DP Poland (LSE:DPP) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the DP Poland Interim Results Investor Presentation. Please just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard, and we'll notify you by email when they're ready for your review. I'd also like to remind

0:33 you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd like to give that your kind attention, we would be most grateful. And I'd like that now I'd like to hand over to the management team from DP POLAND. Good morning to you all. Thank you, Mark, and good morning to to everyone. Mike nicely avoided pronouncing my first name, but I'm I'm nonexecutive director of DP POLAND. It's our pleasure to to to meet you on this on this webinar. We got a lot of positive feedback after the first webinar that we held in in July. And as as promised, we would like to keep this communication with you and and allow also to to ask ask you questions. So you may have seen that that that we have published the the the results for the first half year, and, also, we made a trading update that was published on our website.

1:26 We we have a presentation that that that you could see, but we'll also provide additional comments to it. But before before we dive into it, maybe a short introduction on on who is today with us on the company side. As mentioned, I'm I'm a nonexecutive director of DP POLAND. I'm also a co managing partner of ACP,

1:49 which which is representing the the largest investor investor in in the in DP POLAND, holding 45% of the equity. And in addition to this, I'm also the president of Polish Private Equity Association. My my history with the company is that we we invested in the medium as you may remember. We completed the reverse takeover, and we have swapped the shares of Dominium into the shares of of Domino's Pizza Poland, and here I am as a nonexecutive.

2:16 But we have more important people on this call. It's these are the the two executives, the the CEO, and CFO. And I will hand over to for a for a short information about about his background for for some of you who who have not participated participated yet in the in the webinar so far. Kels? Thank you, Przemek. Good morning, ladies and gentlemen. My name is Dodjezek. I am the CEO of Domino's Pizza Poland. I joined the board in January this year. I was previously with Pizza Dominion for twenty years.

2:52 I started as a regional manager responsible for overseeing Dominion's 15 restaurants at that time. Next, I was promoted to general director. My responsibilities included purchasing operations, office administration, and oversight of IT. Finally, in 2018, I become CEO. I started my career in Karpu, Poland when I was responsible for purchases and price management. Thank you, Ubasha. Thank you, Piotr. Good morning, ladies and gentlemen. My name is Magoza Tapotkaiska. The shorter version of my first name is Gocia. It's also easier to pronounce.

3:39 I am the CFO of DP POLAND. Joined the company in January, 2021. Previously, I've been a CFO of, Dominion, for four years.

3:52 And I started my professional career in finance and audit department of, at PLC. Thank you. Thank you, Ghosha. So now moving on. As as mentioned, you you probably have seen the financial performance of of the business in the first half year. However, before we dive into it and and we ask to to guide you guide us through those numbers, we wanted to share with you a bit of of more operational update and and information about what has been accomplished. The we we do that because we think that the financial statement for the first half year does not really con present what what what was the true performance and what really happened in the business.

4:38 This is mainly for this this is because of the three reasons. First of all, as you know, the transaction, the the reverse takeover was completed on the January 8. So since then, there was a number of of of of activities that that that were related to the conversion of the of the mini business and the merger of the two. So we had many one off costs. Some some people left the firm. We had to buy more equipment. Not everyone could be capitalized. So so there are many exceptional items in in this first half of the year, since this was six months of constructing the the the business as it is today. So that's that's that's one. The second was about the lockdown. The first half of the year was still heavily affected by the lockdown. You may remember that we anticipated the lockdown to continue, of course, but it took longer than anticipated, which had an impact also on the on the p and l. Now it's it's no longer the case.

5:33 And thirdly, there are some some some accounting specifics that that make this a bit more difficult to read. That's why we have also presented an additional column to give you more comparison. But before we dive into the numbers, I wanted to give floor to to comment on the operational achievements that that that that were done in the first six months we made a summary of of what has been done and and completed. Kurt will summarize it even further, but but the the volume of work was was immense. So I will hand over to to Kurt now, and Kurt will guide us through through those those items. Thank you, Przanak. When I was preparing this slide summarizing the integration, I have realized that it is not easy to present briefly many months of hard operational work.

6:24 Even if I say that we had to enlarge 28, the walk in chiller rooms, we had to reorganize 54 make lines and install 177 new larger refrigerators. I cannot express how huge effort we the whole team

6:44 made. Simply, I just want to report that the integration is complete. First of all, thanks to the merger, we were able to redesign the delivery areas. As a result, in cities such as Warsaw, Wroclaw, Krakow,

7:03 we have been able to shorten the delivery time. We already we have already have a leading position in Warsaw, but small delivery zones help us to start, let's say, groundbreaking project that will allow us to achieve an average delivery time of up to twenty minutes. I have to mention that none of the catering companies in Poland offer such short delivery time. So we want to build our competitive advantage on this and become pizzeria of the first choice.

7:44 We have built the combined menu on the best selling items from both companies. The most important of these are new types of pizza, fresh salads, but also pizza made from whole grain dough. And the biggest novelty in Domino's offer But but one remember that competition may be listening to us. So don't don't reveal all the secrets. Okay. I do I do the I don't I do my best. So we want

8:22 the 16 picture is normal fact. So we when I met sub franchisees and store managers at the start of the merger, they were very pleased with the implementation of the biggest pizza, especially in the smaller towns. In Poland, large size of pizzas are very popular and are considered the the most economical. So in Domino's, the XXL pizza also wins in the sales mark sales ranking. After the merger, we have a fully re focused supply chain. One of the major changes was the termination of cooperation with Coca Cola and the introduction of Pepsi Cola product to the combined business.

9:16 As a result, it was possible to improve general trading conditions by almost, I don't I can't say how much, but it was significant improvement. Referring to headquarter, we have successfully integrated both teams using the best talent from both organizations. We had to unify the remuneration policy, which unfortunately resulted in some people in headquarter leaving the organization. But now we are happy to report that we have a stable and dedicated team for the future. Referring to marketing synergies, we have implemented a digital experience platform and launched a new website, and a new smartphone app for placing orders.

10:08 We have, merged many marketing functions and areas, including Google Analytics and Google Ads. Our stores are now fully integrated with the the website, the Android and iOS, as well as with the central data warehouse. As a result, we have been designing customer segmentations segmentation models and applying marketing automation. Following the decision from preliminary analysis, we took over 17 stores from franchisees. Our primary focus now for the coming months is on improving the performance of all stores.

10:57 And when the stores reach satisfactory KPIs, we will offer some of location existing locations to new franchisees or existing franchisees. At the end of this slide, I would like to say that the biggest challenge was IT integration.

11:19 Due to the serious problems at virtually every stage of implementing the new new IT system, the completion of the integration was delayed by a few months. But finally, I can report that we are fully plugged into DPPIs system, allowing for analysis of business and the enforcement of the best practices. Thank you, Przemek. Thank you, Piotr. And now moving on to the next slide, which which shows the summary of the of the six months. And as as I mentioned, I mean, the is a little bit imperfect, but it is is perfect from the accounting perspective, and and it was reviewed by the auditors. So I will now ask to to guide us with these numbers and maybe to give you a bit of more flavor and color on what what they what they stand for.

12:11 Thank you, Przanak. Ladies and gentlemen, I will talk a bit, about those magic numbers. So a few words of, introduction. As per IFRS three, it was the minimum assay that has been identified as the accounting acquirer. Therefore, the comparative data in the middle column of this table stands for Luminium assay only, as those are the IFRS three requirements. But for illustrative purposes, we've made an an audited pro form a consolidation of h one two thousand twenty comparative data, and you can you can see this data on in right hand side hand side, column. And our only original plans, were more optimistic on the numbers, which during h one twenty twenty one, as already mentioned,

13:01 were highly affected by unpredicted to COVID nineteen restrictions, but also by delay in IT integration, which restrained full conversion until July 8. COVID nineteen has affected the business as we were observing migration from big c migration of our customers from big cities like Warsaw or Krakow during the lockdown.

13:25 Also, schools, universities, and offices were online, learning or on, home office. Additionally, the h one twenty twenty one numbers are affected, by substantial one off integration costs, like advisory costs or, Dominion stores, conversion costs, which could not be treated as CapEx and were expensed in the p and l. Thank you.

13:51 Thank you, Ghosha. Now now moving on. Piot was was to to the next slide. Commented on the items that were on the agenda and on the action plan for the first six months until they completed. And as you could hear, only the IT integration was delayed. But other than that, we we we we we were on time. However, there was also a number of factors in in the in the market that affected us that we didn't plan for. These items are affecting everyone, and and we we are dealing with them. And I think we have very good answers, and and we know what to do. But just to give you a little bit of a flavor of what's going on in in in the marketplace, we have prepared those those few bullet points, and will guide us for those as as he's dealing with this on the on the daily basis. Handing over to you.

14:40 Thank you, Przemek. We initially anticipated cost synergies to come from lower prices of raw materials. Unfortunately, the reality has proven to be different. As you can see, almost 6% of inflation rate in Poland has not allowed for for reduction in the cost of raw materials. On the other hand, without doubling purchasing power, our situation could be even worse. I remember an email from our pepperoni producer who enforced that in the current difficult situation, they can apply only slight price reduction, which is related only to the increase in the purchase volume.

15:32 In response, we raised our sales price in June, and we are planning another soon. Maybe not a typical price increase on the menu, but reduction in promotions or the introduction of paid deliveries. We anticipate further increases in prices. That's why we constantly negotiate terms of cooperation with current suppliers, and we are looking for new producers. Another challenging factor is that in Poland, the unemployment rate in August was three point only 3.4%. What more social programs implemented by the government and the constant increase in the minimum wage have made it very difficult to recruit new employees.

16:28 To mitigate this, we are constantly increasing the the employment of foreigners, especially from Ukraine, whilst at the same time shifting our process activities to online channels. These economic facts and lockdown have changed customer behavior. It can be said that our business model is COVID resilient. We stand on two strong legs. It means during the pandemic, customer quickly changed their habits and began ordering more frequently with delivery. But post lockdowns, we offer our clients a restaurant offer with a wide menu and waiter service and giving the the the the the best experience.

17:18 Encouraged by this good experience in the restaurant, our clients want to order our pizza for home and office. By the way, sales for to to offices, even after lockdown is still practically nonexistent. Most companies notice the benefits of working remotely and decided not to return to work in the traditional model. The situation, is similar with tourists. According to recent reports, Warsaw was visited by 75% less and Krakow even by 80% fewer foreign tourists than in 2019. In response to this, we closed periodically select restaurants during, the lockdown.

18:06 As a result, we reduced the number of staff the necessary team simply needed to handle orders. I have to mention that the competition in the food delivery market is also bigger this year than in the first wave of COVID nineteen. Most companies, even those associated so far only with the the the restaurant offer, have decided to sell their product also with delivery. For this reason, we are constantly monitoring the the the activities of the competitors and trying maintaining our promotional offer in an attractive level. Thank you, Przumak. Thank you, Piotr. I mean, I I would also allow myself to comment on this, and and I I also see questions coming our way. So I'll try to also address those questions comments.

18:59 First of all, did mention, you know, we we have we have this this market development that are not favorable to us. However, actually, the paradox could be they are not that bad as well because, of course, this is not something we would wish for, but like, an inflation on the lower unemployment. However, with the size that we currently have, we we we are by far the best position in the market to to to tackle those. So if we like, Piotr mentioned about the replacement of of of Coca Cola with Pepsi, we are one of the few businesses that did well or relatively well during the pandemic. You will see very shortly that that our sales were were doing relatively fine, whereas the the Choreca market did suffer. So we became very important clients for for many suppliers.

19:51 And when the the small stores with a small volume are price takers, we we can negotiate those terms. Same with low unemployment rate. With the low unemployment on one hand, we have a difficulty in in in hiring people. But at the same time, our network helps because we have a big network. We'll we'll cover this better shortly. So our distance to customer is the shortest, so we can deliver relatively quickly, which means we need fewer people to deliver the same products because our our network is very dense. On the on the on the erosion of client groups, yes, this is something that affected us, in particular, in the first six months, also in the summer, but now it's coming back. We will very shortly present you the October figures.

20:37 So despite still those those those market developments, we are doing really well, looking especially in the the very recent data. The very recent data is is is relevant because we see that, you know, the university year started, but we'll comment on this shortly. Addressing a question from Michael, whether we have experienced any form of supply chain issues, and if so, how have we mitigated these? We we didn't have any disruptions. We the the the the the the executives are are working closely and monitoring the situation. We have replaced the logistics with third party suppliers so they the the, you know, the we keep we keep watching what's going on, but we don't have any disruptions.

21:25 It's it's more about the inflation that Kurt meant that Kurt mentioned on this slide. We constantly monitor the best prices. We and we react to it not only sort of on the cost side, but also on the revenue side. And then but also mentioned the the the price increase, but there is the the we have more instruments to to tackle this this particular particular topic going forward, but we can comment on this in the in the next slides. So moving on to the to the next slide and about the current trading update, about nine months and and the the three months in particular of the of the of the third quarter, but I will hand over to to to comment on on on the dynamic and then also get us ready for the following slides that discuss EBITDA performance and then the very recent trading of October.

22:15 Joshua. Thank you. Again, a few words of introduction on what you see in the tables. System sales is sales of all Domino's branded stores, so both corporate and sub franchise, and, both Domino's and Dominion by Domino's. As you can see, system sales for nine months, 2021, is still 5% below 2019, but meets 2020 numbers. Like for like, increased, versus 2019 and 2020, and what is even more encouraging that in 2020, the COVID restrictions hit us only for three months for the period between March until May.

23:03 So the period of restriction was much shorter than in 2021.

23:08 We still observed slight drop in dine in sales in comparison to 2020 and double digit drop in comparison to 2019 for the pre COVID environment. But we observed the dine in is still recovering, and we are pretty confident we're we're gonna reach the 2019 numbers soon. The integration of two businesses took final place on July.

23:33 But during h one, the two businesses were still operating in parallel, which means we had to direct our marketing efforts to two brands. Also, the delivery areas remain unchanged, and they were overlapping. Okay. So we showed you the statistics for nine months, and, that that bottom table shows, only q three, statistics, and it is much better than h one twenty twenty one. We're growing in both dine in and delivery. We observed some churn of, Dominion customers from Domino's website because currently, after entering Dominion website, our customers are being redirected to Domino's website, and some of them were resigning from ordering right after they were redirected.

24:22 This was already addressed by us. They got additional promotion, and now we see that they are more convinced to place an order. We've also built combined menu at has already mentioned, but some of our customers, couldn't find their favorite pizza flavor under old name, and and, they were also migrating from the from the side. But, again, the additional, promotion has encouraged them to go through the menu. What's more, the redesign to delivery areas impacted delivery times as our drivers had to learn new routes. But on the other hand side, we noticed improving loyalty of our customers as they smoothly migrated from dine in to delivery during lockdown periods and the way back, when the lockdown restrictions, were removed.

25:21 So we don't charge for the delivery, which which was already mentioned by, which makes the delivery not as profitable as dine in. I think it's not too much to say that our business has become more resilient to any future worsening of COVID pandemic. Thank you. Thank you, Ghosh. I would also now also refer to a question about at least half of the question about the competitors. What's happening on the the the competitive landscape? Do we see the bolt on opportunities in distressed pricing levels? Well, yeah, that's that's that's a that's a good question. And and and it's probably fair to answer this at least partially on this slide because partially we'll answer this in in two slides from now.

26:19 But we we are prob it's it's fair to say that we had we expected better performance in the third quarter of the year. However, it proved to be well, it's it's maybe not as as bad as as as as one could think because, in general, we are doing much better than the competitors. We see then we are a strong, very strong player in Warsaw, in Warsaw Metropolitan Area. And as you may imagine, after months of lockdown, people, when when when they could go out and go for holidays, and in the summer months, they basically left the city. And we see that there are many many other businesses in in Choreca that do suffer. And I'm I sit here in the office building in the center of Warsaw, and there's a shopping mall downstairs and there are many stores that are closed, which creates for us opportunities in terms of rollout, but also acquisitions.

27:15 We are looking we are in talks also at the very preliminary stage to maybe to buy a chain. We we sort of disregarded this in the past, but we now see that, you know, this is an opportunity because because other businesses, other competitors are really bleeding. I I was saying that, you know, we are not that that happy with the third quarter dynamic of of of 3% growth. But in fact, people are suffering much more. The other phenomenon that is maybe worth mentioning here is that if you if you sort of divide these numbers for Warsaw and the other cities, you will see that we are growing very fast in cities outside of Warsaw, and Warsaw is is is performing worse.

28:00 Why it is performing worse? Because people are most affluent. So in the summer months, they just left Warsaw. After the months of lockdown, they they went out. We didn't have students, which is one which is our big target audience. The the they were working online. They were learning studying online, so they were not here, and and we didn't have customers. In this sort of adverse circumstances, we had we still maintained our client base. However, we are quite optimistic because we we do see that this has come back to the to the sort of the levels we would expect already in October. And it proved to be the case that our like for like sales are not really like for like because we are comparing sales in sort of empty city to to sales in the full city.

28:51 And and and we'll show you this on the on the slide about October sales. And then a little bit more about the the the other topics about the competitors, we will mention maybe in in in in few slides because I think we have a slide on on that also answering some of the questions we got before. Moving on to the slide about the profitability and EBITDA performance. Gosh, I may be handing over to you. Yeah. Thank you. What we wanted to show you on this slide, and it's only the the graph is only for illustrative purposes, is that our EBITDA represents clear positive trend over the last months. It also shows the learning curve.

29:36 You would probably ask about what happened in q one. So the drop down in q one was due to the delay in IT systems integration, which blocked us from full integration of of two businesses. Additionally, again, the pandemic restriction also affected the numbers, as dine in was loss making during, during this period. The restrictions wait were tighter during this wave of pandemic. The lockdown was much longer. Our customers migrated from large cities. There was a significant decrease in the number of foreign tourists in cities like Warsaw and Krakow, which was already mentioned by. We were also not eligible for any substantial state support during this pandemic wave.

30:25 What I've what I have already mentioned is that we incurred substantial one off integration costs, which could not be presented as CapEx over the period of January till August. Thank you. Thank you, Ghosha. And now moving to the slide that everyone wanted to present, but we give the floor to Piotr. So, Piotr, you have the privilege of showing this slide. It makes us so excited. Yeah. It's for everyone to wants to present the slide like this. So when we look at the trading performance in the first days of October, we can see how our process activities are bringing benefits.

31:11 The charts show double digit like for like growth compared to 2020 as well as 2019. Taking advantage of the moment when students officially go back to universities in October, we have launched a marketing campaign beginning in Warsaw on billboards, posters, public transport, and radio. Additionally, thanks to tailor made promotions, we have reached specific customer groups. As a result, since the implementation of the new website, the number of website visit has increased by 27%. All these show that there is potential in the combined business that we are just exploring, but I don't want to be selfish. So I think, Chemerike, you would like add from your side something to this slide.

32:15 Thank you. Thank you. It's a it's a pleasure to discuss this slide. But I think that that slide must make a makes us really excited for for for various reasons. But I wanted to I I started to mention why why it's the case on the on the previous slide because we looked at like for like, but in fact, these are not like for likes because we're comparing the the, as I said, empty city to the full city. Now we see what's happening when students came back. Warsaw is a big academic hub. I mean, it's the capital of of the country. And as as you can imagine, it attracts many students and has good good universities. And students are a big part of our audience. And if we are talking about growth rates, then, you know, every every every customer matters to us, obviously. So now we see how the situation looks when it's almost back to normal. I would I would say it's still not back to normal because in in my office building, I see it's still half empty. So I think there's room to improve further when people are gradually coming back.

33:13 We think it's it's pro it will be probably new normal, so it will not be as it used to be. I mean, we all probably see that the hybrid office working model, so few days in the office, few days at home, but but people are gradually coming back. In addition to this, the economy in Poland is doing quite well. And, you know, there's a lot of of office buildings. There are many office buildings that are constructed. Just next to me, there is a tallest office tallest office building in Europe being constructed, and and then this will be open soon. So this will also provide us more and more demand for our products. And we with Domino's Poland, we are very strong in big cities. So it's not fully like for like, but this gives you a snapshot of of of what happens when when when students came back, what happened to us.

34:02 Also mentioned so that's the first. It's more like for like than the other ones because the other ones were not really comparable, we think, based on what we see now. The other comment that to comment on what was mentioned was that these are sales for the first days of October, but we are in November already, and we know that the trend continues. So October is a really strong month for us, not only on the sales perspective, but also on the margin perspective. And then also referring to the previous question about the the competitors, competitors were bleeding, and and some of them closed down. We we we see many stores that are closed down, and now we see the benefit of this. You know, when the when people came back, when our customers came back to the to to to to big cities, now we can we can show the growth rates.

34:50 Commenting on the two slides, I think two two important I wanted to flag two important topics. Topics. When you look at the bottom slide or the bottom sort of graph, you see the delivery growth. We were asking ourselves a question, what happens after the the the lockdown is is over? We knew we were doing quite well. You could see on the previous slide in the delivery. We kept our client base. We kept sales, but delivery was growing very fast. And we thought, you know, when when people are allowed to to go out of their homes or their houses and they go to the streets, maybe they stop buying on delivery. But it's not the case. That's that's that's a very important point to make here. We are still growing 5.5 versus 2020. However, you see what happened to the dine in.

35:37 You you know that Dominion has this flagship stores in in quite attractive areas in largest Polish cities in Warsaw, Krakow, and and other places. And you can clearly see that, you know, when the lockdown measures were lifted, people went out and we captured them with our with our dine in. So that's that's quite an exciting thing, and this is our second leg. I don't think it worked sort of COVID proof, but that shows, you know, that we can we can that our clients stay with us whether they're on delivery or dine in, but also that the client base is growing. You can see that 30.8% growth to the to thousand twenty and twenty six percent growth 2019 because we are benchmarking ourselves versus 2019, which is pre COVID. The 2020 had number of of of of drivers that could impact the performance. That's why when we when we evaluate ourselves, we are benchmarking the performance to 2020, but also 2019.

36:34 And there is another very important point I wanted to make. Comparing to the pre COVID levels, we are growing on dine in, one point two percent. I mean, it's not huge growth, but given the fact that we still have no tourists or few tourists coming to to to the largest policies, in particular, Krakow. Taking into account that offices are working still in the hybrid mode and people until end of the year would still probably not be fully back. I think this is quite an important achievement that even dine in is growing. And and and and just next to it, you see the delivery sales. So how much progress we made versus 2008 delivery that show the strength of the of the of the business.

37:21 I'm looking at the the questions whether we can there's a question about the comparison of of of the Domino's the old Domino's stores and and old Dominion stores. I mean, how what's the difference and how they how they mature. At the very beginning of the process, we made it very clear that that we will we will not refer to the old Dominion or Domino's stores. These are all our stores. These are all Domino's stores. Some some stores work under Dominion by Domino's as a transition brand as we mentioned this on the previous webinar, but it's all our stores. I mean, as you know, in the merger situations, it's difficult it's people still think in the old categories, what is ours, what is theirs. We have cut through that, so we're not comparing this to the to the past performance.

38:10 We are looking at the entire network. We have redesigned delivery areas, so we are delivering from the places we think we thought are the best. This is also likely to change because now we we can undertake a lot of improvement in the efficiency based on the sales that we have done so far. We we on on the topic regarding the the maturity and the profitability, there's another there is another question about that. We see already in October that our profitability is much stronger. October shows us very good the data also on the cost side given the economies of scale and so on. There's much more to do. On the store network, maybe I can move to the next slide, which shows the the market developments, and I will come back also to the question that we got from Peter before.

39:05 We you may remember that we were showing you on the previous webinar and the previous discussions our size in Poland versus competitors. And then this was the slide on the the the graph on the bottom. It shows 119 stores, but the fact that we have 121 stores because there are two stores that we operate at the seaside, and that they they they are seasonal restaurants. So they they open only the they operate only in the the summer months. But but then it looks like we're number three. However, when you when you dive into the particular markets like Warsaw, which is the the biggest city in Poland, then you see that we are already the dominant player. And it has an and this is basically following the best practice of Domino's International.

39:54 As you know, I mean, the Domino's has been very successful in places where it's a dominant player. And this is the case already in Warsaw. It has a number of of implications. First of all, the research shows that people are buying from from the stores that they see more often. So the size of the network can help to generate leads and customers. So because they they know the brands more, they trust the brands, so being larger helps. However, that helps to the the largest benefit is related to the cost of delivery. Our distance to customer is the shortest because our network is is is the most dense, and we have more storage than anyone else in Warsaw area. So our distance to customer is the shortest, which means we can deliver I mean, as as everyone knows, I mean, the best pizza taste hopefully if it's cold.

40:47 So we can make customer happy by delivering good quality and hot pizza. And, also, when people order, people are usually hungry. So we are the fastest. But fast and the the short distance means also we are the cheapest because if if our our drivers cover short distance, they can do more deliveries per hour, and that may be much more efficient on the hourly basis. So that's an important element. When we when we merged the two businesses, I mean, these were the two parallel networks. So there are many overlaps, and we decided to to redesign delivery areas based on our best judgment. However, this has to be tested. And now we based on October figures, we will redesign the delivery areas in order to improve the labor cost and also to shorten the distance to customers.

41:40 We couldn't do that before because the data was was not comparable. I mean, in in the summer months, I mean, when when people were out of of of big cities and we had no students, if we draw conclusions on that data points, we would draw our own conclusions. And we are not doing this for the short period. We are doing this for good. So we want to reevaluate delivery areas based on on octopus figures. But that's that's tying to this big unique advantage we have, which is the the size of the network in Warsaw. When you look at other cities like Wroclaw, Krakow, and and the others, we are also a very strong player. Where we are not strong are the second and third tier cities in Poland, and you can see here the the the competitors of of of us, which is which is a local chain.

42:33 We think we'll unstable quality, but they are present in in the smaller towns and cities, and this is this shows the potential for us to grow. When you look at the the other competitors, you know you know, Pizza Hut, of course, I mean, they are located a lot in shopping malls. They are they are, you know, they are relying on on the dine in. And then, I mean, because of of of the COVID and lockdowns, they do suffer more than us. So we think we are in much better position. We don't want to say badly about the competitors, but we feel quite quite quite confident about ourselves. Telepizza, you know, the story of Telepizza globally. I mean, it it has its own challenges. I can say that we know the owners of Telepizza and and yeah. I mean, you you can also see that the number of stores got got lower.

43:24 And then there is also Bishop Dove, and there are also some some other smaller chains. On the previous webinar, I got a question. And, actually ah, yeah. I got a question now also from Michael whether we could we could see their buying some of the smaller competitors to accelerate growth. I was exactly getting to this point, so thank you, Michael, for the question. I we we were most skeptical before, but now we see that, you know, the the the the custom so the competitors suffered and and and were bleeding over the last months. And if we have a good opportunity that, you know, we can it's based on the price. I mean, we are we are large shareholder. And if we think it's cheaper and faster to to buy, we'll go and buy.

44:12 If we think it's better with the rollout, we'll start with the rollout. And there was also a question, and I will address it. Yeah. No. I will address it in the next slide, but about the growth growth opportunities. And and we see that there are some m and a opportunities, and we're starting to read the discussions if we if we can grow the business significantly by acquiring some of the ailing competitors, we we would we would go for this because we we think it it it makes sense. So this was about the smaller competitors. There was also about the the market developments, about the the the COVID support. Yeah. What was the COVID support? The COVID support was not that strong in Poland. I mean, there was a support for for for micro enterprises and for large, but not for the middle ones.

45:08 So as a result, you know, many of those networks did did did suffer heavily. Pizza Hut used to just to give you an idea, they they used to run this pizza festival for, I think, two weeks sometime in January, and now they started this beginning of September. That continues until the end of continued, I think, until the end of October that shows that they are desperate to to get clients. So so so our competitors did suffer. Telepizza shrank in in terms of store numbers, so there may be opportunities there, but but but it's still early on. And we will consider what's best for the for the business. Now going back to the to the question about there was a question about store growth, and this, yeah, this this came from Nick. This was actually the first question. So, Nick, sorry for keep you for keeping you waiting, I wanted to address this this question here.

46:04 We were also inspired by one of our shareholders, you know, to to show you this this this graph or this this this this sort of numbers. We are not allowed to show you the final figures because our lawyers don't allow us to give you any guidance on the future because it's bad thing. But we wanted but you you can do the numbers yourself so you can you can easily guess or calculate it yourself. The store growth, as I mentioned in in July, we we see the potential for store number in Poland between five to a thousand stores, and this would come out of the calculations that you do here, and it's your call how many you can see.

46:50 We see as the as the the big shareholder that our our stage of growth and responsibility for the company is to get the business from up to 250 stores. So we think that this can be achieved within three to four years, and that that is our plan, and this is what we are working on. And this can take a form of the of the organic growth or the m and a. I commented on the m and a. On the on the on the store openings, we also see because of the ailing competitors that goes down, we see more and more locations that are available to us. And, actually, we are already getting approached by people who would like to open on the Domino's brands by so it was also quite interesting because when we started and we and and I I me and we're talking to sub franchisees, they they were complaining a bit about the developments before, but now we see appetite from them on opening new stores. So it's it's it's it's it's it's a great development over this this, what, ten months that we managed to to, you to to to to to change also the the atmosphere and and the the the tone of discussion with with. They they they want to open more locations.

48:01 They come to us with with already identified locations. And in those cases, we would be open to to to various mechanisms. In some cases, they would like to open they they can afford to open this themselves. We don't need to invest, but but in some cases, we would agree to co finance the the new opening. If we see that this this makes a lot of sense, then we would we would support them. And this is one of the ways to grow the scale of the business. Also, Piotr mentioned on the slide regarding the developments that we have worked on on the on the sub franchisees, and and it's also now part of our HR development plan that the best performing employees, managers will have a chance to to buy the store from us, and then we we we give the the franchise to them. As you may remember from July, we want to rely on the on the sub franchise stores.

48:58 But this is a process. We wanted to see the performance in October, November now, how it's you know, the to see how the business really looks like, not to make mistakes in the new openings. So we want to start the new openings from from 2022. These numbers on the show the store per capita growth, so we are looking at that as well. These are the metrics. We would be opening mostly addressing because someone asked what k p Nick asked what KPIs we would use there to measure store performance. Well, we cannot dive into better details because surely competitors are listening. But, of course, we look at sales and number of checks, the average check, especially now in the environment when the inflation is going up. We are looking at the at the average check amount because that helps us to cover the the the the delivery cost.

49:52 When you I think I have addressed all the questions. If if not, then feel free, everyone, to to shoot questions. I'm reading them here. I think I have addressed all of all of them. Well, on the opportunity, so stock count and the other is stock profitability. We use the benchmark of of Domino's Pizza Enterprises, Domino's Pizza International, Domino's Pizza UK, just to to to show, you know, where they are. Our ambition is, of course, high, but we don't expect that we'd get to those levels in the in the in the short term. But the the there is no reason why we shouldn't be getting there over time. UK, as as some of you may know, that The UK figure is a bit impacted by the VAT break they got from the government.

50:43 So that's why it is is larger. We didn't get a bunch of help from the Polish government, so so we are aligned on ourselves. But but, anyway, those those numbers show you the levels where we we should be getting to. When you look I mean, normally, people will think, okay. Poland has a income per capita, which is much smaller smaller than than the the the the average EU. However, if you decompose Poland into the big cities in in in in the countryside or smaller towns, then you'd see much different picture. I think when you look at the the Warsaw statistics, Warsaw is above the EU average. And and Warsaw, and if you look also at and and and Krakow and the three cities and so on, this is this is probably a size of of, I don't know, Austria or or something. You know? Like a like a like a small sized country.

51:39 Once the metropolitan area has two and a half to 3,000,000 inhabitants, I mean, the the estimates say. So so we should have also an ability because the the consumer and consumer purchasing power is there. For those who've been to Poland, you you see that's not sort of much different to to to other European cities, so people do have similar consumer habits. So the so as our aspiration will be to to go towards those store profitability, but, of course, over time. And if you do the mathematics multiplying the the the the store account and the profitability, then you see what is the what is the goal and where we intend to make money. There's a question from team about the the comments regarding sub franchisees.

52:26 Historically, why did the company struggle with sub franchisees growth? Has some change in terms of potential profitability of those? Okay. So I will I will I will address it here because we have only one more slide. So we when we merge the two networks, we could see, you know, that networks were overlapping. So in in order to to be able to design the most optimal network of our stores, we decided to buy back some of the of the stores from sub franchisees because that allows us allowed us to redesign the delivery areas in the most optimal way. Those stores were not doing well, but, you know, the history also of Domino's, it was it was not not doing so so well too. But when when we commented about the the the six months performance, I mean, you can see clearly that we're not happy with this, and there was a number of things. But indeed, what happened, we made a huge turnaround of Poland, and this this is a different business now. So it's it's much better business, much more efficient.

53:36 And when you look at the statistics like for like basis of our sub franchisees, the ones who who stayed, they are they are really growing. So so they they turned back they they turned from being negative and and a little bit sort of well, not not not not happy, a little bit disappointed to be quite optimistic. And and we had a we had a sort of a get together with them a few months ago, and you can see that the sentiment changed, and now they want to to open more more stores. So I think this is a team is asking what was the struggle with subfranchisees growth. I mean, it was it was it was was many of those factors. I mean, the brand recognition, the the ecommerce platform, we mentioned that we we have a new ecommerce platform. We actually, starting from August, we have a position of a revenue director.

54:29 So a person who whose main responsibility is to look at, you know, the customer behavior in our ecommerce to to to be in touch with customers, to to design offers, to introduce new products, to discontinue some some some offers, and that all helps. Every single small thing helps. We have we have also centralized call center. It used to be that people would pick up phones in the in the individual stores, and this would distract them from from doing bits and serving servicing clients. Now it's all centralized, and we are also improving upselling. So now it's much much better model for for some I think some of them show much, much better performance than we do, and that's good because, I mean, the the this is this is our future. We want our sub franchisees to get better and better, get stronger, and we'll do our best to support them because then then we can grow the business together with them.

55:31 Well, I hope I I addressed that question team, but if not, then add the please add the another sub question. And then I would I would also go to the Outlook and then and the last slide. Or maybe yeah. There's one information missing, but I will cover this as well. I I also allow myself to comment a little bit on this because some of those points are views and subjective views. So I am I mean, as a nonexecutive and also representing the the the shareholder, then I think I can allow myself to to to to to comment on those. Especially on the first point, I mean, we we did spend quite a bit of time on this on this webinar discussing the the the dynamics of of of customers and, you know, whether people are back to big cities or not. And some of those trends are visible, and some of those are our judgments. So our judgment and view is that the tourists will recover.

56:36 Mentioned I think it was mentioning that, you that the how the the number of tourists declined in Warsaw and Krakow. I mean, you have not been to Poland yet, if you want come, to go to Krakow. Krakow is a really nice place. Warsaw is a is is is is a is a busy place. There's a lot of business. It's it's it's it's good to live here, but if you want to go outside, can go to Krakow. However, these days, we well, we used to have a lot of traffic from UK, but for those of you who who live in The UK know that, you know, the travel restrictions were quite tight. So we did suffer, and we continue to suffer. However, our view is that this would change, and and gradually, the tourists will will will recover. Probably COVID will stay with us for some time, but people will more and more vaccinated, and we just accept that the the the risk risk like COVID.

57:29 So we our bet is that the customers will be coming back. This so and then our performance will be even better because now we are doing quite well when you look at October even without these people. Second point about the customers is that that the the hybrid office working modes will continue. However, generally, Poland is is benefiting a lot from, well, from from this sort of dislocation of of some of the back office function. We have Standard Chartered. We have JPMorgan and equivalents being building their sort of back office functions here. You may be familiar with this near shoring trend, especially after the COVID lockdowns.

58:19 If if people outsource some services within a group, they don't want to do it on a big distance because it's difficult to get there. So so Poland is actually benefiting. So we see that the office the offices are being constructed here. There's more people working. So, generally, we think that this this would be a favorable trend. Better value proposition. Piotr mentioned about the delivery times. We have the largest network that should help us to be the the fastest, and we think that's the value to the customer. That's also a cost item. That's also a convenience. So this we we we will continue to do that. On the new openings, we want to focus mostly on the on the delivery businesses, but we want to keep also the the dine in, like, flagship stores that I mentioned before. The digital marketing, we are improving on that. We have a new platform that that was launched earlier this year, and now we are trying we are we are playing with it. We we we have the engine, and we are just now optimizing this and, you know, using different tools just to get more customers' loyalty, just to improve our offering, to improve the the customer journey on the website, and so on and so on. So that that's that's we see benefits of that in October, and we expect this to to to continue.

59:33 The last point is I I have not seen a question about the the inflation. There was a question about the supply chain. However, the inflation rate that is affecting everyone in the world or most of the people, especially in Europe, with the energy prices, gas prices, but but all other commodities that affects all of us. We think we are quite well placed because we are the largest, so our our pricing is probably the the the best. We we are negotiating terms other than being the simple price taker. However, the the the trend is not stoppable. What we have done is we have increased prices. We in Poland, pizza is still sold on an on offer. So you get the second pizza for 50% or you get Coca Cola for free and so on. So this is also an instrument we have at hand to to deal with the inflation so and deal with the prices.

1:00:29 The third instrument is the minimum order for delivery. We see we, know, we can increase that also to cover our delivery cost, which is also growing as Scott mentioned about shortages of people. And and the fourth instrument, which is connected with the third, is a delivery charge. We are not we have not yet introduced delivery charge, but we see some some our competitors do it, and, like, Telepizza in in some locations, they they they do it. But most importantly, food aggregators like Uber Eats, like, and equivalents, they educated the market, and and customers are you more and more used to see delivery charge. So if we see that the trend continues on the inflation, then this is one of the one of the instruments we have in hand in hand, and we we do consider this.

1:01:20 If competitors listen to us, now now now that's a good that's a good part. So don't be shy. Introduce the leverage as we will follow. Yeah? So so the this is something we are we are we are looking at to improve our profitability. Like, Uber Eats is is is charging five watts, I think, for per order. We have, I don't know, hundreds of thousands of orders of millions per year. So that that could be that could be significant. Store openings, I I commented on this a little bit. We want to to start in 2022. This is for for a few reasons. One is that we also want we we do not exclude opening stores still in Warsaw in the places where where we are dominant because we already now see locations that where the demand for our for our service is bigger than what we can deliver.

1:02:20 So in those locations, if we see that, you know, the the it makes sense to open a new store just to improve the delivery time, customer experience because this is delivery time, we can do that. We opened actually one store in Warsaw, yeah, this year, and then we we may still look at this. But but we we see the opportunities also with with with with places outside of Warsaw, and those dynamics of like for like sales make us confident that this this should be very successful. Those growth rates are much above worser. One before the last big comment is about the VAT. You may remember that in the admission document, we we discussed the potential recovery of VAT. There was a dispute that Dominium had with the tax office, and Dominium decided to pay all the disputed amounts, so the money has been paid.

1:03:14 But we we continue to dispute it, and we got a positive ruling of the the the the supreme court in Poland. And now the tax office has time to to appeal to that, but I know it's probably expires this this time to appeal it within maybe this or next week. So, hopefully, we will we'll hear back that that now that they have not appealed. And in that case, there will be money flowing out of way. I think the expectation would be well, I'm just thinking not to to kind of to to misguide you, but but this this would be sizable amounts. I think it's, a million pounds that could flow our way. If all those positive decisions are confirmed, it would be a process because we got the the ruling for two years. Right, Yeah. The the degree Sorry for that to I have to make my my profile unmuted.

1:04:10 Yes. This this ruling is for two years only. Yeah. And then then overall, it was five years, and maybe it's more. The last point to mention here, it's it's sort of an elephant in the room, and we didn't put it here on the on the slide because it we are still working hard also overnight to announce this accelerated book building that was announced just just before this this call, unfortunately, because of of a lot of admin and and legal work that that delayed us. But we we announced accelerated book building that that started today and will will will continue today. This is £3,000,000. This is to support the working capital, but also help us grow the the new store openings. I mentioned that we wanted to see the true performance so that we can make proper decisions on why we should be opening new stores to see, you know, the demands.

1:05:10 We will have, for example, some stores next to university campuses. So we wanted to make sure we we we find the perfect location. But secondly, was the capital available? Things took longer than anticipated. And then I have to admit that that the third quarter, we were not so happy. Well, we sort of were more ambitious than it was. I mean, I explained to students and the dynamics, but we anticipated that this speed up and growth would be faster. Now now we think we we have a good sort of run rate, and that's that's improving. We will generate positive positive cash flow, which should support our our rollout. But in addition to that, to accelerate the growth, we are also raising money. We are also not we are also contemplating a TV campaign.

1:05:59 We we know from other markets that this was also something that that helped them to to to grow business. We are looking at the neighboring market of of Germany, and the the CEO there makes an outstanding job in in opening more stores. They're also supported by TV campaign. So we we, you know, we will learn the best practice. We'll get a lot of support from International. So it's actually it's it's exceeding our expectations, the quality of the corporation. So so we we we may we may also decide to go for TV advertising based on this this capital raise. But we we we are looking at every euro that that that we have, and we will use it in the best the best way or do we think it's it's the best way. Also, maybe consumer loyalty programs, again, German, it just introduced that. So so that's also another thing we are we are considering.

1:06:52 Well so so that's it. I wanted to give you the this last part a little bit sort of from the shareholder perspective, not from the executives because some of those are views. But but if you have any more questions, then I will be happy to to address. I I I try to to to answer question by question, but if you have any other summary kind of notes or or or comments, questions, then please please don't hesitate and and ask them now. We'll we'll go to address. Shamik, thank you very much indeed. I think you indeed, as you quite rightly point out, you've answered all the questions submitted by investors today. So thank you to investors for taking the time to do so. Of course, Shamak and Gossia and Piotr, if any other further questions do come in from investors, we'll make those available to you for you to review after this meeting has ended.

1:07:43 I know investor feedback is important to you as a company, and we'll shortly redirect investors to give you their thoughts and expectations. But just if I could ask you, Shermak, for a few closing comments just to wrap up with, that would be great. Thank you. Thank you, Martin. Congratulations on pronouncing my name. It's not that easy. No? So I I think we we we like to think about ourselves and and our and our Domino's Pizza POLAND that, you know, it's a it's a it's a complete product. We have a machine, and now we are fine tuning the machine. I think it's it took us six months to to to build it to and this was a huge role of executives, and this was done on plan except for this IT. I think the third quarter, we were more ambitious than than the results, but we explained why. But we we see we are very encouraged by performance in October.

1:08:37 We see that, you know, the the the the customers appreciate what we have proposed to them, and then we can be doing better and better. We we are quite ambitious about about the store growth, the store count growth, and also profitability growth. We are now raising capital, but we also have better sort of discipline not to in terms of we look at every euro, so we're not raising much money, but we think it should be sufficient. We would like to to to accelerate growth starting from 2022. We think the market is there. We have a good team, and and we will be improving on the top line, but also on the on the cost side of the margins and and, you know, and the, yeah, the support support the business going forward.

1:09:28 I was a bit distracted by question from Alan about the borrow rather than the fact that they lose the shares again. Yes, Alan. That that's also on our agenda. However, as you may imagine, the was not the most sort of favored sector by the lenders. Now so so during the COVID days, so that that was not available to us. But, yes, that's gonna be the plan. That's why our capital raise is so modest. You know, we don't want to raise too much, especially me as a also representing the shareholder, and we don't, you know, wants to invest money if it's not needed. So we will you we'll look at the the the most optimal funding structure. For the time being, we do not we do not anticipate any additional capital increases if we see a big if we see a sizable m and a opportunity and we conclude that that makes sense, that's then then we will do it. We, as a larger shareholder, will participate in the the current capital increase.

1:10:25 So, you know, we we support the business, but we are looking, you know, at the sort of the return on the investment. And for the time being, we think we we we're done. So I think this is this is where we are. We want to keep this dialogue with you. I mean, we got a lot of positive feedback, and and we feel encouraged to continue with this. So we will dedicate resources to have another session like this in in few months. Let's see how the what next months bring, but maybe we we do some some trading update sometime in the second half of January. We will publish the the information about it with a proper notice so that we can get ready for that, and then you are not not surprised.

1:11:11 That's right. From us now. Thank you. Thank you very much indeed, Shamek, Gozia, and Piotr for updating investors today. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team could better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team at DP POLAND, we'd like to thank you for attending today's presentation. That now concludes today's session, and good morning to you all. Thank you.