DP Poland, the Domino’s Pizza franchisee for Poland, continues to grow its revenues but it is a long way away from moving into profit.
In the six months to June 2014, revenues increased from £1.54m to £1.94m, while the underlying loss dipped from £1.69m to £1.61m. There is a £321,000 exceptional charge which is a combination of impairment costs relating to two closed company-owned stores and onerous lease provision on those sites.
There was a cash outflow of £1.7m in the first half of 2014. There was £5.59m in the bank at the end of June and it is expected to fall to £3m by the end of year. There will be further cash outflows in 2015 and 2016. That means that DP Poland will have to reduce its rate of expansion or raise additional cash. Selling and sub-franchising company-owned stores could raise some cash.
The current strategy is to open additional stores in new cities during 2015 and also increase the number of sub-franchised outlets.
DP Poland can undoubtedly become a highly profitable business when it reaches critical mass but it will take some time to get there. That is despite a 38% like-for-like sales increase in July and 43% in August.
A share issue to raise additional funds is not out of the question in a year or two’s time but management are unlikely to want to issue shares at the current low price but it is difficult to see a significant recovery in the share price in the short-term.
At 9.75p a share, DP Poland is valued at £9m.
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