Domino's aims to feast on Japan's pizza market
Domino's Pizza Enterprises boss Don Meij believes he is snatching market share in Australia from hamburgers, chicken and sandwich shops, and will now go after sushi eaters after unveiling the $280 million acquisition of Japan's third-largest pizza delivery chain.
The pizza veteran on Tuesday unveiled the company's biggest acquisition since Domino's floated in 2005. The Australian-based group will buy a 75 per cent stake in Domino's Pizza Japan and set it on a strong growth trajectory to more than double its store numbers.
Domino's has triggered a $156 million five-for-23 share offer priced at $10.20 to partly fund the purchase from private equity firm Bain Capital. Bain will remain a 25 per cent owner in the business.
The company will also provide $101 million of new debt funding.
The deal adds to Domino's geographic spread, and will push Domino's annual revenues past the $1 billion level for the first time.
Mr Meij said the growth potential in Japan was enormous, with the average Japanese ordering a pizza only three times a year, against the average Australian, who consumes a pizza every 18 days.
"The acquisition represents an exciting opportunity to leverage our proven track record of successfully growing the Domino's network to deliver shareholder value," Mr Meij said. "Japan is a strategic location for [Domino's] future expansion, providing access to a large market which is well suited to significant new store rollouts and the relocation of stores to higher-traffic locations with improved image and formats."
Mr Meij said Domino's Pizza Japan had 259 stores, with a target to quickly grow that to 600 stores. The acquisition would lift Domino's total store numbers to more than 1200 stores across three continents. The acquisition would be 9 per cent earnings per share accretive, Mr Meij said.
Domino's also unveiled its full-year results, built on booming sales in Europe and continued growth in its Australian operations, which showed a 6.4 per cent rise to $28.66 million, while total sales were up 5.4 per cent to $848.6 million. Ignoring one-off charges related to transactions, acquisitions and legal charges during the year, profit rose 13 per cent to $30.4 million.
Mr Meij said the Australia/New Zealand region was far from mature, despite same store sales growth running at 2 per cent, with capacity for another 160 stores for the two countries. The company's innovations in the use of digital platforms to order meals (now at 60 per cent penetration) and new meal ideas have helped improve same store sales in the second half. That had spilled into July, with sales up 4.7 per cent in the first five weeks of fiscal 2014. Domino's said it was taking customers from other fast-food categories.
The company has forecast same store sales growth in Australia/NZ of 2 to 4 per cent for 2014, and EBITDA growth of 15 per cent.
Domino's declared a final dividend of 15.4¢ per share, taking its full-year payment to 30.9¢.