Acquisition of the business of Domino's Pizza Switzerland AG
Domino's Pizza Group plc ("Domino's" or "the Company"), the leading pizza delivery company with stores in the UK, the Republic of Ireland and Germany, today announces it has reached an agreement to acquire the business of Domino's Pizza Switzerland AG("Domino's Switzerland") (the "Proposed Transaction"), including the master franchise agreement (the "MFA"), which provides the Company with the exclusive right to operate and franchise Domino's stores in Switzerland, Liechtenstein and Luxembourg as well as an option to acquire the Master Franchise Agreement for Austria.
The Company believes that the Swiss market represents an exciting opportunity for the expansion of the Company's business in central Europe. Domino's Switzerland currently operates 12 corporate stores generating annualised sales of CHF 12million (£8million)* in 2011. Four of the stores are in Zurich, four are in Geneva and the remainder are located in other large towns and cities. The Company's target is to open at least 25 further stores over the next five years and Domino's believes that the market could ultimately accommodate around 65 stores in total.
The Swiss market is an attractive one for development as the quick service restaurant sector is currently performing strongly. In addition, Switzerland's strong economy and metropolitan based population are characteristics well-suited to the development of the Domino's model. Currently, brand recognition of Domino's in Switzerland is very low and the existing stores are not heavily marketed. The Company believes it can take the brand to the next level through an improvement in product quality, innovative marketing and its focus on a great delivery service. In addition, internet penetration in Switzerland is higher than it is in the UK, Germany or Republic of Ireland - which is relevant as online sales become ever more important across the Group.
Domino's Switzerland will be operated by a dedicated and experienced team located in Switzerland to ensure the UK, Irish and German management teams remain focused on their own markets, whilst leveraging the Group's expertise in purchasing, commissaries, e-commerce and finance. The Swiss team will be headed up by Brian Trier, who until recently was a senior manager with responsibility for the Europe, Middle East and Africa region of Domino's Pizza International Inc ("DPII"). Brian has extensive experience both running Domino's stores and, more recently, running geographical territories for DPII. In the short term, the stores will be run on a corporate basis and a view will be taken subsequently as to whether a franchise model is appropriate.
In addition to the above opportunity in Switzerland, the Company has obtained from DPII an option to acquire the master franchise rights for the Domino's Pizza market in Austria, effective from completion of the Proposed Transaction. This option expires on 31 December 2014. This gives a further opportunity for future growth by building on Domino's presence in central Europe.
The strategic priority in the short term is to relaunch the brand in Switzerland through increased marketing activity and invest as appropriate in either extensively refurbishing and updating the existing stores, or relocating stores to stronger locations. This will result in a short term loss of CHF 0.75million (£0.5million) in 2012 and we anticipate that the Swiss business will make a positive contribution in calendar year 2014.
Terms of the Proposed Transaction
Under the terms of the Proposed Transaction and subject to the completion of a small number of conditions precedent, the Company will purchase the business of Domino's Switzerland for a maximum potential consideration of CHF 7million (£4.67million) in cash (plus an amount for the stock, cash in tills and cash and rent deposits to be determined at completion, which is not expected to exceed CHF 0.7million (£0.47million)). The consideration will be paid in two tranches, with the first tranche of CHF 5million (£3.33million) being payable on completion, expected to be in late September 2012 subject to the seller's shareholder approval, and the second tranche of up to CHF 2million (£1.33million) being payable two years following completion of the Proposed Transaction, depending on the sales performance of the original 12 stores in the two year period.
Lance Batchelor, Chief Executive Officer, commented:
"Switzerland represents a good opportunity to continue our expansion into Europe by acquiring an existing business with a basic infrastructure and some existing stores with good potential in a very affluent consumer market. The encouraging progress we have seen in our first 16 months in Germany has convinced us this opportunity is one not to be missed.
"The Swiss business will be headed up by Brian Trier, who has 20 years experience in the Domino's system and a great understanding of European markets. Brian will build a team to be headquartered in Zurich drawing from the current Swiss operations but reinforced with resources from the UK and Germany as necessary.
"This is an exciting move into a new territory that fits in well with our existing businesses and which we can easily absorb. We will continue to do what we do best in all of our markets - make great quality pizzas, delivered with great customer service and marketed in interesting and innovative ways.
"On completion we will hold the master franchises for a total of seven European countries - out of a total Domino's global business of 73 international markets. This gives us terrific diversity within the business and a significant increase in the potential number of new stores we can open. This acquisition is another step on our continuing growth path."