DP Poland plc

("DP Poland", the "Company", or the "Group")

Final results for the full year to 31 December 2018

24% increase in System Sales, 18% growth in revenue, 66 stores open to-date

Financial highlights:

· 24% increase in System Sales¹ to 72m PLN 2018 (58m PLN 2017)

· 6% like-for-like⁸ growth in System Sales 2018 on 2017, adjusting for delivery area splits⁹

· 18% growth in revenue to 60m PLN 2018 (50m PLN 2017)

· 85% increase in corporate store EBITDA

· 21% increase in commissary gross profit¹⁰

· Group EBITDA⁵ loss (£1.92m⁶) 2018, versus (£1.78m⁷) 2017

· Group loss for the period (£3.79 m⁶) 2018, versus (£2.63m⁷) 2017

Operational highlights:

· 77% of delivery System Sales ordered online 2018 (75% 2017)

· 9 new stores opened in 2018, 3 further opened in 2019 to-date

· 66 stores open to-date, across 30 towns and cities

Peter Shaw, Chief Executive of DP Poland said:

"In spite of a challenging second half to the year we achieved a 24% increase in System Sales and significant growth in both corporate store EBITDA and commissary gross profit in 2018. Understanding the external factors that negatively impacted sales growth, namely the unusually warm and dry weather and unprecedented levels of advertising spend by the two main delivery aggregators, has informed our sales and marketing response in 2019.

We have launched an innovative marketing campaign for 2019 featuring bespoke video and image content that will run throughout the year on digital, rather than traditional, channels, including YouTube, Facebook and Instagram. Alongside this campaign we are trialling a partnership with the largest delivery aggregator, Pyszne (Takeaway.com) and early signs of significant incremental sales look promising as we leverage Pyszne's significant advertising spend.

The share placing completed at the end of February gives the business the requisite funds for further corporate store openings and investment in sales and marketing."

¹ System Sales - total retail sales including sales from corporate and sub-franchised stores, unaudited.

² Source: DPI (Domino's Pizza International).

⁵ Excluding non-cash items, non-recurring items and store pre-opening expenses

⁶ Exchange rate average for 2018 £1: 4.8169

⁷ Exchange rate average for 2017 £1: 4.8950

⁸ Like-for-like growth in PLN, matching trading periods for the same stores between 1 January and 31 December 2017 and 1 January and 31 December 2018.

⁹ When a store's delivery area is split, by opening a second store in its original delivery area, a significant portion of the original store's customer database is allocated to the new store, resulting in the original store losing sales.  Calculating pre-split like-for-likes allows us to see sales growth by matched delivery areas, irrespective of the opening of new stores. Pre-split like-for-likes are a standard measure adopted by many major Domino's Pizza master franchisees. Up to 31 December 2017 we had only split two delivery areas, out of 54 stores, hence not analysing pre-split like-for-likes before 2018. See note under Finance Director's Review.

¹⁰ Sales minus variable costs

Enquiries:

Notes to editor

DP Poland, through its wholly owned subsidiary DP Polska S.A, has the exclusive right to develop, operate and sub-franchise Domino's Pizza stores in Poland. There are currently 66 Domino's Pizza stores, 42 corporately managed, 2 under management contract and 24 sub-franchised.

Chairman's statement

The Company delivered a solid performance in 2018 with System Sales¹ growth of 24% and revenue growth of 18%.

The year was notable for the marked divergence in DP Poland's performance between the first and second halves. The first half delivered robust sales, boosted by our trial of television advertising in January and February. From April, Poland started to experience unseasonably warm and dry weather, not conducive to food delivery sales; this was in part compensated for by the positive impact of the football World Cup from mid-June, with large television audiences of football fans ordering delivery food.  

In the second half we saw sales continue to be impacted by exceptionally warm and dry weather, through to mid-November. Further, we experienced the cumulative impact of the two main delivery aggregators' increased advertising spend on the Company's share of advertising voice. In addition our decision to take a more balanced approach to generating sales in 2018, with more of a focus on protecting margin and store EBITDA, no doubt also impacted like-for-like System Sales performance 2018 on 2017.

Despite the pressures on sales performance that we experienced in 2018, the Company's stores continued to perform to a high standard. Domino's Poland's stores rank amongst the best Domino's stores in the world with regards to service times². We were also delighted to receive from our franchisor, Domino's Pizza International, a second consecutive Gold Franny award for sales growth and quality standards³.

In February 2019 the Board took the decision to raise £5.8 million before expenses by means of a placing, to maintain the roll-out of corporate stores in 2019 and 2020 and to support the Company's sales and marketing plans. The placing was approved at a General Meeting on 28 February.

At the time of the placing we announced that Peter Shaw will be stepping down as Chief Executive, by mutual agreement, at the conclusion of the Company's 2019 Half Year, in June 2019. Peter was co-founder of DP Poland and has led the business since October 2010 - shortly after the master franchise agreement for Domino's Pizza in Poland was acquired. Peter has led DP Poland to become one of the largest pizza delivery operations in Poland, with an estate of 66 stores. The board of DP Poland thank Peter for the great contribution he has made to the development of the business.

DP Poland is fundamentally a Polish company and, having established a strong platform in the Polish market, our principal focus for the future will include optimising resources and cost control and on increasing local market expertise, building on the strong operational team we have put in place. Pending a further appointment reflecting the Group's priorities in this area, myself and Rob Morrish, non-executive director, will take a more active role in the running of the business.

With the eighth largest economy in Europe and current GDP growth of around 5% per year⁴, Poland continues to provide favourable conditions for the continued expansion of the Domino's brand.

Nick Donaldson

Non-Executive Chairman

25 March 2019

Chief Executive's review

Group performance

Revenue increased by 18% to 60m PLN (50m PLN 2017).

Group EBITDA⁵ losses increased by 8% (£1.92m) in 2018 versus (£1.78m) in 2017, at average exchange rates for 2018⁶ and 2017⁷, impacted by lower than anticipated sales in the second half of the year.

At constant exchange rates Group EBITDA losses increased by 7% 2018 on 2017.

The Group loss for the period of (£3.79m), at actual exchange rates, was an increase of 44% on 2017, including provisions for impairments against leasehold improvements relating to possible store closures and possible sale of certain corporate stores to sub-franchisees, plus possible sub-franchisee bad debt.

Store performance

System Sales were up 24% 2018 on 2017 as a result of 6% like-for-like⁸ (pre-split⁹) System Sales growth 2018 on 2017, growth from non-like-for-like stores and the opening of 9 new corporate stores during the year.

The 2018 like-for-like performance of 6% was on the back of 17% like-for-like growth in 2017, representing 24% compound like-for-like growth over 2 years 2017-18.

The first half sales performance was boosted by our trial of national television advertising, with two campaign bursts of 2 weeks each, at the beginning of January and at the end of January running into February. While the consumer sales response to this television advertising was very strong the return on investment was insufficient to justify continued national television support until we have further expanded our store network.

The second half of the year proved more challenging as the Company experienced pressures on sales, driven predominantly by exceptionally warm and dry weather through to mid-November and the cumulative impact of delivery aggregators' increased advertising spend on the Company's share of advertising voice. The Company also took the decision to offer less discounting in August, September and October 2018 (compared to 2017), in support of margin and store EBITDA, which also no doubt impacted like-for-like System Sales performance.

The average transaction value in 2018, in stores of at least 2.5 years old at 31 December 2018, was the highest to date, as a result of a menu price rise introduced in January and less discounting across the year as a whole, compared to 2017.

Corporate store EBITDA increased 85% 2018 on 2017.

Last year a number of our corporate stores were identified as 'underperformers' and specific plans were put in place to turn those performances around.  We are seeing some positive responses to these actions. We are also discussing the possible sale of some of these stores, to sub-franchise, and we are considering the possibility of some closures for those stores where their location is a particular challenge.

Store roll-out

We finished the year with 63 stores, 24 sub-franchised and 39 corporately managed. During the year we opened 9 corporate stores.

* 2 corporate stores are run by sub-franchisees under management contract, with the option to acquire and sub-franchise in the future

Our focus in 2019 is to drive higher store penetration, reduce store delivery areas, improve delivery times and improve the cost of labour. Store openings will be focused on larger cities and will include a high proportion of delivery area splits. We have opened 3 further stores in 2019 to-date.

As stated above, under 'Store performance', we are considering some store closures and the possible sale of certain corporate stores to sub-franchisees

Sub-franchising

The performance of sub-franchised stores in 2018 was mixed with some strong performers and some weaker. In 2019 we are focused on reinvigorating sub-franchisee performance, to drive sales and store openings. In November 2018 we recruited a new head of Sales and Operations with particular experience of working with franchisees.

We anticipate converting a number of our corporately managed stores to sub-franchises, re-balancing the corporate/sub-franchised store mix.

Commissary

Our 2 commissaries continue to perform well in the efficient production of fresh dough and the distribution of all ingredients and non-food items to stores. We saw a 21% increase in commissary gross profit¹⁰ 2018 on 2017.

Marketing and product innovation

2018 marked a key milestone as we trialled television advertising for the first time, adapting a 15 second commercial created by our Dutch Domino's colleagues, including a 50% off promotion. We ran 2 bursts of national television advertising over a period of 2x 2 weeks, in the first half of January and in late January running into February. While the television campaign generated impressive like-for-like sales and our highest average order count to-date the return on investment did not justify continued investment in this medium, until we achieve higher store penetration.

Much of our 2018 activity was focused on social media channels, including our 'DominosBot' AI powered ordering channel on Facebook Messenger.

We introduced 3 new pizzas in 2018, including Tex Mex, Americano (pepperoni and mushroom) and Carbonara.

Fundraising February 2019

On 28 February 2019 a fundraising of £5.8m before expenses was confirmed, by means of a placing, including a fully subscribed broker option of £0.5m, resulting in around £5.5m net funds raised. The fundraising allows the Company to continue rolling out corporate store openings through 2019 and 2020 and to invest in sales and marketing activities.

Current trading and outlook

Comparatives for January and February 2019 were always going to be very tough, in the context of our trial of television advertising in January and February 2018.  As such we knew that our like-for-like sales performance in January and February would be negative. The challenge was to ensure that sales momentum was maintained as we pushed through that comparative period.

To that end in mid-January we launched an innovative campaign featuring Damian Kordas, the winner of Polish Master Chef 2018, creating unique Domino's video content, distributed through digital channels. Damian will be producing content for us throughout year, the first of which featured our customers' favourite pizza Domino's Pepperoni. This content, including video and imagery featuring Damian discussing and making Domino's Pepperoni, has met with a strong sales response. It is being distributed through a variety of channels, including YouTube, Facebook and Instagram.

We have taken the decision to start a trial with the main delivery aggregator in our market, Pyszne, part of Takeaway.com, on the basis that we will receive orders from their system and that we fully service those orders, including delivery. We have taken this step following consultation with our franchisor DPI and a number of our European colleagues who have been partnering with Takeaway.com in their markets. Based on the evidence of the first of our stores to be placed on the Pyszne system we are optimistic that this trial will add incremental sales. For the summer months we will be deploying new tactics in support of sales.

On a personal level I would like to thank our team in Poland for the progress that we have made in establishing Domino's Pizza as one of the leading pizza delivery operators, in a highly attractive and very competitive market. I have no hesitation in claiming that our team is best of class and I am fully confident in their abilities to fulfil our long-term vision for the business, as I move on to other challenges. I would also like to thank our Board for their unwavering support over the last eight and a half years that I have been Chief Executive of DP Poland PLC.

Peter Shaw

Chief Executive

25 March 2019

Finance Director's review

Overview

The food delivery market in Poland is growing at an impressive rate, in part driven by a step change in investment from the delivery aggregators, alongside a general broadening in the range of food service offers. While the long-term impact is positive we experienced significant pressure on sales in the second half of 2018. These pressures resulted from a combination of factors including unusually hot and dry weather, the very high advertising spend of competing delivery aggregators impacting our share of advertising voice and our decision to reduce the overall amount of discounting compared to the previous year, in support of margin and store EBITDA.

In response to the delivery aggregators' marketing investment we have commenced a trial in partnership with the leading delivery aggregator in Poland, Pyszne (Takeaway.com), with our first stores going on stream in late January 2019. Leveraging the advertising expenditure of Pyszne we can benefit from their sales platform while retaining complete control of our offer, service and delivery.

While the buoyant Polish consumer economy is broadly beneficial, the related reduction in unemployment and the introduction of a minimum wage has seen labour rates double since we opened our first store in February 2011. As a result Poland can no longer be described as a low-cost labour market. We have worked hard to manage these costs, including the introduction of menu price increases, a move that has been mirrored across the food service sector.

Regarding the cost of food we have seen an easing of inflation and as such we have been able to balance some of the pressure from increased labour costs. Growing sales volumes will continue to have a positive impact on our purchasing power.

Selling, General and Administrative expenses

In 2018 Selling, General and Administrative expenses (S,G&A) were 19% of System Sales, a 2 percentage points improvement against 2017 (2017 21%);  both measured using the actual average exchange rates for 2018 and 2017.

Direct costs

The opening of our second commissary in August 2017 provided additional capacity, critical to the expansion of our store estate and reducing distribution costs in the supply of stores to the North, West and South of the country.  This new facility has added to our direct costs, including rent, operating costs, production and warehousing labour, impacting Group EBITDA in 2018. These costs will become proportionately less significant as the store estate expands and sales grow.

Store count

* 2 corporate stores are run by sub-franchisees under management contract, with the option to acquire and sub-franchise in the future

In 2019 a number of store openings will result from the splitting⁹ of the delivery areas of some of our highest grossing stores.  Store openings resulting from splits benefit from the transfer of part of the original store's customer database and improved labour and delivery efficiency thanks to a tighter delivery area. Customers who get their orders more quickly become more loyal and purchase more regularly.

3 new stores have been opened so far in 2019, totaling 66 stores opened to-date, with 1 additional town added, giving us presence in 30 towns/cities to-date.

Sales Key Performance Indicators

24% growth in System Sales (PLN) was supported by 6% like-for-like System Sales (pre-split), growth from non-like-for-like stores and the opening of 9 new stores in 2018. Ignoring splits we saw 4% like-for-like System Sales growth (6% pre-split) constituted of -2% like-for-like System order count decline (0% pre-split) and a 6% growth in average transaction value.  In 2017 17% like-for-like System Sales growth reflected a mix of 16% order count growth and 1% growth in the average transaction value.

Delivery System Sales ordered online are growing, however newly opened stores need time to build online customers and that will dilute the System average.

*Constant exchange rate of £1: 4.8169 PLN

 ** Splitting was immaterial to like-for-like performance in 2017.

Group performance

18% growth of Group Revenue at a constant exchange rate of PLN 4.8: £1 is derivative of 24% growth of System Sales. 

*Constant exchange rate of £1: 4.8169PLN

The Group Income statement at actual average exchange rates for 2018 and 2017 was only marginally impacted by sterling weakening 1% against the zloty in 2018.

*Actual average exchange rates for 2018 and 2017

Group loss for the period

Group EBITDA loss excluding non-cash items, non-recurring items and store pre-opening expenses at actual average exchange rates for 2018 and 2017 increased by £135,771 (£124,981 increase at constant exchange rate of £1: 4.81 PLN) against the prior year.

The Group loss for the year at actual average exchange rates for 2018 and 2017 increased by £1,158,753 against 2017, mainly due to an increase of depreciation and amortization due to store openings and impairment provisions for possible store closures, possible sub-franchising of certain corporate stores and possible sub-franchisee bad debt.

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. For 2018 a provision of £631,118 of impairment losses of eight stores has been recognised in the income statement under the expense category: Depreciation, amortisation and impairment.

Trade and other receivables are recognised initially at fair value and subsequently measured as an amortised cost using the effective interest method, less provision for estimated irrecoverable amounts. In 2018 £104,947 of irrecoverable amounts was recognised as a provision in the income statement under the expense category: Other non-cash and non-recurring items.

Actual average exchange rates for 2018 and 2017

Exchange rates

Financial statements for our Polish subsidiary DP Polska S.A. are denominated in PLN and translated to £. Under IFRS accounting standards the Income Statement for the Group has been converted from PLN at the average annual exchange rate applicable to PLN against £.  The balance sheet has been converted from PLN to GBP at the 31 December 2018 exchange rate applicable to PLN against £. In 2018 PLN is virtually unchanged against £ and has had little impact on the numbers presented at 2018 and 2017 rates.

Cash position

Cash reduced by 57% from 1 January 2018, with the net cash at 31 December 2018 being £1.9m. Cash of £2.5m was deployed to cover:

- Group losses

- store CAPEX (including CAPEX to be deployed in stores to be opened in 2019)

Actual exchange rates for 2018 and 2017

On 28 February 2019 the Group completed a placing of 96,666,666 new ordinary shares at the price of 6 pence per share, to raise a total of £5.8m before expenses, approximately £5.5m net.

Macro situation in Poland

In 2018 we saw strong GDP growth combined with inflation and the lowest recorded unemployment rate. The 3 Month Warsaw Interbank Offered Rate is virtually unchanged.

Maciej Jania

Finance Director

25 March 2019

¹ System Sales - total retail sales including sales from corporate and sub-franchised stores, unaudited.

² Source: DPI (Domino's Pizza International).

³ An annual award made by DPI to a small proportion of franchisees.

⁴ Source: Trading Economics 2018: World Bank 2017.

⁵ Excluding non-cash items, non-recurring items and store pre-opening expenses

⁶ Exchange rate average for 2018 £1: 4.8169

⁷ Exchange rate average for 2017 £1: 4.8950

⁸ Like-for-like growth in PLN, matching trading periods for the same stores between 1 January and 31 December 2017 and 1 January and 31 December 2018.

⁹ When a store's delivery area is split, by opening a second store in its original delivery area, a significant portion of the original store's customer database is allocated to the new store, resulting in the original store losing sales.  Calculating pre-split like-for-likes allows us to see sales growth by matched delivery areas, irrespective of the opening of new stores. Pre-split like-for-likes are a standard measure adopted by many major Domino's Pizza master franchisees. Up to 31 December 2017 we had only split two delivery areas, out of 54 stores, hence not analysing pre-split like-for-likes before 2018. See note under Finance Director's Review.

¹⁰ Sales minus variable costs

¹¹ Stores less than 12 months old, with no matching trading periods in the previous year

¹² Source: http://www.euromonitor/poland/country-factfile#

¹³ 3M WIBOR at 30 December; source www.money.pl

1.   ACCOUNTING POLICIES

2.   REVENUE

3.   SEGMENTAL REPORTING

4.   LOSS BEFORE TAXATION

5.   OTHER NON-CASH AND NON-RECURRING ITEMS

6.   TAXATION

The Directors have reviewed the tax rates applicable in the different tax jurisdictions in which the Group operates. They have concluded that a tax rate of 19% represents the overall tax rate applicable to the Group.

7.   LOSS PER SHARE

8.   INTANGIBLE ASSETS

9.   PROPERTY PLANT AND EQUIPMENT

10.  SHARE CAPITAL

11.  ANNUAL GENERAL MEETING

The Annual General Meeting of DP Poland plc will be held at the Offices of Peel Hunt, 120 London Wall, London EC2Y 5ET on 3 May 2018 at 9.00 a.m.