Optimising delivery areasDomino’s Pizza UK & IRL plc

Case Study 1

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111

One store Two stores

19

Optimising delivery areas (contd.)Domino’s Pizza UK & IRL plc

Case Study 2

£12,000

£17,000

£22,000

£27,000

£32,000

£37,000

£42,000

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155 162

One store Two stores

20

Optimising franchiseesDomino’s Pizza UK & IRL plc

Case Study 3: a three-store town that went from three franchiseesto just one in 2007

£10,000

£14,000

£18,000

£22,000

£26,000

£30,000

2005 2006 2007YTD

Total average weekly sales from 3 stores

21


How 2017 figures are achievable2007 2017

Average households per delivery area 29,000 22,000

Penetration 12.5% 20%

Ave. ticket (delivery) £14.42 £17

Average frequency days 38 33Average frequency per year 9.6 11

Delivery sales £9,650 £15,910Add carryout sales at 26% 27%

AWUS £12,159 £20,206

Annual sales £632,302 £1,050,713

OBS: This does not constitute a forecast

22


How 2017 figures are achievable (contd.)2007 2017

Average households per delivery area 29,000 22,000

Penetration 12.5% 20%

Ave. ticket (delivery) £14.42 £17

Average frequency days 38 30Average frequency per year 9.6 12.2

Delivery sales £9,650 £17,501Add carryout sales at 26% 27%

AWUS £12,159 £22,227

Annual sales £632,302 £1,155,785

OBS: This does not constitute a forecast

23

How do we get there?• Continue fanatical focus on great product, unbeatable service, sharp image

• Support the premium quality positioning

• Ad Fund will drive the “new news” message and customer counts

• Our e-commerce lead will help drive sales and enhance store-level profitability

• Develop a reputation for being a great place to work

• Partner with the right franchisees to continue the roll-out

• Build infrastructure for 1000 stores

• Control overheads to drive operational leverage

• Resulting cash generated to be returned to shareholders


24

Investing in peopleDomino’s Pizza UK & IRL plc

DPG Directors• Stephen Hemsley, Chris Moore, Lee Ginsberg• Robin Auld, Sales & Marketing• Andy Emmerson, Business Development• Gareth Franks, Foodservice• Jane Kimberlin, IT• Patricia Thomas, Operations• TBA, Purchasing

25


…the best is yet to come

26

Patricia ThomasOperations Director

Operations update 1 November 2007

27


Operations Focus

• Operations Support– Getting talent pool and support structure right

• Focus on what’s important and incentivize results

28

Support TeamDomino’s Pizza UK & IRL plc

Franchise Consultants• Communication link• Standards Enforcement• Drive Results• 20 Franchisees per FC• 1997 store visits in 2007

Operations Support• New store opening

support (fee based)• OER min. 3X year• Follow up visits, product

roll-outs and operational training

• 60 Stores per OST• 1678 Audits completed in

200729


Training

• In store & Centralized Training

• Quality upgraded• New materials produced• Courses added• 457 People trained in

2007 (does not include field based training)

30


Franchise Development Programme• Strict selection process• In store orientation• 3 week course• Post-FDP support

31


Maintain High Standards

• The right measures (OER)• Positive correlation between OER & financial

metrics• Clearly communicated and integrated• Reward & repercussions

32

Operations Evaluation Report (OER)Domino’s Pizza UK & IRL plc

• Started in 2002• Focus on a few important things

– Service (Delivery times)– Pizza Quality– Image– Safety (for our team and customers)

• 5 Star system• Unannounced visits minimum 3X per year

33

5 Year trend Domino’s Pizza UK & IRL plc

2002 2007OER Ave 70.8 86.3Stars 2.6 4.1

2002 OTD < 25m 70.2%2007 OTD < 15m 70.8%AWUS (mature) £8717 £12334

34

It’s good to be a 5 star store!

9500

10000

10500

11000

11500

12000

12500

13000

13500

2 - 3stars

3 - 3.5stars

3.5 - 4stars

4 - 4.5stars

4.5 - 5stars

MatureStore AWUS


35


Integration• Integrated into Domino’s

culture• Element of all recognition

and reward systems• All training materials• 5 Star awards communicated

on our portal• Significant weighting on

approval to expand

Totally supports andis supported by

Out the Door < 15initiatives

36

RepercussionsDomino’s Pizza UK & IRL plc

• Failed audit – notice served• Re-visit at franchisee’s cost• Failed revisit may result in termination of the

franchise• Strategy to exit sub-standard franchisees

37

Real Time StatsDomino’s Pizza UK & IRL plc

38

75% of Orders < 15 Minutes OTDDomino’s Pizza UK & IRL plc

2005 - 10 stores would qualify2006• Round 1 - 39 • Round 2 - 47• Round 3 – 842007An average of 206 stores qualifiedeach round

39


Elite Membership vs. AWUS & Growth

9 , 0 0 0

1 0 , 0 0 0

1 1 , 0 0 0

1 2 , 0 0 0

1 3 , 0 0 0

1 4 , 0 0 0

1 5 , 0 0 0

6 5 4 3 2 18 . 0 0 %

9 . 0 0 %

1 0 . 0 0 %

1 1 . 0 0 %

1 2 . 0 0 %

1 3 . 0 0 %

1 4 . 0 0 %

1 5 . 0 0 %

1 6 . 0 0 %

1 7 . 0 0 %

1 8 . 0 0 %

Y T D A W U S Y T D % G r o w t h

* * * * * *

* No. of quarters in OTD elite

40

Jane KimberlinI.T. Director

IT Update1 November 2007

41

Technology within Domino’sDomino’s Pizza UK & IRL plc

• Integral part of our success

• Forefront of innovation

• Stable, time proven platform

• Further development to support 1,000+ stores

42

Continual innovation delivered in last 12 monthsDomino’s Pizza UK & IRL plc

• Online ordering for Republic of Ireland• 48.8% increase in UK online sales• SMS• Real Time Stats and EPoS reporting• OTD screen in stores• Electronic invoices & statements to franchisees

43

Real Time StatsDomino’s Pizza UK & IRL plc

• Demo• All stores in real time• Sales, service times, staff and audit details• Today to date and last 30 minutes• Real, actionable data• Direct impact on sales and service

44

Sales and service reportingDomino’s Pizza UK & IRL plc

• Demo• Telephone statistics• Weekly Key indicators • Payroll data• Download to excel• Consistent and visible

45

Plans for next 12 monthsDomino’s Pizza UK & IRL plc

• Business Intelligence• Food Early Warning System• In-store /kiosk ordering• SMS enhanced ordering• Web site – maintain at leading edge

and beyond……

• GPS tracking• Mobility• VOIP• M/S Surfacing

Limited only by our imagination and budget!46

Robin AuldSales & Marketing Director

Marketing Update1 November 2007

47

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

2006 2007 ytd

2007 average mature store sales per period

Extra fire power: YTD Mature stores +14.6%Domino’s Pizza UK & IRL plc

5% NAF driving sales: strong comparatives ahead48

12.8%

16.8%17.6%

9.5%

15.3%16.1%

19.7%

9.7%

13.3%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

Jan Feb Mar Apr May Jun Jul Aug Sep

0

20

40

60

80

100

120

140

160

180

mature store sales increase (LHS) 2007 UK precipitation

The Great British SummerDomino’s Pizza UK & IRL plc

Weather has assisted sales in the Summer months

mm

49

The power of momentumDomino’s Pizza UK & IRL plc

8.6% 8.0%

10.1%

12.0%

15.9%

13.8% 14.0%

Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07

Domino’s mature store increase vs same quarter prior year50

Sales fuelled by rise in average ticketDomino’s Pizza UK & IRL plc

UK Average Ticket *

£12.80

£13.00

£13.20

£13.40

£13.60

£13.80

£14.00

P1 P2 P3 P4 P5 P6 P7 P8 P9

2007 2006

Growth built on strong foundations of rising average ticket* Net of VAT and includes carryout and delivery

51

E-commerce +49% reflecting increased spendDomino’s Pizza UK & IRL plc

UK E Commerce Sales

£200,000

£300,000

£400,000

£500,000

£600,000

£700,000

£800,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

2007 2006

Reaching 18.5% of UK delivered sales with higher average ticket52

Driving on-line• Significant increase in on-line marketing investment

• £300,000 alone on search marketing in 2007

• Starting to reduce labour cost overheads for some stores

• The Simpsons sponsorship credits have been revised to focus on on-line ordering

• 15 separate new media platforms are used to communicate the Domino’s brand message


53

15 different new media platformsDomino’s Pizza UK & IRL plc

Viral Games

Rich Media

Second Life

User Generated Content

Partnerships

Mobile

Local Listings

Email

Natural Search

Paid Search

Display advertising

IPTV – Internet SitesIntegrated Content

Contextual targetingPortal Deals

54

CM11

Q3 Trading UpdateDomino’s Pizza UK & IRL plc

• Focus on driving core offering: Pepperoni Passion

• Clear communication of quality: differentiation to the market

• Maintaining the momentum ATL

• Increase in on-line marketing investment

• Scrummy: 6 meat pizza, leveraging interest in rugby

55

CM11 numbers need checking (and adding)Chris Moore, 05/07/2007

Q4 Update: Ciabatta pizzaDomino’s Pizza UK & IRL plc

NPD continuing to fuel sales56

CM12

Q4 UpdateDomino’s Pizza UK & IRL plc

• Ciabatta builds on success of previous Campaign 6 launches

• Five weeks TV advertising (+1 vs C6 ’07)

• Price premium £1 to £2 additional charge [boosting average ticket]

• Supported by ‘big’ DM, On-line, LSM etc

• Tough comparatives vs Q4 ‘06

57

CM13

• Domino’s classic option when trading down…offering great value for money vs dine out options

• Consumer spending shows trend towards eating in vs dining out is continuing to grow (Mintel)

• Premium quality, great service, trusted brand for £5.50 per person

• Domino’s frequency increasing, but a long way to go (average 38 day vs 42 LY)

Consumer Spending

58


CM14

Consumer Spending (contd.)Domino’s Pizza UK & IRL plc

• Domino’s brand strength protects against squeeze on disposable income (Quality, Service, Marketing spend)

• NAF will ensure continued aggressive marketing spend

• Consumers that come to Domino’s are driven by much more than just price

• Still a relatively infrequent treat

• Bespoke research conducted to quantify consumer opinion

59

CM15

• 97% of customers (last 3 months) had no idea when or if Domino’s had changed prices in the last year

• When asked to estimate the cost of a meal deal (circa £30) less than 10% were correct. Only 30% were correct to within £5.

• When asked to state the price of a single large Full House only 25%were correct – massive variations

• 78% stated that they didn’t have a set budget

• 94% stated they tried to take advantage of price offers

Domino’s Pricing Consumer Survey

60


Domino’s Pricing Consumer Survey (contd.)Domino’s Pizza UK & IRL plc

“There are lots of reasons for going to Domino’s. If their prices went up then I’d still carry on going there”

Just 10% disagreed with the statement

“Having a pizza is a treat and I don’t worry too much about the price”

Just 14% disagreed with the statement

“Price rises are a fact of life and Domino’s are no better or worse than any of their competitors”

Just 12% disagreed with this statement

61

CM16

2008 Strategic OverviewDomino’s Pizza UK & IRL plc

• Focus on new customer acquisition. An average store only delivers to 13% of it’s potential delivery area

• Continue to drive average ticket

• Focus on increasing average frequency from 38 days

• Continued focus on on-line sales growth & mobile sales (text ordering etc)

• A more aggressive execution of a winning strategy

62

• 5/5/5 promotion: proven formula

• £5.55 per pizza to accommodate rising food costs (11% increase invalue)

• Boost to average ticket / volume & new customers (over ½ million) in ‘07

• Supported with heavyweight TV advertising

• Two week BOGOF campaign (collection only)

2008 Overview: January ‘08

63


CM17

• £18m National Advertising spend (doubled since 2005)

• ATL budget increased by 50% in 2008

• Scope to increase coverage, frequency, weighting of TV exposure

• Identification of ‘big’ new sponsorship properties

• Making effective use of additional firepower: dominating the on and off line media landscape

2008 Overview

64


CM18

• NPD focus on popular products (5 pizza launches planned)

• Focus on quality messaging to create discernable differentiation

• Greater investment on-line, search Marketing, plus 2nd Life, You Tube, Ebay etc

• Direct Mail: Focusing on new customer acquisition, supporting campaign launches and increasing frequency

2008 Overview (contd.)

65


CM19

• Approaching 2 million customers on our database

• Implementation of new customer segmentation techniques based on behaviour & consumption patterns

• Increasing the relevance and therefore response of DM activity

• Giving individual stores a much greater degree of sophistication

Increasing marketing effectiveness

66


• 2007 record system sales and mature store sales increases

• Momentum is very strong & growing

• Significant increase in marketing firepower in ’08

• Strong brand offering great value

• 2008: take the brand to the next level

Summary

67


Q & A

68


stephen hemsley chief executive - domino's pizza group plc

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