Domino’s Pizza Enterprises (ASX: DMP) has matched its largest ever store expansion with plans to bed down the biggest acquisition in the company’s history by snapping up the existing Domino’s Pizza businesses in Malaysia, Singapore and Cambodia for $214 million.
The acquisition, which could be worth as much as $356 million if earn-out bonuses are achieved, will almost double the Brisbane-based Domino’s international footprint and boost the company’s serviceable market in the Asia-Pacific region by 30 per cent to 234 million people.
The acquisition was announced at the same time as Domino’s reported a 14 per cent fall in its bottom-line profit to $158.7 million for FY22. The full-year result comes off a record FY21, which was driven by a spike in pizza deliveries globally during lockdowns.
However, Domino’s notes that global food sales hit a record $3.92 billion in FY22, with online sales passing $3 billion for the first time and, despite a 10.5 per cent drop in EBIT to $262.9 million in FY22, the group’s underlying profit is now 19.1 per cent higher than before the pandemic.
Domino’s says the FY22 full-year result was impacted by the combination of ‘rapidly changing sales conditions’ in the first half, a major reinvestment in its franchise business in Australia and New Zealand, and the rebuilding of the Danish business which was acquired in 2019.
The past financial year was significant for the company in terms of store expansion, having opened 294 new stores in FY22, or an average of more than five stores a week. With the 156 stores acquired from its 10th global market, Taiwan, Domino’s added a total of 450 new stores during the year.
The acquisition announced today of Malaysia, Singapore and Cambodia operations will add 287 new stores to the company’s network, with most of them (240) located in Malaysia.
The jump in store numbers has led Domino’s to lift its targeted store count in Asia from 2,400 stores to 3,000 stores by 2033.
“This is a tremendous opportunity for our business, and for those joining our business,” says Domino’s CEO Don Meij.
Domino’s has secured the three new territories for a base price of $214 million from Malaysian company Mikenwill (M) Sdn Bhd and Singapore’s Impress Foods Pte Ltd. If earn-out targets are reached over the next two to three years, this could add another $142 million to the price.
Domino’s is the second-largest pizza chain by store count behind Pizza Hut in these three regions.
“Domino’s Pizza Enterprises has never entered a market as number one, nor do we impose our flavour preferences on a new market,” says Meij.
“We intend to apply our high-volume mentality, our technology and our operational expertise to grow our market share in these countries, with the potential to develop entrepreneurs through franchising.
“Our teams have built a ‘centre of excellence’ in the APAC region – world-class operations, technology and marketing, led by experienced professionals. We intend to apply the lessons from our best operations in all markets to work with the team in these new markets to lift performance to the next level.”
Domino’s plans to secure the services of current group CEO of the new Asian businesses, Ba U Shan-Ting, a 22-year pizza industry veteran. He will work in collaboration with Domino’s regional CEO Ringo Joannes to grow the business. Joannes, a former multi-unit franchisee, had previously overseen the Belgian business since 2019.
In a closer look at Domino’s latest profit result, the group delivered a 2.8 per cent increase in EBIT to $3.3 million in Australia and New Zealand with 20 store openings in the second half and the refranchising of 30 stores.
Asian operations were hit by a ‘rapid change in sales’ in Japan following a COVID state of emergency declared in the first half, combined with foreign exchange headwinds, to deliver a 9.7 per cent fall in EBIT. But the company notes that EBIT is now $31.7 million, or 59 per cent, higher than before the pandemic.
In Europe, where Domino’s rapidly grew its business during COVID, the group also suffered an 11 per cent drop in EBIT for FY22, although this is 21.8 per cent up on pre-pandemic levels.
Domino’s has revealed that sales in FY23 so far are tracking behind FY22, but it notes this is coming off the rapid 26.2 per cent sales growth of the previous two years.
“At the start of COVID-19 we had a choice - to be defensive or to invest in growing a larger, more sustainable business,” says Meij.
“We chose the latter course and will continue to do so. Today’s announcement of a substantial acquisition in Asia demonstrates our ability to pursue growth now, and into the long-term.”
Domino’s is paying a final dividend of 68.1c per share.
Shares in DMP are up 9.59 per cent to $73.50 per share at 11.16am AEST.
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