Domino’s expands into Cambodia, Malaysia and Singapore with $356m acquisition
Domino’s Pizza Enterprises (ASX: DMP) has acquired the existing Domino’s Pizza operations in Cambodia, Malaysia and Singapore for US$214 million to complement its largest-ever store expansion, completing the largest acquisition in the company’s history.
The acquisition, which could be worth as much as $356 million if bonuses are awarded, would almost double Brisbane-based Domino’s’ international footprint and boost the company’s service market in the Asia-Pacific region by 30 percent to 234 million people.
The acquisition was announced at the same time that Domino’s reported a 14% decline in its FY22 bottom-line profit to $158.7 million. Full-year results for the 2021 financial year hit a record high, driven by a surge in global pizza deliveries during the lockdown.
However, Domino’s noted that global food sales hit a record $3.92 billion in FY22, with online sales surpassing $3 billion for the first time, despite a 10.5% drop in EBIT to $262.9 million in FY22. Profits are now at 19.1%, a percentage point higher than before the pandemic.
Domino’s said its full-year fiscal 2022 results were impacted by a combination of “rapidly changing sales conditions” in the first half of the year, a significant reinvestment in its franchise businesses in Australia and New Zealand and the rebuilding of the Danish business acquired in 2019.
The last fiscal year was significant for the company in terms of store expansion, with 294 new stores opened in FY22, an average of more than 5 stores per week. With the acquisition of 156 stores from Taiwan, its tenth global market, Domino’s added a total of 450 new stores for the year.
The announced acquisition will add 287 new stores to the company’s network.
The surge in store count has prompted Domino’s to raise its target number of stores in Asia to 3,000 by 2033 from 2,400.
“This is a huge opportunity for our business and the people who join our business,” said Domino’s CEO Don Meij.
Domino’s acquired the three new locations from Malaysian company Mikenwill (M) Sdn Bhd and Singapore’s Impress Foods Pte Ltd for a reserve price of US$214 million. This could add another $1.42 million to the land price if the profitability target is met in the next two to three years.
In these three regions, Domino’s is the second largest pizza chain after Pizza Hut.
“Domino’s Pizza Enterprises has never entered a market as number one, nor have we imposed our taste preferences on new markets,” Meij said.
“We intend to apply our massive mindset, our technology and our operational expertise to expand our market presence in these countries and potentially develop entrepreneurs through franchising.
“Our team has established a ‘Center of Excellence’ – world-class operations, technology and marketing in Asia Pacific, led by seasoned professionals. Teamwork in new markets to take performance to the next level.”
Domino’s plans to hire the current group chief executive of the new Asian business, Ba U Shan-Ting, a 22-year pizza industry veteran. He will work with Ringo Joannes, Domino’s regional chief executive, to develop the business. Joannes, a former multi-unit franchisee, has been overseeing the Belgian business since 2019.
Taking a closer look at Domino’s’ latest profit results, the group’s EBIT in Australia and New Zealand rose 2.8 per cent to $3.3 million, with 20 stores opened and 30 re-franchised in the second half.
Businesses in Asia were hit by “rapid sales changes” in Japan after the COVID emergency was declared in the first half, which, combined with foreign exchange headwinds, led to a 9.7% drop in EBIT. But the company noted that earnings before interest and taxes are now $31.7 million, or 59%, higher than before the pandemic.
In Europe, where Domino’s has grown rapidly during COVID, the group’s FY22 EBIT also fell by 11%, although this was 21.8% above pre-pandemic levels.
Domino’s revealed that FY23 sales so far are behind FY22, but it noted that this has broken away from the brisk sales growth of 26.2% in the previous two years.
“In the early days of COVID-19, we had a choice – play defensively or invest in a bigger, more sustainable business,” Meij said.
“We have chosen the latter and will continue to do so. Today’s announcement of a major acquisition in Asia demonstrates our ability to pursue growth now and over the long term.”
Domino’s paid a final dividend of 68.1 cents per share.
Shares in DMP were up 9.59 per cent to $73.50 per share by 11.16am AEST.