Domino's earnings fall despite higher system sales

Domino’s Pizza Group reported like-for-like system sales growth, excluding the change in the VAT rate, of 5.3% in its annual results on Thursday, to £1.46bn.

The FTSE 250 company, which is the master franchisee for Domino’s Pizza in the UK, said group revenue, which was not significantly impacted by the change in the VAT rate, increased 7% to £600.3m.

However, its underlying EBITDA was affected by the accounting treatment of investment in cloud-based technology platforms at £5.2m, as well as a lower contribution from the German associate at £2.4m, partially due to the put option exercise to exit its investment.

That was offset by the profit on sale of five corporate stores of £2.1m, and excluding those, underlying EBITDA would have been “broadly flat” compared to 2021, but it came in at £130.1m for the year.

Additionally, the company's underlying profit before tax was further affected by an additional £2.4m accelerated amortisation and impairment relating to the technology platforms, and an increase in interest of £4.9m.

The technology platform costs related to two new cloud-based IT systems, for which the investment in those assets was required to be expensed through the income statement.

Domino’s reported a statutory profit after tax up 4.2% at £81.6m following the exit of its loss-making international operations in 2021.

The proposed final dividend for 2022 was 6.8p per share, resulting in a total dividend for the year of 10p per share, up 2% year-on-year.

Additionally, £130m of shareholder returns were announced in 2022, including £86m of share buybacks.

Domino’s noted that it successfully refinanced its existing bank debt facilities in July at favourable rates, with a new £200m private placement facility fixed at 4.26% and a £200m revolving credit facility until July 2027.

The company’s increased returns to shareholders led to net debt of £253.3m at year-end, and a leverage ratio of 2.06x, which was within its target net debt-to-EBITDA leverage range of 1.5x to 2.5x.

Domino’s said the price for the German associate put option had now been finalised, resulting in an exercise price of €79.2m (£70m), which combined with the repayment of a €10.8m loan would yield total cash receipts of around €90m.

Completion of the disposal would occur in June, and the proceeds generated would be flowed through the company's capital allocation framework.

“The reset of the relationship with our franchise partners in December 2021 has underpinned our strong performance in what has been an exceptionally busy year for the business,” said interim chief executive officer Elias Diaz Sese.

“We have accelerated the execution of our strategy with the return of national value campaigns, growth in collections, our launch on Just Eat and increased store openings, alongside a strong focus on service from our franchise partners.

“At a time when customers have been looking for great value, Domino's has delivered, and you can see the results in the numbers we're announcing today.”

Diaz Sese said the firm’s “outstanding” fourth quarter performance gave it “powerful momentum” into the new year.

“Strong national value campaigns, continued growth of collections, accelerated new store openings, digital initiatives and a full year on the Just Eat platform are all set to drive further growth.

“We are confident that our asset-light business model, our franchise partners' relentless focus on service, and digitally focused investment will deliver further market share gains and create value for shareholders.”

At 1137 GMT, shares in Domino’s Pizza Group were down 7.07% at 265.4p.

Reporting by Josh White for Sharecast.com.