Interim Results
Domino's Pizza UK & IRL PLC
23 July 2007
23 July 2007
DOMINO'S PIZZA UK & IRL plc
RESULTS FOR THE TWENTY-SIX WEEKS ENDED 1 JULY 2007
Domino's Pizza UK & IRL plc ('Domino's Pizza' or the 'Group'), the UK and
Ireland leader in pizza delivery, announces its results for the twenty-six weeks
ended 1 July 2007.
Highlights
• Profit before tax increased 35.0% to £8.3m (2006: £6.1m).
• Earnings per share:
- Basic earnings per share up 39.3% to 3.76p (2006: 2.70p)
- Diluted earnings per share up 44.4% to 3.71p (2006: 2.57p)
• Proposed interim dividend increased 46.2% to 1.90p per share (2006: 1.30p)
• 20 new stores opened in the period (2006: 21 stores). One store was closed
(2006: nil) resulting in a total of 470 stores at the period end (2006:
428 stores)
• Like-for-like sales in 404 mature stores up 14.9% (2006: 8.3% in 357
mature stores)
• System sales increased 24.0% to £142.5m (2006: £114.8m)
• E-commerce sales up 42.1% to £13.6m (2006: £9.6m). E-commerce now
represents 14.3% of our delivered pizza sales in the UK
• Cash at bank and in hand of £9.9m (2006: £8.6m)
Stephen Hemsley, Chief Executive of Domino's Pizza UK & IRL plc, commented:
'I am very pleased to report an excellent first half of 2007 which has seen your
Group further strengthen its market leadership not only in terms of system sales
and units but also by pioneering innovations that are leading the way in the
home delivery food industry.
'Group profits continue to grow faster than system sales thanks to our
operational gearing that arises from having a relatively fixed cost base. This
growth continues to translate into strong cash generation, significant returns
for shareholders and another record interim dividend payment.
'We have successfully overcome the strong comparatives presented by last year's
World Cup but remain mindful of some still more challenging comparatives,
particularly in the last quarter.
'Whilst we still aim to open 50 stores per year, new store openings in the first
half of 2007 were behind this target. In the current year, without an
improvement in planning outcomes, openings are more likely to be in the range of
40-45 stores. With these reservations in mind we are confident of another year
of strong growth in system sales and profits and are well-placed to exceed
market expectations for the year.'
For further information, please contact:
Domino's Pizza:
Stephen Hemsley - Chief Executive 07909 928016
Chris Moore - Deputy Chief Executive
Lee Ginsberg - Finance Director
Bernadette Ahmed - Corporate Communications Manager
Hogarth Partnership Limited:
Fiona Noblet, Anthony Arthur 020 7357 9477
Notes to editors:
Domino's Pizza UK & IRL plc holds the exclusive master franchise to own, operate
and franchise Domino's Pizza stores in the UK and Ireland. The Group is the
leading player in the UK and Ireland's fast-growing pizza delivery market. The
first UK store opened in 1985 and the first Irish store opened in 1991.
There are 470 stores in the UK and Ireland. Of these, 376 stores are in England,
35 are in Scotland, 16 are in Wales, 11 are in Northern Ireland and 32 are in
the Republic of Ireland.
Founded in 1960, Domino's Pizza is the recognised world leader in pizza
delivery. Through its primarily franchised system, Domino's Pizza operates a
global network of more than 8,000 stores in over 50 countries.
For photography visit www.dominos.uk.com/media or contact Hogarth on
00 44 20 7357 9477.
CHIEF EXECUTIVE'S STATEMENT
Introduction
I am very pleased to report an excellent first half of 2007 which has seen your
Group further strengthen its market leadership not only in terms of system sales
and units but also by pioneering innovations that are leading the way in the
home delivery food industry.
In the face of tough comparatives, system sales grew significantly largely due
to a clear focus on targeted marketing and in-store operations. Increasing
numbers of new customers are responding to our creative campaigns and convenient
ordering channels whilst loyalty is growing thanks to our ever-improving service
and imaginative menu development.
The opening of new stores is still proving to be a challenge and this is
reflected in our achieving only 20 openings in the first half. Our objective is
to open 50 new stores each year however, our expansion drive continues to be
aggravated by restraining factors outside of our control, such as planning,
which create a tough climate for property acquisition. Whilst opening high
quality stores with excellent long-term prospects is key, maintaining the volume
of these store openings is equally important. We will remain focused on securing
the maximum possible number of store openings in the second half.
Group profits continue to grow faster than system sales thanks to our
operational gearing that arises from having a relatively fixed cost base. This
growth continues to translate into strong cash generation, significant returns
for shareholders and another record interim dividend payment.
Sales
System sales in the twenty-six weeks ended 1 July 2007 rose by 24.0% to £142.5m
(2006: £114.8m). Like-for-like sales in the 404 mature stores grew by 14.9%
(2006: 8.3% in 357 stores).
The National Advertising Fund, which has doubled in size since 2005 as a result
of higher sales and increased franchisee contributions, has enabled the Group to
run frequent, heavyweight TV advertising and targeted direct mailings to support
the four marketing campaigns executed in the first half of 2007. Following the
now-traditional January price promotion, we launched the 'Meateor' pizza - our
second most successful pizza launch on record - followed by a Simpsons-themed
pizza and two new side orders which helped to drive up average ticket. We are in
no doubt as to the effectiveness of new product launches when it comes to
motivating new and existing customers to order.
The latter part of the first half saw us up against the comparative figures
generated by the 2006 World Cup. However the cooler temperatures and increased
rainfall which are often very helpful to home delivery food operators, allowed
us to comfortably exceed these comparatives.
E-commerce accounted for 14.3% of all delivered pizza sales in the UK (2006:
12.3%) and in the first half sales increased by 42.1% to £13.6m (2006: £9.6m).
During June, e-commerce sales were 60.6% ahead of the previous year. The launch
of online ordering in Ireland took place in the period and we are pleased with
progress despite a slow start. A programme of enhancements to the Irish service
is now underway. www.dominos.co.uk and www.dominos.ie continue to be our
fastest-growing channels to market.
Sales via e-commerce were supported by more aggressive marketing including
promotion of the online service within our sponsorship of The Simpsons on Sky
One. Ofcom's restrictions on the advertising of food and drink to children
required us to drop product advertising around this programme which, in turn,
created an excellent opportunity for us to promote the online ordering channel
where average ticket is higher and the cost per order to stores is lower. As
anticipated the Ofcom restrictions have not had any impact on the business and
we continue to focus our marketing efforts on the 18-40 age range.
In the first half of 2007 Domino's became the first national pizza delivery
operator to announce the removal of all hydrogenated fat from its food
ingredients. Our menu development activity continues to find more ways to
enhance the quality and choice currently on offer on the menu.
The use of realtime technology in stores, has resulted in dramatic improvements
in customer service standards. The technology we have introduced enables our
franchisees to pinpoint how their team members can work together to make and
bake a pizza as quickly as possible without compromising on quality. The team's
combined efforts in-store provide delivery drivers with ample time to get the
pizza safely to the customer. A national incentive has encouraged all stores to
get behind this effort and we have already achieved our 2010 target for improved
service times, with an average out-the-door time of 13.5 minutes (January 2006:
16.0 minutes).
Expansion
During the first twenty-six weeks of 2007, 20 new stores were opened (2006: 21
stores). While this is below our target, we have sufficient potential sites in
the pipeline to open 50 new stores for the year provided we can secure the
necessary planning consents. However, we consider this unlikely and, therefore,
expect to open 40-45 stores in the year. There was one store closure in the
period (2006: nil). As a result, the store count at 1 July 2007 was 470 (2006:
428 stores).
Partnership with our franchisees, who are hands-on owner-operators with
extensive local knowledge, is the most successful means of growing the Domino's
system. A great deal of your Group's focus is spent on motivating and supporting
these franchisees in their efforts to deliver our brand's promises. In the first
half, all but one of the new store openings were with existing franchisees,
underlining our strategy of managing the number of franchisees in the system as
we grow. Each franchisee currently has an average of 3.2 stores (2006: 2.8
stores) and we hope that this average will continue to rise towards five stores
at build-out.
Commissary development
As a result of the expanding store count and the rapid increase in like-for-like
sales, we will need additional commissary capacity over the next few years. We
are in the process of doubling the capacity of our existing commissary in
Penrith which is expected to be available in Spring 2008. The capital cost of
this extension and associated new equipment is estimated at £4.0m.
Longer term, we will need further commissary capacity and additional head office
space in the southern part of England. We are, therefore, in negotiations to
purchase a site close to Milton Keynes where we propose to construct a very
large new commissary together with a head office and training facility. The
budgeted cost of this new facility is in the region of £25.0m. This is higher
than at first anticipated as we have chosen to purchase a larger plot in order
to construct a new head office and training facility and increase the automation
in our dough manufacturing. It is planned to have the new commissary available
in the first half of 2009, the head office by the end of 2009 and the training
facility in 2010. Once completed and fully operational the existing freehold
site in Milton Keynes will be sold.
To accommodate the needs of 1,000 stores and to provide resilience to the
system, we anticipate the need to increase the capacity of our commissary in
Ireland and the construction of a further mid-sized commissary in the UK. It is
difficult at this stage to estimate the likely cost and timing of these projects
but they should be completed for less than £15.0m.
Trading results
Group revenue, which includes revenues generated from royalties, fees, food
sales and rental income as well as a small element of revenues from
corporately-owned and operated stores, grew by 22.3% to £55.2m (2006: £45.1m).
Group operating profit, before operating exceptionals of £0.3m and the
accelerated LTIP charge of £0.1m, was up 35.7% to £8.4m (2006: £6.2m).
Unadjusted group operating profit, before operating exceptionals of £0.3m was
£8.3m (2006: £6.2m) and this increased by 34.3%.
The commissary rebate scheme, launched in 2005 to help franchisees overcome the
burden of new external cost pressures, continued to benefit the franchisees in
lowering their food cost. This rebate is linked to the uplift in like-for-like
sales as well as helping ensure full compliance with all our standards. As a
result of the significantly higher like-for-like sales growth in the first half
of the year, the cost of this rebate rose to £0.7m (2006: £0.3m).
Profit before tax was £8.3m (2006: £6.1m), an increase of 35.0%. The tax rate of
28.2% (2006: 29.7%) is lower than the statutory Corporation tax rate primarily
due to the lower tax rate on the taxable income in the Irish subsidiary company.
Profit after tax, before minority interest, was up 37.5% to £6.0m (2006: £4.3m).
Earnings per share and dividend
Basic earnings per share were up 39.3% to 3.76 pence (2006: 2.70 pence) and
diluted earnings per share were up 44.4% to 3.71 pence (2006: 2.57 pence).
In line with our strategy of returning cash not required for the growth and
expansion of the business to shareholders, we are pleased to declare an increase
of 46.2% in the interim dividend to 1.90 pence per share (2006: 1.30 pence per
share). This dividend, which is 2.0 times covered (2006: 2.1 times), will be
paid on 31 August 2007 to shareholders on the register on 3 August 2007.
Cash Flow & Balance Sheet
Our cash position remains strong, with operating activities generating net cash
in the period of £7.6m (2006: £7.1m).
In the first twenty-six weeks of the year, options over 380,000 shares were
exercised generating a cash inflow of £0.3m (2006: £0.3m). During the period,
the Group purchased 125,000 of its own shares at a cost of £0.8m (2006: £nil).
The Group continues to provide franchisees with leasing facilities for new
equipment and refits through its wholly owned subsidiary DP Capital Limited. In
the first twenty-six weeks of the year new advances of debt facilities of £0.7m
were made available to DP Capital Limited which were matched by similar
repayments resulting in borrowings of £2.4m (2006: £2.5m) at the half year.
As at 1 July 2007, the Group had cash in hand of £9.9m (2006: £8.6m) which taken
together with the DP Capital borrowings noted above and the Employee Benefit
Trust ('EBT') loan of £7.7m (2006: £7.5m), gave consolidated net borrowings of
£3.8m (2006: £1.6m). After the deduction of the cost of the shares held in the
EBT, shareholders' funds were £12.8m (2006: £15.1m), resulting in a gearing
ratio of 29.2% (2006: 10.5%). As a result of the recent capital reconstruction,
a subsidiary company has over £150m of reserves available. Consequently, if
these reserves are distributed up to the parent company, gearing levels would be
extremely low.
Impact of the adoption of International Financial Reporting Standards ('IFRS')
The financial information shown in this interim report is presented in
accordance with IFRS. The comparative information for the twenty-six weeks ended
2 July 2006 and the fifty-two weeks ended 31 December 2006 have been restated
under these standards.
The impact on the Group's profit and loss has been minimal; the effect on the
results for the twenty-six weeks ended 1 July 2007 being to reduce UK GAAP
profit before tax by £0.1m primarily as a result of the accrual for untaken
holiday pay. No accrual needs to be made at the year end as no leave can be
carried over the financial year end. Further information on the change to
accounting standards is given in Note 2 below with full details and
reconciliations of UK GAAP to IFRS attached as appendices to this report.
Share split
On the 27 April 2007, following the approval of shareholders at the Group's
annual general meeting, the sub-division of each ordinary share of 5 pence each
into 3.2 ordinary shares of 1.5625 pence each became effective. The Directors,
having consulted with the Group's brokers, considered that having a larger
number of ordinary shares with a lower market value would serve to facilitate
the marketability and liquidity of the shares.
Board composition
Christopher Moore was promoted to the position of Deputy Chief Executive on 9
January 2007. Earlier in the year, Chris assumed board-level responsibility for
the Group's three commissaries and his promotion reflected this extended remit.
Outlook
We have made an excellent start to the year with strong growth in like-for-like
sales and have successfully overcome the strong comparatives presented by last
year's World Cup. We remain mindful, however, of some still more challenging
comparatives, particularly in the last quarter.
Whilst we still aim to open 50 stores per year, new store openings in the first
half of 2007 were behind this target. In the current year, without an
improvement in planning outcomes, openings are more likely to be in the range of
40-45 stores.
With these reservations in mind we are confident of another year of strong
growth in system sales and profits and are well-placed to exceed market
expectations for the year.
STEPHEN HEMSLEY
Chief Executive
GROUP INCOME STATEMENT
(Unaudited) (Unaudited)
26 weeks 26 weeks 52 weeks
ended ended ended
1 July 2 July 31 December
2007 2006 2006
Notes £000 £000 £000
Revenue from continuing operations 55,152 45,114 94,965
Cost of sales (33,337) (27,534) (57,811)
-------- -------- --------
Gross Profit 21,815 17,580 37,154
Distribution costs (4,827) (3,981) (8,177)
Administrative costs (including operating
exceptionals) (9,112) (7,477) (15,462)
-------- -------- --------
7,876 6,122 13,515
Share of post tax profits of associates 149 62 171
-------- -------- --------
Operating profit from continuing
operations 8,025 6,184 13,686
-------- -------- --------
Operating exceptionals 4 (279) - (499)
Operating profit from continuing
operations before exceptional items 8,304 6,184 14,185
-------- -------- --------
Profit on the sale of non current assets
and assets held for sale 8 10 159
Profit on the sale of subsidiaries 360 - 454
-------- -------- --------
Profit before interest and taxation 8,393 6,194 14,299
Finance income 374 162 397
Finance expense (488) (224) (507)
-------- -------- --------
Profit before taxation 8,279 6,132 14,189
Taxation (2,333) (1,824) (4,193)
-------- -------- --------
Profit for the year 5,946 4,308 9,996
-------- -------- --------
Profit for the year attributable to:
Equity holders of the parent 5,954 4,331 10,084
Minority interest (8) (23) (88)
-------- -------- --------
5,946 4,308 9,996
-------- -------- --------
Earnings per share (total and continuing
operations)
- Basic (pence) 6 3.76 2.70 6.23
- Diluted (pence) 6 3.71 2.57 6.12
GROUP BALANCE SHEET
(Unaudited) (Unaudited)
At At At
1 July 2 July 31 December
2007 2006 2006
£000 £000 £000
Non current assets
Goodwill and intangible assets 1,421 871 1,585
Property, plant and equipment 12,985 13,021 11,909
Prepaid operating lease charges 858 671 683
Net investment in finance leases 1,778 1,348 1,748
Investments in associates 676 564 589
Deferred tax asset 1,596 963 1,275
-------- -------- --------
19,314 17,438 17,789
Current assets
Inventories 2,163 2,195 1,818
Trade and other receivables 10,531 10,965 9,632
Net investment in finance leases 835 777 864
Prepaid operating lease charges 152 164 158
Cash and cash equivalents 9,934 8,593 10,262
-------- -------- --------
23,615 22,694 22,734
Non current assets held for sale 533 434 1,641
-------- -------- --------
Total assets 43,462 40,566 42,164
-------- -------- --------
Current liabilities
Trade and other payables (13,335) (11,211) (13,433)
Deferred income (31) (26) (31)
Financial liabilities (4,328) (766) (6,835)
Current tax liabilities (2,129) (2,145) (2,339)
-------- -------- --------
(19,823) (14,148) (22,638)
Non current liabilities
Provisions (226) (706) (233)
Financial liabilities (9,339) (9,232) (9,009)
Deferred income (1,012) (934) (989)
Deferred tax liabilities (232) (446) (309)
-------- -------- --------
Total liabilities (30,632) (25,466) (33,178)
-------- -------- --------
-------- -------- --------
Net assets 12,830 15,100 8,986
-------- -------- --------
Shareholder's equity
Called up share capital 2,588 2,658 2,574
Share premium account 5,011 4,927 4,765
Capital redemption reserve 267 171 261
Treasury share reserve (4,403) (4,216) (4,216)
Currency translation reserve (23) - (21)
Retained earnings 9,352 11,472 5,575
-------- -------- --------
Equity shareholder's funds 12,792 15,012 8,938
Minority interest 38 88 48
-------- -------- --------
Total equity 12,830 15,100 8,986
-------- -------- --------
GROUP CASH FLOW STATEMENT
(Unaudited) (Unaudited)
26 weeks 26 weeks 52 weeks
ended ended ended
1 July 2 July 31 December
2007 2006 2006
£000 £000 £000
Cash flows from operating activities
Profit before taxation 8,279 6,132 14,189
Net finance costs 114 62 110
Share of post tax profits of associates (149) (62) (171)
Amortisation and depreciation 935 919 1,815
Profit on disposal of non current assets (368) (10) (613)
Share option and LTIP charge
(including accelerated LTIP charge) 442 193 344
(Increase)/decrease in inventories (339) (13) 349
(Increase)/decrease in debtors (1,157) (406) 82
(Decrease)/increase in creditors (198) 438 2,884
Increase in deferred income 23 60 -
Decrease in provisions (7) (203) (221)
-------- -------- --------
Cash generated from operations 7,575 7,110 18,768
UK corporation tax (1,933) (1,670) (3,624)
Overseas corporation tax paid - - (131)
-------- -------- --------
Net cash generated by operating activities 5,642 5,440 15,013
Cash flows from investing activities
Interest received 255 152 389
Dividends received 41 - 21
Receipts from repayment of associate loan 135 31 105
Receipts from repayment of franchisee
finance leases 522 685 1,349
Purchase of non current assets (1,577) (1,586) (3,160)
Receipts from the sale of non current
assets 1,216 408 453
Purchase and sale of minority interests - - (103)
-------- -------- --------
Net cash generated/(used) by investing
activities 592 (310) (946)
-------- -------- --------
Cash inflow before financing 6,234 5,130 14,067
-------- -------- --------
Cash flow from financing activities
Interest paid (314) (202) (459)
Issue of ordinary share capital 266 263 403
Purchase of own shares (819) - (10,161)
Short term loans - bank overdraft (2,500) - 6,000
New long term loans 665 857 1,244
Repayment of long term loans (545) (702) (1,457)
Payments to acquire finance lease assets (523) (523) (1,026)
Equity dividends paid (2,792) (2,115) (4,234)
-------- -------- --------
Net cash used by financing activities (6,562) (2,422) (9,690)
-------- -------- --------
-------- -------- --------
Net (decrease)/increase in cash and
cash equivalents (328) 2,708 4,377
Cash and cash equivalents at beginning
of period 10,262 5,885 5,885
-------- -------- --------
Cash and cash equivalents at end of period 9,934 8,593 10,262
-------- -------- --------
GROUP STATEMENT OF CHANGES IN EQUITY
Share Capital Treasury Currency Equity
Share Premium Redemption Share Translation Retained Shareholder's Minority Total
Capital Account Reserve Reserve Reserve Earnings Funds Interest Equity
£000 £000 £000 £000 £000 £000 £000 £000 £000
At 1 January 2006 as
previously stated 2,645 4,677 171 (7,500) - 12,013 12,006 82 12,088
Prior period effect of
adoption of IFRS - - - - - (70) (70) - (70)
------- ------ ------- ------- ------- ------- ------- ------- -------
At 1 January 2006 as
restated 2,645 4,677 171 (7,500) - 11,943 11,936 82 12,018
Proceeds from share issue 13 250 - - - - 263 - 263
Treasury shares held by
EBT - - - 3,284 - (3,284) - - -
Profit for the period - - - - - 4,331 4,331 (23) 4,308
Tax credit on employee
share options - - - - - 404 404 - 404
Share option and LTIP
charge - - - - - 193 193 - 193
Minority interest movement - - - - - - - 29 29
Equity dividends paid - - - - - (2,115) (2,115) - (2,115)
------- ------ ------- ------- ------- ------- ------- ------- -------
At 2 July 2006 2,658 4,927 171 (4,216) - 11,472 15,012 88 15,100
Proceeds from share issue 6 134 - - - - 140 - 140
Share buybacks (90) (296) 90 - - (10,161) (10,457) - (10,457)
Profit for the period - - - - - 5,753 5,753 (65) 5,688
Tax credit on employee
share options - - - - - 479 479 - 479
Share option and LTIP
charge - - - - - 151 151 - 151
Exchange difference on
the translation of net
assets of subsidiary
undertaking - - - - (21) - (21) - (21)
Minority interest
movement - - - - - - - 25 25
Equity dividends paid - - - - - (2,119) (2,119) - (2,119)
------- ------ ------- ------- ------- ------- ------- ------- -------
At 31 December 2006 2,574 4,765 261 (4,216) (21) 5,575 8,938 48 8,986
Proceeds from share issue 20 246 - - - - 266 - 266
Share buybacks (6) - 6 - - (819) (819) - (819)
Treasury shares held by
EBT - - - (187) - - (187) - (187)
Profit for the period - - - - - 5,954 5,954 (8) 5,946
Tax credit on employee
share options - - - - - 992 992 - 992
Share option and LTIP
charge - - - - - 442 442 - 442
Exchange difference on
the translation of net
assets of subsidiary
undertaking - - - - (2) - (2) - (2)
Minority interest movement - - - - - - - (2) (2)
Equity dividends paid - - - - - (2,792) (2,792) - (2,792)
------- ------ ------- ------- ------- ------- ------- ------- -------
At 1 July 2007 2,588 5,011 267 (4,403) (23) 9,352 12,792 38 12,830
------- ------ ------- ------- ------- ------- ------- ------- -------
NOTES TO THE GROUP INTERIM REPORT
1. GENERAL INFORMATION
Domino's Pizza UK & IRL plc is a public limited company ('Company') incorporated
in the United Kingdom under the Companies Act 1985 (registration number
03853545). The Company is domiciled in the United Kingdom and its registered
address is Domino's House, Lasborough Road, Kingston, Milton Keynes, MK10 0AB.
The Company's Ordinary Shares are traded on the Alternative Investment Market
('AIM'). Copies of the Interim Report are being sent to shareholders. Further
copies of the Interim Report and Annual Report and Accounts may be obtained from
the address above.
2. BASIS OF PREPARATION
Domino's Pizza UK & IRL plc has adopted International Financial Reporting
Standards ('IFRS') as adopted by the European Union with effect from 1 January
2006. The Group will apply IFRS in its consolidated financial statements for the
52 weeks ending 30 December 2007. Therefore, these interim statements for the 26
weeks to 1 July 2007 are prepared using accounting policies in accordance with
IFRS and International Financial Reporting Committee ('IFRIC') interpretations
that are expected to be applicable to the consolidated financial statements for
the 52 weeks ended 30 December 2007. These standards remain subject to ongoing
amendment and/or interpretation and are therefore still subject to change.
Accordingly, information contained in these interim financial statements may
need updating for subsequent amendments to IFRS required for first time adoption
or for new standards issued post the balance sheet date.
The basis of preparation and accounting policies followed in this interim report
differ from those set out in the Annual Report and Accounts for the 52 weeks
ended 31 December 2006 which were prepared in accordance with United Kingdom
accounting standards (UK GAAP). As permitted, this interim report has not been
prepared in accordance with IAS 34 'Interim Financial Reporting'.
The interim financial statements do not constitute statutory accounts as defined
by Section 240 of the Companies Act 1985.
The financial information for the 52 weeks ended 31 December 2006 has been
extracted from the statutory accounts for the Group for that period now amended
to conform with the IFRS accounting policies expected to be applied in the
consolidated financial statements for the year ended 30 December 2007. These
published accounts in a form consistent with UK GAAP were reported on by the
auditors without qualification or an emphasis matter reference and did not
include a statement under section 237(2) or (3) of the Companies Act 1985 and
have been delivered to the Registrar of Companies.
A summary of significant accounting policies used in the preparation of this
interim report under IFRS is provided in note 3 below.
The financial statements are presented in sterling and all values are rounded to
the nearest thousand pounds (£000) except when otherwise indicated.
A detailed explanation of the impact of the transition from UK GAAP to IFRS is
contained in the appendix to the interim financial statements.
3. ACCOUNTING POLICIES
Key sources of estimation uncertainty
The key sources of estimation uncertainty that have a significant risk of
causing material adjustment to the carrying amounts of assets and liabilities
within the next financial year are the measurement and
impairment of goodwill and the estimation of share-based payment costs. The
measurement of intangible assets other than goodwill on a business combination
involves estimation of future cash flows and the selection of a suitable
discount rate. The Group determines whether goodwill is impaired on an annual
basis and this requires an estimation of the value in use of the cash generating
units to which the goodwill is allocated. This involves estimation of future
cash flows and choosing a suitable discount rate. The estimation of share-based
payment costs requires the selection of an appropriate valuation model,
consideration as to the inputs necessary for the valuation model chosen and the
estimation of the number of awards that will ultimately vest, inputs for which
arise from judgements relating to the probability of meeting non-market
performance conditions and the continuing participation of employees.
NOTES TO THE GROUP INTERIM REPORT
Basis of consolidation
The full year consolidated financial statements incorporate the results and net
assets of the Company and its subsidiary undertakings drawn up to the nearest
Sunday to 31 December each year. The interim results are prepared for the first
26 weeks of the relevant full period.
Subsidiaries are consolidated from the date of their acquisition, being the date
on which the Group obtains control, and continue to be consolidated until the
date that such control ceases. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain benefit from
its activities and is achieved through direct or indirect ownership of voting
rights; currently exercisable or convertible potential voting rights; or by way
of contractual agreement. The financial statements of subsidiaries used in the
preparation of the consolidated financial statements are prepared for the same
reporting period as the parent company and are based on consistent accounting
policies. All inter-company transactions and balances between Group entities,
including unrealised profits arising from them, are eliminated upon
consolidation.
Minority interests represent the portion of profit and loss and net assets in
subsidiaries that is not held by the Group and is presented separately within
equity in the consolidated balance sheet, separately from parent shareholders'
equity.
Interests in associates
The Group's interests in its associates, being those entities over which it has
significant influence and which are neither subsidiaries nor joint ventures, are
accounted for using the equity method of accounting.
Under the equity method, the investment in an associate is carried in the
balance sheet at cost plus post acquisition changes in the Group's share of net
assets of the associate, less distributions received and less any impairment in
value of individual investments. The Group's income statement reflects the
Group's share of the associate's results after tax. The Group statement of
recognised income and expense reflects the Group's share of any income and
expense recognised by the associate outside profit and loss.
Any goodwill arising on the acquisition of an associate, representing the excess
of the cost of the investment compared to the Group's share of the net fair
value of the associate's identifiable assets, liabilities and contingent
liabilities, is included in the carrying amount of the associate and is not
amortised. To the extent that the net fair value of the associate's identifiable
assets, liabilities is greater than the cost of the investment, a gain is
recognised and added to the Group's share of the associate's profit or loss in
the period in which the investment is acquired.
Financial statements of associates are prepared for the same reporting period as
the Group. Where necessary, adjustments are made to bring the accounting
policies used in line with those of the Group; to take into account fair values
assigned at the date of acquisition and to reflect impairment losses where
appropriate. Adjustments are also made in the Group's financial statements to
eliminate the Group's share of unrealised gains and losses on transactions
between the Group and its associates.
Foreign currencies
Foreign operations
The income and expenses of overseas subsidiaries are translated at the average
rate of exchange ruling during the year. The balance sheet of the overseas
subsidiary undertaking is translated into sterling at the rate of exchange
ruling at the balance sheet date. Exchange differences arising, if any, are
included within equity and transferred to the Group's translation reserve. Such
translation differences are recognised as income or as expenses in the period in
which the operation is disposed.
The Group has utilised the exemption available in IFRS 1 whereby cumulative
translation differences are deemed to be zero at the date of transition to IFRS.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions.
NOTES TO THE GROUP INTERIM REPORT
Foreign currency transactions
Transactions denominated in foreign currencies are translated at the exchange
rate on the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are translated at the exchange
rate ruling at that date. Foreign exchange differences arising on translation
are recognised in the income statement for the period.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of an
acquisition over the fair value of the Group's share of the identifiable net
assets and contingent liabilities of the acquired subsidiary at the date of
acquisition. Goodwill is recognised as an asset on the Group's balance sheet in
the year in which it arises and is not amortised. Any goodwill asset arising on
the acquisition of equity accounted entities is included within the cost of
those entities.
Goodwill is recognised on the purchase of further minority interests under the
parent entity extension method, whereby the entire difference between the cost
of the additional interest in the subsidiary and the minority interest's share
of the assets and liabilities reflected in the consolidated balance sheet at the
date of the acquisition of the minority interest is reflected as goodwill.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses, with the carrying value being reviewed for impairment, at
least annually and more frequently if events or changes indicate that the
carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the related
cash-generating units monitored by management, usually at business segment level
or statutory company level as the case may be. Where the recoverable amount of
the cash-generating unit is less than its carrying amount, including goodwill,
an impairment loss is recognised in the income statement.
The carrying amount of goodwill allocated to a cash-generating unit is taken
into account when determining the gain or loss on disposal of the unit, or of an
operation within it.
Goodwill arising on acquisitions before 1 December 2006 (the date of transition
to IFRS) has been recorded at its carrying amount under UK GAAP, subject to
being tested for impairment at that date.
Intangible assets
Computer software
Computer software is carried at cost less accumulated amortisation and any
impairment loss. Externally acquired computer software and software licences are
capitalised at the costs incurred to acquire and bring into use the specific
software. Internally developed computer software programs are capitalised to the
extent that costs can be separately identified and attributed to particular
software programs, measured reliably, and that the asset developed can be shown
to generate future economic benefits. These assets are considered to have finite
useful lives and are amortised on a straight line basis over the estimated
useful economic lives of each of the assets, considered to be between three and
five years.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable.
Property, plant and equipment
Property, plant and equipment assets are carried at cost less accumulated
depreciation and any recognised impairment in value. Cost comprises the
aggregate amount paid and the fair value of any other consideration given to
acquire the asset and includes costs directly attributable to making the asset
capable of operating as intended.
Prepaid short lease hold property costs are classified as non-current
prepayments. On initial recognition these assets are held at cost and
subsequently at amortised cost over the length of the lease.
NOTES TO THE GROUP INTERIM REPORT
Depreciation is calculated to write down the cost of the assets to their
residual values, on a straight-line method on the following bases:
- Freehold buildings and leasehold properties - 50 years, or the lease
term if shorter.
- Plant, equipment, fixtures and fittings and motor vehicles - at rates
varying from 10% to 50%.
- Leasehold building improvements - over the life of the lease
- Freehold land is not depreciated.
Land and buildings under construction and non current assets held for sale are
not depreciated.
The assets' residual values, useful lives and methods of depreciation are
reviewed, and adjusted if appropriate on an annual basis. An item of property,
plant and equipment is derecognised upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the
income statement in the year that the asset is derecognised.
All property, plant and equipment are reviewed for impairment in accordance with
IAS 36, Impairment of Assets, when there are indications that the carrying value
may not be recoverable.
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will
be recovered through sales rather than continuing use. This condition is
regarded as met if a sale is expected to materialise within twelve months after
the balance sheet date and the asset is available for immediate disposal in its
present condition. Non-current assets classified as held for sale are measured
at the lower of carrying amount and fair value less costs to sell. After
classification as assets held for sale, no further depreciation is provided for
on the assets.
Leases
Group as lessee
Leases are classified as finance leases when the terms of the lease transfer
substantially all the risks and rewards of ownership to the Group. All other
leases are classified as operating leases.
Assets held as finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments
during the lease term at the inception of the lease. Lease payments are
apportioned between the reduction of the lease liability and finance charges in
the income statement so as to achieve a constant rate of interest in the
remaining balance of the liability. Assets held under finance leases are
depreciated over the shorter of the estimated useful life of the assets and the
lease term.
Assets leased under operating leases are not recorded on the balance sheet.
Rental payments are charged directly to the income statement. Lease incentives,
primarily up-front cash payments or rent-free periods, are capitalised and
spread over the period of the lease term. Payments made to acquire operating
leases are treated as prepaid lease expenses and amortised over the life of the
lease.
Group as lessor
Assets leased out under operating leases are included in property, plant and
equipment and depreciated over their useful lives. Rental income, including the
effect of lease incentives, is recognised on a straight line basis over the
lease term.
Where the Group transfers substantially all the risks and benefits of ownership
of the asset, the arrangement is classified as a finance lease and a receivable
is recognised for the initial direct costs of the lease and the present value of
the minimum lease payments. As payments fall due, finance income is recognised
in the income statement so as to achieve a constant rate of return on the
remaining net investment in the lease.
NOTES TO THE GROUP INTERIM REPORT
Impairment of assets
The Group assesses at each reporting date whether there is an indication that an
asset may be impaired. If any such indication exists, or when annual impairment
testing for an asset is required, the Group makes an estimate of the asset's
recoverable amount. An asset's recoverable amount is the higher of an asset's or
cash-generating unit's fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of
assets. Where the carrying amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Impairment losses on continuing operations are recognised in the income
statement in those expense categories consistent with the function of the
impaired asset.
An assessment is made at each reporting date as to whether there is any
indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the recoverable amount is
estimated. A previously recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the asset's recoverable amount
since the last impairment loss was recognised. If that is the case the carrying
amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the asset in prior
years. Such reversal is recognised in profit or loss. After such a reversal the
depreciation charge is adjusted in future periods to allocate the asset's
revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
Provisions
Provisions are recognised when there is a present legal or constructive
obligation as a result of past events, for which it is probable that an outflow
of economic benefit will be required to settle the obligation and where the
amount of the obligation can be reliably measured.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, do not qualify as
trading assets and have not been designated as either fair value through profit
and loss or available for sale. Such assets are carried at amortised cost using
the effective interest method. Gains and losses are recognised in income when
the loans and receivables are derecognised or impaired, as well as through the
amortisation process.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined on a first in, first out basis. Net realisable value is based on
estimated selling price less any further costs expected to be incurred to
disposal.
Trade and other receivables
Trade receivables, which generally have 7 - 28 days terms, are recognised and
carried at the lower of their original invoiced value and recoverable amount.
Provision is made when it is likely that the balance will not be recovered in
full. Balances are written off when the probability of recovery is considered
remote.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand
and short-term deposits with an original maturity of three months or less.
Interest bearing loans and borrowings
Obligations for loans and borrowings are recognised when the Group becomes party
to the related contracts and are measured initially at fair value less directly
attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Gains and losses arising on the repurchase, settlement or otherwise cancellation
of liabilities are recognised respectively in finance revenue and finance cost.
NOTES TO THE GROUP INTERIM REPORT
Income taxes
Current tax assets and liabilities are measured at the amount expected to be
recovered or paid to the taxation authorities, based on tax rates and laws that
are enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognised using the balance sheet liability method,
providing for temporary differences between the tax bases and the accounting
bases of assets and liabilities. Deferred tax is calculated on an undiscounted
basis at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised, based on tax rates and laws
enacted or substantively enacted at the balance sheet date.
Deferred income tax liabilities are recognised for all temporary differences,
with the following exceptions:
• where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination and at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss;
• in respect of taxable temporary differences associated with investments
in subsidiaries, associates and joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future;
and
• deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences, carried forward tax credits or losses can be
utilised.
Income tax is charged or credited to the income statement, except when it
relates to items charged or credited directly to equity, in which case the
income tax is also dealt with in equity.
Deferred tax assets and liabilities are offset against each other when the Group
has a legally enforceable right to set off current tax assets and liabilities
and the deferred tax relates to income taxes levied by the same tax jurisdiction
on either the same taxable entity, or on different taxable entities which intend
to settle current tax assets and liabilities on a net basis or to realise the
assets and settle the liabilities simultaneously in each future period in which
significant amounts of deferred tax liabilities are expected to be settled or
recovered.
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that
gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability,
such that the difference in the respective carrying amounts together with any
costs or fees incurred are recognised in profit or loss.
Pensions
The Group contributes to the personal pension plans of certain staff. The
contributions are charged as an expense as they fall due. Any contributions
unpaid at the balance sheet date are included as an accrual at that date. The
Group has no further payment obligations once the contributions have been paid.
NOTES TO THE GROUP INTERIM REPORT
Treasury shares
Domino's Pizza UK & IRL plc shares held by the Group are classified in
shareholders' equity as 'treasury shares' and are recognised at cost.
Consideration received for the sale of such shares is also recognised in equity,
with any difference between the proceeds from sale and the original cost being
taken to revenue reserves except that where the proceeds exceed the
consideration paid then the excess is transferred to the share premium account.
No gain or loss is recognised on the purchase, sale issue or cancellation of
equity shares.
The Employee Benefit Trust has waived its entitlement to dividends. The Group
will meet the expenses of the trust as and when they fall due.
Revenue recognition
Revenue consists and is recognised as follows:
Pizza delivery - on delivery of pizzas to franchisee
customers
Commissary and equipment sales - on delivery to franchisees
Royalties (based on system sales) - on delivery of pizzas by franchisees
to customers
Franchise sales - on commencement of franchisee trading
Finance lease interest income - as set out in lease accounting policy
Rental income on leasehold properties - on a straight line basis in accordance
with the lease terms
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of consideration net of returns, rebates
and value-added taxes.
Borrowing costs
Borrowing costs are generally expensed as incurred. Borrowing costs that are
directly attributable to the acquisition or construction of an asset are
capitalised while the asset is being constructed as part of the cost of that
asset.
The policy is adopted for all assets that meet the definition of qualifying
assets under the standard.
Capitalisation of borrowing costs should commence when:
•expenditures for the asset and borrowing costs are being incurred; and
•activities necessary to prepare the asset for its intended use are in
progress.
Capitalisation ceases when the asset is substantially ready for its intended
use. If active development is interrupted for an extended period, capitalisation
is suspended. When construction occurs piecemeal and use of each part is
possible as construction continues, capitalisation for each part ceases on
substantial completion of that part.
For borrowing associated with a specific asset, the actual rate on that
borrowing is used. Otherwise, a weighted average cost of borrowings is used.
NOTES TO THE GROUP INTERIM REPORT
Exceptional items
The Group presents as exceptional items on the face of the income statement,
those material items of income and expense which, because of the nature and
expected infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the elements of
financial performance in the year, so as to facilitate comparison with prior
periods and to assess better trends in financial performance.
Share based payments
The Group provides benefits to employees (including Directors) in the form of
share based payment transactions, whereby employees render services in exchange
for rights over shares ('equity-settled transactions'). The cost of the
equity-settled transactions with employees and Directors are measured by
reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period, which ends on the date at
which the relevant employees become fully entitled to the award. Fair values of
employee share option plans are calculated using the Black-Scholes and Binomial
models. In valuing equity settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of the shares of
the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and the
Director's best estimate of the number of equity instruments that will
ultimately vest on achievement or otherwise of non-market conditions or in the
case of an instrument subject to a market condition, be treated as vested as
described above. The movement in the cumulative expense since the previous
balance sheet date is recognised in the income statement, with the corresponding
increase in equity.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised aver the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on the
difference between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on
the date of cancellation, and any cost not yet recognised in the income
statement for the award is expensed immediately. Any compensation paid up to the
fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the
income statement.
The Group has taken advantage of the transitional provisions of IFRS 2 in
respect of equity-settled awards so as to apply IFRS 2 only to those
equity-settled awards granted after 7 November 2002 that had not vested before 3
January 2005.
NOTES TO THE GROUP INTERIM REPORT
4. EXCEPTIONAL ITEMS
Recognised as part of operating profit
The Group has incurred the following exceptional charges relating to store
closures and stores sold during the financial period:
(Unaudited) (Unaudited)
26 weeks 26 weeks 52 weeks
ended ended ended
1 July 2 July 31 December
2007 2006 2006
£000 £000 £000
Onerous lease and dilapidation provisions 43 - 76
Restructuring and reorganisation costs 96 - 252
Assets written off 140 - 52
Lease finance and other bad debts provided for - - 119
------ ------ ------
279 - 499
------ ------ ------
5. DIVIDENDS PAID AND PROPOSED
(Unaudited) (Unaudited)
26 weeks 26 weeks 52 weeks
ended ended ended
1 July 2 July 31 December
2007 2006 2006
£000 £000 £000
Declared and paid during the year
Final dividend for 2005 1.30p (2004: 0.95p) - 2,115 2,115
Interim dividend for 2006 1.30p (2005: 0.97p) - - 2,119
Final dividend for 2006 1.77p (2005: 1.30p) 2,792 - -
------ ------ ------
2,792 2,115 4,234
------ ------ ------
The directors propose an interim dividend of 1.90p per share of £3,020,000
(2006: 1.30p £2,119,000).
NOTES TO THE GROUP INTERIM REPORT
6. EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on earnings of
£5,954,000 (2006: 4,331,000) and on 158,425,428 (2006: 161,164,723) ordinary
shares.
The diluted earnings per share is based on 160,623,346 (2006: 168,601,349)
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.
Reconciliation of basic and diluted earnings per share*:
(Unaudited) (Unaudited)
26 weeks 26 weeks 52 weeks
ended ended ended
1 July 2 July 31 December
2007 2006 2006
£000 £000 £000
Ordinary shares - basic earnings
per share 158,425,428 161,164,723 161,967,072
Dilutive share options 2,197,918 5,556,668 2,342,486
Reversionary interests - 1,879,958 672,592
------ ------ ------
Ordinary shares - diluted earnings
per share 160,623,346 168,601,349 164,982,150
------ ------ ------
Reversionary interests granted over 3,485,000 shares and share options granted
over 3,135,590 shares have not yet vested at 1 July 2007. The performance
conditions for these reversionary interests and share options have not been met
in the current financial period and therefore the dilutive effect of the number
of shares which would have vested at the period end have not been included in
the diluted earnings per share calculation.
* After the share split of 3.2 ordinary shares of 1.5625 pence each for 1
ordinary share of 5 pence approved at the Annual General Meeting held on 26
April 2007.
APPENDIX TO THE GROUP INTERIM REPORT
REPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
The interim financial statements are the first to be prepared by the Company
using policies in accordance with IFRS as adopted by the European Union. The
comparative figures have been prepared on the same basis and have therefore been
restated from those previously prepared under UK GAAP. The commentary below
details the key changes that have arisen due to the transition to reporting
under IFRS. The Group's date of transition is 1 January 2006, which is the
beginning of the comparative period for the 2007 financial year. Therefore the
opening balance sheet for IFRS purposes is that reported at 1 January 2006, as
amended for changes due to IFRS.
To explain the impact of the transition, reconciliations have been included in
this appendix that show the changes made to the statements previously reported
under UK GAAP. The following unaudited reconciliations are included in this
appendix:
1. Reconciliation of Group balance sheet at 1 January 2006 from UK GAAP
to IFRS.
2. Reconciliation of Group balance sheet at 31 December 2006 from
UK GAAP to IFRS.
3. Reconciliation of Group income statement for the 52 weeks ended
31 December 2006 from UK GAAP to IFRS.
4. Reconciliation of Group balance sheet at 2 July 2006 from UK GAAP
to IFRS.
5. Reconciliation of Group income statement for the 26 weeks ended
2 July 2006 from UK GAAP to IFRS.
The transition from UK GAAP to IFRS does not affect the cash flows generated by
the Group. The IFRS cash flow statement is presented in a different format than
that required under UK GAAP. The reconciling items between the UK GAAP format
and the IFRS format have no net impact on the cash flows generated and
accordingly reconciliations have not been presented.
The accounting policies used for IFRS are set out in note 3 of the main report.
First time adoption
The Group has applied the provisions of IFRS 1 - First Time Adoption of
International Financial Reporting Standards which, generally, requires that IFRS
accounting policies be applied retrospectively in determining the opening
balance sheet at the date of transition. IFRS 1 contains both mandatory and
optional exemptions to the principle of retrospective application. Where the
Group has made use of an exemption it is noted below.
The Group has taken the following exemptions:
•Share based payments
The Group operates a number of executive and employee share schemes. For all
grants of share options and awards the fair value at the date of grant is
calculated using an appropriate pricing model and the corresponding expense is
recognised over the vesting period. The Group has elected to take advantage of
the transitional provisions of IFRS 2 and has applied the fair value model to
all grants of equity instruments after 7 November 2002 that had not vested as at
3 January 2005.
•Goodwill and business combinations
The Group has taken the exemption not to apply IFRS 3 retrospectively to
business combinations occurring prior to the date of transition to IFRS.
Goodwill arising on acquisitions prior to this date has been retained at its
carrying value as at 1 January 2006. The Group under the provisions of IAS 36,
only recognises impairment. This results in the reversal of the goodwill
amortisation previously charged to the income statement in the 52 weeks to 31
December 2006.
• Cumulative translation differences
Under IAS 21, exchange differences arising on consolidation of overseas
subsidiaries are required to be recognised as a separate equity reserve. The
Group has utilised the exemption available in IFRS 1 whereby cumulative
translation differences are deemed to be zero at the date of transition to IFRS.
APPENDIX TO THE GROUP INTERIM REPORT
REPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
• Use of fair value or revaluation as deemed cost of property, plant and
equipment, investment properties and certain intangible assets
The standard permits a first-time adopter to measure an item in its opening
balance sheet using an amount based on its deemed costs. The Group has taken
advantage of this exemption and has adopted the historical cost as its deemed
cost.
Descriptions of the reconciling items between UK GAAP and IFRS are listed below.
The amounts of the reconciling items are detailed in tables set out beneath each
of the reconciliations.
• Assets held for sale
As at date of transition and the comparative periods the Group owned various
corporate stores, which met the criteria of assets, held for sale under IFRS 5.
These have been reclassified to a separate line within total assets on the Group
balance sheet.
• Intangible assets
On transition, the Group following the provisions of IAS 36 has reclassified
separately identifiable computer software assets from tangible assets to
intangible assets.
• Prepaid operating lease costs
The Group incurs costs in acquiring property leases. The Group previously
treated these costs as additions to tangible fixed assets, however under IAS 17
they are more correctly described as prepaid operating lease charges.
Accordingly on transition these expenses are reclassified from tangible fixed
assets to prepaid lease charges. The charges are amortised over the lives of the
operating leases on which they were incurred.
• Lease inducements
The Group under UK GAAP recognised rent-free periods over the period to the
commencement of the first market rent review. According to provisions in SIC 15
lease incentives are spread over the full term of the lease. As at the date of
transition, deferred income reflecting the amount of lease inducements to be
taken to the income statement in future periods has been recognised on the
balance sheet.
• Employee benefits
Under IAS 19 the Group is required to recognise untaken holiday pay
entitlements. The Group's holiday year runs from January to December and
therefore this provision will only impact on the Group's interim accounts. At
the year-end, the Group does not have an obligation to carry over to the next
holiday year or to pay employees for untaken holiday.
• Deferred taxation
On transition, the Group following the provisions of IAS 12 has recalculated the
deferred tax balances based on the temporary method. The most significant impact
has been the recognition of deferred tax assets relating to share based payments
and roll over relief.
• Goodwill
The Group has reclassified goodwill previously recognised under UK GAAP on the
acquisition of a store as an intangible asset. This relates to the right that it
had previously granted to the acquiree to use the Group's trade name under a
franchise agreement
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 1 January 2006
UK GAAP IFRS
As at Effect of As at
1 January Transition 1 January
2006 to IFRS 2006
£000 £000 £000
Non current assets
Goodwill and intangible assets 1,326 (446) 880
Property, plant and equipment 13,593 (1,009) 12,584
Prepaid operating lease charges - 549 549
Net investment in finance leases 1,939 - 1,939
Investments in associates 451 - 451
Deferred tax asset - 751 751
------ ------ ------
17,309 (155) 17,154
Current assets
Inventories 2,186 (10) 2,176
Trade and other receivables 9,985 - 9,985
Net investment in finance leases 997 - 997
Prepaid operating lease charges - 59 59
Cash and cash equivalents 5,885 - 5,885
------ ------ ------
19,053 49 19,102
Non current assets held for sale - 857 857
------ ------ ------
Total assets 36,362 751 37,113
------ ------ ------
Current liabilities
Trade and other payables (10,607) - (10,607)
Deferred income - (53) (53)
Financial liabilities (941) - (941)
Current tax liabilities (2,194) - (2,194)
------ ------ ------
(13,742) (53) (13,795)
Non current liabilities
Provisions (880) - (880)
Financial liabilities (9,085) - (9,085)
Deferred income - (847) (847)
Deferred tax liabilities (567) 79 (488)
------ ------ ------
Total liabilities (24,274) (821) (25,095)
------ ------ ------
------ ------ ------
Net assets 12,088 (70) 12,018
------ ------ ------
Shareholder's equity
Called up share capital 2,645 - 2,645
Share premium account 4,677 - 4,677
Capital redemption reserve 171 - 171
Treasury share reserve (7,500) - (7,500)
Retained earnings 12,013 (70) 11,943
------ ------ ------
Equity shareholder's funds 12,006 (70) 11,936
Minority interest 82 - 82
------ ------ ------
Total equity 12,088 (70) 12,018
------ ------ ------
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 1 January 2006
Non
current
Non Assets Non
Current Current held Current Current Share
For Liabil- Liabil- holder's
Assets Assets sale ities ities Funds
£000 £000 £000 £000 £000 £000
IAS38 - reclassification of
software from tangible to
intangible fixed assets (162) - - - - -
IAS38 - reclassification of
software from tangible to
intangible fixed assets 162 - - - - -
IAS17 - reclassification of
prepaid operating lease charges
from intangible fixed assets
(lease premiums) (608) - - - - -
IAS17 - reclassification of prepaid
operating lease charges from
intangible fixed assets (lease
premiums) 549 59 - - - -
SIC15 - lease inducements spread
over the full lease term (rent
frees) - - - (53) (847) (900)
IFRS5 - reclassification of
corporate stores as assets held for
sale (847) (10) 857 - - -
IAS12 - recognition of deferred tax
asset for share based payments 751 - - - - 751
IAS12 - recognition of deferred tax
liabilities for roll over relief - - - - (191) (191)
IAS12 - tax effects of conversion - - - - 270 270
----- ----- ----- ----- ----- -----
Net movement (155) 49 857 (53) (768) (70)
----- ----- ----- ----- ----- -----
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 31 December 2006
UK GAAP IFRS
As at Effect of As at
31 December Transition 31 December
2006 to IFRS 2006
£000 £000 £000
Non current assets
Goodwill and intangible assets 2,159 (574) 1,585
Property, plant and equipment 13,780 (1,871) 11,909
Prepaid operating lease charges - 683 683
Net investment in finance leases 1,748 - 1,748
Investments in associates 589 - 589
Deferred tax asset - 1,275 1,275
------ ------ ------
18,276 (487) 17,789
Current assets
Inventories 1,838 (20) 1,818
Trade and other receivables 9,632 - 9,632
Net investment in finance leases 864 - 864
Prepaid operating lease charges - 158 158
Cash and cash equivalents 10,262 - 10,262
------ ------ ------
22,596 138 22,734
Non current assets held for sale - 1,641 1,641
------ ------ ------
Total assets 40,872 1,292 42,164
------ ------ ------
Current liabilities
Trade and other payables (13,433) - (13,433)
Deferred income - (31) (31)
Financial liabilities (6,835) - (6,835)
Current tax liabilities (2,339) - (2,339)
------ ------ ------
(22,607) (31) (22,638)
Non current liabilities
Provisions (233) - (233)
Financial liabilities (9,009) - (9,009)
Deferred income - (989) (989)
Deferred tax liabilities (419) 110 (309)
------ ------ ------
Total liabilities (32,268) (910) (33,178)
------ ------ ------
------ ------ ------
Net assets 8,604 382 8,986
------ ------ ------
Shareholder's equity
Called up share capital 2,574 - 2,574
Share premium account 4,765 - 4,765
Capital redemption reserve 261 - 261
Treasury share reserve (4,216) - (4,216)
Currency translation reserve (21) - (21)
Retained earnings 5,193 382 5,575
------ ------ ------
Equity shareholder's funds 8,556 382 8,938
Minority interest 48 - 48
------ ------ ------
Total equity 8,604 382 8,986
------ ------ ------
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 31 December 2006
Non
current
Non Assets Non
Current Current held Current Current Share
For Liabil- Liabil- holder's
Assets Assets sale ities ities Funds
£000 £000 £000 £000 £000 £000
IAS38 - reclassification of
software from tangible to
intangible fixed assets (250) - - - - -
IAS38 - reclassification of
software from tangible to
intangible fixed assets 250 - - - - -
IAS38 - goodwill no longer
amortised 17 - - - - 17
IAS38 - reclassification of
goodwill to intangible fixed
assets - purchase of Edgbaston
store (360) - - - - -
IAS38 - reclassification of
goodwill to intangible fixed
assets - purchase of Edgbaston
store 360 - - - - -
IAS17 - reclassification of
prepaid operating lease charges
from intangible fixed assets
(lease premiums) (841) - - - - -
IAS17 - reclassification of
prepaid operating lease charges
from intangible fixed assets
(lease premiums) 683 158 - - - -
SIC15 - lease inducements
spread over the full lease
term (rent frees) - - - (31) (989) (1,020)
IFRS5 - reclassification of
corporate stores as assets
held for sale (1,621) (20) 1,641 - - -
IAS12 - recognition of
deferred tax asset for share based
payments 1,275 - - - - 1,275
IAS12 - recognition of
deferred tax liabilities
for roll over relief - - - - (191) (191)
IAS12 - tax effects of
conversion - - - - 301 301
IAS12 - tax effects of share
options exercised - - - - - (400)
IAS12 - tax effects of share
options exercised - - - - - 400
----- ----- ----- ----- ----- -----
Net movement (487) 138 1,641 (31) (879) 382
----- ----- ----- ----- ----- -----
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Income Statement for the 52 weeks ended 31 December
2006
UK GAAP IFRS
52 weeks 52 weeks
ended Effect of As at 31
31 December Transition December
2006 to IFRS 2006
£000 £000 £000
Revenue from continuing operations 94,965 - 94,965
Cost of sales (57,811) - (57,811)
------ ------ ------
Gross Profit 37,154 - 37,154
Distribution costs (8,177) - (8,177)
Administrative costs (including operating
exceptionals) (15,359) (103) (15,462)
------ ------ ------
13,618 (103) 13,515
Share of post tax profits of associates 171 - 171
------ ------ ------
Operating profit from continuing operations 13,789 (103) 13,686
---------------------------- ------ ------ ------
Operating exceptionals (499) - (499)
Operating profit from continuing operations
before exceptional items 14,288 (103) 14,185
---------------------------- ------ ------ ------
Profit on the sale of non current assets and
assets held for sale 159 - 159
Profit on the sale of subsidiaries 454 - 454
------ ------ ------
Profit before interest 14,402 (103) 14,299
Finance income 397 - 397
Finance expense (507) - (507)
------ ------ ------
Profit before taxation 14,292 (103) 14,189
Taxation (3,865) (328) (4,193)
------ ------ ------
Profit for the year 10,427 (431) 9,996
------ ------ ------
Profit for the year attributable to:
Equity holders of the parent 10,515 (431) 10,084
Minority interest (88) - (88)
------ ------ ------
10,427 (431) 9,996
------ ------ ------
Earnings per share
- Basic (pence) 6.49 (0.26) 6.23
- Diluted (pence) 6.38 (0.26) 6.12
Basic
£000 EPS (p)
Conversion effects comprise:
SIC15 - lease inducements spread over the full
lease term (rent frees) (120) (0.07)
IAS38 - goodwill no longer amortised annually 17 0.01
----- -----
Profit before taxation (103) (0.06)
IAS12 - tax effects of conversion 31 0.02
IAS12 - tax effects of share based payments (359) 0.22)
----- -----
Profit for the period (431) (0.26)
----- -----
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 2 July 2006
UK GAAP IFRS
As at Effect of As at
2 July Transition 2 July
2006 to IFRS 2006
£000 £000 £000
Non current assets
Goodwill and intangible assets 1,506 (635) 871
Property, plant and equipment 13,643 (622) 13,021
Prepaid operating lease charges - 671 671
Net investment in finance leases 1,348 - 1,348
Investments in associates 564 - 564
Deferred tax asset - 963 963
------ ------ ------
17,061 377 17,438
Current assets
Inventories 2,199 (4) 2,195
Trade and other receivables 10,965 - 10,965
Net investment in finance leases 777 - 777
Prepaid operating lease charges - 164 164
Cash and cash equivalents 8,593 - 8,593
------ ------ ------
22,534 160 22,694
Non current assets held for sale - 434 434
------ ------ ------
Total assets 39,595 971 40,566
------ ------ ------
Current liabilities
Trade and other payables (11,122) (89) (11,211)
Deferred income - (26) (26)
Financial liabilities (766) - (766)
Current tax liabilities (2,145) - (2,145)
------ ------ ------
(14,033) (115) (14,148)
Non current liabilities
Provisions (706) - (706)
Financial liabilities (9,232) - (9,232)
Deferred income - (934) (934)
Deferred tax liabilities (567) 121 (446)
------ ------ ------
Total liabilities (24,538) (928) (25,466)
------ ------ ------
------ ------ ------
Net assets 15,057 43 15,100
------ ------ ------
Shareholder's equity
Called up share capital 2,658 - 2,658
Share premium account 4,927 - 4,927
Capital redemption reserve 171 - 171
Treasury share reserve (4,216) - (4,216)
Retained earnings 11,429 43 11,472
------ ------ ------
Equity shareholder's funds 14,969 43 15,012
Minority interest 88 - 88
------ ------ ------
Total equity 15,057 43 15,100
------ ------ ------
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Balance Sheet at 2 July 2006
Non
current
Non Assets Non
Current Current held Current Current Share
For Liabil- Liabil- holder's
Assets Assets sale ities ities Funds
£000 £000 £000 £000 £000 £000
IAS38 - reclassification of
software from tangible to
intangible fixed assets (192) - - - - -
IAS38 - reclassification of
software from tangible to
intangible fixed assets 192 - - - - -
IAS38 - goodwill no longer
amortised 8 - - - - 8
IAS17 - reclassification of
prepaid operating lease charges
from intangible fixed assets
(lease premiums) (835) - - - - -
IAS17 - reclassification of
prepaid operating lease charges
from intangible fixed assets
(lease premiums) 671 164 - - - -
SIC15 - lease inducements spread
over the full lease term (rent
frees) - - - (26) (934) (960)
IFRS5 - reclassification of
corporate stores as assets held
for sale (430) (4) 434 - - -
IAS19 - recognition of employee
benefits: untaken holiday pay
entitlement - - - (89) - (89)
IAS12 - recognition of deferred
tax asset for share based payments 963 - - - - 963
IAS12 - recognition of deferred
tax liabilities for roll over relief - - - - (191) (191)
IAS12 - tax effects of conversion - - - - 312 312
IAS12 - tax effects of share
options exercised - - - - - (208)
IAS12 - tax effects of share
options exercised - - - - - 208
----- ----- ----- ----- ----- -----
Net movement 377 160 434 (115) (813) 43
----- ----- ----- ----- ----- -----
APPENDIX TO THE GROUP INTERIM REPORT
Reconciliation of the Group Income Statement for the 26 weeks ended 2 July 2006
UK GAAP IFRS
26 weeks 26 weeks
ended Effect of ended
2 July Transition 2 July
2006 to IFRS 2006
£000 £000 £000
Revenue from continuing operations 45,114 - 45,114
Cost of sales (27,534) - (27,534)
------ ------ ------
Gross Profit 17,580 - 17,580
Distribution costs (3,981) (3,981)
Administrative costs (7,336) (141) (7,477)
------ ------ ------
6,263 (141) 6,122
Share of post tax profits of associates 62 - 62
------ ------ ------
Operating profit from continuing operations 6,325 (141) 6,184
Profit on the sale of non current assets and
assets held for sale 10 - 10
------ ------ ------
Profit before interest 6,335 (141) 6,194
Finance income 162 - 162
Finance expense (224) - (224)
------ ------ ------
Profit before taxation 6,273 (141) 6,132
Taxation (1,674) (150) (1,824)
------ ------ ------
Profit for the year 4,599 (291) 4,308
---- ---- ----
Profit for the period attributable to:
Equity holders of the parent 4,622 (291) 4,331
Minority interest (23) - (23)
------ ------ ------
4,599 (291) 4,308
------ ------ ------
Earnings per share
- Basic (pence) 2.87 (0.17) 2.70
- Diluted (pence) 2.74 (0.17) 2.57
Basic
£000 EPS (p)
Conversion effects comprise:
SIC15 - lease inducements spread over the full
lease term (rent frees) (60) (0.04)
IAS19 - recognition of employee benefits: untaken
holiday pay entitlement (89) (0.5)
IAS38 - goodwill no longer amortised annually 8 0.01
------ ------
Profit before taxation (141) (0.08)
IAS12 - tax effects of conversion 42 0.02
IAS12 - tax effects of share based payments (192) (0.11)
------ ------
Profit for the period (291) (0.17)
------ ------
INDEPENDENT REVIEW REPORT TO DOMINO'S PIZZA UK & IRL PLC
Introduction
We have been instructed by the company to review the financial information for
the 26 weeks ended 1 July 2007 which comprises the Group Income Statement, Group
Balance Sheet, Group Cash Flow Statement, Group Statement of Changes in Equity,
and the related notes 1 to 6. We have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock exchange.
As disclosed in note 2, the next annual financial statements of the group will
be prepared in accordance with those IFRSs adopted for use by the European
Union.
The accounting policies are consistent with those that the directors intend to
use in the next financial statements. There is, however, a possibility that the
directors may determine that some changes to these policies are necessary when
preparing the full annual financial statements for the first time in accordance
with those IFRSs adopted for use by the European Union.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. 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 have been applied. 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 International Standards on Auditing (UK and Ireland) 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 1 July 2007
Ernst & Young LLP
Registered Auditor
Luton
20th July 2007
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