Dominos Regulatory News (DOM)

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15 December 2015

Strategic joint venture between Domino's Pizza Group and Domino's Pizza Enterprises in respect of German operations and acquisition of Joey's Pizza, the leading pizza delivery business in Germany

Highlights

· Launch of strategic partnership in Germany between Domino's Pizza Group and Domino's Pizza Enterprises

· The newly formed joint venture is to acquire Joey's Pizza, the largest pizza delivery operator in Germany with 212 stores nationwide, for an initial consideration of €45 million (£32.8 million1), with further payments taking the aggregate consideration up to €79 million (£57.6 million), based on satisfying certain specified earn-out criteria

· It will bring together both DPG's German operations and Joey's Pizza, becoming the single largest pizza delivery operator in Germany with around 227 stores

· The transaction is expected to be earnings enhancing on an underlying basis for DPG in 2016 and realise significant value over time

(1)Amounts quoted in Sterling in this announcement are based on an exchange rate of pounds sterling to euro of £1.00 : €1.3722 (Source: Bloomberg as at 14 December 2015)

Overview of the transaction

Domino's Pizza Group plc ("DPG") and together with its subsidiaries (the "Group"), the UK's leading pizza business, announces today that it has entered into a strategic joint venture agreement, in respect of its German operations, with Domino's Pizza Enterprises Limited ("DPE") through the formation of newly incorporated company ("the German JV") to be owned 1/3rd by DPG and 2/3rds by DPE. The German JV has agreed to: (i) acquire the master franchise rights for the Domino's brand in Germany; and (ii) acquire up to 15 DPG stores in Germany (the "Transaction"). In consideration for the transfer of the master franchise agreement to the German JV, DPG will receive a fee of up to €25 million (£18.2 million) from DPE which will be payable in six annual instalments, dependent upon the German JV achieving various levels of profitability. DPG will have representation on the board of the German JV and also other minority protections.

In addition, DPG announces that the German JV has agreed to acquire Joey's Pizza ("Joey's"), the leading pizza delivery business in Germany, for an initial consideration of €45 million (£32.8 million), with further payments taking the aggregate up to €79 million (£57.6 million), based on satisfying certain specified earn-out criteria (the "Acquisition"). It is being acquired on a debt and cash-free basis. Joey's is expected to generate system sales of approximately €143 million (£104.2 million) and pro forma, underlying EBITDA2 of approximately €7 million (£5.1 million) in the year ending 31 December 2015.

DPG and DPE will initially invest a total of €58 million (£42.3 million) in the German JV to part-fund the Acquisition, the acquisition of the DPG stores and associated costs, of which DPG's share is €19 million (£13.8 million).

DPG has a put option over its interest in the German JV which can be exercised at any time after the financial year ending 31 December 2019 and DPE has a call option over DPG's interest which can be exercised at any time after the financial year ending 31 December 2021. The consideration payable upon exercise of either the put option or the call option will be based on an enterprise value determined from the capitalisation of future adjusted underlying EBITDA at an agreed multiple of between 10 and 12 times.

The transaction is subject to regulatory and other customary approvals and is expected to complete in early 2016.

(2) Pro forma, underlying adjustments include the removal of expenses relating to current owners and other general and administrative costs which are non-recurring in nature and other items which differ under the future ownership structure. Total normalisation adjustments comprise approximately £2.3 million (€3.2 million) in the 2015 calendar year

Transaction rationale

The creation of the leading pizza delivery business in Germany through the strategic partnership between DPG and DPE and the acquisition of Joey's, will deliver significant value for DPG shareholders and overcome the challenge of the subscale nature of the current operation. DPE has a regional infrastructure and a successful track record in operating Domino's stores across a number of European territories.

The transaction is expected to be earnings enhancing on an underlying basis for the Group in 2016 and subsequent years and realise significant shareholder value over time, subject to the performance of the German JV.

Financial impact of the transaction

The Group reported an underlying loss of £7.3 million in respect of its German operations in the financial year ended 28 December 2014. There has been a significant improvement in the performance during the current year, and underlying operating losses were £1.8 million for the six months ended 28 June 2015. We expect losses for the full year to be approximately £3.5 million.

The Group currently operates 20 stores in Germany. Up to 15 of these will be transferred to the German JV with the remainder being closed. In addition the commissary in Berlin and the head office in Dusseldorf will close. Total closure costs are expected to be up to approximately £7.3 million (€10.0 million) which will be provided for in the Company's 2015 financial year.

The Group will fund its investment in the German JV from its existing cash resources and facilities. Following the completion of the Transaction, DPG will not consolidate the results of the German JV but rather report its proportionate holding of German JV. The closure costs, noted above, of up to £7.3 million (€10.0 million) will be booked as part of discontinued operations in the 2015 results. An offsetting non-underlying credit of similar value will be booked in 2016, being the fair value of the consideration for the transfer of the master franchise agreement.

OutlookThe Board of DPG takes this opportunity to reiterate the outlook statement from 14 October 2015 which highlighted the strong performance of the business during the third quarter and the solid start to the fourth quarter. The Board remains comfortable with current market expectations for full year 2015 results in the UK, ROI and Swiss operations, with at least 55 stores being opened in the UK. Germany will become a discontinued operation.

Commenting on the Transaction, David Wild, CEO of Domino's Pizza Group, said:

"This is a transformational deal for our German operations, creating the new market leading pizza delivery operator. Our strategic stake in the joint venture positions DPG to capitalise on the significant future growth potential of this profitable and scaleable business. We look forward to partnering with DPE."

 Don Meij, CEO of Domino's Pizza Enterprises, said:

"Germany is the fourth largest pizza market in the world and our entry into this market represents an exciting long term growth opportunity for DPE. We look forward to working with DPG as a strategic partner and are excited at acquiring the market leader in Joey's"

The owners of Joey's Pizza, Carsten Gerlach and Christian Niemax, jointly commented:

"We see the benefits which Joey's Pizza customers and franchisees will obtain from the association with a sophisticated global pizza operator who recognises the importance of our culture and the 27 year history of our business in the German market"

For further information, please contact:

Domino's Pizza Group plc

David Wild, Chief Executive Officer

020 7379 5151

Maitland

Greg Lawless, Robbie Hynes

020 7379 5151

Numis

David Poutney, James Serjeant, Richard Thomas

020 7260 1000

Notes to Editors:

Domino's Pizza Group plc is a leading player in the fast-growing pizza market and holds the exclusive master franchise to own, operate and franchise Domino's Pizza stores in the UK, Republic of Ireland, Germany, Switzerland, Liechtenstein and Luxembourg. The first UK store opened in Luton in 1985 and the first Irish store opened in 1991.