19th Feb 2008 07:00
Domino's Pizza UK & IRL PLC19 February 2008 19 February 2008 DOMINO'S PIZZA UK & IRL plc PRELIMINARY RESULTS FOR THE FIFTY-TWO WEEKS ENDED 30 DECEMBER 2007 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 30 December 2007. Highlights • System sales increased 23.4% to £296.3m (2006: £240.1m) • Profit before tax* increased 33.1% to £18.7m (2006: £14.1m) • Like-for-like sales in 404 mature stores up 14.7% (2006: 9.7% in 357 stores). First six weeks in 2008 up 11.0% (2007: 14.3%) • Earnings per share*: - Basic earnings per share up 39.0% to 8.48p (2006: 6.10p) - Diluted earnings per share up 39.1% to 8.33p (2006: 5.99p) • Total dividend increased 43.8% to 4.40p per share (2006: 3.06p) • 50 new stores opened in the year (2006: 46 stores) and none closed (2006: two) resulting in a total of 501 stores at the year end (2006: 451 stores) • E-commerce sales up 60.5% to £32.2m (2006: £20.1m) • Net cash at bank and in hand of £8.6m (2006: £4.3m) after returning £8.3m cash to shareholders in share buybacks (2006: £10.2m). __________ • Announcement of intention of moving to the Official List • Official sponsor to Britain's Got Talent on ITV and America's Got Talent on ITV2. This is in addition to continuing our sponsorship of The Simpsons on Sky One * Before accelerated LTIP charge and operating and non-operating exceptionals Chris Moore, Chief Executive of Domino's Pizza, commented: "In 2007, Domino's Pizza recorded another year of excellent results with theopening of 50 new stores and exceptional like-for-like sales growth. The Companyleveraged its relatively fixed cost base to generate record profits and, withstrong operating cash flow and very little capital required by the business, wecontinued our programme of returning surplus cash to shareholders by way ofshare buybacks and record dividends. "Trading in the first six weeks of 2008 has got off to a strong start withlike-for-like sales up 11.0% (2006: 14.3%). This is particularly encouraginggiven the strong comparatives of last year. E-commerce has continued to showrobust growth with an increase of 90.6% in the same period (2006:36.2%).E-commerce in the first six weeks accounted for 21% of all UK delivered sales. "Our store opening programme is looking more encouraging with more sites in thepipeline with planning approval than at the same time last year. This gives usoptimism at this early stage that we are on track to once again achieve ourtarget of 50 new store openings this year. Your Company is well positioned for another year of strong growth." For further information, please contact: Domino's Pizza: Chris Moore - Chief Executive Officer 01908 580604Lee Ginsberg - Chief Financial Officer 01908 580611 Numis Securities Limited: David Poutney, James Serjeant, Nick Westlake 020 7260 1000 Altium Ben Thorne 020 7484 4040 Hogarth Partnership LimitedFiona Noblet, Anthony Arthur 020 7357 9477 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 30 December 2007, there were 501 stores in the UK and Ireland. Of these,398 stores are in England, 38 are in Scotland, 19 are in Wales, 12 are inNorthern Ireland and 34 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 50 countries. For photography visit www.dominos.uk.com/media or contact The HogarthPartnership on 020 7357 9477. Chairman's Statement As your newly appointed Chairman, may I open my report by congratulating ChrisMoore on his appointment as Chief Executive on 31 December 2007. Chris and Ihave worked together for almost ten years and during that time he has had, atone time or another, responsibility for almost every area of the business. Amore qualified and able "new" Chief Executive would be hard to imagine! Itherefore personally wish him every success in leading us toward and hopefullybeyond, 1,000 stores. In 2007, Domino's Pizza recorded another year of excellent results with theopening of 50 new stores and exceptional like-for-like sales growth. The Companyleveraged its relatively fixed cost base to generate record profits and, withstrong operating cash flow and very little capital required by the business, wecontinued our programme of returning surplus cash to shareholders by way ofshare buybacks and record dividends. As I know only too well, this can only be achieved with a great team of peoplebehind you. Domino's Pizza is a rather unique business, being almost entirelyfranchised which means that we have a small central team, currently 325,supporting a much larger group of franchisees and team members in the stores,currently numbering 12,000. One of the huge benefits of franchising is that thestores are run by local entrepreneurs who know their local market, employ localpeople and become part of the communities in which they operate. In a business structured in the way we have chosen, it is equally important thatwe in the centre ensure that we deliver the services that are our responsibilityto the highest standards. One of the key functions is the manufacture anddistribution of all the food items used in our stores. The specification we haveset ourselves is extremely demanding. We deliver fresh food to every one of ourstores three times a week, at times when the stores are not operating. This is asignificant logistical effort for which we need the best facilities and systems.We have therefore recently embarked on a major capital expenditure programmethat will see the doubling in size of our Penrith commissary and theconstruction of a new state-of-the-art commissary on a newly to be acquired tenacre site in Milton Keynes. When fully operational in late 2009, this newcommissary will be the most advanced manufacturing and distribution facilityanywhere in the Domino's Pizza system worldwide and will provide our businesswith significant additional operating efficiencies and resilience. Maintenance of the consistently high standards expected of a brand such asDomino's Pizza requires careful monitoring, training and investment by both thefranchisees and corporate. We have therefore launched a number of initiatives inrecent years to assist our franchisees in achieving the high standards we expectfrom them in the areas of health and safety, employment practices andenvironmental health standards. Finally, having opened by welcoming our new CEO, I would like to close by payingtribute to our retiring Chairman, Colin Halpern. Colin acquired the rights toDomino's Pizza in the UK and Ireland back in 1993. His "feel" for the market andhis wise commercial counsel have been of invaluable help to me in guiding thebusiness to the enviable position we are in today. I am pleased to say that wewill not be losing this advice, as Colin has agreed to stay on as Non-ExecutiveVice Chairman. I look forward to working with him for many years to come. Stephen HemsleyExecutive Chairman Chief Executive's Report Introduction It is with great pleasure that I present my first report as Chief Executive andI would like to open it by thanking the Board and shareholders for theirconfidence. Domino's Pizza is now a 500 store system which is accessible to 55% of UK andIrish households. Our franchisees and in store team members and employees in ourthree commissaries and headquarters, have worked with passion to reach thisstage and I would like to convey my thanks to them at the start of this report. The strong performance of our stores against a backdrop of tough comparatives isrepresentative of two areas of focus for your Company over the past year:increasingly innovative, targeted marketing and tangible improvements tocustomer service standards. Whilst our 500th store milestone was cause for celebration across the company,we are mindful of the fact that Domino's is still only halfway to its target of1,000 stores. I am confident that the combination of our talented people, highquality pizza and market-leading service standards, will deliver against thistarget by 2017. System Sales In 2007 system sales, which are the sales of all stores in the Domino's systemin the UK and Republic of Ireland, rose by 23.4% (2006: 19.7%) to £296.3m (2006:£240.1m). Like-for-like sales in the 404 stores open for more than twelve monthsin both periods grew by 14.7% (2006: 9.7% in 357 stores), the highest percentageincrease recorded since 2001. Product innovation As I mentioned in my introduction, stores have delivered impressive salesresults thanks, in part, to the effectiveness of both centralised and localisedmarketing activity as well as one of the wettest British summers. This programmewas driven by a calendar of innovative product development which included thehugely popular Meateor pizza, a back-to-basics focus on the classic PepperoniPassion and the rugby-themed Scrummy. Given the stable central cost base of running the marketing fund, more of thefranchisees' contributions to our £15m National Advertising Fund wereeffectively spent on more national TV advertising volumes, targeted direct mailand intensive online promotion. Considerable effort has also been directed atprice promotions which, whilst still communicating our reputation for premiumquality pizza, offer great value to consumers. Service excellence I can also attribute 2007's sales performance to a measurable improvement incustomer service standards. Domino's is not just a pizza business, it's aservice business and we recognise that our financial performance is driven byour service standards. These standards must be good enough to make customerstalk about us and create the vital word of mouth recommendations that generatesales. In 2006, we began a programme of training and high value incentivesdesigned to help stores improve on the time it takes to get a customer's pizzato the door - the single most important metric when it comes to evaluating ourservice standards. We did this by improving speed in the store, never on theroad, as the safety of our team members remains of paramount importance. Innovation E-commerce continues to be our fastest-growing channel to market as well as onewhich enhances store-level profitability through labour savings. In 2007, totalsales via these platforms, which include online and SMS ordering, reached £32.2m(2006: £20.1m), an increase of 60.5%. In 2007, e-commerce accounted for 16% ofour delivered pizzas sold in the UK (2006:13%) and generates a higher thanaverage ticket value. The Irish service, which was launched in February 2007, isalready delivering close to 5% of delivered sales. Last year was defined by your Company's push into digital multi-channel retailplatforms. We now feature on 16 e-commerce platforms including the launch of SMSordering in August 2007. Food Cost Pressures Unprecedented increases in the prices of raw materials since the middle of 2007,in particular milk and wheat, had a significant effect on both us and ourfranchisees. This was exacerbated by our cheese supplier going into receivershipand the consequential ending of our fixed price contract. As a result, newsupply arrangements saw the cost of cheese increasing by over 50% over thecourse of the year. Wheat has also recently increased significantly in price,but by less than the 100% we had feared and is now fixed for the remainder ofthe year. The outlook for pricing in 2008 looks more stable. These increases in raw material prices have now been passed on to ourfranchisees who have had time to reflect them in their menu prices. The new menupricing which fully recovered all cost increases, saw increases average around4%. This new pricing has been accepted by customers as witnessed by thecontinued momentum in sales since November when prices first increased. Expansion In 2007 we opened 50 new stores (2006: 46) and closed none (2006: two) bringingthe year-end store count to 501 stores (2006: 451). Whilst we continue toexperience some inconsistency in planning decisions, this did not significantlyhamper our expansion last year. The aim of many local authorities appears to bethe regeneration of secondary retail space and this has worked in our favour,with Domino's being recognised as a responsible and attractive occupant ofpreviously redundant units. This successful expansion was the result of considerable efforts, particularlyin the fourth quarter, by our expanded business development team who have workedin close conjunction with our existing franchisees to identify sites, secureplanning permission and build stores. Over 4,300 applications to franchise were received in 2007 but only 16 went onto be awarded franchises. Our rigorous interview process ensures that only thebest candidates, with aspirations to franchise multiple stores, join our system. It remains important to your Company that we increase the number of storesoperated by each franchisee so that they have a viable, long-term business.However, we only allow franchisees with the highest standards to expand which inturn assures the quality growth of our system. As at 30 December 2007, we had144 franchisees (2006: 150), of whom 56 are single unit operators. Eachfranchisee has an average of 3.5 stores. (2006: 3.0 stores). This consolidationof the number of stores for each franchisee also means that we can manage ourgrowing system more efficiently and further improve operational gearing. During 2008, your Company will acquire freehold land for a new commissary andheadquarters in Milton Keynes and construction is expected to complete towardsthe latter part of 2009. The project cost of £25m will be incurred over 2008 and2009. The commissary in Penrith will also be expanded this year at a cost of £4mwhich will double the capacity of that facility. We will also need to expand thecommissary operation in Naas to meet the increasing demand for Domino's Pizza inIreland. These developments, combined with the addition of a fourth commissary,in the UK, which we expect will be needed by 2012, will complete theinfrastructure required for 1,000 stores. Store Image Last year we commissioned a new store design to refresh the current image of theestate which was introduced seven years ago. We will now begin to roll-out thenew image across the system. Recent store openings have already started tofeature this new design and we envisage that up to 100 refits for the olderlooking stores in the system will be implemented in 2008 with the rest of theestate being upgraded over the next few years. All such refits are funded by thefranchisees some of whom may use the facilities offered by our in-house leasingcompany. The Market The UK eating out market was estimated by Mintel to be worth £30bn in 2007. Thehome-delivered food market continues to grow at a fast pace and in 2007 wasworth an estimated £1.5bn which is a third more than it was just 5 years ago.The extent of current research by Mintel predicts that the market is expected togrow at a compound rate of 7% a year over the next four years. Based on theseestimates we are currently selling around one in six of all home deliveredmeals. The popularity of home delivered food shows no signs of slowing down andlifestyle factors such as longer working weeks, more dual income households,more in-home entertainment and more one person households work in our favour. Corporate Social Responsibility Food Quality We constantly review the quality of our ingredients and have pioneered pizzainnovation within our market. Last year we were pleased to complete the removalof added hydrogenated fats and MSG (Monosodium Glutamate) from all products onthe menu in addition to our long-standing policy of not allowing any GMO's(Genetically Modified Organisms). Our ongoing review of ingredients serves tomaintain quality standards whilst also identifying opportunities to improve thenutrient profile of our food. Environment The new commissary in Milton Keynes is being designed to be certified to BREEAMexcellence (Building Research Establishment Environmental Assessment Method). Athird of our truck fleet, which deliver food to our stores, are alreadyregistered "Euro 5", currently the highest standard in emissions control. It isanticipated that half the fleet will be Euro 5 by the end of the current yearand all trucks will be at this level by 2012. New fuel alternatives, such asbiodiesel, are constantly being tested. Currently 80% of our pizza boxes are made with recycled board and are 100%recyclable. Furthermore all invoices and statements are now sent to ourfranchisees electronically. Not only is this more efficient but is importantlysaving substantial paper and wastage in the process. We continue to seek further ways in which our business can become moreenvironmentally aware and are about to embark on a study of the whole businessto establish what opportunities we have for improvement. People In stores, our franchisees today employ approximately 12,000 team members, alarge and diverse group of people including some who require a short-term incomeand others looking for a long-term career. We rely upon these people to workwith a fanatical focus on customer service and food quality without which wewill lose the momentum required to fuel our growth. Considerable effort continues to be directed at helping franchisees to keep pacewith ever-changing employment legislation and at ensuring that their peoplebenefit from a hard-working environment which is still huge fun and veryrewarding. We have bolstered the support provided to the stores with theappointment of a full-time franchisee HR consultant, nationwide seminars,telephone hotlines and web-based resources. Improvements to the scope and volumeof training available to franchisees and in-store teams will serve to underlineour reputation as a great place to work. Charity The phrase 'Delivering More' sums up our franchisees' approach to developingrelationships with their local communities. It is these local activities thatbuild loyalty and sustain long term success. In 2007 our stores have madeconsiderable strides in terms of their community relations efforts, driven inparticular by our first full year of association with Special Olympics GB andSpecial Olympics Ireland. Special Olympics is a major provider of sportingopportunities for people with a learning disability and provides equality ofopportunity for all our athletes regardless of ability or degree of disability.The Company also organised and funded a number of events aimed at encouragingregional participation in Special Olympics activities and promoted the charityon boxes and menus. Current Trading and Outlook Trading in the first six weeks of 2008 has got off to a strong start withlike-for-like sales up 11.0% (2006: 14.3%). This is particularly encouraginggiven the strong comparatives of last year. E-commerce has continued to showrobust growth with an increase of 90.6% in the same period (2006: 36.2%).E-commerce in the first six weeks accounted for 21% of all UK delivered sales. Our store opening programme is looking more encouraging than at the same stagelast year. We have more sites in the pipeline with planning than at the sametime last year and this gives us optimism at this early stage that we are ontrack to once again achieve our target of 50 new store openings this year. Cash flows remains strong and we have the debt facilities in place to secure theexpansion of our existing commissary in Penrith and the investment in our newcommissary in Milton Keynes. Accordingly it is the Directors' intention tocontinue to return surplus cash to shareholders by further share buybacks anddividends. Your Company is well positioned for another year of strong growth. Chris MooreChief Executive Officer Chief Financial Officer's Review Introduction The Group's financial statements have been prepared in accordance withInternational Financial Reporting Standards ("IFRS"). This is the first year inwhich the Group financial statements of Domino's Pizza UK & IRL plc have beenprepared in accordance with IFRS and the comparative amounts for 2006 have beenrestated from UK Generally Accepted Accounting Practice (UK GAAP) to comply withIFRS. 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 21.0% to£114.9m (2006: £95.0m). Group operating profit, including our share of operating profit in jointventures, but before exceptional costs and the accelerated Long Term IncentivePlan (LTIP) charge was up 32.7% to £18.8m (2006: £14.2m). Exceptional operatingcosts were incurred as a result of your Company's continuing strategy of exitingits corporate stores and amounted to £0.3m (2006: £0.5m). In addition, as aresult of the rapid growth in profitability and earnings per share over the lastthree years, the performance targets included in the 2004 LTIP award have beenachieved. The early vesting of these awards necessitates the acceleration of the2008 and 2009 charge and a charge of £0.2m was incurred in the year (2006:£nil). The commissary rebate scheme, first launched in 2005 to help our franchiseesovercome the burden of new external cost pressures, continued to benefit thesystem strongly in 2007. This scheme enhances the profitability of franchiseeswho achieve like-for-like sales targets and fully comply with our operatingstandards. Included in Group operating profit is the cost of this rebate whichamounted to £1.4m (2006: £0.6m). The rebate was substantially higher than lastyear as a result of stronger like-for-like sales. As highlighted in the Chief Executive's report, the Group saw unprecedentedincreases in the prices of many raw materials towards the latter part of theyear. This had an adverse impact to our food margin of £0.5m in 2007 as we feltunable to pass those increases on as quickly as they came through. Excludingthese unexpected costs, Group operating profits, before exceptionals, would havereached £19.3m, an increase of 35.9%. Finally, the Group sold six stores during the year, five of which were in asubsidiary company DP Newcastle & Sunderland Limited. The Group generated anexceptional profit on the sale of these stores of £0.3m (2006: £0.2m). Profit on ordinary activities before interest and tax grew by 30.5% to £18.7m(2006: £14.3m). This includes the profit on the sale of the corporate stores of£0.3m (2006: £0.2m). In 2007 there was £0.1m of property and legal provisionreleases relating to the sale of corporate stores in prior periods (2006:£0.5m). Profit before tax and the accelerated LTIP charge of £0.2m was up 32.1% to£18.7m (2006: £14.2m). Unadjusted profit before tax was £18.6m (2006: £14.2m) anincrease of 30.9%. One of our key measurements of profitability is the ratio ofprofit before tax to system sales which grew to 6.3% in 2007 from 5.9% in theprevious year. This highlights the strength of the underlying operationalgearing of our business model. The tax charge for the year was 28.7% (2006: 29.6%) and is lower than thecorporation tax rate of 30%, primarily due to the impact of the lower tax rateapplicable in our Irish subsidiary company. Profit after tax and minority interest was up 31.3% to £13.2m (2006: £10.1m). Earnings per share and dividend Basic earnings per share before the accelerated LTIP charge of £0.2m andexceptional items were up 39.0% to 8.48 pence. (2006: 6.10 pence). Dilutedearnings per share before the accelerated LTIP charge of £0.2m and exceptionalitems increased by 39.1% to 8.33 pence (2006: 5.99 pence). Unadjusted basic earnings per share were up 34.5% to 8.38 pence (2006: 6.23pence) and diluted earnings per share were up 34.6% to 8.24 pence (2006: 6.12pence). In line with our strategy of returning cash not required for the growth andexpansion of the business to shareholders, the Board is pleased to recommend afurther significant increase in the dividend payment which, if approved byshareholders, will give a final dividend of 2.50 pence per share (2006: 1.76pence per share). This would give a total dividend for the year of 4.40 penceper share (2006: 3.06 pence per share) a 43.8% increase. The full year dividendis 1.9 times covered by profits after tax (2006: 2.1 times). Subject to shareholders' approval at the Annual General Meeting to be held on 24April 2008 the final dividend will be payable on 2 May 2008 to shareholders onthe register on 11 April 2008. Cash flow and balance sheet Our cash position continues to remain strong. Net cash generated from operationsreached £24.4m, up from £18.8m in 2006. This increase was mainly attributable tothe higher operating profits as well as an improvement in working capital. During the year, outflows of £0.1m of net interest, £4.3m of taxes and £1.1m ofcapital expenditure and financial investment were incurred. Overall net cash flow before financing was £19.5m. This strong cash generationhas allowed us to return a further £8.3m to shareholders through share buybacksduring the year. In the year, options over 1.4m shares were exercised generating an inflow of£0.7m (2006: £0.4m). DP Capital continued to provide leasing support to franchisees for the fit-outof new stores and the refit of existing stores, with new advances of £1.3m(2006: £1.0m). After repayments, the balance outstanding at the year end onthese leases was £2.8m (2006: £2.6m). These facilities are financed by a limitedrecourse loan facility and the amount drawn down at the end of the year stood at£2.4m (2006: £2.3m). At the end of the year, the Group had cash at bank and in hand of £14.6m (2006:£10.3m), which taken together with the leasing borrowings of DP Capital as notedabove of £2.4m, the loans in the Employee Benefit Trust ("EBT") of £7.7m andterm loan debt of £6.0m, gave consolidated net debt of £1.6m (2006: £5.6m).After the deduction of the cost of the shares held in the EBT, shareholdersfunds were £9.9m (2006: £8.9m), resulting in a gearing ratio of 15.9% (2006:62.5%). Towards the end of the year, the Group also finalised a £25.0m five-year termloan facility to enable it to finance the expansion to its commissary facilitiesthereby leaving the net cash flows generated by operating activities free toreturn to shareholders. This facility had not been utilised at the year end. Corporate store, associates and subsidiaries As stated at the preliminary stage last year, your Company remains focussed onwithdrawing entirely from the operation of corporate stores. We have an equityinterest in five (2006: six) associates and subsidiaries which totals £0.6m(2006: £0.7m) involving a total of 30 stores (2006: 34 stores). In 2007, our share of post tax profits of associates amounted to £0.2m (2006:£0.2m). Share split On 27 February 2007, the Company announced a sub-division of its share capital.The Company's ordinary shares of 5 pence each prior to the sub-division weredivided into 3.2 new ordinary shares of 1.5625 pence. These shares were admittedto trading on Aim on 27 April 2007. Intention to move to the Official List Your Company has grown considerably in the past few years, and the Board nowfeels that it is of a size that is more appropriate to be listed on the OfficialList of the London Stock Exchange. The move is expected to take place in thesecond quarter of this year. Conclusion We are particularly pleased with another year of strong growth operationally andfinancially. Long term financing at competitive rates, combined with the strongcash flows generated by the business give us both the confidence and theopportunity to continue to return funds to shareholders by way of share buybacksand dividends. Lee GinsbergChief Financial Officer Group income statement 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 Notes £000 £000 Revenue 114,891 94,965Cost of sales (70,736) (57,811) ---- ----Gross Profit 44,155 37,154Distribution costs (9,246) (8,177)Administrative costs (including operatingexceptionalcharges) (16,746) (15,462) ---- ---- 18,163 13,515Share of post tax profits of associates 158 171 ---- ----Operating profit 18,321 13,686---------------------------- ------ --------- --------- Accelerated LTIP charge (174) -Operating exceptional charges 2 (333) (499)Operating profit before exceptional charges 18,828 14,185---------------------------- ------ --------- --------- Profit on the sale of non current assets andassets held for sale 2 288 159Profit on the sale of subsidiary undertakings 2 58 454 ---- ----Profit before interest and taxation 18,667 14,299Finance income 528 397Finance expense (619) (507) ---- ----Profit before taxation 18,576 14,189Taxation 3 (5,337) (4,193) ---- ----Profit for the year 13,239 9,996 ---- ----Profit for the year attributable to:Equity holders of the parent 13,245 10,084Minority interest (6) (88) ---- ---- 13,239 9,996 ---- ---- Earnings per share - Basic (pence) 5 8.38 6.23 - Diluted (pence) 5 8.24 6.12 Group balance sheet At At 30 December 31 December 2007 2006 Notes £000 £000Non current assetsGoodwill and intangible assets 813 1,496Property, plant and equipment 13,716 12,378Prepaid operating lease charges 702 683Net investment in finance leases 1,923 1,748Investments in associates 685 589Deferred tax asset 3 565 1,209 ---- ---- 18,404 18,103Current assetsInventories 2,340 1,818Trade and other receivables 10,071 9,632Net investment in finance leases 857 864Prepaid operating lease charges 220 247Cash and cash equivalents 14,629 10,262 ---- ---- 28,117 22,823Non current assets held for sale 1,772 1,172 ---- ----Total assets 48,293 42,098 ---- ----Current liabilitiesTrade and other payables (18,187) (13,433)Deferred income (68) (31)Financial liabilities (6,817) (6,835)Current tax liabilities (2,503) (2,339) ---- ---- (27,575) (22,638)Non current liabilitiesProvisions (155) (233)Financial liabilities (9,380) (9,009)Deferred income (1,071) (989)Deferred tax liabilities 3 (215) (243) ---- ----Total liabilities (38,396) (33,112) ---- ---- ---- ----Net assets 9,897 8,986 ---- ----Shareholders' equityCalled up share capital 7 2,538 2,574Share premium account 7 5,307 4,765Capital redemption reserve 7 319 261Treasury share reserve 7 (4,403) (4,216)Currency translation reserve 7 209 (21)Retained earnings 7 5,888 5,575 ---- ----Equity shareholders' funds 9,858 8,938Minority interest 7 39 48 ---- ----Total equity 9,897 8,986 ---- ---- Group cash flow statement 52 weeks 52 weeks ended ended Notes 30 December 31 December 2007 2006 £000 £000Cash flows from operating activitiesProfit before taxation 18,576 14,189Net finance costs 91 110Share of post tax profits of associates (158) (171)Amortisation and depreciation 1,545 1,815Profit on disposal of non current assets (346) (613)Share option and LTIP charge (includingaccelerated LTIP charge) 880 344(Increase)/decrease in inventories (535) 349(Increase)/decrease in debtors (685) 82Increase in creditors 4,956 2,764Increase in deferred income 119 120Decrease in provisions (20) (221) ---- ----Cash generated from operations 24,423 18,768UK corporation tax (4,117) (3,624)Overseas corporation tax paid (218) (131) ---- ----Net cash generated by operating activities 20,088 15,013 Cash flows from investing activitiesInterest received 528 389Dividends received 62 21Receipts from repayment of associate loan 171 105Receipts from repayment of franchiseefinance leases 1,127 1,349Purchase of property, plant and equipment (3,509) (2,294)Purchase of other non current assets (451) (866)Net cash acquired on the disposal ofsubsidiary undertaking 1,118 -Receipts from the sale of non currentassets 335 453Purchase of minority interests - (103) ---- ----Net cash used by investing activities (619) (946) ---- ---- ---- ----Cash inflow before financing 19,469 14,067 Cash flow from financing activitiesInterest paid (619) (459)Issue of ordinary share capital 700 403Purchase of own shares (8,346) (10,161)Short term loans - bank overdraft (6,000) 6,000Bank revolving facility 6,000 -New long term loans 1,302 1,244Repayment of long term loans (1,169) (1,457)Payments to acquire finance lease assets (1,295) (1,026)Equity dividends paid 4 (5,816) (4,234) ---- ----Net cash used by financing activities (15,243) (9,690) ---- ---- ---- ----Net increase in cash and cash equivalents 4,226 4,377Cash and cash equivalents at beginning ofperiod 10,262 5,885Foreign exchange gains on cash and cashequivalents 141 - ---- ----Cash and cash equivalents at end of period 14,629 10,262 ---- ---- Notes to the accounts At 30 December 2007 1. Accounting Policies Basis of preparation The preliminary results for the year ended 30 December 2007 have been preparedin accordance with International Financial Reporting Standards (IFRS) as adoptedby the EU and are in line with the accounting policies set out in the interimfinancial statements for the six months to 30 June 2007. The financial information in the preliminary statement of results does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985 (the "Act"). The financial information for the year ended 30 December2007 has been extracted from the statutory accounts on which an unqualifiedaudit opinion has been issued. Statutory accounts for the year ended 30 December2007 will be delivered to the Registrar of Companies following the Company'sAnnual General Meeting. The financial statements, and this preliminary statement, of Domino's Pizza UK &IRL plc for the year ended 30 December 2007 were authorised for issue by theBoard of Directors on 19 February 2008 and the balance sheet was signed onbehalf of the Board by Lee Ginsberg. The statutory accounts have been delivered to the Registrar of Companies inrespect of the year ended 31 December 2006 and the Auditors of the Company madea report thereon under Section 235 of the Act. That report was an unqualifiedreport and did not contain a statement under Section 237(2) or (3) of the Act. 2. Exceptional Items Recognised as part of operating profit The Group has taken the decision not to invest in or trade in corporately ownedstores. During the year one (2006: three) corporately owned store was sold andnone (2006: one) closed. The Group has incurred the following exceptional charges relating to storeclosures and stores sold during the financial period: 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Onerous lease and dilapidation provisions 45 76Restructuring and reorganisation costs 143 252Assets written off 145 52Lease finance and other bad debts provided for* - 119 ---- ---- 333 499 ---- ----*relates to a store owned and operated by a franchisee, closed during the 2006financial year. Except for the assets written off, for stores closed, the charges should bedeductible for corporation tax purposes. Except for the restructuring andreorganisation costs, these charges had no impact on the cash flow of the Groupduring the year. Notes to the accounts (continued) 2. Exceptional Items (continued) Recognised below operating profit Profit on the sale of subsidiary undertakings 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). As a result of this transaction, certain legal andproperty provisions were made. 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Movement in provisions 58 454 ---- ---- 58 454 ---- ---- During the year partial resolution relating to the conditions for the provisionsmade in relation to the sale of the subsidiary undertakings was reached and as aresult £58,000 (2006: £454,000) of the provisions created have been released.These are reported in the profit on sale of subsidiary undertakings line on theincome statement. Profit on the sale of non current assets and assets held for sale The Group disposed of its subsidiary undertaking, DP Newcastle & SunderlandLimited in June 2007, generating a profit of £279,000. The gain in respect ofthis disposal will be chargeable to corporation tax at the statutory rate of30%. In addition the Group sold one (2006: three) corporate store resulting in aprofit of £6,000 (2006: £159,000). The gain in respect of this disposal will bechargeable to corporation tax at the statutory rate of 30%. 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Sale of one (2006: three) corporate store 6 159Profit on sale of assets held for sale - DPNewcastle & Sunderland Limited 279 -Profit on sale of other non current assets 3 - ---- ---- 288 159 ---- ---- Notes to the accounts (continued) 3. Taxation (a) Tax on profit on ordinary activities Tax charged in the income statement 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Current income tax:UK corporation tax - current year - continuing operations 5,497 4,677 - adjustment in respect of prior periods (430) (418) ---- ---- 5,067 4,259Income tax of overseas operations on profits forthe year 198 154 ---- ----Total current income tax 5,265 4,413 ---- ---- Deferred tax:Origination and reversal of temporary differences (81) (220)Effect of change in tax rate (28) -Adjustment in respect of prior periods 181 - ---- ----Total deferred tax 72 (220) ---- ---- ---- ----Tax charge in the income statement 5,337 4,193 ---- ---- The tax charge in the income statement is disclosed asfollows:Income tax expense on continuing operations 5,337 4,193 ---- ---- Tax relating to items (charged) or credited to equity:Reduction in current tax liability as a result ofthe exercise of share options 780 400Origination and reversal of temporary differences inrelation tounexercised share options (566) 483 ---- ----Tax credit in the group statement of changes inequity 214 883 ---- ---- Notes to the accounts (continued) 3. Taxation (continued) (b) Reconciliation of the total tax charge The tax expense in the income statement for the 52 weeks ended 30 December 2007is lower than the statutory corporation tax rate of 30% (2006: 30%). Thedifferences are reconciled below: 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Profit before taxation 18,576 14,189 ---- ----Accounting profit before income tax 18,576 14,189 ---- ---- Accounting profit multiplied by the UK statutory rateof corporationtax of 30% (2006: 30%) 5,573 4,257 Expenses not deductible for tax purposes 168 171Profit on disposal of tangible assets - nottaxable 19 (6)Accounting depreciation not eligible for taxpurposes 135 196Adjustments relating to prior years corporationtax (247) (418)Effect of decreased tax rate (28) -Tax rate differences (283) (7) ---- ----Total tax expense reported in the income statement 5,337 4,193 ---- ---- Effective tax rate 28.73% 29.55% ---- ---- The standard UK rate of corporation tax will reduce to 28% from 1 April 2008. Onthe basis that the Group's deferred tax assets and liabilities are not expectedto materially crystallise before 1 April 2008 the Group's deferred tax balanceshave been recognised at 28% at 30 December 2007. (c) Temporary differences associated with Group investments At 30 December 2007, there was no recognised deferred tax liability (2006: nil)for taxes that would be payable on the unremitted earnings of the Group'ssubsidiaries, or its associates, as: • there are no corporation tax consequences of the Group's UK subsidiaries or associates paying dividends to their parent companies; and • the Group has determined that undistributed profits of its Irish subsidiary will not be distributed in the foreseeable future. The temporary difference associated with the investment in the Group's Irish subsidiary, for which deferred tax has not been recognised aggregate to £3,340,000 (2006: £1,816,000). There are no income tax consequences for the Group attaching to the payment ofdividends by the Group to its shareholders. Notes to the accounts (continued) 3. Taxation (continued) (d) Deferred tax The deferred tax included in the balance sheet is as follows: At At 30 December 31 December 2007 2006 £000 £000 Deferred tax liabilities (215) (243) Deferred tax assets 565 1,209 ---- ---- 350 966 ---- ---- At At 30 December 31 December 2007 2006 £000 £000 Gross movement in the deferred income tax account Opening balance 966 263Tax credited to equity (566) 483Income statement (credit)/charge (72) 220Release on sale of subsidiary undertaking 22 - ---- ----Closing balance 350 966 ---- ---- Deferred tax assets Share based Accelerated Lease Goodwill and Provisions Total payments capital inducements amortisation allowances £000 £000 £000 £000 £000 £000 At 1January2006 751 (671) 270 - 159 509Credit toequity 483 - - - - 483Credit/(charge)to income 41 290 36 (5) (145) 217 ---- ---- ---- ---- ---- ---At 31December2006 1,275 (381) 306 (5) 14 1,209Charge toequity (566) - - - - (566)Credit/(charge)to income 68 (170) 13 (10) (1) (100)Released onsale ofsubsidiaryundertaking - 22 - - - 22 ---- ---- ---- ---- ---- ---At 30December2007 777 (529) 319 (15) 13 565 ---- ---- ---- ---- ---- --- Notes to the accounts (continued) 3. Taxation (continued) (d) Deferred tax (continued) Deferred tax liabilities Roll over Accelerated Total relief capital allowances £000 £000 £000 At 1 January 2006 191 55 246Credit to income - (3) (3) ---- ---- ----At 31 December2006 191 52 243Credit to income (13) (15) (28) ---- ---- ----At 30 December2007 178 37 215 ---- ---- ---- 4. Dividends paid and proposed 52 weeks 52 weeks ended Ended 30 December 31 December 2007 2006 £000 £000 Declared and paid during the year:Equity dividends on ordinary shares:Final dividend for 2006: 1.76p (2005: 1.30p) 2,792 2,115Interim dividend for 2007: 1.90p (2006: 1.30p) 3,024 2,119 ---- ----Dividends paid 5,816 4,234 ---- ---- Proposed for approval by shareholders at the AGM (not recognised as a liabilityat 30 December 2007 or 31 December 2006)Final dividend for 2007: 2.50p (2006: 1.76p) 3,896 2,792 5. Earnings per ordinary share Basic earnings per share amounts are calculated by dividing profit for the yearattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares outstanding during the year. Diluted earnings per share are calculated by dividing the profit attributable toordinary equity holders of the parent by the weighted average number of ordinaryshares outstanding during the year plus the weighted average number of ordinaryshares that would have been issued on the conversion of all dilutive potentialordinary shares into ordinary shares. Notes to the accounts (continued) 5. Earnings per ordinary share (continued) The following reflects the income and share data used in the basic and dilutedearnings per share computations: 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Profit for the 52 weeks 13,239 9,996Adjusted for - minority interests 6 88 ---- ----Profit attributable to equity holders of theparent 13,245 10,084 ---- ---- Analysed as: Profit attributable to equity holders of the parent -adjusted for theeffect of dilution 13,245 10,084 ---- ---- At At 30 December 31 December 2007 2006 No. No.Reconciliation of basic and diluted weightedaverage number ofshares*:Basic weighted average number of shares (excludingtreasury shares) 157,975,572 161,967,072Dilutive potential ordinary shares:Employee share options 1,759,797 2,342,486Reversionary interests 1,089,001 672,592 ---- ----Diluted weighted average number of shares 160,824,370 164,982,150 ---- ----There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. The performance conditions for reversionary interests granted over 9,920,000(2006: 6,640,000) shares and share options granted over 3,097,485 (2006:2,515,110) shares have not been met in the current financial period andtherefore the dilutive effect of the number of shares which would have beenissued at the period end have not been included in the diluted earnings pershare calculation. *After the share split of 3.2 ordinary shares of 1.5625 pence each for 1ordinary share of 5 pence approved at the Annual General Meeting held on 26April 2007. Earnings per share before 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 andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to assess better the trends in financial performance. Notes to the accounts (continued) 5. Earnings per ordinary share (continued) To this end, basic and diluted earnings from continuing operations per share isalso presented on this basis and using the weighted average number of shares forboth basic and diluted amounts as per the table above. The amounts for earningsper share from continuing operations before exceptional items are as follows: 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 Basic earnings per share 8.48p 6.10p ---- ----Diluted earnings per share 8.33p 5.99p ---- ----Net profit from continuing operations before exceptional items and attributableto equity holders of the parent is derived as follows: 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £000 £000 Profit for the year 13,239 9,996Adjusted for - minority interests 6 88 ---- ----Profit attributable to equity holders of theparent 13,245 10,084Exceptional items after tax - attributable to equityholders of the parent 148 (200) ---- ----Profit before exceptional items attributable to equityholders of the parent 13,393 9,884 ---- ---- 6. Additional cash flow information Analysis of Group net debt At At 31 December Cash Non-cash 30 December 2006 Flow movements 2007 £000 £000 £000 £000 Cash and cash equivalents 10,262 4,226 141 14,629Bank revolving facility - (6,000) - (6,000)Bank overdraft (6,000) 6,000 - -Loans (9,799) (149) (221) (10,169)Finance leases (45) 17 - (28) ---- --- ---- ---- (5,582) 4,094 (80) (1,568) ---- --- ---- ---- At At 1 January Cash Non-cash 31 December 2006 Flow Movements 2006 £000 £000 £000 £000 Cash and cash equivalents 5,885 4,377 - 10,262Bank overdraft - (6,000) - (6,000)Loans (10,000) 201 - (9,799)Finance leases (26) 12 (31) (45) ---- --- ---- ---- (4,141) (1,410) (31) (5,582) ---- --- ---- ---- Notes to the accounts (continued) 7. Reconciliation of Shareholders Funds and Movement on Reserves Share Capital Treasury Currency Equity Share Premium Redemption Share Translation Retained Shareholders' Minority Total Capital Account Reserve Reserve Reserve Earnings Funds Interest Equity £000 £000 £000 £000 £000 £000 £000 £000 £000At 31December 2006 2,574 4,765 261 (4,216) (21) 5,575 8,938 48 8,986Exchangedifferenceon thetranslationofnet assetsofsubsidiaryundertaking - - - - 230 - 230 - 230Tax creditonemployeeshareoptions - - - - - 214 214 - 214 -- --- ---- --- ---- -- --- --- --Totalincome andexpense forthe yearrecogniseddirectly inequity - - - - 230 214 444 - 444Profit forthe period - - - - - 13,245 13,245 (6) 13,239 -- --- ---- --- ---- -- --- --- --Totalincome andexpense forthe year - - - - 230 13,459 13,689 (6) 13,683Proceedsfrom shareissue 22 678 - - - - 700 - 700Share buybacks (58) - 58 - - (8,210) (8,210) - (8,210) Treasuryshares heldby EBT - - - (187) - - (187) - (187)Sharetransactioncharges - (136) - - - - (136) - (136)Shareoption andLTIP charge - - - - - 880 880 - 880Equitydividendspaid - - - - - (5,816) (5,816) - (5,816)Minorityinterestmovement - - - - - - - (3) (3) -- --- ---- --- ---- -- --- --- --At 30December 2007 2,538 5,307 319 (4,403) 209 5,888 9,858 39 9,897 -- --- ---- --- ---- -- --- --- -- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Dominos