23rd Jul 2007 07:00
Domino's Pizza UK & IRL PLC23 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 andIreland leader in pizza delivery, announces its results for the twenty-six weeksended 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 yourGroup further strengthen its market leadership not only in terms of system salesand units but also by pioneering innovations that are leading the way in thehome delivery food industry. "Group profits continue to grow faster than system sales thanks to ouroperational gearing that arises from having a relatively fixed cost base. Thisgrowth continues to translate into strong cash generation, significant returnsfor shareholders and another record interim dividend payment. "We have successfully overcome the strong comparatives presented by last year'sWorld 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 firsthalf of 2007 were behind this target. In the current year, without animprovement in planning outcomes, openings are more likely to be in the range of40-45 stores. With these reservations in mind we are confident of another yearof strong growth in system sales and profits and are well-placed to exceedmarket expectations for the year." For further information, please contact: Domino's Pizza:Stephen Hemsley - Chief Executive 07909 928016Chris Moore - Deputy Chief ExecutiveLee Ginsberg - Finance DirectorBernadette 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, operateand franchise Domino's Pizza stores in the UK and Ireland. The Group is theleading player in the UK and Ireland's fast-growing pizza delivery market. Thefirst 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 inthe Republic of Ireland. Founded in 1960, Domino's Pizza is the recognised world leader in pizzadelivery. Through its primarily franchised system, Domino's Pizza operates aglobal 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 yourGroup further strengthen its market leadership not only in terms of system salesand units but also by pioneering innovations that are leading the way in thehome delivery food industry. In the face of tough comparatives, system sales grew significantly largely dueto a clear focus on targeted marketing and in-store operations. Increasingnumbers of new customers are responding to our creative campaigns and convenientordering channels whilst loyalty is growing thanks to our ever-improving serviceand imaginative menu development. The opening of new stores is still proving to be a challenge and this isreflected in our achieving only 20 openings in the first half. Our objective isto open 50 new stores each year however, our expansion drive continues to beaggravated by restraining factors outside of our control, such as planning,which create a tough climate for property acquisition. Whilst opening highquality stores with excellent long-term prospects is key, maintaining the volumeof these store openings is equally important. We will remain focused on securingthe maximum possible number of store openings in the second half. Group profits continue to grow faster than system sales thanks to ouroperational gearing that arises from having a relatively fixed cost base. Thisgrowth continues to translate into strong cash generation, significant returnsfor 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 resultof higher sales and increased franchisee contributions, has enabled the Group torun frequent, heavyweight TV advertising and targeted direct mailings to supportthe four marketing campaigns executed in the first half of 2007. Following thenow-traditional January price promotion, we launched the 'Meateor' pizza - oursecond most successful pizza launch on record - followed by a Simpsons-themedpizza and two new side orders which helped to drive up average ticket. We are inno doubt as to the effectiveness of new product launches when it comes tomotivating new and existing customers to order. The latter part of the first half saw us up against the comparative figuresgenerated by the 2006 World Cup. However the cooler temperatures and increasedrainfall which are often very helpful to home delivery food operators, allowedus 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 launchof online ordering in Ireland took place in the period and we are pleased withprogress despite a slow start. A programme of enhancements to the Irish serviceis now underway. www.dominos.co.uk and www.dominos.ie continue to be ourfastest-growing channels to market. Sales via e-commerce were supported by more aggressive marketing includingpromotion of the online service within our sponsorship of The Simpsons on SkyOne. Ofcom's restrictions on the advertising of food and drink to childrenrequired us to drop product advertising around this programme which, in turn,created an excellent opportunity for us to promote the online ordering channelwhere average ticket is higher and the cost per order to stores is lower. Asanticipated the Ofcom restrictions have not had any impact on the business andwe 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 deliveryoperator to announce the removal of all hydrogenated fat from its foodingredients. Our menu development activity continues to find more ways toenhance the quality and choice currently on offer on the menu. The use of realtime technology in stores, has resulted in dramatic improvementsin customer service standards. The technology we have introduced enables ourfranchisees to pinpoint how their team members can work together to make andbake a pizza as quickly as possible without compromising on quality. The team'scombined efforts in-store provide delivery drivers with ample time to get thepizza safely to the customer. A national incentive has encouraged all stores toget behind this effort and we have already achieved our 2010 target for improvedservice 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: 21stores). While this is below our target, we have sufficient potential sites inthe pipeline to open 50 new stores for the year provided we can secure thenecessary planning consents. However, we consider this unlikely and, therefore,expect to open 40-45 stores in the year. There was one store closure in theperiod (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 withextensive local knowledge, is the most successful means of growing the Domino'ssystem. A great deal of your Group's focus is spent on motivating and supportingthese franchisees in their efforts to deliver our brand's promises. In the firsthalf, all but one of the new store openings were with existing franchisees,underlining our strategy of managing the number of franchisees in the system aswe grow. Each franchisee currently has an average of 3.2 stores (2006: 2.8stores) and we hope that this average will continue to rise towards five storesat build-out. Commissary development As a result of the expanding store count and the rapid increase in like-for-likesales, we will need additional commissary capacity over the next few years. Weare in the process of doubling the capacity of our existing commissary inPenrith which is expected to be available in Spring 2008. The capital cost ofthis extension and associated new equipment is estimated at £4.0m. Longer term, we will need further commissary capacity and additional head officespace in the southern part of England. We are, therefore, in negotiations topurchase a site close to Milton Keynes where we propose to construct a verylarge new commissary together with a head office and training facility. Thebudgeted cost of this new facility is in the region of £25.0m. This is higherthan at first anticipated as we have chosen to purchase a larger plot in orderto construct a new head office and training facility and increase the automationin our dough manufacturing. It is planned to have the new commissary availablein the first half of 2009, the head office by the end of 2009 and the trainingfacility in 2010. Once completed and fully operational the existing freeholdsite in Milton Keynes will be sold. To accommodate the needs of 1,000 stores and to provide resilience to thesystem, we anticipate the need to increase the capacity of our commissary inIreland and the construction of a further mid-sized commissary in the UK. It isdifficult at this stage to estimate the likely cost and timing of these projectsbut they should be completed for less than £15.0m. Trading results Group revenue, which includes revenues generated from royalties, fees, foodsales and rental income as well as a small element of revenues fromcorporately-owned and operated stores, grew by 22.3% to £55.2m (2006: £45.1m). Group operating profit, before operating exceptionals of £0.3m and theaccelerated 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 theburden of new external cost pressures, continued to benefit the franchisees inlowering their food cost. This rebate is linked to the uplift in like-for-likesales as well as helping ensure full compliance with all our standards. As aresult of the significantly higher like-for-like sales growth in the first halfof 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 of28.2% (2006: 29.7%) is lower than the statutory Corporation tax rate primarilydue 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) anddiluted 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 andexpansion of the business to shareholders, we are pleased to declare an increaseof 46.2% in the interim dividend to 1.90 pence per share (2006: 1.30 pence pershare). This dividend, which is 2.0 times covered (2006: 2.1 times), will bepaid 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 cashin the period of £7.6m (2006: £7.1m). In the first twenty-six weeks of the year, options over 380,000 shares wereexercised 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 newequipment and refits through its wholly owned subsidiary DP Capital Limited. Inthe first twenty-six weeks of the year new advances of debt facilities of £0.7mwere made available to DP Capital Limited which were matched by similarrepayments 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 takentogether with the DP Capital borrowings noted above and the Employee BenefitTrust ('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 theEBT, shareholders' funds were £12.8m (2006: £15.1m), resulting in a gearingratio of 29.2% (2006: 10.5%). As a result of the recent capital reconstruction,a subsidiary company has over £150m of reserves available. Consequently, ifthese reserves are distributed up to the parent company, gearing levels would beextremely low. Impact of the adoption of International Financial Reporting Standards ("IFRS") The financial information shown in this interim report is presented inaccordance with IFRS. The comparative information for the twenty-six weeks ended2 July 2006 and the fifty-two weeks ended 31 December 2006 have been restatedunder these standards. The impact on the Group's profit and loss has been minimal; the effect on theresults for the twenty-six weeks ended 1 July 2007 being to reduce UK GAAPprofit before tax by £0.1m primarily as a result of the accrual for untakenholiday pay. No accrual needs to be made at the year end as no leave can becarried over the financial year end. Further information on the change toaccounting standards is given in Note 2 below with full details andreconciliations 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'sannual general meeting, the sub-division of each ordinary share of 5 pence eachinto 3.2 ordinary shares of 1.5625 pence each became effective. The Directors,having consulted with the Group's brokers, considered that having a largernumber of ordinary shares with a lower market value would serve to facilitatethe marketability and liquidity of the shares. Board composition Christopher Moore was promoted to the position of Deputy Chief Executive on 9January 2007. Earlier in the year, Chris assumed board-level responsibility forthe 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-likesales and have successfully overcome the strong comparatives presented by lastyear's World Cup. We remain mindful, however, of some still more challengingcomparatives, particularly in the last quarter. Whilst we still aim to open 50 stores per year, new store openings in the firsthalf of 2007 were behind this target. In the current year, without animprovement in planning outcomes, openings are more likely to be in the range of40-45 stores. With these reservations in mind we are confident of another year of stronggrowth in system sales and profits and are well-placed to exceed marketexpectations for the year. STEPHEN HEMSLEYChief 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 assetsGoodwill and intangible assets 1,421 871 1,585Property, plant and equipment 12,985 13,021 11,909Prepaid operating lease charges 858 671 683 Net investment in finance leases 1,778 1,348 1,748Investments in associates 676 564 589Deferred tax asset 1,596 963 1,275 -------- -------- -------- 19,314 17,438 17,789Current assetsInventories 2,163 2,195 1,818Trade and other receivables 10,531 10,965 9,632Net investment in finance leases 835 777 864Prepaid operating lease charges 152 164 158Cash and cash equivalents 9,934 8,593 10,262 -------- -------- -------- 23,615 22,694 22,734Non 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 equityCalled up share capital 2,588 2,658 2,574Share premium account 5,011 4,927 4,765Capital redemption reserve 267 171 261Treasury 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 8,938Minority 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 aspreviously stated 2,645 4,677 171 (7,500) - 12,013 12,006 82 12,088 Prior period effect ofadoption 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 LTIPcharge - - - - - 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") incorporatedin the United Kingdom under the Companies Act 1985 (registration number03853545). The Company is domiciled in the United Kingdom and its registeredaddress 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. Furthercopies of the Interim Report and Annual Report and Accounts may be obtained fromthe address above. 2. BASIS OF PREPARATION Domino's Pizza UK & IRL plc has adopted International Financial ReportingStandards ("IFRS") as adopted by the European Union with effect from 1 January2006. The Group will apply IFRS in its consolidated financial statements for the52 weeks ending 30 December 2007. Therefore, these interim statements for the 26weeks to 1 July 2007 are prepared using accounting policies in accordance withIFRS and International Financial Reporting Committee ("IFRIC") interpretationsthat are expected to be applicable to the consolidated financial statements forthe 52 weeks ended 30 December 2007. These standards remain subject to ongoingamendment and/or interpretation and are therefore still subject to change.Accordingly, information contained in these interim financial statements mayneed updating for subsequent amendments to IFRS required for first time adoptionor for new standards issued post the balance sheet date. The basis of preparation and accounting policies followed in this interim reportdiffer from those set out in the Annual Report and Accounts for the 52 weeksended 31 December 2006 which were prepared in accordance with United Kingdomaccounting standards (UK GAAP). As permitted, this interim report has not beenprepared in accordance with IAS 34 "Interim Financial Reporting". The interim financial statements do not constitute statutory accounts as definedby Section 240 of the Companies Act 1985. The financial information for the 52 weeks ended 31 December 2006 has beenextracted from the statutory accounts for the Group for that period now amendedto conform with the IFRS accounting policies expected to be applied in theconsolidated financial statements for the year ended 30 December 2007. Thesepublished accounts in a form consistent with UK GAAP were reported on by theauditors without qualification or an emphasis matter reference and did notinclude a statement under section 237(2) or (3) of the Companies Act 1985 andhave been delivered to the Registrar of Companies. A summary of significant accounting policies used in the preparation of thisinterim report under IFRS is provided in note 3 below. The financial statements are presented in sterling and all values are rounded tothe nearest thousand pounds (£000) except when otherwise indicated. A detailed explanation of the impact of the transition from UK GAAP to IFRS iscontained 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 ofcausing material adjustment to the carrying amounts of assets and liabilitieswithin the next financial year are the measurement and impairment of goodwill and the estimation of share-based payment costs. Themeasurement of intangible assets other than goodwill on a business combinationinvolves estimation of future cash flows and the selection of a suitablediscount rate. The Group determines whether goodwill is impaired on an annualbasis and this requires an estimation of the value in use of the cash generatingunits to which the goodwill is allocated. This involves estimation of futurecash flows and choosing a suitable discount rate. The estimation of share-basedpayment costs requires the selection of an appropriate valuation model,consideration as to the inputs necessary for the valuation model chosen and theestimation of the number of awards that will ultimately vest, inputs for whicharise from judgements relating to the probability of meeting non-marketperformance 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 netassets of the Company and its subsidiary undertakings drawn up to the nearestSunday to 31 December each year. The interim results are prepared for the first26 weeks of the relevant full period. Subsidiaries are consolidated from the date of their acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activities and is achieved through direct or indirect ownership of votingrights; currently exercisable or convertible potential voting rights; or by wayof contractual agreement. The financial statements of subsidiaries used in thepreparation of the consolidated financial statements are prepared for the samereporting period as the parent company and are based on consistent accountingpolicies. All inter-company transactions and balances between Group entities,including unrealised profits arising from them, are eliminated uponconsolidation. Minority interests represent the portion of profit and loss and net assets insubsidiaries that is not held by the Group and is presented separately withinequity 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 hassignificant influence and which are neither subsidiaries nor joint ventures, areaccounted for using the equity method of accounting. Under the equity method, the investment in an associate is carried in thebalance sheet at cost plus post acquisition changes in the Group's share of netassets of the associate, less distributions received and less any impairment invalue of individual investments. The Group's income statement reflects theGroup's share of the associate's results after tax. The Group statement ofrecognised income and expense reflects the Group's share of any income andexpense recognised by the associate outside profit and loss. Any goodwill arising on the acquisition of an associate, representing the excessof the cost of the investment compared to the Group's share of the net fairvalue of the associate's identifiable assets, liabilities and contingentliabilities, is included in the carrying amount of the associate and is notamortised. To the extent that the net fair value of the associate's identifiableassets, liabilities is greater than the cost of the investment, a gain isrecognised and added to the Group's share of the associate's profit or loss inthe period in which the investment is acquired. Financial statements of associates are prepared for the same reporting period asthe Group. Where necessary, adjustments are made to bring the accountingpolicies used in line with those of the Group; to take into account fair valuesassigned at the date of acquisition and to reflect impairment losses whereappropriate. Adjustments are also made in the Group's financial statements toeliminate the Group's share of unrealised gains and losses on transactionsbetween the Group and its associates. Foreign currencies Foreign operations The income and expenses of overseas subsidiaries are translated at the averagerate of exchange ruling during the year. The balance sheet of the overseassubsidiary undertaking is translated into sterling at the rate of exchangeruling at the balance sheet date. Exchange differences arising, if any, areincluded within equity and transferred to the Group's translation reserve. Suchtranslation differences are recognised as income or as expenses in the period inwhich the operation is disposed. The Group has utilised the exemption available in IFRS 1 whereby cumulativetranslation 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 foreigncurrency are translated using the exchange rates as at the dates of the initialtransactions. NOTES TO THE GROUP INTERIM REPORT Foreign currency transactions Transactions denominated in foreign currencies are translated at the exchangerate on the date of the transaction. Monetary assets and liabilities denominatedin foreign currencies at the balance sheet date are translated at the exchangerate ruling at that date. Foreign exchange differences arising on translationare recognised in the income statement for the period. Goodwill Goodwill arising on consolidation represents the excess of the cost of anacquisition over the fair value of the Group's share of the identifiable netassets and contingent liabilities of the acquired subsidiary at the date ofacquisition. Goodwill is recognised as an asset on the Group's balance sheet inthe year in which it arises and is not amortised. Any goodwill asset arising onthe acquisition of equity accounted entities is included within the cost ofthose entities. Goodwill is recognised on the purchase of further minority interests under theparent entity extension method, whereby the entire difference between the costof the additional interest in the subsidiary and the minority interest's shareof the assets and liabilities reflected in the consolidated balance sheet at thedate of the acquisition of the minority interest is reflected as goodwill. After initial recognition, goodwill is stated at cost less any accumulatedimpairment losses, with the carrying value being reviewed for impairment, atleast annually and more frequently if events or changes indicate that thecarrying value may be impaired. For the purpose of impairment testing, goodwill is allocated to the relatedcash-generating units monitored by management, usually at business segment levelor statutory company level as the case may be. Where the recoverable amount ofthe 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 takeninto account when determining the gain or loss on disposal of the unit, or of anoperation within it. Goodwill arising on acquisitions before 1 December 2006 (the date of transitionto IFRS) has been recorded at its carrying amount under UK GAAP, subject tobeing tested for impairment at that date. Intangible assets Computer software Computer software is carried at cost less accumulated amortisation and anyimpairment loss. Externally acquired computer software and software licences arecapitalised at the costs incurred to acquire and bring into use the specificsoftware. Internally developed computer software programs are capitalised to theextent that costs can be separately identified and attributed to particularsoftware programs, measured reliably, and that the asset developed can be shownto generate future economic benefits. These assets are considered to have finiteuseful lives and are amortised on a straight line basis over the estimateduseful economic lives of each of the assets, considered to be between three andfive years. The carrying value of intangible assets is reviewed for impairment wheneverevents or changes in circumstances indicate the carrying value may not berecoverable. Property, plant and equipment Property, plant and equipment assets are carried at cost less accumulateddepreciation and any recognised impairment in value. Cost comprises theaggregate amount paid and the fair value of any other consideration given toacquire the asset and includes costs directly attributable to making the assetcapable of operating as intended. Prepaid short lease hold property costs are classified as non-currentprepayments. On initial recognition these assets are held at cost andsubsequently 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 theirresidual 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 arenot depreciated. The assets' residual values, useful lives and methods of depreciation arereviewed, and adjusted if appropriate on an annual basis. An item of property,plant and equipment is derecognised upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising onderecognition of the asset (calculated as the difference between the netdisposal proceeds and the carrying amount of the asset) is included in theincome statement in the year that the asset is derecognised. All property, plant and equipment are reviewed for impairment in accordance withIAS 36, Impairment of Assets, when there are indications that the carrying valuemay not be recoverable. Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount willbe recovered through sales rather than continuing use. This condition isregarded as met if a sale is expected to materialise within twelve months afterthe balance sheet date and the asset is available for immediate disposal in itspresent condition. Non-current assets classified as held for sale are measuredat the lower of carrying amount and fair value less costs to sell. Afterclassification as assets held for sale, no further depreciation is provided foron the assets. Leases Group as lessee Leases are classified as finance leases when the terms of the lease transfersubstantially all the risks and rewards of ownership to the Group. All otherleases are classified as operating leases. Assets held as finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease paymentsduring the lease term at the inception of the lease. Lease payments areapportioned between the reduction of the lease liability and finance charges inthe income statement so as to achieve a constant rate of interest in theremaining balance of the liability. Assets held under finance leases aredepreciated over the shorter of the estimated useful life of the assets and thelease 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 andspread over the period of the lease term. Payments made to acquire operatingleases are treated as prepaid lease expenses and amortised over the life of thelease. Group as lessor Assets leased out under operating leases are included in property, plant andequipment and depreciated over their useful lives. Rental income, including theeffect of lease incentives, is recognised on a straight line basis over thelease term. Where the Group transfers substantially all the risks and benefits of ownershipof the asset, the arrangement is classified as a finance lease and a receivableis recognised for the initial direct costs of the lease and the present value ofthe minimum lease payments. As payments fall due, finance income is recognisedin the income statement so as to achieve a constant rate of return on theremaining 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 anasset may be impaired. If any such indication exists, or when annual impairmenttesting for an asset is required, the Group makes an estimate of the asset'srecoverable amount. An asset's recoverable amount is the higher of an asset's orcash-generating unit's fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets. 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 totheir present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset.Impairment losses on continuing operations are recognised in the incomestatement in those expense categories consistent with the function of theimpaired asset. An assessment is made at each reporting date as to whether there is anyindication that previously recognised impairment losses may no longer exist ormay have decreased. If such indication exists, the recoverable amount isestimated. A previously recognised impairment loss is reversed only if there hasbeen a change in the estimates used to determine the asset's recoverable amountsince the last impairment loss was recognised. If that is the case the carryingamount of the asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prioryears. Such reversal is recognised in profit or loss. After such a reversal thedepreciation charge is adjusted in future periods to allocate the asset'srevised carrying amount, less any residual value, on a systematic basis over itsremaining useful life. Provisions Provisions are recognised when there is a present legal or constructiveobligation as a result of past events, for which it is probable that an outflowof economic benefit will be required to settle the obligation and where theamount of the obligation can be reliably measured. Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market, do not qualify astrading assets and have not been designated as either fair value through profitand loss or available for sale. Such assets are carried at amortised cost usingthe effective interest method. Gains and losses are recognised in income whenthe loans and receivables are derecognised or impaired, as well as through theamortisation process. Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined on a first in, first out basis. Net realisable value is based onestimated selling price less any further costs expected to be incurred todisposal. Trade and other receivables Trade receivables, which generally have 7 - 28 days terms, are recognised andcarried 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 infull. Balances are written off when the probability of recovery is consideredremote. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in handand 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 partyto the related contracts and are measured initially at fair value less directlyattributable transaction costs. After initial recognition, interest-bearing loans and borrowings aresubsequently measured at amortised cost using the effective interest method.Gains and losses arising on the repurchase, settlement or otherwise cancellationof 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 berecovered or paid to the taxation authorities, based on tax rates and laws thatare 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 accountingbases of assets and liabilities. Deferred tax is calculated on an undiscountedbasis at the tax rates that are expected to apply in the period when theliability is settled or the asset is realised, based on tax rates and lawsenacted 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 itrelates to items charged or credited directly to equity, in which case theincome tax is also dealt with in equity. Deferred tax assets and liabilities are offset against each other when the Grouphas a legally enforceable right to set off current tax assets and liabilitiesand the deferred tax relates to income taxes levied by the same tax jurisdictionon either the same taxable entity, or on different taxable entities which intendto settle current tax assets and liabilities on a net basis or to realise theassets and settle the liabilities simultaneously in each future period in whichsignificant amounts of deferred tax liabilities are expected to be settled orrecovered. Derecognition of financial assets and liabilities A financial asset or liability is generally derecognised when the contract thatgives rise to it is settled, sold, cancelled or expires. Where an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liabilityare substantially modified, such an exchange or modification is treated as aderecognition of the original liability and the recognition of a new liability,such that the difference in the respective carrying amounts together with anycosts or fees incurred are recognised in profit or loss. Pensions The Group contributes to the personal pension plans of certain staff. Thecontributions are charged as an expense as they fall due. Any contributionsunpaid at the balance sheet date are included as an accrual at that date. TheGroup 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 inshareholders' 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 beingtaken to revenue reserves except that where the proceeds exceed theconsideration paid then the excess is transferred to the share premium account.No gain or loss is recognised on the purchase, sale issue or cancellation ofequity shares. The Employee Benefit Trust has waived its entitlement to dividends. The Groupwill 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 customersCommissary and equipment sales - on delivery to franchiseesRoyalties (based on system sales) - on delivery of pizzas by franchisees to customersFranchise sales - on commencement of franchisee tradingFinance lease interest income - as set out in lease accounting policyRental 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 economicbenefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration net of returns, rebatesand value-added taxes. Borrowing costs Borrowing costs are generally expensed as incurred. Borrowing costs that aredirectly attributable to the acquisition or construction of an asset arecapitalised while the asset is being constructed as part of the cost of thatasset. The policy is adopted for all assets that meet the definition of qualifyingassets 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 intendeduse. If active development is interrupted for an extended period, capitalisationis suspended. When construction occurs piecemeal and use of each part ispossible as construction continues, capitalisation for each part ceases onsubstantial completion of that part. For borrowing associated with a specific asset, the actual rate on thatborrowing 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 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 trends in financial performance. Share based payments The Group provides benefits to employees (including Directors) in the form ofshare based payment transactions, whereby employees render services in exchangefor rights over shares ("equity-settled transactions"). The cost of theequity-settled transactions with employees and Directors are measured byreference to the fair value at the date at which they are granted and isrecognised as an expense over the vesting period, which ends on the date atwhich the relevant employees become fully entitled to the award. Fair values ofemployee share option plans are calculated using the Black-Scholes and Binomialmodels. In valuing equity settled transactions, no account is taken of anyvesting conditions, other than conditions linked to the price of the shares ofthe Company (market conditions). No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas 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 theDirector's best estimate of the number of equity instruments that willultimately vest on achievement or otherwise of non-market conditions or in thecase of an instrument subject to a market condition, be treated as vested asdescribed above. The movement in the cumulative expense since the previousbalance sheet date is recognised in the income statement, with the correspondingincrease in equity. Where the terms of an equity-settled award are modified or a new award isdesignated as replacing a cancelled or settled award, the cost based on theoriginal award terms continues to be recognised aver the original vestingperiod. In addition, an expense is recognised over the remainder of the newvesting period for the incremental fair value of any modification, based on thedifference between the fair value of the original award and the fair value ofthe modified award, both as measured on the date of the modification. Noreduction is recognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the incomestatement for the award is expensed immediately. Any compensation paid up to thefair value of the award at the cancellation or settlement date is deducted fromequity, with any excess over fair value being treated as an expense in theincome statement. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards so as to apply IFRS 2 only to thoseequity-settled awards granted after 7 November 2002 that had not vested before 3January 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 storeclosures 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 - 76Restructuring and reorganisation costs 96 - 252Assets written off 140 - 52Lease 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 yearFinal dividend for 2005 1.30p (2004: 0.95p) - 2,115 2,115Interim dividend for 2006 1.30p (2005: 0.97p) - - 2,119Final 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) ordinaryshares. 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 wouldhave been issued, based on average market value if all outstanding options wereexercised. 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 earningsper share 158,425,428 161,164,723 161,967,072 Dilutive share options 2,197,918 5,556,668 2,342,486Reversionary interests - 1,879,958 672,592 ------ ------ ------Ordinary shares - diluted earningsper share 160,623,346 168,601,349 164,982,150 ------ ------ ------ Reversionary interests granted over 3,485,000 shares and share options grantedover 3,135,590 shares have not yet vested at 1 July 2007. The performanceconditions for these reversionary interests and share options have not been metin the current financial period and therefore the dilutive effect of the numberof shares which would have vested at the period end have not been included inthe diluted earnings per share 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. APPENDIX TO THE GROUP INTERIM REPORTREPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS The interim financial statements are the first to be prepared by the Companyusing policies in accordance with IFRS as adopted by the European Union. Thecomparative figures have been prepared on the same basis and have therefore beenrestated from those previously prepared under UK GAAP. The commentary belowdetails the key changes that have arisen due to the transition to reportingunder IFRS. The Group's date of transition is 1 January 2006, which is thebeginning of the comparative period for the 2007 financial year. Therefore theopening balance sheet for IFRS purposes is that reported at 1 January 2006, asamended for changes due to IFRS. To explain the impact of the transition, reconciliations have been included inthis appendix that show the changes made to the statements previously reportedunder UK GAAP. The following unaudited reconciliations are included in thisappendix: 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 bythe Group. The IFRS cash flow statement is presented in a different format thanthat required under UK GAAP. The reconciling items between the UK GAAP formatand the IFRS format have no net impact on the cash flows generated andaccordingly 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 ofInternational Financial Reporting Standards which, generally, requires that IFRSaccounting policies be applied retrospectively in determining the openingbalance sheet at the date of transition. IFRS 1 contains both mandatory andoptional exemptions to the principle of retrospective application. Where theGroup 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 allgrants of share options and awards the fair value at the date of grant iscalculated using an appropriate pricing model and the corresponding expense isrecognised over the vesting period. The Group has elected to take advantage ofthe transitional provisions of IFRS 2 and has applied the fair value model toall grants of equity instruments after 7 November 2002 that had not vested as at3 January 2005. •Goodwill and business combinations The Group has taken the exemption not to apply IFRS 3 retrospectively tobusiness combinations occurring prior to the date of transition to IFRS.Goodwill arising on acquisitions prior to this date has been retained at itscarrying value as at 1 January 2006. The Group under the provisions of IAS 36,only recognises impairment. This results in the reversal of the goodwillamortisation previously charged to the income statement in the 52 weeks to 31December 2006. • Cumulative translation differences Under IAS 21, exchange differences arising on consolidation of overseassubsidiaries are required to be recognised as a separate equity reserve. TheGroup has utilised the exemption available in IFRS 1 whereby cumulativetranslation differences are deemed to be zero at the date of transition to IFRS. APPENDIX TO THE GROUP INTERIM REPORTREPORTING 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 openingbalance sheet using an amount based on its deemed costs. The Group has takenadvantage of this exemption and has adopted the historical cost as its deemedcost. 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 eachof the reconciliations. • Assets held for sale As at date of transition and the comparative periods the Group owned variouscorporate 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 Groupbalance sheet. • Intangible assets On transition, the Group following the provisions of IAS 36 has reclassifiedseparately identifiable computer software assets from tangible assets tointangible assets. • Prepaid operating lease costs The Group incurs costs in acquiring property leases. The Group previouslytreated these costs as additions to tangible fixed assets, however under IAS 17they are more correctly described as prepaid operating lease charges.Accordingly on transition these expenses are reclassified from tangible fixedassets to prepaid lease charges. The charges are amortised over the lives of theoperating leases on which they were incurred. • Lease inducements The Group under UK GAAP recognised rent-free periods over the period to thecommencement of the first market rent review. According to provisions in SIC 15lease incentives are spread over the full term of the lease. As at the date oftransition, deferred income reflecting the amount of lease inducements to betaken to the income statement in future periods has been recognised on thebalance sheet. • Employee benefits Under IAS 19 the Group is required to recognise untaken holiday payentitlements. The Group's holiday year runs from January to December andtherefore this provision will only impact on the Group's interim accounts. Atthe year-end, the Group does not have an obligation to carry over to the nextholiday year or to pay employees for untaken holiday. • Deferred taxation On transition, the Group following the provisions of IAS 12 has recalculated thedeferred tax balances based on the temporary method. The most significant impacthas been the recognition of deferred tax assets relating to share based paymentsand roll over relief. • Goodwill The Group has reclassified goodwill previously recognised under UK GAAP on theacquisition of a store as an intangible asset. This relates to the right that ithad previously granted to the acquiree to use the Group's trade name under afranchise agreement APPENDIX TO THE GROUP INTERIM REPORTReconciliation 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) 880Property, plant and equipment 13,593 (1,009) 12,584Prepaid operating lease charges - 549 549Net investment in finance leases 1,939 - 1,939Investments in associates 451 - 451Deferred tax asset - 751 751 ------ ------ ------ 17,309 (155) 17,154Current assetsInventories 2,186 (10) 2,176Trade and other receivables 9,985 - 9,985 Net investment in finance leases 997 - 997Prepaid operating lease charges - 59 59Cash and cash equivalents 5,885 - 5,885 ------ ------ ------ 19,053 49 19,102Non 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 - 2,645Share premium account 4,677 - 4,677Capital redemption reserve 171 - 171Treasury 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 REPORTReconciliation 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 ofsoftware from tangible to intangible fixed assets (162) - - - - -IAS38 - reclassification ofsoftware from tangible to intangible fixed assets 162 - - - - - IAS17 - reclassification of prepaid operating lease chargesfrom intangible fixed assets (lease premiums) (608) - - - - -IAS17 - reclassification of prepaidoperating lease charges fromintangible fixed assets (leasepremiums) 549 59 - - - -SIC15 - lease inducements spreadover the full lease term (rentfrees) - - - (53) (847) (900)IFRS5 - reclassification ofcorporate stores as assets held forsale (847) (10) 857 - - -IAS12 - recognition of deferred taxasset for share based payments 751 - - - - 751IAS12 - recognition of deferred taxliabilities 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 REPORTReconciliation 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) 1,585Property, plant and equipment 13,780 (1,871) 11,909Prepaid operating lease charges - 683 683 Net investment in finance leases 1,748 - 1,748Investments in associates 589 - 589Deferred tax asset - 1,275 1,275 ------ ------ ------ 18,276 (487) 17,789Current assetsInventories 1,838 (20) 1,818Trade and other receivables 9,632 - 9,632 Net investment in finance leases 864 - 864Prepaid operating lease charges - 158 158Cash and cash equivalents 10,262 - 10,262 ------ ------ ------ 22,596 138 22,734Non 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 - 2,574Share premium account 4,765 - 4,765Capital redemption reserve 261 - 261Treasury 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 REPORTReconciliation 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 ofsoftware from tangible to intangible fixed assets (250) - - - - - IAS38 - reclassification ofsoftware from tangible to intangible fixed assets 250 - - - - - IAS38 - goodwill no longer amortised 17 - - - - 17 IAS38 - reclassification ofgoodwill to intangible fixed assets - purchase of Edgbaston store (360) - - - - - IAS38 - reclassification ofgoodwill to intangible fixed assets - purchase of Edgbaston store 360 - - - - - IAS17 - reclassification ofprepaid operating lease charges from intangible fixed assets (lease premiums) (841) - - - - - IAS17 - reclassification ofprepaid operating lease charges from intangible fixed assets (lease premiums) 683 158 - - - - SIC15 - lease inducementsspread over the full lease term (rent frees) - - - (31) (989) (1,020) IFRS5 - reclassification ofcorporate stores as assetsheld for sale (1,621) (20) 1,641 - - - IAS12 - recognition ofdeferred tax asset for share basedpayments 1,275 - - - - 1,275 IAS12 - recognition ofdeferred tax liabilities for roll over relief - - - - (191) (191) IAS12 - tax effects of conversion - - - - 301 301 IAS12 - tax effects of shareoptions exercised - - - - - (400) IAS12 - tax effects of shareoptions exercised - - - - - 400 ----- ----- ----- ----- ----- -----Net movement (487) 138 1,641 (31) (879) 382 ----- ----- ----- ----- ----- ----- APPENDIX TO THE GROUP INTERIM REPORTReconciliation of the Group Income Statement for the 52 weeks ended 31 December2006 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) 13,515Share 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 operationsbefore exceptional items 14,288 (103) 14,185---------------------------- ------ ------ ------Profit on the sale of non current assets andassets held for sale 159 - 159 Profit on the sale of subsidiaries 454 - 454 ------ ------ ------Profit before interest 14,402 (103) 14,299 Finance income 397 - 397Finance 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) 10,084Minority 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 fulllease 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 0.02IAS12 - tax effects of share based payments (359) 0.22) ----- -----Profit for the period (431) (0.26) ----- ----- APPENDIX TO THE GROUP INTERIM REPORTReconciliation 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) 871Property, plant and equipment 13,643 (622) 13,021Prepaid operating lease charges - 671 671 Net investment in finance leases 1,348 - 1,348Investments in associates 564 - 564Deferred tax asset - 963 963 ------ ------ ------ 17,061 377 17,438Current assetsInventories 2,199 (4) 2,195Trade and other receivables 10,965 - 10,965 Net investment in finance leases 777 - 777Prepaid operating lease charges - 164 164Cash and cash equivalents 8,593 - 8,593 ------ ------ ------ 22,534 160 22,694Non 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 - 2,658Share premium account 4,927 - 4,927Capital redemption reserve 171 - 171Treasury 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 REPORTReconciliation 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 ofsoftware from tangible to intangible fixed assets (192) - - - - - IAS38 - reclassification ofsoftware from tangible to intangible fixed assets 192 - - - - - IAS38 - goodwill no longer amortised 8 - - - - 8 IAS17 - reclassification ofprepaid operating lease charges from intangible fixed assets (lease premiums) (835) - - - - - IAS17 - reclassification ofprepaid operating lease charges from intangible fixed assets (lease premiums) 671 164 - - - - SIC15 - lease inducements spreadover the full lease term (rentfrees) - - - (26) (934) (960) IFRS5 - reclassification ofcorporate stores as assets heldfor sale (430) (4) 434 - - - IAS19 - recognition of employeebenefits: untaken holiday payentitlement - - - (89) - (89) IAS12 - recognition of deferredtax asset for share based payments 963 - - - - 963 IAS12 - recognition of deferredtax liabilities for roll over relief - - - - (191) (191) IAS12 - tax effects of conversion - - - - 312 312IAS12 - tax effects of shareoptions exercised - - - - - (208) IAS12 - tax effects of shareoptions exercised - - - - - 208 ----- ----- ----- ----- ----- -----Net movement 377 160 434 (115) (813) 43 ----- ----- ----- ----- ----- ----- APPENDIX TO THE GROUP INTERIM REPORTReconciliation 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) 6,122Share of post tax profits of associates 62 - 62 ------ ------ ------Operating profit from continuing operations 6,325 (141) 6,184Profit on the sale of non current assets andassets held for sale 10 - 10 ------ ------ ------Profit before interest 6,335 (141) 6,194 Finance income 162 - 162Finance 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) 4,331Minority 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 fulllease term (rent frees) (60) (0.04)IAS19 - recognition of employee benefits: untakenholiday 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 0.02IAS12 - 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 forthe 26 weeks ended 1 July 2007 which comprises the Group Income Statement, GroupBalance 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 inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept 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, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report as required by the AIM Rulesissued by the London Stock exchange. As disclosed in note 2, the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directors intend touse in the next financial statements. There is, however, a possibility that thedirectors may determine that some changes to these policies are necessary whenpreparing the full annual financial statements for the first time in accordancewith 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 Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 1 July 2007 Ernst & Young LLPRegistered AuditorLuton20th July 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Dominos