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DP Poland plc

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

Interim Results and Trading Update

DP Poland, the operator of pizza stores and restaurants across Poland and Croatia, is pleased to announce its unaudited results for the six months ended 30 June 2022, as well as a trading update for the months of July and August.

Nils Gornall, Chief Executive Officer, said: "H1 2022 saw the company move into a profitable EBITDA position and I am confident that we can further build on this in the second half of the year. Positive sales trends have accelerated in H2, with July and August like for like sales growing at a rate of >30% year on year. However, we remain vigilant against the strong inflationary environment facing companies and consumers alike, although we are seeing early signs of some pressures easing.

Our recently completed capital raise puts the Company on a strong financial footing to continue to grow market share. In H2 our focus will be on rolling out a High Volume Mentality across all stores, ensuring that operational best practices are fully-embedded to capitalise on this opportunity. Increased marketing and a relentless focus on our strong customer value proposition is expected to deliver new records, supported by the men's football World Cup."

Financial highlights

·      Like For Like ("LFL") System Sales in H1 increased by 23.8% year on year (in local currency)

o  LFL increase of 21.8% in Q1, accelerating to 25.6% in Q2

o  Rapid recovery of dine-in sales with 128.1% LFL growth compared to H1 2021, whilst growing the strong delivery sales recorded in H1 2021 (+2.5% LFL)

·      Total system sales increased by 16.8% to £17.1m (H1 2021: £14.6m)

·      EBITDA[1]  increased to £388k (H1 2021: £(14k))

·      Cash at bank of £1.7m at 30 June 2022 (£1.4m as at 30 June 2021), before the £4.8m gross equity fundraise in August 2022

[1] excluding non-cash items, non-recurring items and store pre-opening expenses

Operational highlights

·      Continued investment in the delivery platform, including personnel and IT

o  There is a strong correlation between delivery times and consumer satisfaction

o  Average delivery times have reduced significantly, resulting in improved Net Promoter Scores, which measures customer satisfaction, for new and existing customers

o  These initiatives are expected to generate a high return on investment, building solid foundation for sustainable revenue growth

·      Price increases implemented across the store and restaurant network and cost reduction plans are under way to mitigate the high inflationary pressures across the Group's cost structure. We expect impact of these inflationary pressures and resulting drag on margins to reverse and are already seeing green shoots as a result of our actions.

·      Two new stores opened in H1 2022, with record sales achieved in the first weeks of operations.

·      Post period end, Nils Gornall joined the Company as CEO, bringing 28 years of operational experience at Domino's businesses. Nils is rolling out a High Volume Mentality (''HVM'') across our network as part of his 100 day business plan, which also includes:

o  opening new stores in strategic secondary cities, closing and relocating loss making stores;

o  investment in staff training, technology and fleet to reduce delivery times;

o  benchmarking initiatives to review buying power and drive efficiencies; and

o  developing a sub-franchise plan for 2023.

Unaudited Financial Information

*excluding non-cash items, non-recurring items and store pre-opening expenses

The Group's performance in H1 2022 was the least impacted by lockdowns or other COVID-19 related restrictions since 2019. Total System Sales grew 16.8% in H1 2022, benefitting from a strong recovery of dine-in sales, while the strong delivery sales of H1 2021 were maintained. This was achieved through a combination of successful marketing efforts, united under one Domino's brand, an increase in the digital marketing budget and a relentless focus on shortening the delivery times and improving customer satisfaction. The sales growth represents an increased volume as well as higher average cheque, as the Group adjusted its pricing strategy to the inflationary environment.

The Group achieved a strong increase in EBITDA to £388k profit in H1 2022, following the marginal loss of £14k in 2021. To achieve further sales growth, the Board is focussing on two key fronts:

·      Increasing market share: Against a tough economic backdrop, the Company is capitalising on our comparative advantage by growing market share. DP Poland is navigating this environment from a strong position given our size and focus on high product quality, service standards and customer satisfaction. The Board in focused on normalising margins and growing market share, and expect higher profitability in the medium term.

·      Inflation: There is a lag between cost inflation (exacerbated by the Russian/Ukraine war) and our ability to raise prices which was implemented in early Q2, temporarily impacting margins.

Trading update

Sales growth has accelerated in July and August, with LFL growth of 28.8% and 34.7% respectively compared to 2021, and by 36.1% and 35.1% respectively compared to the pre-pandemic 2019. The growth is visible across all sales segments, with dine-in and carry out business growing at 48% in August 2022 compared to prior year (and 24% compared to 2019) and delivery growing by 27% compared to prior year.

In the year to the end of August, we have seen double-digit LFL revenue growth compared to 2021:

·      25.8% increase in total LFL System Sales

o  92.3% LFL dine-in revenue growth

o  6.9% LFL delivery revenue growth

When compared to the pre-pandemic environment of 2019, the Group has also recorded compelling LFL revenue growth metrics:

·      27.4% increase in total LFL System Sales

o  18.9% LFL dine-in revenue growth

o  32.3% LFL delivery revenue growth

A continued strong LFL revenue growth is expected to be supported by the implementation of the High Volume Mentality approach, supported by continued marketing efforts. In addition, the Group expects to accelerate the new store opening program to further drive top line growth.

The total system sales (i.e. including non-LFL sales) have also recorded strong growth rates of 27.4% and 33.3% respectively for July and August 2022 compared to 2021 and by 28.4% and 26.5% respectively compared to the pre-pandemic 2019.

Post-balance sheet events

Since the end of June 2022, and the publication of interim results, the Group has:

·      completed the acquisition of All About Pizza d.o.o., a master franchise operator of Domino's Pizza stores in Croatia, in July 2022;

·      raised gross proceeds of £4.8m in the equity fundraising in August 2022; and

·      appointed Nils Gornall as CEO, Andrew Rennie as NED and announced the proposed appointment of Edward Kacyrz as the new Chief Financial Officer.

Please refer to the applicable RNS announcements for details of the above.

In August 2022, Dominium received a VAT refund for 2011 in of approximately £0.4m out of which 50% will be paid out as part of the addition consideration for Dominium (as stipulated in the original SPA). As noted in the Admission Document published on 21 December 2020, prior to the acquisition of Dominium by DP Poland, the Group has paid £1.4m of VAT payables disputed with the Polish tax authorities (referring to sales for the period 2011-2016). Each disputable year is considered separately by tax authorities and Polish Supreme Administrative Court.

Enquiries:

DP Poland PLC

+44 (0) 20 3393 6954 

Nils Gornall, CEO

Singer Capital Markets

+44 (0) 20 7496 3000 - NOMAD and Broker

Shaun Dobson / Will Goode / Amanda Gray

Notes for editors

About DP Poland plc

DP Poland, has the exclusive right to develop, operate and sub-franchise Domino's Pizza stores in Poland and Croatia. The group operates over 120 stores and restaurants throughout cities and towns in Poland and Croatia.

Chief Executive Officer's Review

It is a great pleasure to address you in my new capacity as the Chief Executive Officer of DP Poland plc, following my appointment as of 1 August 2022. Having had the opportunity to engage with our work force and visit our stores, I feel confident in the strong foundations we have put in place to deliver strong growth, which is already visible in our recent trading performance.

Supported by the recently completed equity fundraising and the reenergised team, we are well positioned to capitalise on the opportunity to grow market share and sales volumes under our High Volume Mentality. Market conditions have been challenging, predominantly related to the inflationary pressures visible in food, labour and utility cost.

We look forward to the arrival of Mr. Edward Kacyrz as the Company's new Chief Financial Officer (subject to completion of normal regulatory due diligence), which is expected to happen by 1 December 2022, filling the position to be vacated by Ms. Malgorzata Potkanska.

Store performance

The Company has seen strong top line performance in the first six months of 2022, recording 26.3% LFL growth compared to prior year and a similar metric 17.8% compared to the pre-COVID 2019. The growth vs. prior year was achieved through a combination of (i) a strong recovery of dine-in sales following the release of lockdown restrictions; and (ii) continued dynamic growth of delivery sales, improving on the already strong performance in 2021 during the pandemic.

Our restaurants with waiter service saw a full recovery of the traffic lost in prior years, with dine-in recording 21.3% LFL growth in June 2022 compared to June 2019 and a 55.8% LFL growth compared to June 2021. Despite the already high base of delivery sales in June 2021, deliveries in June 2022 have also recorded an attractive 9.6% LFL growth.

I am happy to report that the strong growth dynamics recorded in H1 2022 have been further improving later in the year, with the Company recording LFL system sales growth of 31% in July followed by 35% in August (both metrics compared to 2021 performance). This performance is supported by both sales channels - dine-in / carry-out as well as the delivery business. Not only is sales growth strong, but also backed by strong volume growth of orders. The Company recorded 17.7% LFL growth in order count in July, and 10.7% LFL growth of order count in August (again both metrics compared to 2021 performance).

The week commencing 15 August 2022, also saw a record sales week for the Polish market achieving the biggest sales since the acquisition of Dominium and Domino's in January 2021.

Customer satisfaction

Delivering a great product, service and experience is at the forefront of our business. We have prioritised improving the quality of our customer value proposition, principally through a reduction in delivery times. This has been shown in other markets to improve the frequency of ordering by our loyal customers as well as win new customers. We have also been working to reduce bottlenecks and prepare the business for increased order volumes, something we expect to see benefits of in the coming quarters. As a direct result of those initiatives, we have evidenced an improving Net Promoter Score as well as a substantial drop in our delivery times compared to beginning of 2022.

Input cost inflation and mitigating action

The Russian aggression on Ukraine continues to have substantial adverse implications on the stability of supply chains across key sectors of the economy, including food, energy and logistics. This has further aggravated the inflationary pressures visible in late 2021 and early 2022, with significant increases in the cost of food inputs, fuel and energy. The Company is not immune to those pressures as food cost and labour pressures continue to be a key management focus.

The team has been working hard to mitigate these pressures, through supply contracts renegotiation, process optimisations, improved labour efficiencies and general cost scrutiny. Nevertheless, the cost efficiencies achievable have been disproportionate to the scale of inflationary pressure and adjustments to our pricing have become a necessity. Similarly, to the wider hospitality market in Poland, we have therefore implemented several price increases affecting list prices as well as our promotional efforts. We believe that our scale of operations and the resulting efficiencies, as well as the value-for-money proposition of a pizza meal, will make us a net beneficiary compared to other local restaurants.

Expansion to Croatia

The Company's recent acquisition of Domino's Pizza operations in Croatia has provided aspirational benchmarks for the core Polish business. Our Croatian stores generate sales that are almost twice as high (on a per-store basis) compared to Poland. Furthermore, the combined food and labour cost as percentage of sales is approximately 8 per cent. lower than in Poland. We aspire to bring the Key Performance Indicators of the Polish stores much closer to the benchmarks achieved in Croatia, and our country teams are exchanging best operating practices on a daily basis.

Fundraising

DP Poland plc raised gross proceeds of £4.8m in August 2022, which will allow us to accelerate growth and selectively invest in value-accretive optimisation projects. Since the beginning of the year we have opened two new stores in Poland and a further one in Croatia, and are developing the store opening pipeline to accelerate further later this and in the following year.

We have a compelling customer proposition and a strong and improving business model. These will help us navigate the temporarily adverse market conditions. I am looking forward to the journey alongside my executive team and fellow colleagues.

Outlook

It is our ambition to combine the strong top line growth with significantly improved profitability. While we have seen an improvement in H1 2022, we had expected to perform better without the inflationary pressures. While the improvement of business profitability and positive cash flow is the prime goal for the entire team, we have made the decision to prioritise growth over maximising short-term profitability.

It is fundamental for the business to keep its customers returning and further increase order count, as this will deliver our long-term targets. Considering the unprecedented cost inflation, passing all cost pressures onto customers too rapidly could be counterproductive. We have therefore revisited our pricing strategies and made several consecutive, but smaller-scale, price increases. We are also progressing several operational excellence projects which, alongside continued fast LFL growth, is expected to bring the Company to profitability.

Finally, I have now had the opportunity to fully review our store portfolio. Group profitability is being hampered by a few loss-making stores which we intend to relocate to more profitable locations. This portfolio optimisation will require some capital investment but is expected to generate significant returns and drive growth. Stripping out these locations would have brought the pre-IFRS 16 EBITDA into profits for H1 2022.

Financial Statements

Group Income Statement