Domino’s lifts profit, eyes expansion into Japan

BLAIR SPEEDY
August 13, 2013
The Australian

FAST-food franchisor Domino’s Pizza Enterprises is set to buy a 75 per cent stake in Domino’s Pizza Japan in a deal worth $236 million and funded by a discounted equity raising.

The news came as DPE reported a net profit of $28.7m for the 12 months to the end of June, up 7 per cent from the previous financial year, while sales were up 5.4 per cent to $848.6m.

Chief executive Don Meij described the result as “solid” and attributed the profit growth to the introduction of new pizzas including the Chef’s Best range, as well as increased online sales, which now accounted for more than 50 per cent of revenue.

The company added 67 new stores over the course of the financial year, including 27 in Australia and New Zealand, taking the total international store count to 970, including more than 500 in Australia.

Meanwhile the company has bought a 75 per cent stake in the Japanese Domino’s franchise from private equity group Bain Capital for 12 billion yen ($135m).

The company is also providing JPY9 billion yen in debt to the 259-store Japanese business, bringing the size of the total transaction to $236m.

DPE will fund the purchase through a $156m renounceable entitlement offer of five new shares for every 23 shares already held, priced at $10.20 per new share – a 13 per cent discount to the $11.82 at which the stock closed on Monday.

The company said 27 per cent shareholder Somad Holdings – controlled by Hungry Jack’s founder Jack Cowin – had already given an irrevocable commitment that it would take up its full entitlement under the offer, while the $114m balance of the equity raising was fully underwritten.

The deal with Bain includes an option to sell its minority stake to DPE three years after the acquisition is completed next month, while DPE has the option to buy Bain out after five years, both at a price of 17.5 times earnings.

Mr Meij said Japan was a large market with significant opportunities to open new stores, and to improve the existing store base by relocating sites to higher-traffic locations with better store fit-outs.

The Japanese business is forecast to boost earnings per share by around 9 per cent this financial year.

Domino’s declared a final dividend of 15.4c per share, fully franked, bringing the total dividend for the year to 30.9c, up from 27.1c paid in respect of the previous financial year.

DPE holds the master franchise rights for the Domino’s brand in Australia, New Zealand, France, Belgium, the Netherlands and Monaco.