LEI: 213800Q6ZKHAOV48JL75

3 August 2021

DOMINO'S PIZZA GROUP PLC

Half Year results for the 26 weeks ended 27 June 2021

Strong first half trading performance reflecting good progress on strategic objectives

All commentary below is on an underlying basis unless otherwise stated
 

Financial highlights

·     Strong UK & Ireland performance, with system sales of £752.3m, up 19.6%, with like-for-like system sales, excluding splits, up 19.3% (18.4% including splits) aided by the reduced rate of VAT. Excluding the benefit of the reduced rate of VAT, underlying like-for-like system sales, excluding splits, grew by 5.5%

·      Underlying profit before tax of £60.8m, up 27.7%, driven by the strength of the core business and lower Covid-19 related costs 

·    Statutory profit after tax of £41.3m, up from £19.0m, benefitting from the successful disposal of all but one of the loss making international operations

·      Strong free cash flow performance increasing by 9.3% to £51.3m (H1 20: £46.9m)

·      Net Debt of £177.6m, (H1 20: £202.1m, FY 20: £171.8m) broadly in line with last year, 1.36x Net Debt/EBITDA on a continuing basis

·    In line with our capital allocation philosophy and commitment to distribute surplus capital to shareholders we are announcing an additional £35m to the existing £45m share buyback programme and will pay an interim dividend of 3.0p per share on 24 September 2021 

·      In FY 21 we have announced £136m of surplus capital to be returned to shareholders via dividends and share buybacks

Operational highlights

·      Strong sales performance boosted by our new integrated media campaign, 'Domin-Oh-Hoo-Hoo', targeting families and friends reuniting post lockdown and by the Euros group stage. The England vs Scotland match was our highest recorded trading day this calendar year

·     Total orders returned to a positive trend, up 3.5% in the first half, driven by collection orders up 27.1%, as we lap the closure of the collection business for much of Q2 last year. Collection orders traded at 71% of 2019 levels during the half, and are currently trading at over 75%   

·      Impressive service standards with best in class average delivery time of less than 25 minutes.

·      Digital momentum continues, with UK online sales up 25%, representing 93% of UK system sales

·      Excellent progress on disposal of discontinued international operations with Swedish and Icelandic disposals completed, leaving only the Switzerland business, where the disposal process is ongoing

·      Constructive engagement with our franchisees continues as we work together to reset our relationship to drive growth of the system - implemented new incentives to accelerate new store openings

Strategic update

·      We have made excellent progress in the first half on our strategic initiatives to deliver our medium-term ambition of total system sales of £1.6bn to £1.9bn

·      A new store incentive mechanism has been successfully deployed with 13 new franchised stores opened in the first half (H1 20: 8). The stores are trading ahead of expectations and provide confidence in our target to open up to 30 new stores in the year as we accelerate toward our medium-term ambition of 200 new stores

·    We continue to invest in the supply chain to support growth with the opening in April of a new supply chain centre in Cambuslang, Scotland

·     Investment in technology to drive sales has increased with our new online ordering App which features new Group Ordering functionality and Deal Wizard

·      Implemented an omni-channel customer engagement platform 'Braze', enabling a step-change in personalisation and automation of our CRM activity

·      Launched our In Car Collection service which is now available in over 300 stores

Current trading and outlook

The second half has started well with strong total order count growth as we benefitted from our supercharged marketing campaign, and the extended involvement of the English football team in the Euros. Our vertically integrated system has worked effectively to deliver great service to customers as we dealt with unprecedented peaks in demand. 

As the second half develops, we will operate within a shifting and uncertain landscape as the nation is released from the restrictions imposed by the Covid-19 pandemic, and the country returns to a level of normality. We believe this will benefit our Collection business, which we expect to gradually recover toward order count levels more in line with 2019. Our delivery business will face more competition as the hospitality trade reopens but we believe the strength of our brand and our continued investment in developing our offer will enable the delivery business to maintain its performance.

We have now passed the anniversary of the lower VAT rate which was introduced in July 2020.  As expected, as the scheduled VAT rate increases are implemented, our system sales growth will be lower in the second half. However, whilst changes in VAT impacts reported system sales growth it has limited flow-through to our profitability.

Our highly cash generative, flexible and robust business model is incredibly agile and can adapt quickly in changing market conditions. This has enabled us to increase our share buyback programme and provides us with confidence that we will continue to make progress in the remainder of this year.

Commenting on the results, Dominic Paul, Chief Executive Officer said:

"I am delighted with the performance of the business in the year to date. We've worked closely with our franchisees to maintain fantastic service levels to our customers, while continuing to prioritise the safety of our colleagues and customers. I'd like to thank everyone in the system for their incredible commitment through the pandemic.

We have continued to invest in the business as we focus on delivering our strategy with the opening of a new state of the art supply chain centre in Scotland, the launch of our redesigned mobile ordering App, and the roll out of our supercharged marketing campaign which has strengthened our brand and significantly boosted awareness levels.

The strong trading in the first half of the year provides us with the firm foundations for the delivery of our strategic growth objectives, which build upon our strengths in both delivery and collection. This will enable us to deliver strong system sales growth and increase our store numbers in the UK and Ireland.

Whilst the external landscape remains uncertain, the second half has started well. I believe our agile business model leaves us well placed to capitalise on the significant opportunities ahead while continuing to invest in our strategy, which will deliver benefits for franchisees and shareholders alike." 

Notes

1 System sales represent the sum of all sales made by both franchised and corporate stores to consumers in UK & Ireland

2 Like-for-like excluding splits system sales performance is calculated for UK & Ireland against a comparable 26 week period in the prior year for mature stores which were not in territories split in the year or comparable period. Mature stores are defined as those opened prior to 29th December 2019.

3 Underlying is defined as statutory performance excluding discontinued operations, and items classified as non-underlying which includes significant non-recurring items or items directly related to merger and acquisition activity and related instruments

⁴  Net Debt is defined as the bank revolving facilities, cash and cash equivalents and other loans, including balances held in disposal groups held for sale

Contacts

For Domino's Pizza Group plc:
Investor Relations

Will MacLaren, Head of Investor Relations

Geoff Callow, Fiona O'Nolan - Equitory                                        +44 (0) 7443 192 118

Media:

Tim Danaher, Samantha Chiene - Brunswick                              +44 (0) 207 404 5959

For photography, please visit the media centre at corporate.dominos.co.uk, contact the Domino's Press Office on +44 (0)1908 580757, or call Brunswick on +44 (0)207 404 5959

Results webcast

A results webcast and Q&A for investors and analysts will be held at 9.30 am today. The webcast and presentation can be accessed via the registration link and will also be available on the Results, Reports and Presentations page of our corporate website.

Financial calendar

Domino's Pizza Group plc will publish its Q3 trading update in October 2021.

Cautionary statement

Certain statements made in this announcement are forward‐looking statements. Such statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward‐looking statements. Persons receiving this announcement should not place undue reliance on forward‐looking statements. Unless otherwise required by applicable law, regulation or accounting standard, Domino's does not undertake to update or revise any forward‐looking statements, whether as a result of new information, future developments or otherwise.

About Domino's Pizza Group

Domino's Pizza Group plc is the UK's leading pizza brand and a major player in the Irish market. We hold the master franchise agreement to own, operate and franchise Domino's stores in the UK, the Republic of Ireland, Switzerland, and has associate investments in Germany and Luxembourg. As at 27 June 2021, we had 1,212 stores in the UK and Ireland.

Strategic and operational review

Performance summary

Trading in the first half of the year has been strong with underlying profit before tax of £60.8m, up 27.7% from the prior half year. This increase was driven by our teams and our franchisees as we continue to deliver great quality of service to our customers in a safe manner. We have managed to work hard to mitigate or remove the Covid-19 related costs and have benefited from a lower VAT rate on hot takeaway food in the first half. In the first half we incurred Covid-19 related costs of £1.5m (H1 20: £6.2m) and received an estimated VAT benefit of £3.7m (H1 20: nil). In addition our underlying business, our joint ventures, other investments and our corporate stores have continued to trade well and deliver good earnings growth.

As we move into the second half of the year, in line with the wider market, we are seeing some cost inflationary pressures and are monitoring closely labour availability, which is being affected by a combination of factors. However, at this time, we do not anticipate any impact from these issues to adversely affect our positive outlook for the financial year.

Statutory profit after tax in the first half was £41.3m, up £22.3m on last year as we have grown our core profitability and have significantly reduced costs and charges from our discontinued international operations as we have now completed the disposal of operations in Norway, Iceland and Sweden, leaving only our operations in Switzerland, which traded profitably in the first half, to be disposed.

Free cash flow generated by the business was £51.3m, an increase from £46.9m last year reflecting the strong trading performance. Net Debt increased by £5.8m from £171.8m at the start of the year to £177.6m with Net Debt/EBITDA leverage reducing from 1.75x at H1 20 to 1.36x (excluding IFRS 16).

The continued strong cash performance of the business means that in line with our capital allocation philosophy we are announcing an incremental £35m share buyback which is in addition to the previously announced share buyback programme of £45m of which we invested £28m in the first half of the year. In addition, we have announced an interim dividend of 3.0p (£13.8m).

Strategic delivery

We launched our new strategy in March 2021 with a vision to be the favourite food delivery and collection brand, with pizza at its heart. Our ambition is to deliver medium-term total system sales of £1.6bn to £1.9bn with a strategy centered on five growth pillars:

1.     Nobody delivers like Domino's

We start from a position of strength and have continued to build on the significant increase in delivery volume since the start of the pandemic. In the first half of the year we saw strong growth in delivery sales and have maintained average delivery times below 25 minutes from order. To support the growth of our delivery business we launched our new App which features new Group Ordering functionality and Deal Wizard.  App traffic has increased by 34% since launch and we have received excellent customer feedback.

2.     Turbo-charge our collection business

We continue to see a significant opportunity to drive an increase in collections to accelerate our growth. The collection channel opportunity represents the most efficient labour channel, with delivery effectively outsourced to the customer, particularly important in an environment where there are pressures on labour availability and labour inflation. In addition, collection is recovering as the country emerges from lockdown and, for the first half was at 71% of 2019 order count levels, and we expect further improvements during the second half. We launched our In Car Collection service which is now available in 300 stores and has received great customer feedback.

3.     Amplify our product quality and value

Our 'Value for money' scores improved in the period, giving clear evidence of better value for money being provided by franchisees to their customers, which in turn has driven an increase in the frequency of purchase. In response to customer feedback, we have brought back old favourites like Double Decadence and relisted items like Gluten Free that had to be removed as we simplified the menu in lockdown.

Under new Marketing leadership, and with great input from our franchisee partners, the team launched a new media campaign at the end of May to demonstrate that 'Nobody delivers like Domino's' through a strong creative platform, targeted media and increased investment. The 'Domin-Oh-Hoo-Hoo' campaign is rooted in reunions between friends and family and cements the Domino's brand as the perfect partner for these occasions, capturing the opportunities as lockdown eased across the UK. The fully integrated 'supercharged' campaign saw a significant shift to higher performing digital channels and included TV, radio, social, digital video and outdoor media. Early data suggests that we have driven awareness and consideration, and we have seen a significant rise in brand perceptions since the campaign went live.

4.     Uphold our industry-leading scale economics for both the Group and our franchisees

We have made good progress with our new store openings with 13 in the period compared to 8 in the comparable period last year and these stores are trading ahead of our expectations. We plan to open up to 30 new stores by the end of the year. In our commitment to health and safety within our supply chain operations, we have rolled out Cages and Dollies, which are used on deliveries to over 200 stores, with further expansion planned in the second half.

5.     Model excellence as a franchisor

We remain incredibly pleased with the operational performance of our world-class supply chain, which maintained 99.9.% availability and 99.8% accuracy in a half still coping with the unprecedented challenges of Covid-19 and Brexit. We continue to invest in our supply chain to enhance capacity and drive efficiency. Our new site at Cambuslang in Scotland opened in April 2021, with the capacity to support 150 stores, and is now fully operational and performing well.

Capital allocation

Our capital allocation philosophy is to use the free cash generated by the business to optimise long term shareholder returns, whilst operating a disciplined approach to assessing additional growth opportunities.

In the first half of the year, we have generated £51.3m of free cash, in addition we have received net cash flows of £11.6m from disposals and received £9.2m in relation to our investment in the German associate, giving a total of £72.1m of cash inflow. We have firstly invested £7.8m in capital investment in our core business to further enhance our supply chain and digital infrastructure leaving £64.3m of net cash generated in the period. This strong cash inflow enables us to announce an interim dividend of 3.0p, which amounts to £13.8m, set at approximately one-third of the value of the prior year total dividend. In addition, we are announcing an incremental £35m share buyback which will be returned to shareholders over the coming months.

As at 27 June 2021 the Net Debt/EBITDA ratio from continuing operations excluding IFRS 16 was 1.36x, which is below the lower end of our normalised range of leverage of 1.5x to 2.5x, largely as a result of the timing of the previously announced share buyback programme. If adjusted for the remaining obligation under the programme of £16.7m, the operating leverage would have been 1.49x.

Operational review

Our franchisees

We continue to have an open dialogue with franchisee representatives on how we can enable the whole system to align behind our strategic growth objectives to our mutual benefit. Some months ago, we provided the franchisee representatives with an offer that included an enhanced food rebate mechanism to encourage growth; new store incentives to accelerate store openings; capital investment from us to fund technology and digital enhancements; investment in our capabilities to enhance marketing through data & insights and an agreement from franchisees to participate in national deals.

Where appropriate, we are implementing components of the proposed offer which is delivering early results. In March 2021 we made the proposed new store incentive available to all franchisees. which resulted in new store openings increasing from two in the first quarter to 11 in the second quarter. The 13 new stores were franchised by six different franchisees, demonstrating that when our interests are aligned, our franchisees remain enthusiastic to invest in system growth. We have also recruited and invested in additional resource in Marketing and Data & Insights which has enhanced our capabilities and delivered improved returns.

Our franchisees continue to work tremendously hard in challenging and variable market conditions and their trading performance has maintained the strong momentum achieved in the second half of last year. Based on the unaudited data submitted to us by franchisees, average store EBITDA for all UK stores for the first half of the year was approximately £154k, equivalent to a 25% EBITDA margin. This compares to £85k or 16% margin achieved in the first half in 2020. In the second quarter of last year the franchisee profitability would have been significantly impacted by the effects of the Covid-19 pandemic, with significant extra costs incurred, disruption to operations and the closure of the collection business for a period. Conversely, whilst franchisees have passed on some of the benefit of the VAT rate cut through increased discounts to consumers, the net benefit of the VAT reduction has assisted franchisee profitability in the first half of this year.  

Reported revenue

Revenues from sales to external customers included within our income statement are summarised above. The most significant element of our revenue is derived from products sold through our supply chain to our franchisees which has grown by 7.2% in the first half of the year driven by increased volumes.

Royalty, rental and other revenue is primarily the royalty revenue we receive from our franchised stores based upon a percentage of their system sales. This has grown significantly in the first half as a result of the significant increase in system sales. Corporate stores revenue is the sales made by the stores we directly operate.

Revenue relating to the National Advertising Fund ("NAF") and eCommerce funds is recognised based on costs incurred and has increased by 31.6% due to the increased marketing and IT spend in the period, in particular relating to the new marketing campaign launch described above.

System sales performance

System sales represent all sales made by both franchised and corporate stores to consumers. Like-for-like system sales across UK & Ireland grew by 19.3%, excluding split stores (18.4% including splits). The quarterly analysis of this performance is in the table below which shows very strong like-for-like growth in the first half, which was as a result of the reduction in the rate of VAT on hot takeaway food from 20% to 5% which was effective from 15 July 2020 in the UK and has continued to apply throughout the first half of 2021.

The VAT rate reduction is on hot takeaway food and therefore applicable to the system sales made by stores to consumers. If the sales price to the consumer is unchanged then the VAT rate reduction effectively delivers an increased system sales value, which flows through to like-for-like system sales growth. The benefit of the VAT rate reduction therefore primarily accrues to our franchisees to help them to continue to trade throughout the pandemic period and enables them to drive growth and increase the level of discounts they can offer their consumers.

There is only a limited direct benefit to our profitability from the VAT rate reduction as the majority of our revenue is made by our supply chain upon which the rate of VAT has not changed. Our benefit is derived from a small increase in royalty on the system sales reported by our franchisees and the sales from our corporate stores and joint ventures.

The rate of VAT on hot food takeaway is scheduled to increase from 5% to 12.5% from 1 October 2021 and return to 20% from 1 April 2022. From 15 July 2021, our reported like-for-like system sales has reduced as both the current year and the comparative include VAT rates of 5%. Assuming the VAT rate does increase as planned in October, then we would expect reported like-for-like system sales to lower further as the current year net sales would be based on a 12.5% VAT rate compared to a 5% rate in the comparative period.

The sales and order count performance for the first half is illustrated below. Like-for-like sales grew in the first half by 18.4% with a strong volume improvement of 4.8% supplemented by pricing growth which largely arises from the effect of the VAT rate reduction.

Total order count grew in the first half by 3.5% with very different reported performance in Q1 and Q2 largely driven by the effects of the Covid-19 pandemic on the business last year.

In the first quarter, total order count was down 5.2% mainly due to collection being down 34.5% as the Covid-19 stay-at-home guidance continued to materially impact the collection business.

In the second quarter, we have seen order count return to growth, up 13.5% as collection was up nearly 500% as its recovery to normalised levels continues and because the collection business was closed for much of the comparative period. Delivery orders were down 8.7% compared to the same quarter last year as Q2 last year was particularly strong (up 22%) as the first full lockdown of the country was implemented and many competitors closed for business,

Digital, Data & Insights

Domino's is now a truly digital business, in our ways of working, our decision making and our customer engagement, and we continued to demonstrate our digital-first approach in the first half. Digital channels performed well, continuing the strong growth we saw in 2020 as customers increasingly order via our online channels. Half year online sales in the UK grew 25% to represent 93% of system sales, or 96% of total delivery sales and in Ireland the online sales grew to 80%, up from 78% in H120.

Our App continues to be the driving force of our digital progress. At the end of May we launched our new App for iOS and Android, with a new customer interface and including our new Deal Wizard functionality, which finds customers the best deals in their baskets, our new Group Ordering functionality, and In Car Collection, available at over 300 stores. During the half, the App accounted for 40.7% of system sales, or 43.8% of all online sales.

The Data & Insights team aims to ensure business decisions are being led by the rich customer data Domino's holds, particularly relevant across marketing, sales, operations and food innovation. A key initiative for 2021 is to build our capability to enable personalisation to support marketing and sales campaigns and roll out our new Digital functionality. We have integrated the new CRM platform, 'Braze' into our data warehouse, enabling personalisation of marketing campaigns and we have built a segmentation model to ensure CRM is personalised to our customer's life stage with Domino's. 

Corporate stores

We directly operate 35 stores in the London area, with two store closures in the first half. Whilst our corporate stores have been disproportionately affected by Covid-19 due to the greater impact of the restrictions seen in central London, we have begun to see the benefit from easing of lockdown restrictions as we lap the closure of collection orders from Q2 2020 lockdown. An increase in footfall, along with some VAT benefit, has led corporate store revenue to increase by £2.2m to £17.7m, up 14.9%. Like-for-like sales excluding splits up 17.2%, with Q1 up 9.5% and Q2 up 25.7%. The EBITDA of corporate stores was £2.1m, compared to £0.3m in H1 20. Improvement in EBITDA is driven by higher order count as we lap the first peak of the Covid-19 pandemic, in addition to the reduction in the rate of VAT. 

International - German associate (continuing activity included within underlying results)

Our share of post-tax underlying profits from our German associate was £2.2m (H1 20: £1.9m). Performance has improved versus last year driven by sustained strong same store sales growth over the period. Our investment in the German associate continues to be a valuable investment, which we hold on our balance sheet at an aggregate value of £40.7m. We have a put option exercisable from 1 January 2021 to 31 December 2023 which is not valued within our balance sheet, in accordance with the requirements of IFRS. In total we believe that exercising our put option and disposing of our interest in the associate could yield total cash receipts of £80-£110m depending on EBITDA performance of the associate and the timing of exercise. The majority shareholders have a call option exercisable from 1 January 2023 on the same valuation basis.

International - Discontinued operations

Following the decision by the Board to exit from the markets of Norway, Sweden, Switzerland and Iceland in October 2019, the trading results of these territories, together with international central costs, have been classified as discontinued operations and excluded from underlying results, consistent with the treatment in both 2020 and 2019.

In March 2021, we announced that we had agreed terms for the disposal of our discontinued businesses in Sweden, with a net cash payment due to the purchaser of £2.8m, of which £0.4m is deferred, and in Iceland, for net consideration of £13.5m. The Sweden transaction completed on 2 May 2021 and Iceland on 31 May 2021. The process of disposing of our interests in Switzerland is on-going.

Financial review

The results for the Group are summarised below

Underlying performance

Group revenue increased by 12.5% to £277.8m driven by growth in food and royalty sales, together with increased revenue recognised for marketing contributions from franchisees, as discussed in the performance review section above.  

UK and Ireland underlying EBIT was £61.7m, an increase of 24.6% from the prior year. The Group incurred a net benefit of £2.2m in relation to Covid-19 related costs, largely as a result of additional royalty, joint venture and investment contribution due to the VAT reduction offset with continued additional costs incurred. This compares to costs incurred in H1 20 of £6.2m. Adjusting for these costs, UK and Ireland EBIT increased by £3.8m, of which £2.1m relates to a gain to the fair valuation of our investment in Shorecal, with the remaining increase of £1.7m driven largely by higher sales volumes.

Our associate investment in Germany contributed £2.2m (H1 20: £1.9m), as a result of continued positive trading performance, which leads to an overall Group underlying EBIT of £63.9m, an increase of 24.3%.

Net underlying finance costs in the period were £3.1m, a decrease from £3.8m in H1 20 following the overall reduction in Net Debt.  Overall underlying profit before tax was £60.8m, an increase from £47.6m in the prior period.

The underlying effective tax rate for 2021 was 18.1% (H1 20: 16.2%), which is lower than the UK statutory rate mainly due the contribution of the joint ventures.

Profit after tax and non-underlying items

Statutory profit after tax from continuing operations was £48.9m, up from £38.3m in the first half of 2020. This consists of the underlying profit after tax of £49.8m (H1 20: £39.9m), with net non-underlying items totalling a loss of £0.9m, compared to a loss of £1.6m in H1 20. These costs are itemised in full in note 5, and largely relate to £1.1m of professional fees associated with the establishment of our long-term strategy in the early part of the year and further marketing costs related to the disposal of our international operations.

Discontinued operations

In May 2021, the Group disposed of the operations of Sweden and Iceland, with the process of disposing Switzerland currently ongoing. The discontinued international operations contributed a total loss of £7.6m (H1 20: £19.3m), which consisted of a trading loss of £0.6m (H1 20: £8.5m) and loss on disposal of £7.0m (H1 20: £10.8m).

This is split by operation below:

The loss on disposal of Iceland relates to the total consideration on disposal of £13.5m, offset with the net assets disposed of £13.6m, professional fees of £0.4m and currency translation reserves recycled of £6.1m. The currency translation losses recycled represent the historical gains and losses built up on retranslation of the assets and liabilities of the foreign operation on consolidation from local currency to pounds sterling, which were recognised within the currency translation reserve from acquisition to disposal and presented in other comprehensive income. On disposal, these amounts are recycled from the currency translation reserve to the income statement and presented as part of the loss on disposal.

The loss on disposal of Sweden of £0.4m consists of the consideration paid to the purchaser of £2.8m, professional fees incurred of £0.4m, currency translation losses recycled of £0.5m offset with the net liabilities disposed of £3.3m.

Overall statutory profit after tax, after including the loss from discontinued operations, was £41.3m, up from £19.0m in the first half of 2020.

Earnings per share

Underlying basic EPS increased to 10.7p from 8.7p as a result of the increased underlying profit performance. Statutory EPS increased to 8.9p from 4.4p, due to both increased underlying performance and a reduced loss from discontinued operations.

Free cash flow and Net Debt

Free cash flow was an inflow of £51.3m (H1 20: £46.9m), of which £50.3m relates to the UK & Ireland business and £1.0m relates to the discontinued international business. Underlying EBITDA was £71.7m, with discontinued operations EBITDA contributing £0.2m.

Working capital movements resulted in a cash inflow of £3.5m in the period, largely as a result of timing of marketing payments. The significant working capital movement in H1 20 of £17.2m was due to the reversal of a change in payment timing from the previous year end.

Net lease payments decreased from £8.4m to £5.0m, largely driven by a change in lease payment timing in H1 20 which has now normalised. Dividends received of £2.6m relates to amounts received from our UK joint ventures of £1.0m, and from the Shorecal investment of £1.6m.

Non-underlying cash primarily relates to the payment of professional fees associated with the international disposals and establishment of the long-term strategy during the early half of the year.

Capital expenditure has remained relatively consistent year on year, with a total outflow of £7.8m, broadly in line with previous guidance. Funding from the German associate primarily relates to settlements of outstanding loans in place with the associate.

In March 2021, the Group received the first instalment of the Market Access Fee of £6.4m, relating to the performance of the German associate in the 2020 financial year.

Net cash inflow on disposals of £11.6m consists of the net cash received on the disposal of Iceland of £13.5m and £0.5m deferred consideration receipt related to the previous disposal of the Shayban joint venture in 2018, offset with the net cash paid on disposal of Sweden of £2.4m.

Dividends paid of £42.3m relates to the FY 20 dividend, which was paid in May 2021. Due to the suspension of the
FY 19 dividend, no dividend was paid in the 26 weeks ended 28 June 2020.

Share purchases of £31.3m outflow (H1 20: £0.4m inflow) relates to the cash paid to 27 June 2021 on the previously announced share buyback programme of £28.4m, together with £2.9m of share repurchases for the Employee Benefit Trust. The outflow in H1 20 of £0.4m relates to receipts relating to the Employee Benefit Trust. The remaining obligation under the announced share buyback scheme of £16.7m remains payable at 27 June 2021.

Capital employed and balance sheet

Intangible assets have increased by £1.7m as a result of additional capital expenditure of £4.6m, largely relating to IT software development, offset with £2.9m amortisation. There have been no further impairments of intangible assets in the period.

Property, plant and equipment has decreased slightly by £0.4m, as a result of additions of £2.1m offset by depreciation of £2.5m.

Right-of-use assets have increased by £1.4m largely as a result of new fleet leases entered into relating to the distribution network. Lease receivables, which represent the amount due under the back-to-back leases held with franchisees, have decreased from £204.7m to £201.4m as capital receipts exceeded interest and additions of new leases.

Investments, associates and joint ventures represents our investment in the German associate and our investment in Full House Restaurant Holdings Limited and Domino's Pizza West Country Limited in the UK, which are treated as associates and joint ventures respectively, as well as our investment in Shorecal. The overall balance held has increased from £51.7m to £56.1m as a result of additional profit share or fair value gains in excess of dividends received in the period.

The Market Access Fee asset has decreased from £15.3m to £8.7m following receipt in March 2021 of the amount due for the 2020 calendar year. The remaining amount of £8.7m represents the current estimate of the amount payable for the 2021 calendar year, which is due to be received in early 2022.

Lease liabilities have decreased from £226.5m to £224.7m as a result of capital payments under the leases in excess of interest charged. There have been no significant changes to the lease portfolio held during the year.

Working capital has increased from negative £21.9m to negative £27.4m largely as a result of timing differences in creditor payments, as outlined in the cashflow section above.

The Net Debt above of £180.6m represents the balance held by continuing operations, and excludes the cash held in the remaining discontinued operations of £3.0m.

The share buyback obligation of £16.7m represents the remaining amounts committed under the £45m share buyback programme announced in March 2021.

The overall balance held within assets and liabilities held for sale has decreased from £14.6m to £1.0m as a result of the disposal of Iceland and Switzerland, and now represents the remaining assets held relating to Switzerland, largely consisting of cash of £3.0m and fixed assets of £0.2m offset with negative working capital of £2.2m.

Total equity has decreased from a net liability position of £8.8m to £47.5m, as the total profit for the period of £41.3m and other comprehensive income of £9.4m and other positive equity movement of £1.0m have been offset with dividend payments of £42.3m and the overall £45m share buyback obligation. There are sufficient distributable reserves in the standalone accounts of Domino's Pizza Group plc for the proposed dividend payment and announced share buyback. The reserves available for distribution of Domino's Pizza Group plc at 27 June 2021 were £55.6m

Treasury management

The Group holds an unsecured multi-currency revolving credit facility of £350m to December 2023. The total undrawn facility at 27 June 2021 was £131.5m. We ended the period with Net Debt of £177.6m, and last 12 months Net Debt/EBITDA ratio on a continuing basis decreased to 1.36x from 1.75x, as a result of increased EBITDA performance in the year and a lower Net Debt level. These figures exclude the impact of IFRS 16, which was adopted in the 2020 financial year, and therefore to provide comparatives for the last 12-month figures for each half year, the impact of adoption of the standard is excluded from the calculation.

FY 21 Guidance

For the current financial year, we expect:

·      Execution of new strategy to deliver further growth in earnings

·      We expect to incur Covid-19 related costs of c. £2.5m in the year (FY 20: £9.0m). The VAT benefit for the full year is estimated at c. £6.0m (FY 20: £3.6m)

·      Underlying depreciation & amortisation of between £16m to £18m

·      Underlying interest (excluding foreign exchange movements) in the range of £4m to £6m

·      Estimated underlying effective tax rate of c. 18% for the full year

·      UK&I capital investment of c. £15m

·      Net Debt at year-end around £200m.

Group income statement

26 weeks ended 27 June 2021

Group statement of comprehensive income

26 weeks ended 27 June 2021

Group balance sheet

At 27 June 2021