Dp Poland Share Discussion Threads

[the ghost who walks] 12/8/2018 16:47

Lbo thanks for posting words from the prospectus. For your reference this also is on their website if you have time to post it.http://dppoland.com/2015/regulatory/h1-2018-trading-update/

[bigboyo] 12/8/2018 16:32

Interesting data, stuff that DP Poland does not mention in its updates (usual drivel such as about 15th successive growth in system sales or other such stuff which in reality is meaningless)

www.oecd.org/cfe/regional-policy/functional-urban-areas-all-poland.pdf

www.oecd.org/cfe/regional-policy/functional-urban-areas-all-united-kingdom.pdf

If we look at the functional urban areas for Poland and UK, we can see that UK is a lot more urbanised. Urban populations , deliveries , liklihood of ordering pizza, spending power etc all impact potential market size.

In addition, Poland is much bigger in sq miles than UK so its population density is much thinner (effects viability of delivery operation in terms of speed and costs for longer journeys). See maps in attached links.

Whilst "managment" spouts usual nonsense about Poland being able to support 300 Dominos (Uk has 1000+) , we have little by way of data to support this assertion made repeatedly by "management".

I hope that the next update with the interims provides a lot more data. I would like to see :

Number of pizzas ordered PLUS EDIDTA Plus LforL growth in 12 most mature stores (which I think are now open more than 5 years). Does not need to be per store but the average across the first 12 would give a good indication of what we can expect as newer openings bed down.

Concrete information about next openings, whether franchisee or corporate and why. Will the focus for forseeable future be the bigger urban areas where the brand is already known (and thus gives opportunity for more focused advertising) and maybe easier to open and get to breakeven faster ?

Absolute figure for net cash position and FORECAST figure for year-end netcash figure.

We need measurables to hold "management" to account for spending the companys cash and how it is allocating capital and the rationale behind it.

What we do not need is drivel, especially video podcasts which ask easy easy questions and make you wonder why bother !!

"Management" has 4 weeks before interims are published to get its presentations upto speed otherwise I suspect the decline in the share price will continue and may make DPP easy prey for a bigger global franchisee to take it away for cheap thus shafting the investors who have paid much more for their shares than the current share price

[lbo] 12/8/2018 14:31

The real market valuation comparisons speak for themselves. Also look at the Values applied to Joeys Pizza in Germany and Sprint Pizza in France also by Dominos themselves. Again no matter what spin people obviously linked with DPP would like to try make us believe. DPP is way overvalued

[lbo] 12/8/2018 13:55

Under the Master Franchise Agreement, DPP SA enjoys its exclusive rights for an initial period of 15 years, with an option (subject to certain conditions)Master Franchise AgreementThe success of the Group is highly dependent on the continuation of the MFA, which cannot be guaranteed if DPP SA commits breaches of its provisions which if remediable, are not cured within the period allowed under the MFA. Should the MFA be terminated, DPP SA's rights to operate the master franchise will cease, although existing store franchise agreements may continue depending upon whether Domino's Pizza Overseas Franchising B.V. exercises its right to acquire the assets of the stores.The MFA includes a condition that until such time as the number of stores opened in Poland exceeds 30 stores, the aggregate holdings of Ordinary Shares of Richard Worthington, Jerzy Jakubiak, Patrick Bodenham, Peter Shaw and Diggle Investments Limited shall not represent less than 25 per cent. of the issued Ordinary Shares. Whilst each such person has agreed in the Lock-In Agreement not to effect any disposal of Ordinary Shares so as to give rise to a breach of such condition, it cannot be certain that a disposal in breach of the Lock-In Agreement and MFA would not occur with the possibility that the MFA might be terminated as a result.10. Master Franchise AgreementAn agreement ("MFA") dated 25 June 2010 between Domino's Pizza Overseas Franchising B.V. ("DPOF"), an affiliate of DPIL (1) DPP SA, a wholly-owned subsidiary of the Company (2) and Richard Worthington (3) pursuant to which DPP SA has been granted the exclusive right to develop and operate and to sub- franchise the right to develop and operate Domino's Pizza delivery stores and an exclusive licence to use and sub-license the use of the Domino's Pizza system in Poland. A sum of US$350,000 was paid to DPOF on execution of the MFA in consideration of the rights granted by that agreement. The further principal terms of the MFA are summarised below.(a) Term. The term of the MFA is the period ending on the earlier of 15 years from the date upon which the MFA was executed and the date upon which all franchise agreements entered into pursuant to the MFA (whether in relation to stores operated by the Group or by sub-franchisees) have expired or been terminated. The initial 15 year term may be renewed for one additional 10 year term provided certain conditions are satisfied, including the requirement that DPP SA is not in default of the MFA or any other agreement between it and DPOF or its affiliates concerning the master franchise in Poland and has substantially complied with the provisions of such agreements. Such renewal will be required to be effected on the terms of DPOF's then current standard form master franchise agreement.(b) Termination by DPOF. DPOF may terminate the MFA earlier than the expiry of the above-mentioned term if the total number of stores opened in Poland at 31 December in each year is less than the development quota of stores specified in the MFA. It may also terminate the MFA in a number of other circumstances, including failure to comply in a timely fashion with DPOF's requirements for the submission of sales reports and other financial data or the payment when due of the royalty fee or advertising fee payable under the MFA. Termination may also be due to a failure by DPOF or its sub-franchisees to observe other provisions of the MFA dealing with the protection of the Domino's Pizza trademarks and/or the covenants by which DPP SA agrees to keep confidential information disclosed to it relating to the Domino's Pizza system and not to carry on or become interested in any similar business in Poland.(c) Other conditions. As a condition of the MFA, DPOF requires that until such time as the number of stores opened and operated in Poland exceeds 30 stores, the founding shareholders of the Company (being Richard Worthington, Jerzy Jakubiak, Patrick Bodenham, Peter Shaw and Diggle Investments Limited) must remain interested in a total number of Ordinary Shares representing not less than 25 per cent. of the issued and outstanding voting shares of the Company. If this condition is not met then DPOF will have the right to terminate the MFA. DPOF also required that Richard Worthington be a party to the MFA for the sole purpose of giving certain personal covenants and undertakings to DPOF, to the effect that during the term of the MFA or if shorter, the period until such time as he ceases to be a director, employee or consultant of DPP SA or its affiliates, he will not have any interest whether as an owner, investor, partner, licensee, lender, consultant, representative or agent in any business similar to that carried on by DPP SA and further that for the period of one year following the date of expiration or termination of the MFA for any reason other than DPOF's breach, or if ending earlier, for the period of one year following the date upon which he ceases to be a director, employee or consultant of DPP SA or its affiliates, he will not engage as an owner, investor, partner, licensee,lender, consultant, representative or agent in any such similar business activity in Poland, without the prior written consent of DPOF.(d) Effect of termination. Upon the expiration or termination of the MFA, DPP SA is required to cease immediately its operation of the master franchise although subject as set out below, each separate store franchise agreement relating to stores operated whether by DPP SA or its affiliates or its sub-franchisees shall remain in force for the remainder of the 10 year term for such agreement and subject to the terms of the store franchise agreement, the same may be renewed for a further 10 years. If, however, the reason for termination of the MFA is the breach of its terms by DPP SA, then all rights of DPP SA to enter into new franchise agreements in Poland will be suspended. Further, DPOF will then have the option to purchase at its discretion, all the assets associated with all or any of the stores owned or controlled by DPP SA or its affiliates and the rights under all subsisting sub- franchise agreements or all of the existing issued share capital of DPP SA, in which case the relative franchise agreement for each store owned or controlled by DPP SA will be terminated. If the MFA is terminated but such option is not exercised in such circumstances, then the royalty fee amount for the stores owned or controlled by DPP SA and its affiliates is to be increased to 5.5 per cent.(e) Store opening. The MFA does not of itself authorise DPP SA to open nor grant the right to any third party to open any store in Poland. In each case the approval of DPOF is required, such approval not to be unreasonably withheld delayed or conditioned. On the opening of each new store a non- refundable store opening fee of US$6,500 is payable to DPOF. In turn, in relation to sub-franchised stores, DPP SA can charge a store opening fee of up to US$15,000. Once a store is opened, a royalty fee is payable to DPOF at the rate of 4 per cent. of sales for stores opened and operated by DPP SA and its affiliates and 3.5 per cent. of sales for stores opened and operated by sub-franchisees. All such fees are payable to DPOF in U.S. Dollars.(f) Advertising fund. DPP SA is obliged to collect from its sub-franchises and itself to pay an advertising fee of 4 per cent. of weekly sales into a separate advertising fund in Poland. In addition, for each new store opened DPP SA will be required produce its advertising and promotion plans for approval by DPOF and will be required to expend the local currency equivalent of US$3,000 in opening advertising and promotion.(g) Designated representative. DPP SA is obliged to appoint (subject to the approval of DPOF) an individual to be a designated representative required to devote his full time and best endeavours to the development, management and supervision of the stores in Poland. DPP SA's first designated representative will be Jerzy Jakubiak.(h) Store franchise agreements. DPP SA is required to comply with the MFA and the provisions of each store franchise agreement relating to stores opened and operated by DPP SA. In addition it will be required to use its best endeavours to ensure that each of its sub-franchisees complies with their store franchise agreements with DPP SA. Each store franchise agreement with sub-franchisees must be in a form approved in writing by DPOF (such approval not to be unreasonably withheld, delayed or conditioned). DPOF is obliged to diligently recruit suitable sub-franchisees in Poland.(i) Training. DPP SA is obliged to provide adequate training and support for managers and employees of stores owned or operated by DPP SA.(j) Names and marks. DPP SA is granted the right to use and license the use of the Domino's trade marks in Poland subject to the terms of the MFA. DPP SA is required to notify DPOF immediately of any infringement or challenge to its use of any of the Domino's Pizza marks in Poland or any claim by any person of any rights in any of the Domino's Pizza marks or any suspected passing-off or unfair competition involving the Domino's Pizza marks or the Domino's Pizza system. DPOF has undertaken in turn, to indemnify DPP SA from and against and to reimburse it and its affiliates for all damages for which they may be held liable in any proceeding, action or claim arising out of the use of any Domino's Pizza mark in compliance with the MFA and for all costs reasonably incurred by DPP SA or its affiliates in the defence of any such claim brought against it. In turn, DPP SA has also agreed to indemnify DPOF from and against and to reimburse to DPOF in any proceeding, action or claim arising out of the use of any Domino's Pizza mark by DPP SA or its affiliates otherwise than in accordance with the MFA and applicable store franchise agreement.(k) DPP SA covenants. DPP SA has covenanted with DPOF that, during the term of the MFA, it will not have any interest whether as an owner, investor, partner, licensee, lender, consultant, representative or agent in any other business similar to that carried on pursuant to the MFA and further that for the period of one year following the date of expiration or termination of the MFA for any reason other thanDPOF's breach, it will not engage as an owner, investor, partner, licensee, lender, consultant, representative or agent in any such similar business activity in Poland without the prior written consent of DPOF. Such restriction is not, however, to apply to any store franchise or sub-franchise agreement which remains outstanding following termination of the MFA. These covenants and undertakings are also given by DPP SA on the basis that it is obliged to procure (so far as it is reasonably able) compliance with the same by its affiliates.(l) Commissary. Whilst DPOF reserves the right to supply food products and ingredients, beverage products, supplies and materials to all the Domino's Pizza stores in Poland, DPOF has irrevocably agreed in the MFA to grant to DPP SA (under a knowledge and technical assistance agreement in the agreed form), the sole and exclusive right for DPP SA to establish a commissary or commissaries for the purpose of supplying food products and ingredients, beverage products and other supplies and materials to all Domino's Pizza stores in Poland. The right to operate such commissary or commissaries will continue until the expiration or termination of the MFA. In operating a commissary, DPP SA will be obliged to ensure that it only uses suppliers who have been designated by DPOF or who have been approved by DPOF.(m) Assignment. DPOF has reserved the right to assign its interest in the MFA at any time. In the event that it does so it will use its best efforts to ensure the assignee agrees to observe and perform all the terms and conditions on the part of DPOF contained in the MFA, but it shall not be a condition of such assignment that the assignee so agrees. Further DPP SA is obliged nonetheless on any such assignment to release DPOF from all future liability under the MFA. DPP SA cannot, however assign its interest in the MFA without the prior written consent of DPOF.(n) Governing law and disputes. The MFA is governed by laws of the State of Michigan except the Michigan Franchise Investment Law is not to apply unless its jurisdictional elements are otherwise met. All disputes, controversies or claims between DPOF and DPP SA arising out of the MFA are to be submitted for arbitration to be administered by the American Arbitration Association. The place of arbitration would be Ann Arbor, Michigan.

[the ghost who walks] 12/8/2018 11:11

LBO Where did I say in 17 years it would be worth zero? I think the corporate stores are still owned by Dpp but would need to rebrand, 17 years from now, assuming no extension at that point.On value, I would, until being educated by you, make projections of cash flows under different assumptions and value each of those and see how that compares to current market cap.But following your views I'm going to spend the rest of the day going through the market looking for stocks not trading on 10x and develop a revolutionary trading pattern based on "premium and discount" to that. Don't tell anyone as don't want it copied too quickly!

[lbo] 12/8/2018 10:47

What times earnings would you apply to a business that at very best will only exist for 17 years and then not be owned by the current shareholders!? Suppose you would apply a premium not a discount on it!? Telepizza will still be earning income for its current shareholders in 17 years. DPP won't! At least you now admit in max 17 years DPP on AIM will be worth Zero. And actually could be worth zero in only a few years ie yes 7 years as they need to be able to exercise the option extension.

[the ghost who walks] 12/8/2018 08:57

Good that you agree that at their option they have 17 years left. If that's a few years then I'm still a young man thankfully! I'm hoping that extending won't cost 10x earnings which seems to be the default valuation method I learnt yesterday.

[lbo] 12/8/2018 07:32

They only have the master franchise for Poland until 2025 and then an option to extend. Do you know the cost of exercising the option?

[the ghost who walks] 11/8/2018 16:44

By few years left I guess you mean 17 years?Think valuation argument is a matter of opinion - understand your 10x earnings approach. It's a bit basic, but at least understandable.

[adrunkenmarcus] 11/8/2018 14:25

I don't know much about the Telepizza stores, although I see it's been pointed out that their sales had stalled. I assume they were therefore mature stores.

Like for like sales growth does seem to be continuing even for the older DP Poland stores. Original expectations were a mature store would generate £80,000 EBITDA and the oldest stores are reported to be doing better than that. Further, I note that DP Poland's stores have higher sales per store already, even though a huge proportion of those stores are new and still loss-making. As recently as 2016, they had under 30 stores (from memory).

None of this takes away that the market cap of DP Poland is higher than the company's current development warrants.

On the issue of franchisees, I think the balance needs to shift the other way so that in the long run two-thirds of stores are sub-franchised and the remainder corporate. There has been an issue sub-franchising while the business lacked sufficient scale, but the store estate is expanding. It is franchising that does so much to generate high ROCEs for Domino's Pizza.

[opodio] 11/8/2018 12:15

Telepizza sold for £1 was it?

Why is this crock worth £41m

LOSSMAKING CROCK OF DOG DIRT

[lbo] 11/8/2018 11:26

In order to justify the current £40m valuation DPP would need to be well on the way to doing well over 300m PLN in revenues and making profits of £4m per annum. They are not. And they only have a few years left on their Polish master franchise agreement.

[the ghost who walks] 11/8/2018 09:06

Oh if you are talking about time to break even I agree it will take a while. You were previously referencing Telepizza for value purposes - that's what I was pointing out wasn't exactly a clear comparison.

[lbo] 11/8/2018 07:15

Well besides Telepizza you can also look at McDonalds and Sphinx comparisons in the Polish market. And looking at the number of restaurants, the time it took to get to that number, turnover and profits for that number of restaurants all suggest DPP is still way overvalued on AIMhttp://www.ceeretail.com/news/47440/polish-sales-of-mcdonald-rsquo-s-improving209 polish McDonald's did 668.4m PLN in revenues and 39.8m PLN in net profit in 2006 and they set up in Poland in 1992 so took 14 years to hit net profits of circa £8m and 209 sites.http://www.superbrandstv.com/?p=287 Sphinx is the largest casual-dining chain in Poland, boasting 93 units. The parent company also owns 10-unit Chlopskie Jadlo, which offers traditional Polish food, and a six-unit Asian chain called Wook. Founded in 1995 by Tomasz Morawski, Sfinks had a fraught financial history until Sylvester Cacek, a banker and investor, became the largest individual shareholder after buying roughly 19 percent of the stock in 2009. Last year, annual revenue climbed 3 percent, to 176.6 million zloty ($58.4 million), say company officials. Gross earnings grew 16.5 percent, to 11.8 million zloty ($3.9 million).

[the ghost who walks] 10/8/2018 16:03

In addition Telepizza Poland flat to shrinking.

[the ghost who walks] 10/8/2018 16:02

Lbo the stores at Telepizza are majorit franchise stores. Can't really compare to Dpp.

[bigboyo] 10/8/2018 14:00

adrunkenmarcus,

I noticed that you have not commented on the franchisee situation. Dominos grows by its franchise network and its surprising that there is no partner bank for DPP or a queue of franchisees waiting to open up. Do you have any knowledge about this?

The Polish people are hard working and they have a culture of small business/self-employment and franchise brands are highly investible.

What is even more worrying is that DPP seems to pick up ALL the initial costs, ALL the initial risk and then sells on merely at book value. What about the franchise fee ? What about goodwill ? What about accumulated losses on getting those stores to where they are at point of sale?

We have no clear explanation from "management" as to why they are doing this and whether this is their future model of recruiting all their franchisees.


" www.proactiveinvestors.co.uk/companies/stocktube/6516/dp-poland-sells-four-stores-to-fantastic-new-sub-franchisee--6516.html

........“We217;re selling him the stores at net book value,” Shaw explained.

DP Poland has a mixture of stores that are owned and run by the company and others that are run under a franchise operation. It looks like more sub-franchisee deals could be in the offing, with Shaw revealing that, backed by the £3.2mln the company raised last month, it is able to loan money to other area managers wishing to follow in Fronczyk’s footsteps........."

[lbo] 10/8/2018 13:26

Going on the Telepizza deal ie 107 stores generating system sales of PLN 103m being sold for only 8m Euros and applying that to DPP (current 54 stores and 58m PLN sales) and even doubling that to 108 store generating 116m PLN sales and even adding 20% higher growth at each store only gets you to max 140m PLN sales at DPP.That still only implies a max €11m equity valuation for DPP. But let's be very optimistic and even double that valuation to €22m.Still a long way from the Current market cap of DPP at 40m GBP

[adrunkenmarcus] 10/8/2018 12:44

I would agree with a lot of what you said, bigboyo. As you indicate, we all have to make our own judgement on the current risk vs. reward.

On the matter of your 'different perspective', my argument would be that all shops or stores take time to reach breakeven (whether that time is a day or eighteen months) and then longer to mature. (DPP's mature stores are apparently exceeding original EBITDA expectations.) We have, currently, a very large proportion of the store estate which consists of stores which are fairly new and are therefore incurring losses before reaching breakeven. None of them, even those breaking even, are yet fully mature (of course they need to get there). Once they are, I see no reason why their cashflows could not finance further, measured rollouts and Poland is quite a large country converging on a GDP per capita basis with EU levels.

For all the spin - and yes, management targets have not been communicated - I do have to wonder why management indicated that they did not foresee the need for a further equity raise to roll out 145 stores by 2023. That leaves wriggle room, of course, because it was not categorically ruled out (I doubt they could do that anyway), but they seem to have taken away the flexibility of an equity raise of even £2 million or so. They do have a borrowing facility, potentially, if DP Polska gets cash positive in 2019.

They do need to get to group EBITDA positive. (A good example of a self-funded store rollout is CAKE, which I've held since 2015.) If DPP did 'fail' then maybe DOM would be waiting to take it over, or another international franchisee group?

[the ghost who walks] 10/8/2018 12:12

Key is to keep opening stores and n issue new shares. Do that and stock will do great,

[bigboyo] 10/8/2018 10:08

adrunkenmarcus

The market has placed a value on dpp and its current operations. We all have our view on that depending on where we sit on valuation models and our own sense of judgement. For me, the present risk/reward is too great and the outlook a little foggy. If the opportunity arises and IF the risk/reward balance changes to a sufficent extent I would be tempted to invest in DPP.

In terms of your successful rollout case, there are different ways of looking at this.

One way is that as the brand becomes bigger, newer smaller towns become potential locations and brand familiarity increases and advertising costs reduce (on a per store basis). Royalties build momentum and you can start to attract franchisees who use their own capital to build stores and also pay a one off franchise fee. Cashflow becomes highly cash generative for DPP (as they do not have to sustain the initial losses from new openings). DPP is a very long way from that.

A different perspective could be , the best locations have already been chosen and opened, the cashflow from these best locations is still not sufficent to support the smaller less desirable locations now being opened and the roll out will only become harder as the smallest least desirable locations start coming on stream. Franchisees still seem to be buying opened units from DPP rather than opening the units themselves. Is this due to banking problems and high initial costs and poor initial cashflows requiring a lot of security before a bank lends to a franchisee to open a franchised Dominos ?

There are many ifs and buts .

What for me is deeply unimpressive and continual "15 consecutive growth in sales" and such like drivel and the lack of focus on cash consumed.

The updates and reports give very little meaningful information and very little in terms of strategic insight (besides we will open more stores and increase system sales .. DUH!)

No credible timeline is given for when group (as opposed to merely store) ebidta breakeven will be reached, when pre-tax profitability is anticipated, the ratio of corporate to franchised stores planned for opening in the next financial year (to help investors assess cashflow and profitability impacts) etc etc.

The reason may be because if the "management" gives specified timelines and miss then they maynot get their bonus.

[adrunkenmarcus] 08/8/2018 07:04

I note that opodio and a1samu have provided nothing in the way of a methodology or figures for their claims. On that basis, it's hard to assign any value to them.

I would agree that DP Poland is overvalued in terms of market cap based on their current store estate and EBITDA. I also agree they didn't raise enough equity capital in 2010, hence the dilutions that followed (in 2012 particularly). However, I think it will be undervalued when the group hits breakeven and the rollout continues successfully. The investment case has always been predicated on a long term successful rollout.