20th Feb 2007 07:01
Domino's Pizza UK & IRL PLC20 February 2007 20 February 2007 DOMINO'S PIZZA UK & IRL plc PRELIMINARY RESULTS FOR THE FIFTY-TWO WEEKS ENDED 31 DECEMBER 2006 Domino's Pizza UK & IRL plc ("Domino's Pizza" or the "Company"), the UK andIreland's leading pizza delivery company, announces its preliminary results forthe fifty-two weeks ended 31 December 2006. Highlights • System sales increased 19.7% to £240.1m (2005: £200.7m)• Profit before tax increased 28.0% to £14.3m (2005: £11.2m)• Earnings per share: - Basic earnings per share up 27.9% to 20.78p (2005: 16.25p) - Diluted earnings per share up 31.9% to 20.40p (2005: 15.47p)• Total dividend increased 35.2% to 9.80p per share (2005: 7.25p)• 46 new stores opened in the year (2005: 50 stores) and two closed (2005: nil) resulting in a total of 451 stores at the year end (2005: 407 stores)• Like-for-like sales in 357 mature stores up 9.7% (2005: 7.1% in 317 stores). First six weeks in 2007 up 14.3% (first six weeks of 2006: 10.3%)• E-commerce sales up 43.8% to £20.1m (2005: £13.9m)• Net cash at bank and in hand of £4.3m (2005: £5.9m) after returning £10.2m cash to shareholders in share buybacks (2005: £8.2m). £25.8m of cash has been returned to shareholders over the past two years via share buybacks of £18.4m and dividends of £7.4m• Proposed three for one share split to improve marketability and liquidity Stephen Hemsley, Chief Executive of Domino's Pizza, commented: "I am very pleased to report that your Company recorded another year ofexcellent progress in 2006, further strengthening our leadership of thefast-growing home delivery pizza market. "The significant growth in sales, fuelled by strong like-for-like increases andnew store openings, combined with our relatively fixed cost base, has resultedin profits once again reaching record levels. Operating cash flow was also verystrong and the capital needs of the business in 2006 were limited. This allowedus to continue a strategy of returning surplus cash to shareholders and this wasreflected in another year of record dividends and a continuing share buybackprogramme. "Trading in the first six weeks of 2007 has got off to an excellent start withlike-for-like sales up 14.3% (2006:10.3%). We are encouraged by this performancegiven the demanding comparatives of the previous year. E-commerce has continuedto grow strongly with an increase of 36.2% and we believe that the launch of oure-commerce platforms in the Republic of Ireland will fuel the pace of onlinesales growth. Our 2007 new store opening programme has got off to a good start,but we are mindful that the planning related issues remain a significantrestraining factor in our drive to open 50 new stores per annum." For further information, please contact: Stephen Hemsley - Chief Executive 07876 144342 01908 580604 Lee Ginsberg - Finance Director 07876 144342 01908 580611 Chris Moore - Deputy Chief Executive 07876 144342 01908 580604 Rachel Wattel - PR & Communications Controller 07876 144342 01908 580672 Chris Matthews, Fiona Noblet, Anthony Arthur - 020 7357 9477The Hogarth Partnership Limited Notes to Editors: Domino's Pizza Group Limited is the leading operator in the UK and Ireland'sfast-growing pizza delivery market and is a subsidiary of AIM-listed Domino'sPizza UK & IRL plc (symbol: DOM). Domino's Pizza Group Ltd holds the exclusivelicence to own, operate and franchise Domino's Pizza stores in the UK andIreland. The first UK store opened in 1985 and the first Irish store opened in1991. As at 31 December 2006, there were 451 stores in the UK and Ireland. Of these,361 stores are in England, 34 are in Scotland, 15 are in Wales, 11 are inNorthern Ireland and 30 are in the Republic of Ireland. As part of a commitment to delivering more to the communities served by itsstores, Domino's Pizza Group Limited is proud to support Special Olympics GB andSpecial Olympics Ireland. Founded in 1960, the Domino's Pizza brand is the recognised world leader inpizza delivery. Through its primarily franchised system, Domino's operates aglobal network of over 8,000 stores in more than 55 countries. For photography visit www.dominos.uk.com/media or contact The Hogarth Partnership Limited on 020 7357 9477. Chairman's Statement 2006 was a record breaking year for Domino's Pizza. System sales, store countand e-commerce all reached record levels, further establishing our leadership ofthe pizza delivery market in the UK and Ireland. These exceptional results alsounderlined our success within the Domino's system worldwide, with nine out ofthe top ten highest international store sales coming from our UK and Irishmarkets in 2006. Whilst we are very pleased with these results, I am most impressed with therelentless focus to detail that drives our success. It would be easy to assumethat after 20 years of delivering hot, fresh pizzas we would have learnedeverything there is to know about our business. But what is so exciting aboutthis company is that it is always striving to do better. A great example is thenew focus we gave to getting our pizza 'out-the-door' in the minimum amount oftime, using 'real-time' technology'- an industry first. 'Out-the-door' is the time we measure from the moment we receive the order, tothe time it takes to leave the store. We recognized that driving down the'out-the-door' time had a direct impact on sales, as stores with the lowest'out-the-door' times had the highest like-for-like sales growth in 2006. Thesestores also had the fastest level of repeat ordering, which will be a key driverof like-for-like sales increases over the coming years. By displaying in 'real-time' the average speed of the pizza making and bakingprocess, we were able to improve the number of orders leaving the store in under15 minutes by 34%. The 'real-time' display screens show national average timesfor the whole system, as well as for individual stores. The competitive spiritthat using 'real-time' has encouraged is so impressive that we are alreadyapproaching the out-the-door time goal we had set for 2010. Speed of service was a running theme for Domino's in 2006 and we were immenselyproud that our franchisee, Pali Grewal, achieved the best international time inthe World's Fastest Pizza Maker competition. This reflects our commitment todriving high standards of product and service through training and competition. Another award-winning first for Domino's in 2006 came when franchisee AntonyTagliamonti became the youngest ever winner of the British Franchise Association'Franchisee of the Year Award'. Having started at Domino's as a delivery driver,Antony, aged just 27, now owns four stores. It is this kind of home-grown talentand success which is vital to the future growth of our franchise community. We were also honoured to receive two awards from the Pizza, Pasta and ItalianFood Association, including Chain Pizza Delivery Operator of the Year for thesecond time and Overall Operator of the Year title, presented to our ChiefExecutive Stephen Hemsley. The expansion of Domino's in the UK and Ireland continues a pace, but as we pushour national growth, our stores are still run like local businesses. We knowthat our stores' commitment to the communities we serve is at the heart of theirsuccess and in 2006 we strengthened this commitment by launching an associationwith our new charities of choice, Special Olympics Great Britain and SpecialOlympics Ireland. These achievements would never have been possible without the talent, spirit andrelentless focus of our team members; from our Board of Directors, managers andtheir teams to our franchisees and the men and women who are out theredelivering hot, fresh pizzas on cold, rainy nights. Yet we know that none of oursuccesses would be possible if it were not for the confidence that you, ourshareholders, have placed in us. For your trust in us and for your continuedsupport I thank you most sincerely. Colin HalpernChairman Chief Executive's Statement Introduction I am very pleased to report that your Company recorded another year of excellentprogress in 2006, further strengthening our leadership of the fast-growing homedelivery pizza market. The significant growth in sales, fuelled by strong like-for-like increases andnew store openings, combined with our relatively fixed cost base, has resultedin profits once again reaching record levels. Operating cash flow was also verystrong and the capital needs of the business in 2006 were limited. This allowedus to continue a strategy of returning surplus cash to shareholders and this wasreflected in another year of record dividends and a continuing share buybackprogramme. Although the 46 new store openings in the year are short of our target of 50,the average sales levels achieved by those that were opened were up over 20% on2005, making them the most successful on record. This positive performance wasmade possible by some significant enhancements to the marketing and operationalsupport we provide to new stores. It also reflects our belief that high quality,sustainable expansion must always take priority over simply achieving animpressive but short-lived volume of store openings. The increasing popularity of home delivered food continues to present Domino'sPizza with an exciting growth opportunity in the UK and Ireland. As a result, Iremain confident that our franchise system will ultimately operate 1,000 storesin these territories. System Sales In 2006, system sales, which are the sales of all stores in the Domino's systemin the UK and Republic of Ireland, rose by 19.7% to £240.1m (2005: 15.1%).Like-for-like sales in the 357 stores open for more than twelve months in bothperiods grew by 9.7% (2005: 7.1% in 317 stores). This is the highest like forlike sales growth over the past four years and is particularly pleasing giventhe increase in the number of stores falling into this population. It brings theaverage annual like-for-like growth over the last five years to 8.4%. To further reinforce our leading position in the home delivery pizza market weagreed with our franchisees to increase the contribution they make to the National Advertising Fund. This has provided us with a greater opportunity for moreintegrated marketing campaigns that included a mix of targeted direct mail,online activity, local store marketing, PR and TV. At the heart of thesecampaigns was further new product launches which gave us the required news valueto drive sales right across the menu. Of particular note was the launch in thefourth quarter of the MeltDown, our spiciest pizza ever. E-commerce continues to be our fastest-growing channel to market. In 2006 totalsales via these platforms reached £20.1m (2005: £13.9m), an increase of 43.8%.E-commerce accounts for almost 13% of our delivered pizzas sold in the UK.Improvements to our website capacity (www.dominos.co.uk) have made it faster andeasier for customers to order and they now benefit from local deals which havepreviously not been available on the web. Online ordering went live in the Republic of Ireland (www.dominos.ie) inFebruary 2007 and initial results are encouraging and highlight that this markethas the potential to grow our online sales still further. Expansion In 2006 we opened 46 new stores (2005: 50) and closed two stores (2005: nil)bringing the year-end store count to 451 stores (2005: 407). As mentioned in myintroduction, this is short of our target of 50 stores each year. Whilst ourability to identify new sites has greatly improved as a result of a strengthenedteam, and demand for new stores from potential and existing franchisees remainsvery high with over 4,000 enquiries from candidates in 2006 (up 28%), ourexpansion programme is often subject to inconsistent and lengthy planningdecisions. We are addressing this ongoing challenge by further investing in ourproperty acquisitions team to ensure that we have sufficient properties in thepipeline to secure our store opening target. Last year we continued to work towards our goal of increasing the number ofstores operated by each franchisee and this ratio currently stands at threestores per franchisee (2005: 2.7 stores). There has been a net decrease in thenumber of franchisees from 157 in 2005 to 150 in 2006. This is in line with ourstrategy of encouraging multi-unit operators to create a franchise community ofa size that can be efficiently managed and supported by a modestly increasedcorporate team. The increased store to franchisee ratio also serves to furtherdrive the benefits of the operational gearing. Towards the end of 2006 we successfully negotiated the extension of thedevelopment clause of our Master Franchise Agreement. This allows us to maintainour current royalty discount until 2016, provided we grow our store count by aminimum of 27 new stores per annum from a base of 450 stores. We have the rightto further renewals thereafter. In January 2007, the Company was pleased to announce the promotion of ChrisMoore from Chief Operating Officer to Deputy Chief Executive. Chris recentlyassumed board-level responsibility for the company's three commissaries, inaddition to marketing and operations and this promotion reflects his extendedremit. During 2007, we plan to acquire the freehold land and begin construction of anew commissary and Head Office facility in Milton Keynes to service our growingnumber of stores. Completion of this new facility is expected towards the end of2008. We also intend to significantly expand our existing commissary in Penrithduring 2007. Anticipated capital expenditure on these projects will be in theregion of £15m. This expenditure will be incurred over 2007 and 2008 and it islikely that this will be debt financed. Trading Results Group turnover, which includes the sales generated by the Group from royalties,fees on new store openings, food sales, finance lease and rental income, as wellas the turnover of corporately owned and operated stores, grew by 16.3% to£95.0m (2005: £81.7m). This rate of growth is marginally slower than the systemsales growth rate due to lower revenues from corporate stores, following thesale of 14 stores during the first half of 2005 and a further three in 2006. EBITDA for the year was £16.2m (2005: £12.9m) up 25.9% on the previous year.This increase is higher than the rate of the system sales increase due to thelimited growth in overheads needed to support the system. Group operating profit, including our share of operating profit in jointventures, but before exceptional items and the accelerated Long Term IncentivePlan (LTIP) charge in 2005 was up 29.8% to £14.3m from £11.0m. As highlightedpreviously, the Group has taken the decision not to invest in corporately ownedstores. During the year, the Group continued its strategy of exiting thesestores and sold three stores and closed one. Exceptional costs of £0.5m relatingto this activity were incurred during the year. Excluding the above, Groupoperating profit for the year was up 32.9% to £13.8m (2006: £10.4m) Profit on ordinary activities before interest and tax grew by 28.0% to £14.4m(2005: £11.3m). This includes the profit on the sale of corporate stores of£0.2m (2005: £0.9m) as well as the release of property and legal provisions of£0.4m, raised at the time of the sale of corporate stores last year, which areno longer required, (2005: £nil). Net interest paid ended at £0.1m (2005: £0.1m). The tax charge for the year was27.0% (2005: 26.2%) and is lower than the statutory tax rate of 30%, primarilydue to the relief available on the exercise of employee share options, as wellas the impact of the lower corporation taxation rate applicable in our Irishsubsidiary company. Profit after tax and minority interest was up 27.4% to £10.5m (2005: £8.3m) Earnings per Share and Dividend Basic earnings per share were up 27.9% to 20.78 pence from 16.25 pence. Dilutedearnings per share increased by 31.9% to 20.40 pence from 15.47 pence. In line with our strategy of returning cash surplus to the requirements of thebusiness to shareholders, the Board is pleased to recommend a furthersignificant increase in the dividend payment which, if approved by shareholders,will give a final dividend of 5.65 pence per share (2005: 4.15 pence per share).This would give a total dividend for the year of 9.80 pence per share (2005:7.25 pence per share), a 35.2% increase. The full year dividend is 2.1 timescovered by profits after tax (2005: 2.2 times). Subject to shareholders' approval the final dividend will be payable on 4 May2007 to shareholders on the register on 10 April 2007. Proposed Share Split The directors, having consulted with the Company's brokers, consider that havinga larger number of ordinary shares with a lower market value than at presentwill serve to improve the marketability and liquidity of the Company's shares.They are therefore announcing today the proposed sub division of the Company'sshare capital (the "Share Split"). An ordinary resolution to subdivide each issued and unissued ordinary share of5p each in the capital of the Company ("Existing Ordinary Shares") into threenew ordinary shares of 1.67p each ("New Ordinary Shares") will be proposed atthe next Annual General Meeting ("AGM") of the Company which is to be held on 26April 2007. Further details about the background of the Share Split will becontained in the explanatory notes that will accompany the notice of the AGM. This change will only become effective if approved by shareholders of theforthcoming AGM. The final dividend will therefore be paid by reference to theExisting Ordinary Shares. Cash Flow and Balance Sheet Net cash inflow from operating activities reached £19.0m, up from £12.7m in2005. This increase was attributable mainly to the higher operating profits aswell as an improvement in working capital. During the year, outflows of £0.1m of interest, £3.8m of taxes and £2.3m ofcapital expenditure and financial investment were incurred. Further outflowsrelated to the utilisation of the prior year's corporate store disposalprovisions of £0.2m and £0.1m for the purchase of minority share interests anddividends of £4.2m. Overall, the net cash inflow before financing was £8.3m. This strong cashgeneration has allowed us to return a further £10.2m to shareholders throughshare buybacks during the year. We have now returned £25.8m of cash toshareholders over the past two years via share buybacks of £18.4m and dividendsof £7.4m. In the year, options over 0.4m shares were exercised generating an inflow of£0.4m (2005: £0.5m). During the year, DP Capital continued to provide leasing support to franchiseesfor the fit-out of new stores and the refit of existing stores, with newadvances of £1.0m (2005: £1.2m). After repayments, the balance outstanding atthe year end on these leases was £2.6m (2005: £2.9m). These facilities arefinanced by a limited recourse loan facility and the amount drawn down at theend of the year stood at £2.3m (2005: £2.5m). At the year end, the Group had cash at bank and in hand of £10.3m (2005: £5.9m)and consolidated debt of £15.8m (2005: £10.0m) all of which related to the loansin the Employment Benefit Trust ("EBT"), bank overdraft and DP Capital. Netborrowings at the year end therefore stood at £5.6m (2005: £4.1m) representing65.2% (2005: 34.5%) of shareholders' funds. The Group will be adopting IFRS for the 2007 financial year. As previouslyhighlighted, a preliminary assessment has indicated that the adoption of IFRS isnot expected to have any significant impact on the Group's reported results. Arestated opening balance sheet at the date of transition to IFRS, January 2006,together with restated comparatives for both the full year and the half year2006 and reconciliations of the changes will be made available at the time ofour interim announcement. Corporate Stores, Joint Ventures and Subsidiaries As stated at the preliminary results stage last year, your Company remainsfocussed on withdrawing entirely from the operation of corporate stores,favouring instead joint ventures or subsidiaries set up with carefully-selectedand experienced partners. We have an equity interest in six (2005: five) jointventures and subsidiaries which totals £0.7m (2005: £0.6m) involving a total of32 stores (2005: 26 stores). In 2006, joint ventures contributed £0.2m to operating profits in 2006 (2005:£0.2m). The Market The UK eating out market is estimated by Mintel to be worth £29bn in 2006, with£1.3bn of this attributed to the home delivered food segment. Whilst thisproportion is small, home delivered food is the fastest-growing segment. It isestimated that there are 3,000 stores offering some form of pizza delivery inthe UK. Domino's Pizza is estimated to handle one in seven of the UK's homedelivered meals and one in three of home delivered pizzas. It is predicted that the home delivered food segment will grow to £1.96 billionover the next five years, a compound growth rate of 7% per annum. This presentsyour Company with a very favourable background for future growth in both storecount and like-for-like sales increases. A number of factors are influencing theshape of the market including the increase in in-home entertainment occasions,greater broadband internet use, an increased number of working women and oneperson households, the continuance of the cash-rich, time poor society and apredicted increase of 11% in real personal disposable income by 2011. Food quality continues to be of prime importance to customers. A cornerstone ofthe Domino's Pizza brand is the use of fresh ingredients and hand making ourpizzas from fresh dough. In 2006, the Food Standards Agency developed itsnutrient profiling model which aims to determine which foods are high in fat,salt and sugar ('HFSS'). We took this model and applied it to our 36best-selling pizzas. Based on our analysis, 18 of those pizzas are non-HFSS,reinforcing the very wide-ranging choice on offer in our stores. The position ofDomino's Pizza within the lifestyles of consumers remains as an occasional treator meal replacement enjoyed approximately once every five weeks and we thereforefeel that our current menu provides our customers with sufficient choice. Wewill however continue to actively pursue healthier alternatives that also meetour standards in both quality and taste. Throughout 2006 we closely monitored the Ofcom ruling which in November used theFood Standards Agency's nutrient profiling model to determine which HFSS foodand drink products should not be advertised to children on TV. Domino's Pizzahas always been consistent about its policy of never marketing directly tochildren, nevertheless based on the current Ofcom guidelines, we may no longerbe able to sponsor the Simpsons on Sky One beyond June 2007. With brandawareness now at 98% and the continuing change in consumer lifestyles, wecontinue to explore innovative new ways to engage with 18-34 year old consumersin an ever increasingly fragmented media market, including direct mail andonline platforms. We are very pleased with the results from some of these newapproaches which have already been deployed. Current Trading and Outlook Trading in the first six weeks of 2007 has got off to an excellent start withlike-for-like sales up 14.3% (2006:10.3%). We are encouraged by this performancegiven the demanding comparatives of the previous year. E-commerce has continuedto grow strongly with an increase of 36.2% and we believe that the launch of oure-commerce platforms in the Republic of Ireland will fuel the pace of onlinesales growth. Our 2007 new store opening programme has got off to a good startbut we are mindful that the planning related issues remain a significantrestraining factor in our drive to open 50 new stores per annum. Conclusion & Thanks At Domino's Pizza we strive to set the pace for the rest of the home deliveryfood industry. In order to do so we must achieve very high standards and meetambitious growth targets. Neither would be possible without the dedication andexperience of our 300-strong corporate team, our 150 franchisees and their10,000 in-store team members who continue to drive our vision forward and makesuccess a reality every day. Once again, my thanks and admiration, go out to allof them. Stephen HemsleyChief Executive Group profit and loss account 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 Notes £000 £000 Turnover from continuing operationsTurnover: group and share ofjoint ventures' turnover 98,937 85,004Less: share of joint ventures' turnover (3,972) (3,344) -------- --------Group turnover from continuing operations 94,965 81,660Cost of sales (57,811) (48,778) -------- --------Gross profit 37,154 32,882Distribution costs (8,177) (8,538) -------- --------Administrative expenses - pre accelerated LTIP (14,860) (13,504)chargeAccelerated LTIP charge - (626) -------- --------Administrative expenses (14,860) (14,130) -------- --------Group operating profit pre exceptionals and share 14,117 10,214of joint ventures -------- --------Share of operating profit in joint ventures 184 179Amortisation of goodwill in joint ventures (13) (15) -------- -------- 171 164 -------- --------Total operating profit pre exceptionals 14,288 10,378Operating exceptionals 2 (499) - -------- --------Total group operating profit from continuing 13,789 10,378operations Profit on sale of fixed assets 2 159 206Profit on sale of subsidiary undertakings 2 454 670 -------- --------Profit on ordinary activities before interest andtaxation 14,402 11,254Interest receivable 397 273Interest payable and similar charges (507) (358) -------- --------Profit on ordinary activities before taxation 14,292 11,169Tax on profit on ordinary activities (3,865) (2,922) -------- --------Profit on ordinary activities after taxation 10,427 8,247Minority interests 88 8 -------- --------Profit for the financial year attributable to members of the parent company 10,515 8,255 ======== ========Earnings per share - basic - continuing operations 4 20.78p 16.25p - diluted - continuing operations 4 20.40p 15.47p Group balance sheet At At 31 December 1 January 2006 2006 Notes £000 £000 Fixed assetsIntangible assets 2,159 1,326Tangible assets 13,780 13,593Investments in joint ventures:Share of gross assets 2,018 1,477Share of gross liabilities (1,429) (1,026) -------- -------- 589 451 -------- --------Total fixed assets 16,528 15,370 -------- --------Current assetsStocks 1,838 2,186Debtors:amounts falling due within one year 10,304 10,753amounts falling due after more than one year 1,940 2,168 -------- -------- 12,244 12,921Cash at bank and in hand 10,262 5,885 -------- --------Total current assets 24,344 20,992 -------- --------Creditors: amounts falling due within one year (22,607) (13,742) -------- --------Net current assets 1,737 7,250 -------- --------Total assets less current liabilities 18,265 22,620 -------- --------Creditors: amounts falling due after more than oneyear (9,009) (9,085) Provision for liabilities (652) (1,447) -------- -------- 8,604 12,088 ======== ========Capital and reservesCalled up share capital 6 2,574 2,645Share premium account 6 4,765 4,677Capital redemption reserve 6 261 171Treasury shares held by Employee Benefit Trust 6 (4,216) (7,500)Profit and loss account 6 5,172 12,013 -------- --------Equity shareholders' funds 8,556 12,006Minority interest 48 82 -------- -------- 8,604 12,088 ======== ======== Group statement of cash flows 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 Notes £000 £000 Net cash inflow from operating activities 5(a) 18,989 12,674 -------- --------Returns on investments and servicing of financeInterest received 389 273Interest paid (455) (307)Interest element of finance lease payments (4) (4)Dividends received from joint ventures 21 - -------- -------- (49) (38) -------- --------TaxationCorporation tax paid (3,755) (1,549) -------- --------Capital expenditure and financial investmentPayments to acquire intangible fixed assets (898) (395)Payments to acquire tangible fixed assets (2,262) (2,246)Receipts from sales of tangible and intangible fixedassets 453 576Receipts from repayment of joint venture loan 105 60Payments to acquire finance lease assets and advanceof franchisee loans (1,026) (1,166)Receipts from repayment of finance leases andfranchisee loans 1,349 1,172 -------- -------- (2,279) (1,999) -------- --------Acquisitions and disposalsSale of subsidiary undertakings - 3,354Utilisation of provisions related to disposal ofsubsidiary undertakings (221) (309)Cash balances disposed of with subsidiaryundertakings - (5)Sale of minority interest 30 90Purchase of minority interest (133) (82) -------- -------- (324) 3,048 -------- --------Equity dividends paid 3 (4,234) (3,169) -------- --------Net cash inflow before financing 8,348 8,967 -------- --------FinancingIssue of ordinary share capital 403 472New long-term loans 1,244 2,146Repayments of long-term loans (1,445) (1,146)Repayment of capital element of finance leases andhire purchase contracts (12) (16)Purchase of shares by Employee Benefit Trust - (1,140)Purchase of own shares (10,161) (8,222) -------- -------- (9,971) (7,906) -------- --------(Decrease)/Increase in cash 5(b) (1,623) 1,061 ======== ======== Notes to the accountsAt 31 December 2006 1. Accounting Policies Basis of preparation This preliminary announcement has been prepared on the basis of the accountingpolicies set out in the Group's financial statements for the fifty-two weeksended 1 January 2006. 2. Exceptional Items Recognised as part of operating profit Following the sale of DPGS Limited and Triple A Pizza Limited in 2005 (notedbelow), the Group has taken the decision not to invest in or trade incorporately owned stores. During the year three corporately owned stores weresold and one closed. A further store, owned and operated by a franchisee, wasalso closed during the year. The Group incurred the following exceptional charges relating to the storeclosures and stores sold during the year: 52 weeks ended 31 December 2006 £000 Onerous lease and dilapidation provisions 76Restructuring and reorganisation costs 252Assets written off 52Lease finance and other bad debts provided for 119 ---- 499 ==== Except for the assets written off, for stores closed, the charges should bedeductible for corporation taxation purposes. Except for the restructuring andreorganisation costs, these charges had no impact on the cash flow of the Groupduring the year (see note 5(a)). Recognised below operating profit During the 2005 financial year the Group sold two subsidiary undertakings, DPGSLimited and Triple A Pizza Limited (which included 12 corporate stores at thedate of the transaction). The main elements of the transaction were as follows: 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 £000 £000 Cash consideration received - 3,650 Net assets disposed of - (1,495) Disposal costs - (296) Provisions 454 (1,189) -------- --------Profit on disposal of subsidiary undertakings 454 670 -------- -------- These subsidiary undertakings were sold to Dough Trading Limited a companycontrolled by Marc Halpern. In addition to the sale of DPGS Limited and Triple APizza Limited, the Group sold one corporate store to Dough Trading Limited for acash consideration of £350,000 resulting in a profit on sale of £144,000. During the year partial resolution relating to the conditions for the propertyprovisions made in relation to the sale of the subsidiaries in the prior year,was reached and as a result £454,000 of the provisions created in the prior yearhave been released. These provisions were treated as timing differences in 2005hence the reversal will not be chargeable to corporation tax in 2006. In addition the Group sold three corporate stores resulting in a profit of£115,000 (2005: £62,000). The gain in respect of these disposals will bechargeable to corporation tax at the statutory rate of 30%. During the year the Group's share of profit realised on the disposal of a jointventure store was £44,000. 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 £000 £000Profit on sale of fixed assets Sale of three (2005: two) corporate stores resulting in a profit of 115 206 Group's share of profit on disposal of joint venture store 44 - ------- -------- 159 206 ======= ========3. Dividends paid and proposed 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 £000 £000 Declared and paid during the year:Final dividend for 2005 4.15p (2004: 3.05p) 2,115 1,531Interim dividend for 2006 4.15p (2005: 3.10p) 2,119 1,638 -------- -------- 4,234 3,169 ======== ======== Proposed for approval at AGM (not recognised as a liabilityas at 31December 2006 and at 1January 2006) Final dividend for 2006 5.65p (2005: 4.15p) 2,792 2,031 ======== ======== 4. Earnings per ordinary share The calculation of basic earnings per ordinary share is based on earnings of£10,515,000 (2005: £8,255,000) and on 50,614,710 (2005: 50,810,785) ordinaryshares. The diluted earnings per share is based on earnings of £10,515,000 (2005:£8,255,000) and on 51,556,922 (2005: 53,368,778) ordinary shares. The differencerelates to share options, which takes into account theoretical ordinary sharesthat would have been issued, based on average market value of all outstandingoptions likely to be exercised and the impact of reversionary interests wherethe performance conditions have been met. Reconciliation of basic and diluted earnings per share 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 No. No. Ordinary shares - basic earnings per share 50,614,710 50,810,785Unexercised share options - average market value 732,027 832,056Reversionary interests 210,185 1,725,937 ---------- ----------Ordinary shares - diluted earnings per share 51,556,922 53,368,778 ========== ========== Reversionary interests granted over 2,075,000 shares and share options grantedover 785,972 shares have not yet vested at 31 December 2006. The performanceconditions for these reversionary interests and share options have not been metin the current year and therefore the dilutive effect of the number of shareswhich would have vested at the year end have not been included in the dilutedearnings per share calculation. 5. Notes to the statement of cash flows (a) Reconciliation of operating profit to net cash inflow from operatingactivities 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 £000 £000 Operating profit (after operating exceptionals - seebelow) 13,618 10,214Depreciation charge 1,671 1,508Amortisation charge 161 131Share option and accelerated LTIP charge 344 963Decrease in stocks 349 489Decrease in debtors 82 337Increase/(decrease) in creditors 2,764 (968) -------- -------- 18,989 12,674 ======== ======== Operating exceptionals - non cash flow items 247 - - cash flow items 252 - -------- -------- 499 - ======== ======== (b)Reconciliation of net cash flow to movement in net debt 52 weeks 52 weeks ended ended 31 December 1 January 2006 2006 £000 £000 Decrease in cash before sale of subsidiary undertakings (1,623) (2,589)Proceeds from the sale of subsidiary undertakings - 3,650 -------- --------(Decrease)/increase in cash including sale of subsidiary undertakings (1,623) 1,061Cash outflow from increase in loans (1,244) (2,146)Repayment of long-term loans 1,445 1,146Repayments of capital element of finance leases and hire purchase contracts 12 16 -------- --------Change in net debt resulting from cash flows (1,410) 77Other (31) - -------- --------Movement in net debt (1,441) 77Net debt at 1 January 2006 (4,141) (4,218) -------- --------Net debt at 31 December 2006 (5,582) (4,141) ======== ======== 6. Reconciliation of Shareholders Funds and Movement on Reserves Share Share Capital Treasury Profit & Total Capital Premium Redemption Shares held Loss Shareholders' Account Reserve by EBT Account Funds £000 £000 £000 £000 £000 £000 At 1 January 2006 2,645 4,677 171 (7,500) 12,013 12,006Proceeds from shareissue 19 384 - - - 403Share buybacks (90) (296) 90 - (10,161) (10,457)Treasury shares heldby EBT - - - 3,284 (3,284) -Profit for the year - - - - 10,515 10,515Exchange differenceon translation of netassets of subsidiary - - - - (21) (21)undertakingShare option and LTIPcharge - - - - 344 344Dividends - - - - (4,234) (4,234) ------ ------ ------ ------ ------ ------At 31 December 2006 2,574 4,765 261 (4,216) 5,172 8,556 ====== ====== ====== ====== ====== ====== 7. Financial Information The financial information set out in the announcement does not constitute theCompany's statutory accounts for the 52 weeks ending 31 December 2006. Thefinancial information for the 52 weeks ended 1 January 2006 is derived from thestatutory accounts for that year, which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts; their report was unqualifiedand did not contain a statement under section 237 (2) or (3) of the CompaniesAct 1985. The statutory accounts for the 52 weeks ended 31 December 2006 will befinalised on the basis of the financial information presented by the Directorsin this preliminary announcement and will be delivered to the Registrar ofCompanies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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