U.S. Markets closed

Edited Transcript of DOM.L earnings conference call or presentation 8-Mar-18 9:00am GMT

Full Year 2017 Domino's Pizza Group PLC Earnings Call

London Mar 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Domino's Pizza Group PLC earnings conference call or presentation Thursday, March 8, 2018 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David James Wild

Domino's Pizza Group plc - CEO & Executive Director

* Rachel Osborne

Domino's Pizza Group plc - CFO & Executive Director

* Robin Caley

Domino's Pizza Group plc - Property & Business Development Director

* Simon Wallis

Domino's Pizza Group plc - COO

================================================================================

Conference Call Participants

================================================================================

* Andrew James Hollingworth

Holland Advisors LLP

* Jeffrey Robert Harwood

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Paul Andrew Hickman

Edison Investment Research Limited - Head of Consumer Research

* Richard Paul Stuber

Numis Securities Limited, Research Division - Analyst

* Tim Ramskill

Crédit Suisse AG, Research Division - Research Analyst

* Wayne Mervyn Brown

Liberum Capital Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and thank you very much for making the time this morning to hear our presentation on the results of what was another very good year for Domino's Pizza Group in 2017. In addition to welcoming you, generally, I'd like to particularly welcome our Chairman, Stephen Hemsley, who's sitting near the back; and then the Chair of our Audit Committee, Steve Barber, who is at the front. Also in the audience, we have a number of (inaudible) the leadership team from DPG who will be happy to help me later with any tricky questions that people may raise.

The agenda for this morning is I am going to do a very quick introduction of the highlights of the year, and then Rachel will go into more detail on the financial background to the performance of the business. I'll then come back and give a fuller update on our strategy and an operational progress before Rachel and myself will be joined by Simon Wallis, our Chief Operating Officer, to answer any questions that you have coming out to the results.

As you will have seen from the RNS, 2017 was another great year of progress for the Domino's Pizza Group. In our core markets of the U.K. and Ireland, our sales were up 9.2%, we talked GBP 1 billion of sales in the U.K. for the first time and the U.K. delivered like-for-like sales growth across the year of 4.8%.

Our profit growth in the U.K. and Ireland was just over 8%. But the real highlight of our performance in the U.K. last year was the fact that we opened a record number of stores at 95, the previous record being set in the previous year at 81.

Turning to the Group in more detail. There was a lot of activity outside the U.K. and our system sales for the group grew by about 15%. Our PBT grew by just over 10%, but our earnings per share helped by a combination of a lower tax rate and the benefit of the share buybacks that we've undertaken over the last two years, grew by almost 14%. On top of that, we invested something like GBP 91 million in the long-term growth of the business, both internationally and domestically with the investment in our new supply chain center facility in Warrington and the acquisition of the majority in controlling stake in our largest London franchisees, all very relevant and important strategic moves to continue the momentum in the growth of the business.

Having said that, I'm now going to hand over to Rachel who will through the numbers in more detail.

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [2]

--------------------------------------------------------------------------------

Good morning. So system sales grew for the year at 15.1%, of that 5.7 percentage growth was due to M&A, so the organic growth the U.K., Ireland and Switzerland for the year was 9.4%. Our statutory revenue grew 29.3%, and this is in the main part due to the mix of the acquired corporate stores coming through into our revenue at full systems sales, the franchise-only revenue growth was 12.5% and I'll comment to that later. That flowed through to strong EBITDA growth of 13.5% with a small EBITDA margin erosion on system sales, basically due to the mix of the international early-stage markets that come through at a lower EBITDA given their relative immaturity.

Depreciation and amortization was up nearly GBP 5 million, about half of which relates to consolidation of those acquired -- acquisitions in the Nordics and in London and about half relating to U.K. and I, amortization on IT.

Operating profit therefore grew 9.1% in the year to GBP 94 million on a 52-week basis. As I move you further down the P&L, we had overall debt in the year at a higher level year-on-year, so the interest expense increased, however that was offset by foreign exchange gain on the euro-denominated loan in the first half of the year for our German JV that is now being back to back matched. So our underlying PBT grew at 10.2% for the year.

Tax, as David said, is at a lower rate, lower effective tax rate this year than the previous year, and in comparison with 18.3% of the corporate tax rate, the difference really is around JV and associates profit which come in after tax in PBT, so no tax within the tax line and some changes in deferred tax on timing and quantum. That takes us through to an overall profit after tax growth of 13% for the year, and then with the share buyback impact, earnings per share, a very strong outcome of 13.9%.

Moving to non-underlying, which is a GBP 15 million in the year for non-underlying items, which I'll comment to and that takes us through to a total profit after tax on a 53-week basis at GBP 66.8 million and that's up on a 52-week basis GBP 0.2 million year-on-year.

Taking you to the non-underlying items. The first item had been previously disclosed in previous accounts, it's related to historic share-based compensation schemes and due to recent Supreme Court rulings, we provided in 2017 for this employment tax liability of GBP 11 million. Our other non-underlying items we've split into M&A related and then transformation related, the profit of GPB 3.4 million is in the main, the stake acquisition profit and accounting profit that we took at the half when we moved from minority into a subsidiary position in the Nordics, and that's offset by acquisition costs associated with Dolly Dimple's and the London stores. And then in transformation, it's the primarily the conversion cost within Norway post acquisition and also our continuing conversion costs in Germany. The total charge of GBP 15 million, only GBP 5 million of that is cash outflow in 2017-'18

Moving on now to unpack system sales a little bit more. As I said, the 15.1% is the reported overall Group growth, if you move to the far right, the organic constant currency, which is effectively U.K., Ireland and Switzerland, grew at 8.9%.

Moving to the U.K., system sales grew 8.6%, that's comprised of the first half of 6.5%, but half 2 was stronger at 10.6%. Republic of Ireland had a first half of 10%, and the second half stronger at 12.5% to drive the 11.3% constant currency growth. And Switzerland, where we adjusted the customer proposition and menu pricing, a first half of 10%, then translated into a second half of 24% to give the 17% growth overall. Nordics came in from [April] acquisition, GBP 57 million in the year, the full-year pro forma number there would be GBP 81 million sales as we go forward.

Moving now to segment profitability. We look at the business in 2 segments, U.K., and Ireland, and then international. Within international are the Nordic markets, Switzerland and the Germany JV. If we stay on the right-hand side with the Group, what we've done here is unpack our revenue into corporate sales revenue and franchise revenue. As you can see, GBP 78 million revenue for the Group is in new corporate sales, that's 17% mix of our revenue versus last year it was only a 4% mix, so you can see quite a substantial mix shift as we have brought in those corporate stores. And as I said before, the franchise revenue grew 12.5%.

This flows through to the operating profit of 9.1%, and an operating margin basis, removed the -- reduced the operating margin by 50 basis points from 8.6% last year as a percentage of system to 8.1%. In the main, that's to do with the international division bringing in loss-making early immature markets into that mix. On a statutory basis, it declined 3.7% and again in the main, that's because we're bringing in corporate stores into the revenue at the full system sales at a lower margin of corporate store.

What I'm going to do now is just take you through the U.K. and Ireland margins in a bit more detail. As we said on the many occasions, we measure our profit performance as a percentage of system sales, we think that's the right measure in the long run, and last year, our margin in the U.K. and Ireland was 8.7%. It held fairly steady with the 10 basis points decline to 8.6% and that's related to the customer value activity that we did over the autumn and winter where we did -- we (inaudible) pass on all of the food inflation cost through to the franchisees and we did a lot more customer value activity out in the market. If you look though on the right-hand side, it talks about our statutory revenue, just again to explain that, actually the lion's share of the decline is to do with our cash margin impact [of] cheese cost increases. All of our others have done a percentage increase, which would therefore flow through like-for-like, but we hold the cash margin on chase and that has a depressive effect when the cheese price goes up. The net investments in customer value had a 50 basis point impact, which is broadly net GBP 2 million impact overall.

We had good control within overhead, and that was offset by the mix effect of bringing in the London corporate stores in the final quarter of the year, bringing us 23.7% statutory margin.

I'm now going to turn to cash. I'm particularly pleased with the strong cash flow performance in the year. The Domino's business model remains highly cash generative. If we start from the underlying operating profit of GBP 96 million, adding back the depreciation and amortization on an underlying basis, and then deducting the CapEx excluding the big lump of Warrington, just to give you a sense of the underlying flow of GBP 20 million, working capital inflowed by 17.5%. We had an outflow last year and so some of that is facing turnaround that we talked about last year, but actually in addition, we've done a lot of focus on inventory receivables and payables in the year which flows through here. So underlying operating cash flow, 109% conversion of operating profit at GBP 104 million. Then with the cash paid on tax and on interest in the year, free cash flow of GBP 88 million gives us a 92% conversion in the year.

I'm now going to turn to the allocation of capital within the year. Last year, I talked about getting the balance right for Domino's between investing in growth, being sustainable and delivering returns. We have a year of significant investment, but we've taken a balanced approach to ensure that we're getting future growth opportunities but also cash returns now to our shareholders. Our first priority is to invest in organic growth of the business and we invested GBP 47 million and I'll take you through each of these items in a minute. We then -- on ordinary dividend, paid out cash of GBP 40 million in the year on a progressive dividend policy. We've invested GBP 45 million in acquisitions in the year and returned to shareholders through share purchases GBP 37 million in the year.

Let me take you through those in turn. We have a record investment in organic growth in the year of GBP 47 million, GBP 27 million of that was for Warrington, which opens in April. There'll be another GBP 5 million or GBP 6 million to go in cash in 2018, so the overall cost about between GBP 37 million and GBP 39 million. We invested GBP 7 million in corporate stores, that's the Nordics and Switzerland and the London acquisition. And SCC cost and other costs, or primarily SCCs, very small SCCs in comparison to Warrington in Iceland, Sweden, Switzerland and gear ourselves up for some growth going forward. And then with IT costs of GBP 6 million, which is recoverable over time from the franchisees.

From a dividend perspective, we declared a final dividend of GBP 5.25, which is a growth of 16.7% in the second half on dividends to bring our total to [9p] for the year which is a 12.5% dividend per share improvement year-on-year. That maintains our cover between 1.7% and 2% which we talked about last year.

And then just to remind you on the M&A summary, we completed in April increased stakes from a minority to Iceland, Norway and Sweden of GBP 16 million in net value taking the majority control in these new markets which are offering attractive growth for us. We completed on the Dolly Dimple's acquisition in Norway, which is about gaining scale that took us to a #3 position in the Norwegian market. And then in October, we finalized the 75% stake in the biggest London franchisee, which again is around taking accelerating the growth in key markets for us, as well as in the U.K. developing operational expertise.

What I have also on here, though is we made some commitments in 2017 that completed in 2018 in January. The announcement that we were going to acquire Hallo Pizza in Germany through our joint venture was at GBP 11 million and then the increased stake in Iceland to 95% where we are preempting the perception and again increasing our control there with another GBP 27 million, so an additional GBP 38 million completed in January.

If I therefore take you through the net debt movement, we started at the beginning of 2017 with a net debt of GBP 35 million. Free cash flow in of GBP 108 million excluding CapEx. We've then spent GBP 91 million of that on investing in the business, GBP 47 million in CapEx, as I said earlier, and GBP 45 million in acquisitions. We then returned GBP 77 million in cash to our shareholders through GBP 40 million of dividends and GBP 37 million of share purchases.

And then on acquisition of the consolidation, there was a cash inflow net return, which is primarily the cash balances within those acquired and some consolidation adjustments. The cash outflow in non-underlying is the cash, as I said earlier, on the underlying charge for the year.

So our closing net debt was GBP 89 million, a ratio of 0.84x to EBITDA, but with the completion of the 2017 commitment of the buybacks, so we did an irrevocable of GBP 20 million prior to the close, GBP 18 million of which we completed in the first two months of the year of '18 and then as I said Iceland and Hallo Pizza closed in January, another GBP 38 million. So on a pro forma basis, the debt is GBP 145 million and 1.36x ratio to EBITDA.

Let me take you through the 2018 outlook guidance. The stores of 65 to 75, as a reminder, our long-term average forecast is 80 stores a year. 2017 was a record year with 95 stores and there is ultimately some pull forward of our pipeline out to 2018 within that number. Also planning isn't under our control, so we've always said there's a factor up and down in the year that can fall in or out.

CapEx will be around GBP 30 million for the year. So as I said earlier, Warrington completion, the international (inaudible) in Sweden, Switzerland and Iceland and the IT assets going forward again at around of similar level to this year and the corporate stores now in the U.K. and international roll-out. Our medium-term net debt to EBITDA are as reiterated, 1.75x to 2.5x and we're announcing today the share buyback program of about GBP 50 million in the year subject to the needs of the business of which we have already done GBP 18 million.

So in summary, talking about getting the balance right, I think it's a strong year overall for Domino's with good balance. Good balance on growth, 15% system sales, 95 new U.K. stores, 14% underlying EPS and GBP 45 million invested in M&A.

Sustainability, 10 basis points erosion in operating, pretty stable in an uncertain consumer environment. Pro forma net debt increasing to 1.36x, 1.8x dividend cover and GBP 47 million invested in capacity for future organic growth. And from a returns perspective, GBP 88 million underlying free cash after normalized CapEx, return on capital employed 47%, 12.5% dividend per share growth and GBP 37 million of share purchases, so GBP 77 million cash return to shareholders within the year.

With that I'm going to hand over to David. He's going to take us through strategic and operational progress.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Thanks very much, Rachel. This is going to be a slightly longer presentation than usual, for which I make no apology because I do want to take the opportunity to explore some aspects and data around our strategic plans for running the business successfully.

And I want to start by looking at some of the fundamentals of our business here in the U.K. The first thing to say is that we are in a growth market, home delivered food is a growth market. And when you think of the reasons for that, the first reason is the growth in population in the U.K. The RNS expects that the population of the U.K. will rise over the next 10 years by about 3.5%, urban population will rise by about 5.5% and the expectation is with the trends toward declining household size, household numbers will increase by around 10%.

The second key component of that is the penetration of delivered food and there are number of trends that drive that, the most obvious of which is that 0.5 million people a year go to university. And those students are an important target market for us because they establish during their time at the university the delivered food habit. And generally, our demography is at the younger end, albeit customers who join Domino's in that teams tend to stay with the brand as their families evolve.

The third block is frequency of delivery and what we're seeing today is an increased trend towards ordering more frequently, as home entertainment improves, event marketing by TV companies, big things like football matches, boxing matches, The X Factor Final, these are all examples where customers want to enjoy delivered food. And of course, we shouldn't forget that the biggest reason why customers cut down is they cut back on eating out when money is short. So these 3 macro trends, growing population, increased penetration and frequency, all lead to more money into the market, and we are the strongest participant in the market.

This is a chart that just demonstrates the end-to-end offer that Domino's provide to its customers. And what we've done here is break our activity, which we exercise with our franchisees into the building blocks from the moment that brand awareness is created to the moment that the product arrives at the store. And as you can see, Domino's participate in every block.

Now I have a confession to make. When we did this chart last week JustEat hadn't announced the fact that they are into delivery, happily it's only 1.6% of their sales so far, despite a GBP 12 million spend, but probably I should have included it on the right-hand side. I've also excluded Deliveroo's cooking in their donor stores. But the key thing is, when a customer orders at Domino's, they know exactly what they're getting, and we'd been delivering food to customers successfully in the United Kingdom for 32 years.

Through that period, our franchisees get better every year, working with us to achieve that goal. And we've seen a number of people come in and out of the market, but throughout that Domino's has been a consistent leader. And that's the biggest reason why we continue to grow share and sales in the market.

Our system sales growth in the U.K. last year at 8.6% was driven by increased penetration online, growing roughly 50% more than the average for the system. We also saw an increasing collection ahead of the system as we open more split stores with easier access food collection for customers, not only increasing the viability of a split for a franchisee but also reducing the labor cost percentage in those new investments. And that growth of 8.6% splits between volume growth of 6.5% and a modest ticket growth of under 2%.

On the bottom half of that chart you can see the breakdown of how our quantum sales grew and that shows the components of growth between like-for-like and the GBP 32 million of incremental sales from the new stores, and the GBP 32 million of incremental sales from the stores owned in 2016, offset by the GBP 21 million from donor stores to create the splits.

I want to spend a bit of time talking about splits because I know that they are a topic of particular interest to analysts and investors. And splits are good for customers, they're good for franchisees, they're also good for us. And what we've done on this chart is really demonstrate the benefits of splits. Splits for customers provide improved service, they allow us to reach new customers in peripheral areas that can't be comfortably reached from donor stores. And they increased the potential for collection by recognizing the fact that if we locate a store well with car parking or a strong convenient store next door, then the traffic that we generate will be collection traffic, which is very profitable.

In additions to those 3 things that help customers, there are 3 other things that help ourselves and our franchisees because they improve labor efficiency and marketing efficiency as the address count declines. They grow the system sales and average sales per address and of course they prevent competitors coming into the periphery of our area and serving those customers on the periphery more successfully than we're able to do with a store that may be 10 minutes away from that target. So we continue to be completely committed to splitting territories to increase profit and increase our coverage.

On this chart, what we've explored is where the specifics around value creation for franchisees come from and it's quite a complex chart, so please bear with me. We've looked at 3 years of splits, the splits we undertook in '14, '15 and '16. And what we've done, we take the column that had its splits in '14, is we've shown where the sales were in that territory prior to the split. And we've taken the '13, which is the year prior to the store being split. So if we look at those numbers, we can see that for the splits in '14, those territories were generating around about GBP 33,000 worth of sales. In 2017, that same territory is generating over GBP 50,000 worth of sales.

It is the donor stores, the block that was GBP 32,000 prior to the split are now generating GBP 34,684 worth of sales, so the Domino's stores have not only recovered the sales that they were achieving prior to the split, they are exceeding it, and there's an incremental GBP 16,000 of sales from the splits that were executed in that territory.

And broadly what we can see by looking at each of the 3 sets of data is that within 3 years, we're very close to recovering the sales from the donor stores by providing an incremental sale of plus-minus GBP 15,000 or close to 50% of sales in that territory. And what that means is the average sales per address in that territory has increased significantly driving that efficiency both in labor and marketing and getting customers pizzas more quickly as well as providing more opportunity for collection.

The other thing from a franchisee perspective is the long-term value creation of the split because the average Domino's store is changing hands between franchisee at 65x weekly sales. What that means is that additional GBP 15,000 of sales is what 65x GBP 15,000 the franchisee, less the GPB 300,000 investment. And that's the message that we explain to our franchisees, most of our franchisees understand and that's the reason why we're very passionate about splitting the territories, I'm very confident in the long-term 1,600 store target potential that we disclosed in the market in November, 16 months ago.

One of the biggest areas of opportunities for splits of course is London where we have something like 12% of our stakes -- 14% of our system sales as opposed to 25% of U.K. spend on delivered food. And the scale of residential construction in London means that that 25% number is almost certainly going to rise as the urban population increases. So it's absolutely critical that we invest in increasing our presence in London.

We're planning 3 new corporate stores in London in our (inaudible) joint venture that was created last autumn. And in addition to that through working with franchisees, we anticipate a further 10 stores in total in London during 2018. It's not an easy market in which to find locations, but we're determined that we will increase our penetration.

And of course, what we're doing within Sell More Pizza is making that we take the opportunity and assets that we control through majority ownership, to explore operational tools, GPS, new promotions to ensure that we deliver a better outturn in London. Because as you can see on the right-hand side, our address count in London is significantly higher than the rest of the U.K. and our average sale per address significantly lower.

But it's not just London where we have the opportunity to open more stores, we're particularly excited about the opportunity in smaller market towns. And you can see on here 2 examples of smaller market towns with relatively low address counts. In the case of one in Somerset, the address count is under 10,000 and in the [Wales Town] just under 11,000. These have been very profitable investments for our franchisees because the average sales per address at GBP 1.67 in Somerset and GBP 2.14 in Wales, far exceed the chain average of 81p.

And from a franchisee point of view, the labor cost is much lower at GBP 22.7 and GBP 22.1 than the chain average in part driven by that higher level of collection of 43% and 51% respectively for Somerset and Wales as opposed to 21% nationally.

And what this demonstrates, the graph on the bottom right-hand side illustrates, is the extent to which we can increase our average sales per address when we reduce our address count for the store. And simplistically from the customer angle, what that means is the customers getting better pizza because it's delivered more quickly and the service is improved compared to how it would otherwise be.

Turning to marketing. We're absolutely delighted with the customer response to our latest campaign. And believe it or not, our brand recognition, since we launched the official food of everything, has achieved all-time record levels. We are already at 3x the level of recall of previous campaigns and the brand's spontaneous awareness is up to an amazing 84%, reflecting the dominance that we have in the delivered food market.

We're also delighted with the improvement in our value for money proposition. And you can see on there, steady improvements through the autumn period accelerated with the launch of the Winter Survival deal in January of this year at GBP 15.99 per deal which includes a cookie. What it demonstrates, again is that we're listening to customers and we're doing the right things to engage those customers both in brand marketing and (inaudible) with great campaigns and we think there's a lot more that we can do.

We continue to invest in digital innovation. It's been the fuel of our growth over the course of the last 3 or 4 years. And you can see there, our traffic increased by over 14% on our sites. Online incident is now through 75% and on delivery through 85%. Our conversion rate, despite the fact that mobile continues to be a much higher percentage of our total sales is continuing to rise and of course everybody knows that that mobile is the lowest converting channel for customers. But at 33%, we're delighted with the conversion rate that we're achieving overall and we're also delighted by the average spend increase at GBP 22.30 compared to GBP 21.90 last year.

So we're continuing to gain benefit from our commitment to grow our digital business through investment and the use of old channels to market our digital offer. But digital is not just about customer-facing e-commerce, it's also about harnessing technology in order to help stores become more efficient and give customers more information about the provision of their pizza. We've talked before a year or 18 months about our plans with GPS. And we now have GPS live in almost 500 stores, that's almost half the (inaudible). We have over 300 stores live with customer-facing technology to tell the customer exactly where the pizza is and when they need to open the wine. But the important thing here is that the gap between the 2 reflects the commitment of our franchisees, because it's only when franchisees are doing it properly that we open up the customer portal. We have a period between implementation and customer communication to validate the fact that franchisees are doing this in the way that they should. And the reason why franchisees are doing it so well is on the third bullet, because, what GPS is doing is giving them a much superior control of their labor costs, thus saving around 90 basis points of labor compared to where they were before and the chain analogs.

Additionally, what will come in time as the loss ratios is declined is a motor insurance benefit. We're delighted with the customer satisfaction because again, the reduction in delivery time means customers are getting their pizzas more quickly and they taste better and our intention is that we will have this fully rolled out by the end of 2018.

But we thought you might like a different view on GPS.

(presentation)

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [4]

--------------------------------------------------------------------------------

Okay. This all adds up to our continuing commitment to work with franchisees to enable them to make their own return, because in a franchise business it is imperative that our franchisees are feeling positive about what we're doing with the brand. We had an amazing year on franchisee profitability in 2016 with the combination of strong sales and on top of that, pre the referendum, denying food costs, unparalleled dairy cost in terms a very low cheese prices and despite the exchange rate impact after the referendum, we were able to protect franchisees from the cost of inflation.

If we look at last year, what we see is that the mature store EBITDA was maintained around the about the same level at GBP 150,000 per store if you exclude the stores that are being split. There was a percentage margin decline which I'll explore in a minute, but the key thing is, as we've demonstrated, the return on new store investment remains very compelling for franchisees, both in absolute terms and compared to other uses of capital, especially if they already understand and know how to operate a Domino's store.

If we look in more granular detail at the EBITDA in 2017 for this cohort of stores, what we see is the benefit of increased orders. So at the end of the day, the best way a franchisee can protect its profitability is to drive the top line. So we see GBP 14,000 inflow of EBITDA as a result of higher volumes. Price inflation of around 2% brings another GBP 22,000. The offset GBP 9,000, that's about 3% food inflation and GBP 15,000, that's about 5% labor inflation. The royalty goes up with sales as there's a national advertising fund and then there's a modest increase and other operating costs. But the key messages from this slide are #1, we are doing everything in our power to protect franchisees from these food cost rises, #2, labor is a much bigger challenge to franchisees, which makes GPS and similar systems strategically vital. And thirdly, the best way of growing sales to recover -- the best way of recovering those precious is to drive order count harder, because the margin is (inaudible) franchisees than it is on sitting still and not amortizing fixed costs through operational gearing.

We're working very hard to look at ways in which we can mitigate these cost inflations. There are, as you know, those are the reasons our labor cost mandatory rate rise coming up next month, which has actually been delayed by 6 months, there was no minimum wage increase in October. And on top of that there is an apprenticeship levy which will affect many of our stores. Equally, the growth in the market that I referred to earlier is giving increased levels of competition for drivers which we finally we are living with in Sell More Pizza and that's compelling us to understand the levers to pull more explicitly.

Food cost this year we think will be growing at slightly lower rate, somewhere 3% to 4%, it's very early in the year to be specific and that's predicated on an optimistic view of exchange rates. We do think that dairy will continue to soften through -- after a tough year last year and we are very happy with where we are in terms of forward purchasing of flour.

But as I said, the key offsets are driving volume, using GPS and leveraging our procurement expertise and scale to take advantage of the growth that we bring to supply the commodity food.

There's no doubt that these external pressures will have a factor on the sector, but the absolute profitability of a Domino's store is so much higher than that of our global competitors. So when that chill wind blows, it has a far bigger effect on the global competitors in pizza than it does on us. And our strategy of driving market share and investing for growth is putting more pressure than ever on those weaker competitors.

Turning now to Ireland. As Rachel said, we had a strong year in like-for-like sales in Ireland with the euro sales growth of 11.3%. We've done well on digital in Ireland for a number of years, but 2017 was really a transformational year with the growth in sales online at 28%, being at 2.5x the level of the average and reflecting the extent to which Irish customers, like the U.K., are increasingly embracing online ordering.

Order growth was a very strong 10% and happily we opened 2 stores which is the first time we've opened stores in Ireland since 2011. Our average weekly sale in Ireland, driven in part by the strong euro relative to the pound is GBP 24,000 and that compares to the U.K., which is plus-minus about GBP 21,000. So we're very excited about the opportunity to drive Ireland even harder in 2018.

I want to move now to look at other international markets, and I just want to remind you of our strategy. Our strategy is very clear, we want to identify markets where we believe Domino's can be successful. We identified Norway, Sweden and Iceland 18 months ago as targets and we recognize that to be successful, we needed good local partners, which is why the first step was buying minority stakes in each of those territories.

Our next step was to build a profitable store model and begin a process of franchising, which we've done successfully in Norway. In parallel with that, we want to invest in commissaries so that we have a low-cost food provision opportunity that allows us to create value for our investors, and value for franchisees and where there are opportunities, as there was with Dolly Dimple's, to scale our position through mergers or acquisitions. (inaudible) And once we've done what we then need to do is accelerate the rollout, and that's the journey that we're on.

We have 4 markets where we have majority control at the moment, and I think in many ways the most striking problem is that third one from the right, where you see our average weekly sale, GBP 26,000 per store per week in Switzerland, GBP 38,000 per store per week in Iceland, and even in Norway, where the brand's never been exposed on national TV, we are already achieving GBP 19,000 per store per week, and Sweden with literally no marketing and a very modest number of stores, GBP 17,000 per store per week. All of that gives us confidence that our strategy is in the right place and the challenge now is how we put the foot on the pedal harder to exploit the market opportunity in each of these markets.

I'll go through each one in turn, starting with Switzerland, the market that we've owned for the longest, which was acquired just the year after Germany. Our system sales growth in Switzerland was 17% last year, and our online sales again reflect our ability to go into a market and share learning as to how to drive the top line. We achieved 56% local currency sales growth online in Switzerland last year and that reflected an order count growth of 35%.

We did recognize that in order to exploit the full potential of Switzerland, we need to change our pricing model, and we introduced a delivery charge which allowed us to get headline prices down. So there's a ticket growth decline, but we've seen very strong pricing elasticity from that investment. What we've also done in Switzerland is look very carefully at capital costs because one of the reasons why we've been relatively conservative in Switzerland around store investment is the shared cost of opening new outlets in what is an expensive market. But we've made very good progress in fact, we learned quite a lot from the experience in Norway (inaudible) that process.

Online adoption is increasing, as you can see, and we see significant opportunity for further growth, up to 100 stores with 5 openings planned for this year, further improvement in digital and for the first time, we're going to put capital in to run a commissary because currently we don't have one in Switzerland, we buy dough from a baker. So the food profit is not ours.

Iceland is an amazing business and we're really pleased that we've been able to, not just take control, but own 94% of it. Our sales growth in 2017 was 11% on a pro forma basis, so despite the very high average sales, we're still planning in more and more growth. We are going to open 2 new stores this year, and we're also improving the commissary operation there where we think the scope to become more efficient and give ourselves more capacity to take advantage of this unique market opportunity, and what is a market of only 300,000 customers, that's about the size of the London Borough of Southgate.

In Norway, we are seeing very good progress on our conversions. And the pro forma Domino's brand growth is close to 100%. We now have 27 Domino's stores trading in Norway, virtually double what we had a year ago and the AWUS I mentioned is close to GBP 20,000.

The Dolly Dimple's conversions trading around 50% higher on the Domino's than they were as Dolly Dimple's. And the Domino's approach to driving delivery, value and focusing on service is resonating strongly with Norwegian customers and we've had particularly good winter in Oslo with delivery where we've seen huge growth in demand for delivery. We continue to see further opportunity, we do have some franchise stores and that's an important learning for us as we transition from corporate ownership towards a mix of corporate and franchising in the medium to long term.

Sweden is in its early days, but Sweden is probably our biggest opportunity. It's a market of 11 million people. There is no global pizza brand in there and no, unfortunately, local independence that we can acquire in the way that we did with Dolly Dimple's to give us scale quickly. But we can already see from the stores that we're operating that it's a market with very attractive food and labor ratios. We're hoping to open somewhere between 7 and 10 stores this year and we've managed to find a facility at very low cost in which we're going to insert a dough production machine to provide a commissary which gives us medium-term cover as we roll out the stores and continue to drive the brand.

On Germany, we have 2 acquisitions in Germany, the Joey's acquisition, which was completed almost 3 years ago, it's trading well, all stores are converted. And the Hallo Pizza acquisition, which we announced in December in partnership with DPE and completed in January, gives us an opportunity to increase the footprint by almost 2/3. We do see a significant market opportunity in Germany as part of the Hallo acquisition, we deferred the call option by 1 year, which will give us further shareholder value and we're very keen that we continue to work closely with DPE to grow out the opportunity, which they've identified as 500 stores in 3 to 4 years.

In addition to the exit value of our stake, we also have a market access fee, which is payable at EUR 25 million on exit. So as well as making money here, we're creating an asset that will ultimately be very good news for our shareholders.

I did warn you it was a long presentation, but this is the last slide. Let me summarize what was our messages this morning. 2017 saw 15% sales growth for Domino's Pizza, a record number of U.K. new stores and earnings growth of close to 14%. We started this year strongly as well and we've announced this morning 7.1% like-for-like in the U.K. with the total sales growth of 10.9%. I should say at this stage, that we are in intending that this is the last time we communicate stop period sales, but we did there, it was appropriate to announce that this morning, we will do a Q1 update, which will be our norm for the future going forward.

Let me try and summarize what I've been saying and the strategy for the business. First and foremost, delivered food is not just a strong market, it's a growing market. Pizza is the #1 food for home delivery. The dynamics, whether it's the quality of the product once it's delivered and the heat retention or the ticket in gross margin, all of those advantage pizza compared to other types of food that may be delivered to the home. And in our business, we're the clear #1 in the U.K.

We have competitive advantages in scale, in the recognition of the brand, in the quality of franchisees that we have, in our digital platform, in our control of the end-to-end customer experience and vertical integration. All of these things are things that we are really proud of, but on none of them are we standing still. On each of those lines, we're investing to get better. And we are very convinced to the U.K. is not just right for growth, but we can continue to sustain that growth over the medium term. And what we've demonstrated 2017 was further solid, strategic moves outside the U.K.

Thank you very much, and Simon and Rachel and I I'll be happy to take questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [1]

--------------------------------------------------------------------------------

Richard Stuber from Numis. 3 questions, please. First of all, I was wondering if you could comment on how your -- the competitors, Papa Jones and Pizza Hut have been doing (inaudible) stores in terms of their transformations because obviously that's one of the factors that is impacting like-for-like last year. The second question is on the franchise stores. Has there been some of these stores changing hands amongst franchisees recently and do you see a fair opportunity to increase your stake in corporate stores over these 12 to 18 months? And the final question is, you mentioned that the GBP 150,000 EBITDA per store, the franchisees have, by far the best economics, and do you -- is it suggesting that maybe you are being too generous on that and therefore, could you possibly not retain a higher margin on your supply sales?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [2]

--------------------------------------------------------------------------------

Some of your best friends are Domino's franchisees, aren't they, Richard? Simon can pick up the competitive point and I will pick up the middle and the last points. As far as change of hands, change of hands last year was lower that it had been the year before, but there were still some significant deals, most notably, 2 stores in Liverpool which changed hands at GBP 2 million of each in the autumn period. And we imposed on that transaction because we have a right to veto on change of hands, a requirement that that estate be appropriately split. In terms of whether we're looking at other opportunities for us to acquire corporate stores, we're not. We want to embed, sell more pizza around London operation more strongly. We do think that corporate stores have a role and there's clear evidence from both DPI and DPZ that a level of corporate stores is helpful, both in terms of operational development and talent development, but we're not actively looking to do all the transactions at the moment. On the point to that franchising profitability, we do feel that it's important that franchisees make a very good return and we don't become complacent about that. It's an important dynamic that if we want to attract the best franchisees and we want them to invest in Domino's rather than the other formats, then, there has to be a financial return in it. Where we all joined is we all benefit from growing sales and that's something that we feel very strongly need to be focused right the way across the system. So we are not at all unhappy about the level of profitability on the -- as being too high, we think that having a thriving system requires franchisees to be in a position where they could make returns if well funded by lending institutions and continued to grow the band. Simon, you want to pick up on the competitive point?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [3]

--------------------------------------------------------------------------------

Yes, I think, the most compelling statistic about competitive performance is the new store opening. We stated we opened 95 new stores last year. We think between our primary global pizza competitors (inaudible) 45. So we put some more clear blue water between ourselves and them. Just a year earlier, when we opened 80 stores, we didn't see that gap to the same extent. I think, opening more stores in a competition (inaudible) puts the competition under increased pressure. A lot of those pressures are driven by the split strategy that David outlined earlier.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [4]

--------------------------------------------------------------------------------

And it's worth just saying that, I talked about the Liverpool, there were 5 pizza stores that were for sale, yes, last September, in the North East of England and they were on the market for GBP 100,000 in aggregate. So that's GBP 20,000 each. One of my colleagues suggested it might be a career opportunity for me, but I declined this.

--------------------------------------------------------------------------------

Unidentified Analyst, [5]

--------------------------------------------------------------------------------

(inaudible) Just in terms of the competitors, have you seen them closing stores very much? That's first question. Second one would be on labor scheduling, have you seen some benefits coming through from that? And in terms of the average margin for franchisees per store is so much different between collection stores and the average, which are more obviously delivery orientated, obviously there's been some restaurant change that going and CVAs are having any benefit or otherwise to the businesses.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [6]

--------------------------------------------------------------------------------

Robin can pick up the restaurant chain CBA. Simon can pick up the early questions. What was the middle question on, Doug, again? It's not a straight line analysis, it does generally apply the stores with the lowest labor costs have very high collection participation and that's important in the context of the splits strategy. Simon, do you want to pick up the competitive point?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [7]

--------------------------------------------------------------------------------

Well, competitive points have been, I think -- I want drop specific comments about pizza operators and the number of the stores they closed last year I will just restate the point again, basically we believe that the net 45 stores and that includes closures across both of the brands, we continue to see and recognize internally when we see some of our franchisees putting those [condenses] under pressure and we see the stores close out.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [8]

--------------------------------------------------------------------------------

Robin, what about the CBA point?

--------------------------------------------------------------------------------

Robin Caley, Domino's Pizza Group plc - Property & Business Development Director [9]

--------------------------------------------------------------------------------

Specifically, we're looking for stores at 800 to 1,200 square feet. So the CVA opportunity not really great for us because the stores are far too large for what we're looking for. So 800 and 1,200 square feet with up to around 16 to 20 seats maximum is our typical store is and that's what is driving that profitability that's shown on the chart.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

Wayne from Liberum. Question on openings in 2018. Can you just tell us how many stores, I know it's early in the year, but how many you may have opened in the first 2 months of this year so far?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [11]

--------------------------------------------------------------------------------

I think is it 5?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [12]

--------------------------------------------------------------------------------

5 so far with 3 in London. (inaudible).

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

And then just leading up to get to the target of 65%, can you give us some sort of sense of the phasing, how we can expect that to look over the course close of this year?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [14]

--------------------------------------------------------------------------------

It's very difficult to be precise on that, Wayne. Last year, we were very pleased -- we expected it to be even through the year and then in the 6 weeks, there was real spur, which is why we did 95. As recently as November, we were guiding to 90, having guided at the interim, I think to 80. So through the second half we saw more and more stores coming in. So I'm reluctant to start to talk specifically.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Considering it takes probably weeks from site identification to opening, are we pretty much at that for the rest of the year, when do you think you'll have a better view of what that phasing will look like, if not...

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [16]

--------------------------------------------------------------------------------

Well, we'll certainly give an update in the interim.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

Yes, okay. Just with regards to food costs, can you give us some sort of an indication as to potentially what the food cost increase would be at the franchisees this year?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [18]

--------------------------------------------------------------------------------

We're looking at somewhere between 3% and 4%. The cheese market, as always happens with cheese or milk, there was an absolute bloodbath on milk in the early months of 2016, and then it just accelerated through and it overheated and it actually unusually turned in November -- October, November of 2017, normally it stays quite high. And since then it has been on a downward trajectory. And we expect that it will continue on that downward trajectory as the weather improves and cows will in the fields eating grass rather in barns being fed by stored food. So we're optimistic that cheese will be soft. We know where we are on flour and I said we're in a good position on the flour. The area of uncertainties alongside cheese is the exchange rate because on things like meat, there's a -- whatever we might do in terms of local procurement, the price that we have to pay is influenced by the price that farmers going to earn in euros. I think there's some good news on some of the other items but we were thinking around 3% to 4%.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

And sorry, 2 more technical questions for you, Rachel. HMRC, the GBP 36.5 million, my wording may be wrong here but potential liability versus the 11 million of provision, if you could just explain that a little more this, it's quite a detailed technical assessment in the financials, but if you go through that a little bit more detail? And then within the cost of conversion for Dolly Dimple, I think there was GBP 2.5 million -- GBP 2.7 million of cost to conversion, about another GBP 0.6 million accelerated depreciation. Is that similar to a pre-opening cost which is also why it was an exceptional -- not just the natural cost of actually growth?

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [20]

--------------------------------------------------------------------------------

Sure. So on HMRC, typically the HMRC, they serve protecting the specimens, they serve on all of the assessments they might do, the advice -- legal advise, professional advise we've had is that the probable outcome is on the amount that we provided for. And then on conversions, so remind me again, this is --?

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

It was in relation to Dolly Dimple, the GBP 2.7 million cost to convert, and then I think there is an additional cash charge there for other cost to convert. But just with regards to why there's not a cost of growth and it's ended up being exceptional?

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [22]

--------------------------------------------------------------------------------

Yes, and similar to how -- the approach that we took in Germany, a lot of it is the write-off of assets that are no longer going to be used because they're Dolly Dimple's. So you probably haven't been to Dolly Dimple's in Norway, it looks nothing like a Domino's store, it's kind of more restaurant, very small kitchen, very small storage. So a lot of it has to be gut the whole thing and refit it completely. So a lot of those assets had to be written-off and that's part of that. And then And then [GBP 0.6 million] is the project people cost around doing that.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [23]

--------------------------------------------------------------------------------

One last question on the performance in London. And if you're putting an ops team to probably manage some of those corporate stores if you are accelerating this? Thank you.

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [24]

--------------------------------------------------------------------------------

We do have a -- first things first, we are working -- continue to work in partnership with the franchisee that we've acquired the business from, so he still retains 25% of stake in that business. We have appointed a Head of Partnerships, that guy runs it -- essentially runs that business for us. I was at management meeting with him on Friday, we continue to make good progress and excited about the opportunity there.

--------------------------------------------------------------------------------

Paul Andrew Hickman, Edison Investment Research Limited - Head of Consumer Research [25]

--------------------------------------------------------------------------------

Paul Hickman from Edison. I just had a couple of questions. Firstly, I take the data on competitive closures, but do you have -- can you give us an impression of the average amount of clear water in operating margins for franchisees between you and the competitors?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [26]

--------------------------------------------------------------------------------

Simon?

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [27]

--------------------------------------------------------------------------------

Our estimates for mature stores and these are estimates internal only, is that our 151 plays to about 20 to 30 to 40 depending on which outlet and which size it is, So it's quite big.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [28]

--------------------------------------------------------------------------------

It's about half the operating margin on half of the sale.

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [29]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Paul Andrew Hickman, Edison Investment Research Limited - Head of Consumer Research [30]

--------------------------------------------------------------------------------

And the other question was just picking up on managed store and I take your point that you don't have a program to open more. Given the concentration of managed stores in the international territories, will you be looking at the operating margin that you are gaining from those stores in terms of the speed at which you wish to convert them to franchisees?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [31]

--------------------------------------------------------------------------------

Yes. I mean, we want -- the principle that we are having on our own franchisee profitability applies internationally as well. We have in Norway 7 Domino's stores that were actually part of the joint venture but are now fully franchised with our formal joint venture partner. And that's an important learning for us to balance that question around profitability, but we've got the benchmark of corporate stores, so we know what we can make in corporate stores. There is some works due around commissary efficiency and clearly when you're running a business with only 27 Domino's stores, which we own in Norway, the commissary is much less efficient. So our margin expectations from a commissary need to be lower in Norway than they would be in the U.K., and then the scale comes up, we can legitimately take the margin. Because the key thing is to incent franchises to invest for growth. And so that's the tab that we -- we implemented a series of charges in the middle of last year when the process of reviewing how the 6-month period went and thinking about what's the right level of charges in order to manage our profit from the commissary and at the same time incent the franchises to grow. So it's absolutely a live discussion right there. Tim?

--------------------------------------------------------------------------------

Jeffrey Robert Harwood, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Jeffrey Harwood from Stifel. Just a few questions. First of all, can you touch upon the pilot concept for stores having some eat-in space? Secondly, what happened to the level of franchisee consolidation in the year? Did the big 2 increased their share further and is that an issue? And then finally on Switzerland, did the Swiss business get to breakeven or if not when might it?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [33]

--------------------------------------------------------------------------------

On Switzerland, Simon will pick up eat-in. On Switzerland, it lost a modest amount of money, the lowest loss we've had since ownership. And we're optimistic that we'll be very close or maybe even in the (inaudible) this year, it partly depends on the timing of the commissary opening. But remember, we don't have a sophisticated supply chain in Switzerland, we've avoided in putting capital to work until we're confident the stores could make money. So we buy dough from a baker rather than make it ourselves.

--------------------------------------------------------------------------------

Rachel Osborne, Domino's Pizza Group plc - CFO & Executive Director [34]

--------------------------------------------------------------------------------

It's a positive EBITDA.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [35]

--------------------------------------------------------------------------------

And -- do you want to pick it?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [36]

--------------------------------------------------------------------------------

I think there's some misunderstanding about our pilots in detail, we are predominantly delivering [inaudible] and we do a pretty job at that. There are opportunities in different parts of country where you need to have a slightly bigger footprint to optimize your sales in that territory. Particularly, if you go into some of the towns what you want to be doing is optimizing and maximizing your sales. Those accounts typically have a bigger carryout mix and also bit of a bigger carry in mix and you got slightly more seats. But it's slightly more seats, it's not a restaurant.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [37]

--------------------------------------------------------------------------------

On the franchise consolidation point, there wasn't any change in the shares of big 2 franchisees and in fact -- did you say we had 37 franchises and stores last year?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [38]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [39]

--------------------------------------------------------------------------------

So actually it was a record year in terms of the number of franchisees that chose to open stores. One of things that Robin and his team are targeting is not -- is as the data becomes clear and the profits are splits in small towns, then we're finding more and more smaller franchisees are excited about opening stores and seeing the opportunity.

--------------------------------------------------------------------------------

Jeffrey Robert Harwood, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [40]

--------------------------------------------------------------------------------

I just remembered the question I asked [Multiple Speakers] just a very quick one, just on the labor chasing, whether or not we are in the timing of that and the benefits that might be coming through from that.

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [41]

--------------------------------------------------------------------------------

Like we said, I think the first opportunity we got is to really embed GPS and the productivity opportunities and that that present. We do think when you go high engagement behind the GPS device and tracking the franchisees are seeing an improvement in driver productivity. That will then drive more appropriate labor scheduling tools going forward, the GPS is a great opportunity for us to put those schedules in place and then it's about looking at more effective labor scheduling tools.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [42]

--------------------------------------------------------------------------------

Tim Ramskill?

--------------------------------------------------------------------------------

Tim Ramskill, Crédit Suisse AG, Research Division - Research Analyst [43]

--------------------------------------------------------------------------------

Tim Ramskill from Credit Suisse. I have 3 questions, please. The first is around, just coming back to London So I think from Slide 26 we can see that the overall sales in London is kind of similar average weekly sales as the rest of the U.K. but we know that some of the cost dynamics are a little bit different. So can you just talk us through how that influences the sort of optimal point at which a store is split and how you're kind of planning to use the JV to influence how people think about that? Second question is around digital penetration outside the U.K. there's a couple of stats in the presentation for Ireland and Switzerland, given they're still significantly lower than we are at in the U.K., I'm not hoping for too much, but is it reasonable to to believe that some like-for-like growth is still enjoying a meaningful tailwind, and we should continue to see that? And then the third question is (inaudible) about the sort of casual dining sort of dynamics, the answer was, I guess answered it with regards to property, but what would your expectations in terms of the influence of reduced restaurants on the high street has a been a beneficiary to your business overall?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [44]

--------------------------------------------------------------------------------

Simon can pick up the one on London. On the market in general, I don't think there's any doubt that there are too many casual dining outlets in U.K. and the point that was made around CBAs, I think there is going to be some significant rationalization in the restaurant sector. I think that's partly because of overcapacity that's accelerated by the trend towards eating at home but not cooking. And I think that one of the things that's going to be very interesting is to see the impact that has on the delivery specialists, the delivery specialists rely on marginal cost of production in under-performing restaurant assets. And I think one of the interesting dynamics is the extent to which that change with the pressure that these businesses are now under and it's interesting if we listen to what just data saying, that's obviously more and more in large-scale branded opportunities recognizing the strain that that sector is under. And if we listen customers, as I said, 30% of customers say the first thing they cut back on when money is tight is eating out. So it's a tough challenge. But we've always said we sit very neatly in the middle because we're a trade up from scratch cooking and we're a trade down from eating out. And particularly with (inaudible) TV companies and the media runners are using events now to drive their revenues where there is a boxing match, football match or even The X-Factor Final, we're very comfortable that's a great opportunity for us and of course we've got the World Cup coming in June, which is going to be a fantastic opportunity. On the digital front, I don't think we replicate the same sort of digital growth this year that we did last year in Switzerland or Ireland because they were quite extraordinary, but we still see significant headroom for growth on digital as we extend the learning of our U.K. platform into those markets. And we've said consistently that it's one of the things that we bring to an overseas market is our experience and track record in digital commerce. So I think they were, particularly the Swiss numbers were extraordinary. I don't think we'll see that percentage replicated, but there's still a lot more headroom for us to grow. If you want to pick up London, Simon?

--------------------------------------------------------------------------------

Simon Wallis, Domino's Pizza Group plc - COO [45]

--------------------------------------------------------------------------------

Yes, I think I heard your question correctly on London, Tim, is that certainly there is no better incentive for franchisee to split a store than the pressure that they're feeling on Friday and Saturday night and delivering the kind of quality and services that we expect. I anticipate that our leadership in London will actually drive a more creative approach to splits that if required, when you've got franchisees neighboring each other, and it does require proactive stance on addressing -- swapping addresses between different franchise groups to fulfill on opportunities to put more stores in the ground. And I think we're going to have to be proactive in demonstrating our belief in splits in the longer term and being flexible around swapping addresses with neighboring franchisees to open up the store potential.

--------------------------------------------------------------------------------

Wayne Mervyn Brown, Liberum Capital Limited, Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

I'm just going to take one more.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [47]

--------------------------------------------------------------------------------

I'm sorry, Wayne, but we'll pick it up later for sure.

--------------------------------------------------------------------------------

Andrew James Hollingworth, Holland Advisors LLP [48]

--------------------------------------------------------------------------------

I'm Andrew Hollingworth from Holland Advisors. And just a couple of things, really. One, could you just help me understand, better understand the economics of Germany, I know there's the option in terms of being sold, so just help me understand how it would sort of work out possibly in practice from a financial perspective? And in London, I mean obviously, I know one of your franchisees quite well and obviously the opportunity for them to want to expand is still there, the economics are really good. I assume that they will look to the London franchises and ultimately chose to not to buy them, and you've chosen to buy them. Is that mainly because of the complexity of what Simon talked to i.e. there is just so many overlapping regions it is so complicated from a cost perspective of store opening cost and you can take a longer time view and sort that out and then maybe send it back to the franchisee [20 years time]?

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [49]

--------------------------------------------------------------------------------

Because of the scale of that business, which was 25 stores. I think it would have been very hard for a single London franchisee to swallow it. And I think we would have been nervous about having a [real carver] of the territory. So I think it was more the scale and practicality of it rather than anything else. In terms of Germany, the model that we have with DPE is a long-term relationship. So the original transaction provided for 2 payment models. One of them was a market access fee because of the time of the establishment of the joint venture, we owned the [last] franchise for Germany. So they pay us a market access fee, which maximizes out to EUR 25 million and it's contingent on the performance of the asset through the period of joint venture-ship. The other payment, which would be much higher is a valuation as a multiple of EBITDA in the final year of our ownership. So the more the business makes, the more they have to pay us for buying out 33%. And what we negotiated with them as part of the Hallo Pizza transaction was an extension of that and the initial deal, it was a 5-year deal which end in January 2022, so they could have pulled their shares in January 2022 with the Hallo Pizza acquisition because of the requirement to convert those stores and the build-up of earnings from those stores, we persuaded into the right thing to do is to extend that to January 2023. So it's not something where we going to announce next week that they bought our share because, we're committed to the long-term development of the German market. And the reason why we bought Hallo Pizza was because, a, it was an asset that we thought was very complementary to the stores that we already have and b, had we not bought it now, then as we open more organically, it would be less attractive and what it allows us to do as well as scaling up the business quickly, is give us a clear road-map for where we need to build stores organically as opposed to acquisition. But the real benefit, I think from Hallo Pizza is that we will be able to generate advertising fund income from 350 stores, which becomes the virtuous wheel that will drive Domino's brand in Germany, not so much this year because the conversion process will take through this year, but certainly in the second half of 2019, '20 and '21, there will be significantly more income in the Domino's ad fund in Germany and that's one of the virtuous circles that will fuel the ultimate creation of a level of EBITDA means it's going to cost DP a lot of money to buy our shares.

--------------------------------------------------------------------------------

Andrew James Hollingworth, Holland Advisors LLP [50]

--------------------------------------------------------------------------------

And just remind me, was it in the original documentation, is that multiply (inaudible) I can't remember.

--------------------------------------------------------------------------------

David James Wild, Domino's Pizza Group plc - CEO & Executive Director [51]

--------------------------------------------------------------------------------

It was in the original documentation, between 10x and 12x.

Okay. Well, thank you very much. I've got to know here because I thought I was going to forget it, there's some buffalo pizza outside, which is our latest version. So please help yourselves with some buffalo pizza and we'll be around to take any questions that you may have incidentally. Thank you.