Interim Results

Domino's Pizza UK & IRL PLC 24 July 2002 For Immediate Release 24 July 2002 DOMINO'S PIZZA UK & IRL plc INTERIM RESULTS FOR THE TWENTY-SIX WEEKS ENDED 30th JUNE 2002 Domino's Pizza UK & IRL plc ('Domino's Pizza', symbol: DOM) announces its interim results for the twenty-six weeks ended 30 June 2002. Highlights • System sales increased 24.6% to £57.8m (2001: £46.4m) • Like for like sales up 15.8% (2001: 22.0%) • 18 new stores opened (2001: 13 stores) • Operating profit rose 41.3% to £1.88m (2001: £1.33m) • Profit before tax increased 45.6% to £1.72m (2001: £1.18m) • Basic earnings per share up 41.8% to 2.34p (2001: 1.65p). Diluted earnings per share up 35.0% to 2.20p (2001: 1.63p) • Interim dividend increased 36.8% to 0.78p per share (2001: 0.57p) • Group turnover up 26.3% to £26.2m (2001: £20.8m) • Number of stores up to 255 (2001: 228 stores) Stephen Hemsley, Chief Executive of Domino's Pizza, commented: 'The business is rapidly approaching a position where all major infrastructure costs and royalty increases have been absorbed. From then on the marginal contribution from increases in system sales, whether this be from new store openings or continuing buoyant like-for-like sales increases, will be significant. I therefore look forward with great optimism to our maintaining the progress achieved in the first half of the year.' Contact: Domino's Pizza 01908 580672 / 07909 928016 Stephen Hemsley / Bernadette Eddisford Buchanan Communications 020 7466 5000 Richard Oldworth / Isabel Petre Notes to editors: Domino's Pizza UK & IRL plc is quoted on the Alternative Investment Market of the London Stock Exchange (symbol: DOM). Its subsidiary, Domino's Pizza Group Limited, is the UK's leading pizza delivery company and holds the exclusive master franchise to own, operate and franchise Domino's Pizza stores in the UK and Ireland. The first UK store opened in 1985 and today there are 258 stores in the UK and Ireland, employing almost 6000 people. Domino's Pizza is world leader in pizza delivery and was founded in the United States in 1960. There are currently more than 7,000 stores open across 64 international markets employing over 120,000 people. CHIEF EXECUTIVE'S STATEMENT INTRODUCTION I am very pleased to once again report that your company has made strong progress in the twenty-six weeks ended 30 June 2002. Continued strong system sales growth and an accelerated store-opening programme have contributed to record half-year results. This has consolidated our position of clear leadership in the home delivery pizza market. A particularly welcome aspect of the performance was the rate of growth in profits compared with the rate of growth in sales. As we absorb both the cost of the infrastructure necessary to grow to our 2006 target of 500 stores and the increased royalty due to Domino's in the US, the marginal profit contribution from the growth in system sales should accelerate. It is therefore very gratifying to note that, even though some overhead costs will continue to grow, pre-tax profit in the twenty-six weeks to 30 June 2002 increased 45.6% on a system sales increase of 24.6%. We have also made excellent progress during the period in establishing the internal infrastructure necessary to locate property and build the stores required to meet our target. SALES System sales, which represent the sales from all the underlying stores whether corporate or franchised, totalled £57.8m (2001: £46.4m) in the twenty-six weeks to 30 June 2002, an increase of 24.6%. Like-for-like sales were 15.8% (2001: 22.0%) ahead. This strong performance is attributable to our continued focus on the fundamentals of the Domino's Pizza system - product, service and image. Key to this is the quality of our pizza. The use of fresh dough and fresh ingredients is an expensive and time-consuming commitment. However, this is what truly distinguishes our pizza and ensures we maintain high levels of customer satisfaction and repeat purchasing. We also perceive that stores are benefiting from the continued consumer shift away from so-called 'fast food' towards high quality convenience and delivered foods such as our hand-made, fresh pizza. Service is another key aspect of our business and is one of the main reasons that customers come back and order time and time again. Providing great service starts with our well-trained order takers and continues right through to the prompt and safe delivery of a hot, fresh pizza. It is essential that we remain focused on service and devise efficient in-store systems and procedures in order to ensure that we consistently exceed customers' expectations. We must also recruit the best people, training them thoroughly and continually supporting the stores in which they work. It is an old cliche, but we are only as good as our people! We have continued with the store refurbishment programme with the objective of bringing all stores up to the same high quality and consistency of image expected of the market leader in home delivered pizza. In one of our consumer focus groups, someone summed this up by saying: 'if the image is tired, the food is tired'. In other words, if the shop front and the customer area do not look clean, bright and professional, then how can customers possibly believe that we operate to the highest standards and use the finest ingredients in making our pizza? We therefore ensure that our image is always a reflection of the high quality of our pizza and operating standards. Our significant sales growth has also been greatly assisted by effectively communicating our focus on product, service and image, and the continued use of targeted and effective national, terrestrial TV advertising. This has been supported by continued sponsorship of The Simpsons on Sky One, and by additional advertising campaigns on a number of cable and satellite channels, which continue to communicate the benefits of our HeatwaveTM technology. Domino's presence on every major national interactive TV platform, together with our nationwide online ordering service, continues to give us an unchallenged market-leading position in the application of e-commerce to the food delivery sector. E-Commerce net sales increased by 28% in the six months to 30 June 2002 and totalled £1.9m in the period (2001: £1.49m). RESULTS Group turnover, which includes royalty income, food sales and sales made by corporate stores was 26.3% ahead at £26.2m (2001: £20.8m). Operating profit rose 41.3% to £1.88m (2001: £1.33m). During the first half of 2001 the average rate of royalty paid to Domino's in the US was 1.6% compared with 2.5% in the current year. Were a consistent royalty applied to both period the rate of growth in underlying profits would have been 88%. The final increase in the royalty to 2.7% occurs on 1 January 2003. The interest charge at £193,000 (2001: £180,000) increased slightly due to higher net borrowings during the period. This resulted principally from the £1.5m investment made in the new Commissary facility in Penrith, which is due to open in August. This third commissary facility will complete the manufacturing and distribution infrastructure required to support at least 500 stores. Despite the slightly higher interest charge, interest cover increased to 9.9 times compared with 7.6 times in 2001. I am pleased to report that, as anticipated, the Irish commissary that opened in November 2000, is now achieving a monthly profit and this is as a direct result of the opening of five new Irish stores. Profit before tax increased by 45.6% to £1.72m (2001: £1.18m). The provision for taxation increased to an effective rate of 32% (2001: 28%) in line with our early adoption of FRS 19 announced at the previous year-end. As a result profits after tax increased 42.4% to £1.2 million from £0.83 million. Basic earnings per share increased 41.8% to 2.34 pence per share from 1.65 pence per share. Diluted earnings per share increased 35.0% to 2.20 pence per share from 1.63 pence per share. The Board has declared an interim dividend of 0.78 pence per share, an increase of 38.6% (2001: 0.57 pence per share). The dividend will be paid on 4 September 2002 to shareholders on the register on 2 August 2002. SYSTEM EXPANSION In the first twenty-six weeks of 2002, 18 new stores were opened (2001: 13 stores) bringing the total to 255 stores at 30 June 2002 (2001: 228 stores). Four of these new stores were opened in the Republic of Ireland. The additional resources which have been committed to new store openings have had an impact on both the number of stores opened in the first half of the current year and also on the pipeline of stores we take into the second half of the year and beyond. Whilst we remain confident that our target of 500 stores by the end of 2006 remains realistic, our strict selection criteria for new store sites, combined with the ever more stringent planning requirements, make the identification of property one of our key challenges. In the period, we continued to attract a steady flow of high quality franchisee candidates and are pleased to report that Domino's Pizza remains one of the UK and Ireland's most sought-after franchise opportunities. CORPORATE STORES The continued focus on the basic principles of the business that has proven so successful in driving sales in franchise stores has been equally successful within corporate stores with sales growth matching that of the system. This compares with growth of less than half the system average in the comparable period in the previous year. This focus has however, lead to some erosion of margin as some stores have experienced operational difficulties in handling the increased volume. The overall structuring of corporate stores continues to be reviewed to ensure we strike the right balance between effective control of this valuable portfolio and cost effectiveness. As a result, supervisory management has been reduced, whilst the number of stores has been increased from 34 on 30 December 2001 to 36 at 30 June 2002. Overall, the contribution from corporate stores has been at a similar level to that achieved in the previous year, after adjustment for some modest one-off costs associated with the reductions in management team. THE COMMUNITY Supporting the communities in which our stores operate is just as important as delivering quality pizza on time and whilst we are proud of our national achievements, the heart of the Domino's Pizza business will always remain in the local communities we serve. Domino's and our franchisees support communities in many ways - designing our stores in a sympathetic manner, employing local people, showing respect for the environment, encouraging our team members to be caring citizens, taking our skills into schools and colleges and supporting worthwhile local organisations, for example. In 2002, we became organisers of the Lollipop Person of the Year awards. Aimed at recognising the achievements and contributions of school crossing patrols, the Lollipop awards were supported by Domino's Pizza stores all over the UK and Ireland, and gave communities the opportunity to recognise their local heroes. PEOPLE We are very fortunate that the opportunities arising from the rapid growth of domino's in the UK and Ireland have allowed us to attract and retain some of the most exceptional people in the industry. To ensure that we bind these exceptional people into a team we must constantly communicate with them both formally and informally. These principles hold true for both our own staff and also our franchisee partners. We will therefore continue to devote considerable resources to doing just that, communicating with our staff, our franchisees and their team members to ensure the objectives of the business and principles by which we operate it are embraced, particularly our commitment to the use of fine, fresh ingredients. My grateful thanks and congratulations go to all of those who have contributed to the success of domino's pizza. I strongly believe that if we continue to operate as such an effective a team, then the domino's business in the UK and Ireland will continue to go from strength to strength. OUTLOOK The business is rapidly approaching a position where all major infrastructure costs and royalty increases have been absorbed. From then on the marginal contribution from increases in system sales, whether this be from new store openings or continuing buoyant like-for-like sales increases, will be significant. I therefore look forward with great optimism to our maintaining the progress achieved in the first half of the year. Stephen Hemsley Chief Executive 23 July 2002 GROUP PROFIT AND LOSS ACCOUNT Restated (Unaudited) (Unaudited) 26 weeks to 26 weeks to Year ended 30 June 1 July 30 December 2002 2001 2001 Notes £000 £000 £000 TURNOVER Turnover: group and share of joint venture's turnover 26,909 21,277 45,185 Less: share of joint venture's turnover (693) (524) (1,360) ----- ----- ----- GROUP TURNOVER 26,216 20,753 43,825 Cost of sales (13,906) (11,252) (23,132) ----- ----- ----- GROSS PROFIT 12,310 9,501 20,693 Distribution costs (4,366) (3,485) (7,150) Administration expenses (6,066) (4,688) (10,230) ----- ----- ----- 1,878 1,328 3,313 Other operating income/(expenses) - - (169) ----- ----- ----- GROUP OPERATING PROFIT 1,878 1,328 3,144 Share of operating profit in joint venture 37 35 75 Amortisation of goodwill on joint venture (3) (2) (5) ----- ----- ----- 34 33 70 TOTAL OPERATING PROFIT: GROUP AND SHARE OF JOINT VENTURE 1,912 1,361 3,214 Net interest payable (193) (180) (352) ----- ----- ----- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1,719 1,181 2,862 Tax on profit on ordinary activities 2 (541) (354) (858) ----- ----- ----- PROFIT FOR THE FINANCIAL PERIOD 1,178 827 2,004 Dividends on equity shares (395) (285) (668) ----- ----- ----- RETAINED PROFIT FOR THE PERIOD 783 542 1,336 ----- ----- ----- Earnings per share - basic 3 2.34p 1.65p 4.00p - diluted 2.20p 1.63p 3.88p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Restated (unaudited) (unaudited) 26 weeks 26 weeks Year to ended ended 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 Profit attributable to the financial period 783 542 1,336 Prior period adjustment in relation to full provision for deferred - (466) (466) tax ----------- ----------- ----------- Total gains and losses recognised since the last annual report 783 76 870 ----------- ----------- ----------- GROUP BALANCE SHEET Restated (Unaudited) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 Notes £000 £000 £000 FIXED ASSETS Intangible assets 2,922 1,932 2,484 Tangible assets 13,755 12,211 12,181 Investment in joint venture 296 271 277 ------ ------ ------ 16,973 14,414 14,942 ------ ------ ------ CURRENT ASSETS Stocks 1,213 1,180 1,260 Debtors 4 10,091 8,401 8,421 Cash at bank and in hand 2,409 3,277 3,231 ------ ------ ------ 13,713 12,858 12,912 CREDITORS: amounts falling due within one year 5 (12,226) (9,928) (10,203) ------ ------ ------ NET CURRENT ASSETS 1,487 2,930 2,709 ------ ------ ------ TOTAL ASSETS LESS CURRENT LIABILITIES 18,460 17,344 17,651 CREDITORS: amounts falling due after more than one year 6 (7,468) (8,218) (7,632) PROVISION FOR LIABILITIES AND CHARGES - DEFERRED TAXATION (509) (466) (421) ------ ------ ------ 10,483 8,660 9,598 ------- ------- ------- CAPITAL AND RESERVES Called up share capital 2,531 2,502 2,518 Share premium account 2,281 2,064 2,192 Profit and loss account 5,671 4,094 4,888 ------ ------ ------ Equity shareholders' funds 10,483 8,660 9,598 ------- ------- ------- GROUP STATEMENT OF CASH FLOWS Restated (Unaudited) (Unaudited) 26 weeks to 26 weeks to 30 June 1 July 30 December 2002 2001 2001 Notes £000 £000 £000 NET CASH INFLOW FROM OPERATING ACTIVITIES 7 1,611 2,172 4,475 ---- ----- ----- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 22 51 78 Interest paid (173) (214) (304) Interest element of finance lease rental payments (5) (5) (11) ---- ----- ----- (156) (168) (237) ---- ----- ----- TAXATION Corporation tax paid (399) (30) (617) ---- ----- ----- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (523) (8) (68) Payments to acquire tangible fixed assets (2,133) (1,187) (2,560) Receipts from sales of tangible and intangible fixed assets 4 138 5 Receipts for repayment of joint venture loan 12 - 36 Receipts to acquire finance lease assets and advance of franchise loans (768) (312) (1,007) Receipts from repayment of finance lease and franchise loans 391 - 445 --------- ---------- ----------- (3,017) (1,369) (3,149) --------- ---------- ----------- ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertaking and unassociated business - - (160) --------- ---------- ---------- - (160) ---- ----- ----- EQUITY DIVIDEND PAID (390) (215) (501) NET CASH OUTFLOW BEFORE FINANCING 2,351 390 (189) FINANCING Issue of shares 102 19 164 New long-term loans 2,036 2,081 2,660 Repayments of long-term loans (567) (171) (330) Repayment of capital element of finance leases and hire purchase contracts (42) (41) (72) ---- ----- ----- 1,529 1,888 2,422 ---- ----- ----- (DECREASE)/INCREASE IN CASH (822) 2,278 2,233 ---- ---- ---- NOTES TO THE INTERIM REPORT 1. BASIS OF PREPARATION OF INTERIM FINANCIAL INFORMATION The interim financial information has been prepared on the basis of the accounting policies set out in the group's statutory accounts for the fifty-two weeks ended 30 December 2001. The taxation charge is calculated by applying the directors' best estimate of the annual tax rate to the profit for the period. All other accounting polices set out in the accounts for the fifty-two weeks ended 30 December 2001 were applied for the purposes of this statement. Basis of consolidation The group accounts consolidate the accounts of Domino's Pizza UK & IRL plc and all its subsidiary undertakings drawn up to the nearest Sunday of the month end. 2. TAXATION The taxation charge is made up as follows: Restated (Unaudited) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 UK corporation tax: Profit for the period 445 325 788 Share of joint venture tax 8 - 16 Adjustment in respect of the previous period - (100) (185) ----- ----- ----- Total current tax 453 225 619 ----- ----- ----- UK deferred tax Origination and the reverse of timing differences in respect of: Profit in the period 88 129 239 ----------- ----------- ----------- Total deferred tax 88 129 239 ----------- ----------- ----------- Tax on profit on ordinary activities 541 354 858 ----------- ----------- ----------- The Group adopted FRS19 - Accounting for Deferred Tax during 2001. FRS19 required deferred tax to be recognised on a full provision basis on all timing differences that have originated but not reversed at the balance sheet date. The timing differences are the accumulated difference between the profit for tax purposes and the financial profit, which arise principally from the difference between accelerated capital allowances and depreciation. Deferred tax balances have not been discounted. The effect of the change in accounting policy is to increase the tax charge for the period 1 July 2001 by £29,000. In addition, the adoption of this change in policy is to reduce shareholders' funds for the period to 1 July 2001 by £466,000. 3. EARNINGS PER SHARE The calculation of basic earnings per ordinary share is based on earnings of £1,202,000 (2001: £856,000) and on 50,423,812 (2001: 50,005,710) ordinary shares. The diluted earnings per share is based on 53,446,146 (2001: 50,621,465) ordinary shares which takes into account theoretical ordinary shares that would have been issued, based on average market value if all outstanding options were exercised. 4. DEBTORS (Unaudtied) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 Trade debtors 2,335 2,554 2,392 Amounts owed by joint venture 297 345 309 Other debtors 3,820 3,055 2,608 Prepayments and accrued income 1,581 1,357 1,511 Net investment in finance lease 2,058 1,090 1,601 ------ ------ ------ 10,091 8,401 8,421 ------ ------ ------ Included within debtors is £1,976,000 (2001: £1,395,000) due after more than one year. 5. CREDITORS: amounts falling due within one year (Unaudited) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 Other loans 2,891 252 1,279 Finance lease creditors 60 62 81 Trade creditors 3,991 4,536 4,006 Corporation tax 320 611 274 Other taxes and social security costs 666 955 906 Other creditors 866 390 512 Accruals and deferred income 3,045 2,837 2,762 Proposed dividend 387 285 383 ------ ------ ------ 12,226 9,928 10,203 ------ ------ ------ 6. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (Unaudited) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 Bank loans 6,225 7,500 6,525 Finance lease creditors 39 39 60 Other loans 1,204 679 1,047 ------ ------ ------ 7,468 8,218 7,632 ------ ------ ------ 7. NOTES TO THE STATEMENT OF CASHFLOWS Reconciliation of operating profit to net cash flows from operating activities Restated (Unaudited) (Unaudited) 30 June 1 July 30 December 2002 2001 2001 £000 £000 £000 Operating profit 1,877 1,328 3,144 Depreciation Charge 555 432 1,044 Amortisation Charge 85 69 146 Other operating income/(expenditure) (4) - 168 Decrease/(Increase) in debtors (1,304) (1,020) (66) Decrease/(Increase) in stocks 48 14 (690) Increase in creditors 354 1,349 729 ----------- ----------- ----------- 1,611 2,172 4,475 ----------- ----------- ----------- 8. PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information contained in this statement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the fifty- two weeks ended 30 December 2001. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 9. This report is being sent to all registered shareholders. Copies can also be obtained from the Registered Office at Domino's House, Lasborough Road, Kingston, Milton Keynes MK10 OAB. INTRODUCTION We have been instructed by the company to review the financial information set out on pages 8 to 14 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies. DIRECTORS' RESPONSIBILITIES The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. REVIEW WORK PERFORMED We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. REVIEW CONCLUSION On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2002. Ernst & Young LLP Luton This information is provided by RNS The company news service from the London Stock Exchange

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