Admission to the Official List
99939 Project Talent Cover 15/5/08 12:01 Page 1
This document the “Prospectus”, which comprises a prospectus relating to Domino’s Pizza UK & IRL Plc (the “Company’’) has been
prepared in accordance with the Prospectus Rules made by the Financial Services Authority (the “Prospectus Rules’’) pursuant to
section 73A of the Financial Services and Markets Act 2000 (“FSMA’’) and has been approved by the Financial Services Authority
in accordance with s.87A of FSMA. This document has been filed with the Financial Services Authority and will be made available
to the public in accordance with the Prospectus Rules.
Application has been made to the Financial Services Authority and to the London Stock Exchange respectively for admission of all
of the Ordinary Shares to: (i) the Official List; and (ii) to trading on the London Stock Exchange’s market for listed securities (together
“Admission’’). No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or
dealt with on any other exchange. It is expected that Admission will become effective and that dealings on the London Stock Exchange
in the Ordinary Shares will commence on 19 May 2008 (International Security Identification Number: GB00B1S49Q91).
The Ordinary Shares are admitted to trading on AIM, a market operated by the London Stock Exchange. The Company intends to
terminate the admission of the Ordinary Shares to trading on AIM as soon as Admission has occurred.
The Ordinary Shares have not been, and will not be, registered under the United States Securities Act 1933 or under the securities laws
of any state, district or other jurisdiction of the United States, or of Canada, Japan or Australia, or any other jurisdiction and no
regulatory clearances in respect of the Ordinary Shares have been, or will be, applied for in any jurisdiction other than the UK.
The Company and its Directors (whose names appear on page 22 of Part III of this document) accept responsibility for the information
contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken reasonable
care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no
omission likely to affect its import.
Prospective investors should read the entire document and, in particular, the Risk Factors set out in Part II when considering an
investment in the Company. Numis Securities Limited, which is authorised and regulated in the United Kingdom by the Financial
Services Authority, is acting only for the Company and no-one else in connection with Admission and will not regard any other person
as its client or be responsible to any person other than the Company for providing the protections afforded to its clients or for advising
any other person on the contents of this document.
Investors should rely only on the information in this document. No person has been authorised to give any information or make any
representations other than those contained in this document and, if given or made, such information or representations must not be
relied on as having been authorised by the Company. Without prejudice to any obligation of the Company to publish a supplementary
prospectus pursuant to section 87G of FSMA or paragraph 3.4 of the Prospectus Rules, the publication of this document does not,
under any circumstances, create any implication that there has been no change in the affairs of the Group since, or that the information
contained herein is correct at any time subsequent to, the date of this document. The information on the Company’s website does not
form a part of this document.
The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult his,
her or its own solicitor, independent financial adviser or tax adviser for legal, financial or tax advice.
DOMINO’S PIZZA UK & IRL PLC(incorporated in England and Wales under registered number 03853545)
Introduction to the Official List
Sponsor, financial adviser and joint broker
The Company is not offering any Ordinary Shares nor any other securities in connection with Admission. This document does not
constitute an offer to sell, or the solicitation of an offer to subscribe for or buy any Ordinary Shares nor any other securities in any
jurisdiction. The Ordinary Shares will not be generally made available or marketed to the public in the UK or in any other jurisdiction
in connection with Admission.
The distribution of this document in certain jurisdictions may be restricted by law and therefore persons into whose possession this
document comes should inform themselves about and observe any such restrictions, including those in the paragraphs that follow. Any
failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No action has been
taken or will be taken in any jurisdiction that would permit possession or distribution of this document or any other publicity material
relating to the Ordinary Shares, in any country or jurisdiction where action for that purpose is required. Accordingly, neither this
document nor any other material in relation to the Ordinary Shares may be distributed or published in any jurisdiction where to do so
would breach any securities laws or regulations of any such jurisdiction or give rise to an obligation to obtain any consent, approval
or permission, or to make any application, filing or registration.
References to Defined TermsCertain terms used in this document, including certain capitalised terms and certain technical and other terms, are defined, and certain
selected industry and technical terms used in this document are defined and explained, in Part IV.
AIII 10.1
AI 5.1.1(e) & S.1.2
AI 1.1 & 1.2
AIII 1.1 & 1.2
AIII 6.2
AIII 4.1, 6
CONTENTS
Page
PART I SUMMARY 3
PART II RISK FACTORS 8
PART III DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS 22
PART IV DEFINITIONS 23
PART V INFORMATION ON THE GROUP 28
PART VI OPERATING AND FINANCIAL REVIEW 38
PART VII FINANCIAL INFORMATION ON THE GROUP 55
SECTION A: ACCOUNTANT’S REPORT ON IFRS HISTORICAL 55
FINANCIAL INFORMATION RELATING TO DOMINO’S PIZZA UK & IRL PLC FOR THE 52 WEEKSENDED 31 DECEMBER 2006 AND 30 DECEMBER 2007
SECTION B: GAAP HISTORICAL FINANCIAL INFORMATION 113
RELATING TO DOMINO’S PIZZA UK & IRL PLC FOR THE 52 WEEKS ENDED 31 DECEMBER 2006
SECTION C: GAAP HISTORICAL FINANCIAL INFORMATION 149
RELATING TO DOMINO’S PIZZA UK & IRL PLC FOR THE 52 WEEKS ENDED 1 JANUARY 2006
PART VIII ADDITIONAL INFORMATION 183
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PART I
SUMMARY
This summary should be read as an introduction to this Prospectus. Any decision by a prospectiveinvestor to invest in the Ordinary Shares should be based on consideration of the Prospectus as awhole. Where a claim relating to the information contained in this Prospectus is brought before a courtin a member state of the European Economic Area (“EEA”), the claimant may, under the nationallegislation of the EEA state in which the claim is brought, be required to bear the cost of translatingthis Prospectus before legal proceedings are initiated. Civil liability attaches to those persons who areresponsible for this summary, including any translation hereof, but only if this summary is misleading,inaccurate or inconsistent when read together with the other parts of this Prospectus.
1. Introduction
The Domino’s brand was founded in the United States of America in 1960 by Tom Monaghan. Since then,
that business has grown into a global network of over 8,000 stores in more than 50 countries, employing
around 170,000 staff and involving over 2,000 franchises.
DPG is the master franchisee in the UK and Ireland of Domino’s Pizza, one of the world’s leading home
delivery pizza brands. Since the business of the Group was purchased from DPII in 1993, it has developed
to become the leading UK home delivery pizza brand. DPII subsequently assigned the Master Franchise
Agreement to DPIF on 16 April 2007. The Group is not affiliated to DPI, DPIF or DPII other than by virtue
of the terms of the Master Franchise Agreement and the Know How Agreement. Since the first store opened
in the UK in 1985 and in Ireland in 1991, the Group has expanded to 501 stores (as at 30 December 2007)
in the UK and Ireland and is accessible to 50 per cent. of UK and 37 per cent. of Irish households. Of these
stores, 398 are located in England, 38 in Scotland, 19 in Wales, 12 in Northern Ireland and 34 in Ireland.
The Group’s total system sales for the 52 weeks ended 30 December 2007 amounted to £296.3 million,
representing growth of 23.4 per cent. over prior year sales. The Group’s operating profits from continuing
operations increased from £13.7 million to £18.3 million over the same period.
The Group is well placed to continue the rollout of this proven concept by the further development of the
franchise system. The Group’s target is to reach a total of 1,000 stores in the UK and Ireland by
approximately 2017, opening 50 new stores on an annual basis. The Directors believe that sales at existing
stores will be increased through the continued use of targeted marketing, the growth in the advertising
budget, the growth of the e-commerce channel and the superior product quality and service proposition.
2. The Business of the Group
(a) The Domino’s Pizza Concept
The Directors believe that the Group’s stores offer a focused menu of high quality pizza along with a
range of starters, desserts and drinks. Pizzas are “slapped out” by hand in store from a fresh dough
ball and topped with pizza sauce made from Portuguese vine-ripened tomatoes, real mozzarella
cheese, and a choice of high quality meats and fresh vegetables.
The Group is committed to the use of fresh produce, where possible, in the preparation of its pizzas
and the Group constantly reviews the quality of its ingredients with a view to maintaining the highest
standards and identifying opportunities to improve the nutritional content of its food. One particular
aspect of this commitment that the Directors believe distinguishes a Domino’s pizza from the majority
of its major competitors is the use of fresh, as opposed to frozen dough. The dough is prepared to
Domino’s own recipe at the Company’s commissaries in Milton Keynes, Naas and Penrith.
(b) Key Strengths
The Directors believe the key strengths of the Group are:
LR 2.1.2
LR 2.1.6
LR 2.1.7
3
• its distinctive brand;
• an emphasis on consistently high quality product as a result of the stringent selection of high
quality ingredients and delivery across the portfolio of stores;
• an emphasis on service whereby stores aim to consistently deliver their product to the customer
in less than 30 minutes, through a focus on staff training, exacting brand standards and the use
of standardised systems and processes;
• its proven management team;
• a loyal customer base;
• its market leading position;
• its highly cash generative business model; and
• a scalable business concept that provides the Group with the opportunity to roll-out a further
50 new stores each year in order to reach the Group’s longer term goal of targeting 1,000 stores
in total in the UK and Ireland by approximately 2017.
(c) Master Franchise Agreement
The success of the Group’s business is substantially dependent on the rights included in the Master
Franchise Agreement. The Master Franchise Agreement sets out how DPG has to introduce, manage
and grow its franchised business in the UK and Ireland.
Under the Master Franchise Agreement, DPG enjoys rights to the Domino’s System in the UK and
Ireland indefinitely until all of the franchise agreements that DPG has with its franchisees (and itself
for corporate stores) have expired or otherwise been terminated, subject to DPIF’s rights on breach by
DPG. Therefore, so long as any franchise agreements with DPG remain in force, the Master Franchise
Agreement shall remain in force as well.
DPG is required to meet minimum store growth targets under the Master Franchise Agreement and
must confirm that these have been achieved on an annual basis. These minimum targets are for a net
27 store openings per annum until the development rights under this agreement are reviewed in 2016
and are materially below the Group’s own target of 50 store openings per annum. As stated in the
Company’s AGM announcement which was released on 24 April 2008, the Group is on track at this
stage to meet the target of 50 new stores for this year. The Group has opened on average 47 stores
each year over the past five years.
DPG is required to pay a continuing royalty fee to DPIF calculated on the total sales of all stores
(excluding VAT). The royalty fee payable to DPIF on a monthly basis is currently 2.7 per cent. of all
store sales (excluding VAT) for the preceding month. If the minimum store growth requirements are
not met, the royalty percentage increases by 0.3 per cent. to 3.0 per cent.
Breaches of the Master Franchise Agreement may lead to termination of the Master Franchise
Agreement and also the Know-How Agreement pursuant to which DPG is granted the right by DPIF
to establish and operate the commissaries. DPIF has the right to require the sale or assignment to it of
any stores or franchise agreements at their fair value on termination of the Master Franchise
Agreeement by DPIF due to a breach by DPG. DPG has never received such a notice and the Directors
consider that their compliance with the material terms of the Master Franchise Agreement is such that
this is highly unlikely.
(d) Franchisee Relationship
Franchisees are granted franchise agreements by DPG for ten years, with an option to renew at the
franchisee’s option. The renewed franchise agreement will be subject to further renewal in accordance
with the provisions in the standard terms at that time. Each franchise covers a defined geographical
area. There are currently approximately 144 franchisees in the Domino’s System operating an average
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of approximately 3.5 stores each. Currently there are 56 franchisees with three or more stores of which
43 franchisees hold four or more stores.
DPG supports its franchisees by providing comprehensive training, infrastructure and marketing
support and this has resulted in very low failure rates. The Directors believe that the economic model
on which the stores are based is attractive to franchisees as evidenced by historic sales growth (for
example, the average annual increase in like-for-like sales is 9.1 per cent. over the last five years) and
also by the number of franchisees with more than one store. It allows franchisees to recoup the initial
store investment cost within an average of less than three years. DPG encourages an open dialogue
with franchisees by holding regular meetings workshops, training and an annual awards banquet.
There are also a number of advisory committees at which franchisees consider such matters as
marketing, menu developments and operational issues.
(e) Commissaries
The Group has recently embarked on a major capital expenditure programme that will result in the
doubling in size of the Penrith commissary and the construction of a new state-of-the-art commissary
and headquarters on a newly acquired ten acre site in Milton Keynes which is scheduled to be in
operation during the latter part of 2009. The project cost of £25 million for the Milton Keynes project
will be incurred over the two financial years 2008 and 2009 and funded from a loan facility. The
expansion of the commissary in Penrith, which will cost £4 million during the current financial year,
will double that facility’s capacity. The Group also intends to expand the commissary operation in
Naas to meet the increasing demand for Domino’s Pizza in Ireland. These developments, combined
with the addition of a fourth commissary, which it is anticipated will be needed by 2012 in the UK,
will complete the infrastructure required for 1,000 stores.
3. Risk Factors
Prior to investing in the Ordinary Shares, prospective investors should consider the risks associated
therewith, including:
Specific risks relating to the business of the Group
The Group is highly dependant on the Master Franchise Agreement. The Master Franchise Agreement may
be terminated by DPIF if DPG is in breach of the terms of the agreement.
The Group may not be able to achieve its planned rate of expansion.
In relation to securing new locations, the Group cannot predict the timing or ultimate success of the site
selection and franchise process or any lease negotiations.
The failure of a franchisee could damage the Group’s reputation and brand.
The efforts of the Group or DPIF to protect the Domino’s brand could prove to be inadequate.
DPIF or the Group may from time to time receive negative publicity in relation to its own operations or the
operations and activities of one or more of its franchisees or particular stores.
A reduction in the volume of sales of the Group due to a failure in the Group’s manufacturing and delivery
processes would be likely to have an adverse affect on the profits, financial condition and prospects of the
Group.
The Group’s business is dependent on the successful operation and maintenance of various supply contracts
with third party suppliers in respect of raw materials required to make the pizzas and other food products
provided to customers at the Group’s stores.
Failure of the Group’s IT systems could impact the volume of the Group’s sales.
This expansion and future growth will increase demands on the Group’s management team, systems and
resources, financial controls and information systems.
5
General risks
The Group could be affected by general economic conditions and political and market factors beyond the
Group’s control.
The Group’s failure to comply with existing or increased regulations, or the introduction of changes to
existing regulations, could adversely affect its business, financial and other conditions, profitability and
results of operations.
As the Group is primarily dependent on a single product type, if consumer demand for pizza should decrease,
the Group’s business will suffer more than it may otherwise do so if it had a more diversified menu.
Difficulty in securing suitable management, sites for new stores, suitable franchisees and hourly employees,
could adversely affect the Group’s business, results of operations, financial condition or prospects.
Increases to menu prices may lead to a fall in demand from end customers.
The Group may also be subject to clean-up costs and liability for contaminated land or water pollution which
may exist on or under any of its properties or which may result from its operations.
Failure to comply with health and safety legislation could lead to fines on the Group and even the resultant
shutdown of certain stores or the Group’s commissaries.
There is a risk that franchisee employees may handle food in an unhygienic or unsafe manner so as to lead
to the possibility of customers contracting food borne illnesses or that premises or plant and machinery are
maintained in a way that gives rise to a risk to human health.
Sales by the stores are generally at their highest during winter and lower during summer months. The
Group’s sales experience moderate seasonal fluctuations.
The Group’s indebtedness could impact on the overall profitability of the Group’s business, result of
operations, financial condition and future prospects.
If the Group’s business does not generate sufficient cash flow from operations the Group’s financial
condition and results of its operations may be adversely affected.
If the Group’s existing stores do not increase sales in line with the Group’s targets, it is possible that the
Group will not achieve its targeted revenue growth.
The Group’s future success is substantially dependent on the continued services and continuing contributions
of its Directors, senior management and other key personnel and its ability to continue to attract and retain
highly skilled and qualified personnel.
The early termination of any of the Group’s leases due to non-compliance with the lease terms or the failure
to renew leases that have expired or default by licencees or assignees, could adversely affect the Group’s
profitability.
6
4. Selected Financial Information
The summary financial information set out below has been extracted or derived without material adjustment
from the financial information of the Group set out in Part VII of this document. Investors should read the
whole of the document and not rely on this summarised information.
52 weeks 52 weeks 52 weeks 52 weeksended ended ended ended
1 January 31 December 31 December 30 December2006 2006 2006 2007
UK GAAP UK GAAP IFRS IFRS£000 £000 £000 £000
System sales 200,678 240,115 240,115 296,349
Group revenue 81,660 94,965 94,965 114,891
Profit before taxation 11,169 14,292 14,189 18,576
Earnings per share – basic (pence) 5.08* 6.49* 6.23* 8.38*
Equity dividends paid (3,169) (4,234) (4,234) (5,816)
Cash and cash equivalents 5,885 10,262 10,262 14,629
Net indebtedness (4,141) (5,582) (5,582) (1,568)
* Adjusted for the share split of 3.2 ordinary shares of 1.5625 pence each for 1 ordinary share of 5 pence approved at the Annual
General Meeting held on 26 April 2007.
5. Strategy for Growth
The Directors intend to grow the Group’s business through the opening of 50 new stores each year without
diluting the quality associated with the Domino’s brand. The immediate growth will be generated by
increasing the number of stores with the longer term goal of targeting 1,000 in total in the UK and Ireland
by approximately 2017.
6. Reasons for moving to the Official List
Since its AIM Admission in 1999, the Group has expanded from 190 to 501 stores (as at 30 December 2007)
and as such the Directors believe that a move to the Official List and to trading on the main market of the
London Stock Exchange is now appropriate. In addition, the Directors believe that due to the higher number
of institutional investors who regularly trade in companies admitted to the Official List and the higher profile
of such companies, the Company will be better placed to achieve improved liquidity in the Ordinary Shares
following Admission.
7
PART II
RISK FACTORS
The Group’s business, financial condition or results of operations could be materially and adversely affectedby the risks described below. In such cases, the market price of the Ordinary Shares may decline due to anyof these risks and investors may lose all or part of their investment. Additional risks and uncertainties notpresently known to the Directors, or which the Directors currently deem immaterial, may also have anadverse effect upon the Group. In particular, the Group’s performance may be affected by changes in marketand/or economic conditions and/or in legal, regulatory and tax requirements. Investors should consider thefollowing risk factors together with all of the other information included in this document before they makea decision to purchase Ordinary Shares in the Company. This document also contains forward-lookingstatements that involve risks and uncertainties. Actual results could differ materially from those anticipatedin those forward-looking statements as a result of certain factors, including the risks faced by the Group,described below and elsewhere in this document.
1. RISKS SPECIFIC TO THE BUSINESS OF THE GROUP
1.1 Reliance on key contracts and business relationships
The Group is highly dependant on the Master Franchise Agreement. This agreement provides DPG
with the exclusive right to develop, own, operate and franchise Domino’s stores and to use and license
the use of the Domino’s System and the associated trademarks in the operation of stores in the UK,
Northern Ireland and the Republic of Ireland. Pursuant to the Know-How Agreement, DPG also has
the exclusive right for the duration of the Master Franchise Agreement to establish commissaries to
supply food, ingredients and other supplies and materials to all Domino’s stores in the territory under
the Master Franchise Agreement.
The term of the Master Franchise Agreement continues indefinitely until all of the franchise
agreements that DPG has with its franchisees (and itself for corporate stores) have expired or
otherwise been terminated. Therefore, so long as any franchise agreements with DPG remain in force,
the Master Franchise Agreement shall remain in force as well. Franchise agreements have an initial
term of ten-years and can be renewed at the franchisee’s option. The renewed franchise agreement will
be subject to further renewal in accordance with the provisions in the standard terms at that time. If
all franchisees and DPG itself in respect of corporate stores, do not renew their expired franchise
agreements and DPG cannot find suitable replacement franchisees, there would eventually come a
time when there are no franchise agreements in effect and therefore the term of the Master Franchise
Agreement would end. This would have an adverse effect on the financial condition and future
prospects of the Group.
The Master Franchise Agreement may be terminated by DPIF if DPG breaches the agreement. All
potential breaches of the Master Franchise Agreement are within the direct control of DPG.
Depending on the nature of the breach DPG may have the right to cure the breach within an allocated
time period. Should the Master Franchise Agreement be terminated, the business of the Group would
be seriously adversely affected.
If DPIF elects to terminate the Master Franchise Agreement for a breach by DPG of its obligations,
DPIF will be entitled to require the sale or assignment to it of any stores or franchise agreements. Any
such sale or assignment will be at a fair market value determined by an independent valuer but will
exclude any payment for goodwill. In addition, DPIF will be entitled to require the sale to it of the
commissaries from DPG or such portion of the commissaries as relates to the operation of Domino’s
stores. This could have a material adverse effect on the Group’s financial condition and business
operations.
DPG’s exclusive right to grant franchises for new Domino’s stores is dependant on the continuation
of the development term of the Master Franchise Agreement. The development term is a ten year
AI 6.4
8
PR 2.2.10(c)
AI 4
AI 12.2
AIII 2
renewable term that was last renewed with effect from 1 January 2007. The current development term
requires DPG to increase the number of stores in the territory by 27 stores per year over the next ten
years, from a base of 450 stores. If these targets are met or exceeded, DPG receives a royalty waiver
of 0.3 per cent., which effectively reduces the royalty it pays to DPIF from 3 per cent. to 2.7 per cent.
of system sales. The minimum number of stores required at the end of 2007 was 477 (450 plus 27)
whereas the actual number of stores was 501. DPG therefore had headroom of 24 stores, which is
carried forward against the following year’s target. If DPG were to continue opening stores at the rate
of 50 per year, the full requirement of the current ten year development term would be met in five and
a half years.
Prior to the expiry of the current development term in 2016, DPG may request an additional ten-year
development schedule which will establish the minimum number of stores to be opened and
maintained for years 2017 through 2027. This process requires both DPG and DPIF to submit
proposals and negotiate in good faith a new development term. Failing agreement, an expert would
decide which proposal was fairest. DPIF is not obliged to renew the development term (and DPG’s
exclusive rights to grant new Domino’s franchises) if DPG is in material breach of the Master
Franchise Agreement or has failed to open and maintain the total minimum stores. If there is a
shortfall in the total minimum stores at any year end and which is unremedied within 180 days after
DPG receives notice of a default from DPIF, then DPIF would have the right to terminate DPG’s
development rights and to undertake the development of additional Domino’s stores itself, or through
another party, subject to any prior rights granted by DPG to franchisees (and itself for corporate
stores). Although DPG would still serve as the franchisor to all of the existing stores, pursuant to the
Master Franchise Agreement, it would not be able to grant franchises for any new Domino’s stores.
In such a case, the royalty waiver of 0.3 per cent. of the royalty fee currently enjoyed by DPG pursuant
to the Master Franchise Agreement would fall away. Therefore any failure to meet the minimum total
stores would adversely impact on the financial condition and further prospects of the Group.
DPG has the right to terminate the Master Franchise Agreement on the winding up or liquidation of
DPIF. If DPG were to choose this course of action and were then not able to secure a continuing
intellectual property licence from the liquidator, the US courts or any purchaser of the DPIF assets,
DPG may not be able to use certain trademarks and other intellectual property relating to the
Domino’s brand. Although this would not prevent DPG from continuing as an independent business,
it would have to rebrand the stores and this may have a material adverse impact on the Group’s
revenues and profits, particularly in the short term.
The Group’s business is also highly dependant on its ability to establish and maintain arrangements
with suitable franchisees who adhere to the Group’s business model and strategy and successfully
promote the Domino’s brand. Some of these franchisees operate a large number of the Group’s stores
and are material to the Group’s business. There is a risk that such material franchisees may exert a
potential degree of influence over the Group and could put pressure on the Group to change or
abandon certain policies and procedures. There is also a risk that material franchisees may deviate
from the Group’s established business model or select alternative supplier’s to the Group’s
commissary sites (although the Group must first approve the products, the suppliers and their
standards). Any deviation by a material franchisee could have an adverse affect on the overall success
of the Group’s operations and could impact on the financial condition and future prospects of the
Group.
The Group has the right to terminate the franchise agreement with a franchisee who fails to comply
with prescribed specifications, standards, operating procedures or rules. A termination of the franchise
agreement for such reasons could adversely impact on the reputation of the Group and on the revenue
and profitability of the Group’s business.
1.2 Expansion opportunities for the Group
The Group may not be able to achieve its planned rate of expansion. If the Group is unable to open
new stores successfully, the Group’s future growth in revenue and profits may be adversely affected.
9
In order to expand the business of the Group successfully, new stores must be opened on schedule and
in a profitable manner. The Group currently plans to expand at a rapid rate, opening a targeted 50 new
stores per year. If the Group is unable to secure both suitable sites for the development of new stores
and suitable franchisees who are capable of effectively operating the sites and developing the brand
name, this is likely to impact on the ability of the Group to meet these expansion plans and to increase
revenues and operating income. This could adversely affect the Group’s financial condition or
prospects. Consequently, there can be no assurance that the Group will be able to achieve its
expansion goals, that new stores will be opened in a timely fashion or that new stores opened will be
profitable.
The Group’s ability to expand successfully will depend on a number of factors, many of which are
beyond the Group’s control. Some of these factors are highlighted under the paragraph 1.3 below
(Securing new locations). Other factors include, but are not limited to:
(a) the loyalty of the Group’s customers and the reliability of its market studies;
(b) consumer trends (including greater awareness of healthy eating) and the Group’s ability to
adapt its format and offering to take best advantage;
(c) obtaining and training qualified franchisees and personnel;
(d) creating consumer awareness of the franchisees’ stores in new markets;
(e) competition in the Group’s markets, in terms of the fast food sector, the home delivery sector,
and the convenience food sector (which includes non-branded and branded pizzas and ready-
meals offered by supermarket stores);
(f) sourcing and managing the cost of expansion of the Group’s principal food products and
identifying suitable supply and delivery resources; and
(g) general economic conditions.
Expansion of the Group may require considerable management time which may in turn inhibit
management’s ability to conduct the day to day business of the Group.
1.3 Securing new locations
In order to achieve the Group’s projected rate of new store growth, the Group must identify suitable
and available store locations and successfully negotiate and finalise the terms of store leases and
franchises at these locations. Due in part to the fact that sites selected must meet certain selection
criteria, the Group cannot predict the timing or ultimate success of the site selection and franchise
process or any lease negotiations. The Group is also dependant on securing successful planning
permission in respect of development of new store sites. Delays encountered in obtaining the
necessary permissions and in negotiating and finalising, to the Group’s satisfaction, the terms of store
leases may slow the Group’s actual rate of new store openings and cause a significant variance from
the Group’s projected growth rate. In addition, the Group’s scheduled rate of new store openings may
be adversely affected by other factors, some of which are beyond the Group’s control, including the
following:
(a) the availability and cost of suitable store locations for development;
(b) the Group’s ability to compete successfully for suitable store sites;
(c) the availability of adequate financing;
(d) fit-out costs;
(e) securing required governmental or local authority permits and approvals;
(f) any labour shortages or disputes experienced by outside contractors;
10
(g) the availability of adequately experienced franchisees; and
(h) general economic conditions.
As a result of these factors, and other inefficiencies typically associated with new stores, such as lack
of market awareness and the need to attract and train sufficient management and store personnel, the
Group anticipates that new stores will generally take a couple of months to reach planned operating
levels. A delay in establishing fully operative and efficient stores may therefore impact on the growth
of the Group’s revenue and profits.
1.4 Performance of franchisees and exposure to brand damage
The Group depends, in large part, on the Domino’s brand. The vast majority of stores are owned and
operated by franchisees who are responsible for delivering the high standards of the Domino’s brand
to customers. Whilst franchisees are required to operate within the Group’s standards for store
operation, they are given a degree of autonomy to ensure they operate in a way that suits their local
area. The Group provides that franchisees must adhere to strict quality, safety and image regulations
that the Group enforces through the implementation of training and careful monitoring, funded by
both the franchisees and the Group, and through store visits and frequent appraisals. Despite these
controls and absent a decision to remove such franchisees from its business, the Group may be unable
to prevent its franchisees from operating outside of the Group’s operational regulations, franchise
manual and business model.
The failure of a franchisee, and in particular, the failure of a material franchisee responsible for the
management of a significant number of stores, to operate within the Group’s business model in
relation to matters such as the appearance of the franchised store, the menu, and the training of staff
or cleanliness, could damage the Group’s reputation and adversely impact on the overall financial
performance of the Group. However, the Directors believe that the Group’s selective and rigorous
interviewing strategy ensures that only the most promising candidates capable of adhering to the
Group’s strict policies are selected as franchisees, and that this, when coupled with initiatives
launched by the Group to assist franchisees in achieving high standards expected in areas of health
and safety, employment practices and environmental health standards, operates to maintain very high
standards of quality across the franchisees’ stores, upholding the reputation of the Domino’s brand
and its products.
Franchisees, as independent business operators, may from time to time disagree with the Group’s
business strategy or with the Group’s interpretation of respective rights and obligations under the
relevant franchise agreements. This may lead to disputes between the Group and the franchisees,
which the Group expects to occur from time to time. To the extent the Group has disputes with one or
a number of franchisees, who may be able to exercise a degree of influence over the Group’s business
and pressurise the Group to resolve the disputes in their favour, this could have a material adverse
effect on the Group’s profitabilty, results of operations and/or cash flows. Any such disputes would
also have the effect of diverting the attention of the Group’s management from their normal business.
1.5 The reputation, value and protection of the Domino’s brand
The Group is reliant on the Domino’s brand and associated trademarks and is dependant, in part, on
the continued ability to use existing registered trademarks and service marks to promote its products,
increase brand awareness, and further develop the business of the Group. If the Group’s or DPIF’s
efforts to protect its intellectual property prove to be inadequate, the value of the Domino’s brand
could be harmed, which could adversely affect the Group’s business, results of operations, financial
condition and/or prospects.
Although the Domino’s brand name is a registered trademark in the United Kingdom and the Republic
of Ireland and the logo used to distinguish the Domino’s brand is protected, such intellectual property
rights might not be enough to prevent imitation of the Domino’s brand and concepts by others or to
prevent third parties from claiming violations of their trademarks and proprietary rights by the Group.
Furthermore, although the Group has sought to ensure that it has adequate controls over the use of the
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Domino’s trademark in the UK, it is possible that franchisees could take certain action resulting in
damage to the reputation of the Domino’s brand and intellectual property, this potentially impacting
on overall sales revenues.
For example, any wrongful trading by any franchisee of the Group or poor quality of products
associated with the Domino’s brand, could impact on consumer perception of the brand and affect
consumer demand for the Group’s products. In addition, any business failure of one or more of the
Group’s franchisees, and in particular the failure of a material franchisee, could adversely affect the
Group’s business, results of operations, financial condition or prospects, due to the association of
failure with the Group’s business model.
1.6 Negative publicity
DPII or the Group may from time to time receive negative publicity in relation to its own operations
or the operations and activities of one or more of its franchisees or particular stores. Due to the
branded nature of the Group’s business, any adverse publicity, whether disseminated in the UK or
Ireland or elsewhere in the world, associated with the Domino’s name may negatively affect the
Group’s reputation and impact on the overall success of operations, regardless of whether the
allegations are valid, whether they are limited to just a single location or whether the Group itself or
a particular franchisee is at fault.
For example, there is a risk that, despite the controls put in place by the Group for the monitoring of
franchisees’ operations, one or more of the Group’s franchisees (or, to a lesser extent any Domino’s
franchisee outside of the UK and Ireland) could trade in such a manner as to attract negative publicity.
In particular, adverse media coverage in relation to the failure by any franchisee to materially comply
with health and safety standards or the poor treatment of employees could have an adverse affect on
the reputation of the Domino’s brand, potentially resulting in a reduction of overall sales of the Group.
This could lead to an adverse impact on the financial performance and future prospects of the Group.
1.7 Timely manufacture and distribution by the Group’s commissary sites
One of the key functions of the Group’s business is the manufacture and distribution of all food items
used in the stores by the Group’s own commissaries based in Milton Keynes (UK), Penrith (UK), and
Naas (Ireland). The Group’s commissaries produce and co-ordinate the delivery of fresh food to every
store three times per week, at times when the stores are not in operation. Meeting such a specification
requires a significant logistical effort for which the Group needs the best facilities and systems. A
failure in the Group’s operational and delivery systems, shortages or interruption in the supply of food
(caused by weather or other conditions) and a resultant failure to maintain the frequency of deliveries
to the stores or the quality of produce delivered would be likely to impact on the ability of stores to
service the end customer, thus reducing overall volume of sales. A reduction in the volume of sales of
the Group due to a failure in the Group’s manufacturing and delivery processes would be likely to
have an adverse affect on the profits, financial condition and prospects of the Group.
The Directors however believe that the planned expansion of the Penrith commissary during 2008 and
the construction of a commissary on a newly acquired ten acre site in Milton Keynes (expected to be
operative in late 2009) will provide the Group’s business with significant additional capacity,
operating efficiency and resilience to help ensure that the high standards demanded by the Group’s
manufacture and delivery schedules will continue to be achieved.
1.8 Reliance on third party suppliers
The Group’s business is dependant on the successful operation and maintenance of various supply
contracts with third party suppliers in respect of raw materials required to make the pizzas and other
food products provided to customers at the Group’s stores. There can be no guarantee that the Group’s
suppliers will continue to deliver their products in a timely fashion and in accordance with the terms
of the supply contracts or that current suppliers will be able to continue to meet and service the
requirements of the Group as the Group’s business and need for increased resources continues to
expand.
12
There can be no guarantee that the Group will not perform such acts so as to breach its obligations
under any of its supply contracts, thereby potentially causing one or more suppliers to terminate their
arrangements, or that suppliers themselves will not breach their obligations to the Group or seek to
vary the terms of their respective supply contracts. There can also be no guarantee that the various
supply contracts will be renewed on expiry and if so renewed, that the terms of such renewals will be
favourable to the Group, nor can there be any guarantee that suppliers of the Group will remain
solvent, in business and fully operative throughout the term of their contracts with the Group, which
could have a material adverse effect on the operations and financial performance of the Group.
Failure by the Group’s suppliers or by the Group to meet obligations under the supply contracts would
be likely to impact on the Group’s ability to manufacture dough and deliver the required volumes of
Domino’s food products to the Group’s stores as scheduled. In particular, the raw materials required
by the Group can currently only be obtained from a small number of suppliers trading in the UK and
Ireland. There is a risk that one or more of these existing suppliers could discontinue operations,
which could adversely impact on the Group’s ability to source raw materials and meet the order
requirements of the Group’s stores. A failure to meet these requirements would impact on the ability
of the Group’s stores to service the end customer, thereby reducing the volume of products sold. This
would be likely to have a material adverse effect on the overall profits and financial prospects of the
Group. Furthermore, any shortage of raw materials in the market place generally could impact on the
prices imposed by the Group’s suppliers, making the cost of raw materials more expensive for the
Group which if passed on to franchisees could result in an increase in prices to the end customer
which may reduce demand and therefore affecting the Group’s overall financial performance.
1.9 Failure of IT systems and reliance on e-commerce
The Group’s business is becoming increasingly dependant on the generation of sales of its products
through the means of e-commerce, which continues to be the fastest-growing channel to the market
for the Group. In 2007, e-commerce, including online and SMS ordering, accounted for 16 per cent.
of the Group’s delivered pizzas sold in the UK. In the first sixteen weeks of 2008, e-commerce
accounted for 21 per cent. of the Group’s delivered pizzas sold in the UK. The Irish service, which
was launched in February 2007, is already delivering close to 5 per cent. of delivered sales.
The success of the Group’s sales through channels of e-commerce is highly dependant on the ability
of the Group to maintain operational and efficient IT systems in order to facilitate online sales and
orders made via SMS. A failure in the Group’s IT systems resulting in an inability for customers to
conveniently place orders online, via the internet or interactive television, or by SMS, could impact
on the overall volume of the Group’s sales. Furthermore, the Group’s stores utilise IT systems to place
delivery orders to the Group’s commissary sites and the Group also uses the same IT systems to
calculate the royalties payable by each of the stores. A failure in the Group’s IT systems would be
likely to impact on the efficiency of the ordering process which could result in a failure to provide the
required quantities of fresh food products to the various stores and on the Group determining royalties
payable by the stores. This could lead to an inability of the Group’s or the franchisee’s stores to meet
customer demand, which could adversely impact on the profitability, financial condition and prospects
of the Group, as customers may take their business to competitors of the Group offering more
accessible ordering services.
Similarly, a failure of the Group to keep up with changing developments and innovations in the e-
commerce, technological and marketing industries and an inability to adapt to changing consumer
needs and meet increased demands caused by the expansion of the Group’s business may also impact
on the Group’s future financial performance.
1.10 Strain of infrastructure and resources
The Group aims to open approximately 50 new stores in the current financial year and each
subsequent financial year until it reaches its target of 1,000 stores in total in the UK and the Republic
of Ireland. This expansion and future growth will increase demands on the Group’s management team,
systems and resources, financial controls and information systems. These increased demands may
13
adversely affect the Group’s ability to open new stores and to oversee its existing franchising
arrangements. If the Group fails to continue to improve its infrastructure or to manage other factors
necessary for the Group to meet its expansion objectives, its growth rate and operating results could
be adversely affected.
2. GENERAL RISKS
2.1 General economic conditions and political and market factors beyond the Group’s control
Many factors affect the level of consumer spending in the food retail and home delivery markets,
including interest rates, currency exchange rates, recession, inflation, deflation, political uncertainty,
the availability of consumer credit, taxation, stock market performance, unemployment, consumer
perceptions and other matters that influence consumer confidence.
While the Directors believe that a number of prevailing trends benefit the Group’s business (including
a population with increasingly greater disposable income who are cash rich and time poor, and an
increased trend of busier and more hectic lifestyles leaving limited time for home cooking), the
performance of the Group may decline during recessionary periods or in other periods where one or
more macro-economic factors, or potential macro-economic factors, negatively affect disposable
incomes, the level of consumer spending or the amount that consumers spend on eating out and
therefore this may lower revenues for the Group.
Movements in interest and inflation rates may impact on the Group’s cost of raising and maintaining
debt financing and may also affect consumer spending patterns. For example, an increase in interest
rates may cause consumers to tighten spending, leading to a possible reduction in spending and sales
in the convenience food and home delivery markets, this potentially impacting on the Group’s overall
sales, profits and financial prospects. The current economic climate of restricted consumer credit
availability could lead to a reduction in disposable income for many customers and this may have an
adverse impact on the Group’s business and profits as consumers may limit their spending on
recreational activities such as ordering in food from outside the home. Changes in such market
conditions may affect the ultimate value of the Company’s share price regardless of operating
performance.
The Group could be affected by unforeseen events outside of its control, including natural disasters,
terrorist attacks and change in government policy. In addition, factors such as local demographics and
type, number and location of competing businesses may adversely affect the performance of
individual stores.
2.2 Failure of the Group to comply with existing regulatory and legislative requirements and changesto the current regulatory and legislative framework within which the Group operates
The Group’s failure to comply with existing or increased regulations, or the introduction of changes
to existing regulations, could adversely affect its business, financial and other conditions, profitability
and results of operations.
The Group is subject to significant government regulation at a national and local level, including
various health, sanitation, planning permission, licensing, fire and safety standards and advertising
standards. The Group is also subject to various UK and EU regulations governing the Group’s
relationship with employees, including such matters as minimum wage requirements, the treatment of
part-time workers, employers’ National Insurance contributions, overtime and other working
conditions. There is a risk that the cost of compliance with these regulations to the Group may
increase over time, particularly if additional regulation is to be introduced by the UK government or
other regulatory bodies or if existing obligations are extended. Increased compliance costs are likely
to create an additional administrative burden and may impact on the overall profitability and financial
condition of the Group.
Furthermore, a failure of the Group or any of its franchisees to comply with one or more regulations
in place could result in the imposition of sanctions, including the closing of facilities for an
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14
indeterminate period of time, recalling of certain products, fines, or third-party litigation, any of which
could have a material adverse effect on the Group’s business. Failure of compliance and consequent
sanctions, if widely publicised, may also negatively affect the Group by damaging the reputation of
the Domino’s brand.
A change in the VAT or other tax regimes applicable to the Group’s business may result in uncertainty,
disruption to operations and/or implementation costs which the Group may not be able to pass on to
end customers or which may lead to higher prices being charged to consumers, making ordering take-
out/home delivery food less attractive and leading to a decline in sales. In particular, the possible
introduction of a so-called ‘fat tax’ which would require customers to pay additional tax on the
purchase of food products with a high fat, salt and sugar content, may have an adverse impact on the
overall financial performance and profitability of the Group. This additional tax could apply to some
of the products offered by the Group and could therefore increase the end cost to customers who might
potentially turn to competitors of the Group offering healthier and less expensive alternatives. This
could adversely affect the overall sales of the Group and its financial condition and prospects.
In addition, changes to advertising laws which regulate the Group’s promotion of the Domino’s brand
and products in the UK and Northern Ireland may adversely affect the profitability and financial
performance of the Group. A growing concern amongst the government, media and general public
with increased obesity levels amongst children and teenagers in particular could result in the
imposition of tighter advertising restrictions affecting the Group’s business. For example, certain
pressure groups are asking the government to consider further restricting the advertisement of fast
food and food products with a high fat, sugar, salt and additive content to children and teenagers
through further limiting the content of television, internet, and radio advertisements to brand
promotion only and preventing the promotion of the food products themselves. If introduced, such
increased regulation may require the Group to alter its existing advertising strategy, and may also
require the Group to invest in and develop alternative means of promoting its products. If the Group
fails to comply with such regulation it may be subject to fines or sanctions. Further capital expenditure
may increase if it is necessary to take any remedial measures in this regard. Such increased regulation
could therefore have an adverse affect on both consumer brand and product awareness, leading to a
potential reduction in overall sales revenues of the Group, and on the amount of resources dedicated
to advertising strategy, thus impacting on the general financial condition and future prospects of the
Group’s business.
2.3 Change to consumer preferences and perceptions
Food service businesses are affected by changes in consumer tastes, national, regional and local
economic conditions and demographic trends. Market perception of the home delivery and
convenience food industry may change which could impact on the continued trading success of the
Group and future profitability. Whilst the home delivered and convenience food services offered by
the Group are presently popular, there can be no assurance that changes in consumer preference will
not affect its appeal in the future.
In particular, an increasing number of government and media initiatives to create increased awareness
of healthy eating could impact on the public’s perception of the home delivered and convenience food
industry, which could adversely affect the Group’s business, financial condition or prospects, through
resulting decreased sales. Customers of the Group may turn to competitors of the Group offering
healthier convenience food options such as lower calorie ready meals. If the Group is unwilling or
incapable of adapting its products to successfully meet changes in consumer tastes and trends, its
business and financial condition may be materially adversely affected. As the Group is primarily
dependent on a single product type, if consumer demand for pizza should decrease, the Group’s
business will suffer more than it may otherwise do so if it had a more diversified menu.
2.4 Market competition
The Group’s stores compete with a wide variety of branded and non-branded home delivery and
convenience food businesses, some of which may offer higher amenity levels or lower prices and/or
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15
are backed by greater financial and operational resources. The Group may experience increased
competition from existing or new companies. Existing competitors of the Group include other
takeaway and pizza delivery stores as well as supermarkets offering a selection of convenience food
products such as ready meals and branded and non-branded pizzas. Some of these competitor products
may be positioned as a healthier alternative to the products sold in the Group’s stores. The Group’s
stores may not be successful in competing against any or all of these alternatives. A sustained loss of
customers to competitors or an increased consumption of and consumer preference for supermarket
bought ready meals could have a material adverse effect on the Group’s operations and financial
prospects.
The Group’s competitors with greater resources may be able to react more effectively to changes in
pricing, marketing and other factors affecting the home delivery and convenience food sector. The
Group’s franchisees also compete with other businesses for suitable management and employees. If
the Group is unable to maintain its competitive position, its’ franchisees could experience downward
pressure on prices, lower demand for their products, reduced margins, an inability to take advantage
of new business opportunities and a loss of market share, all of which could adversely affect the
Group’s business. The Group also competes with other businesses for management and hourly
employees and suitable real estate sites and qualified franchisees. Difficulty in securing suitable
management, hourly employees, sites for new stores and suitable franchisees could adversely affect
the Group’s business, results of operations, financial condition or prospects.
2.5 Increased costs of raw materials, labour and other costs
The overall profits and financial prospects of the Group are dependant in part on the cost of raw
materials. The prices of commodities such as wheat and cheese, all of which are essential ingredients
in the production of the Group’s pizzas and other food products, can be volatile. During 2007, the
Group experienced unprecedented increases in prices, which had an effect on the Group and its
franchisees, due to the need to devote increased management time and resources to the purchase of
raw materials. This was exacerbated by one of the Group’s cheese supplier entering into receivership
and the consequential end of the Group’s fixed priced contract. As a result, new supply arrangements
saw the cost of cheese increase by over 50 per cent. during the course of 2007.
Further factors such as increased labour and energy costs may also adversely affect operating costs.
The Group seeks to pass on increases in these costs to the franchisees who are able, if they so wish,
to reflect these increases in their menu prices. However, there is a risk that further increases to menu
prices may lead to a fall in demand from end customers, especially if other operators of home delivery
or take away stores or other providers of convenience food products do not increase their prices in a
similar fashion. Further there can be no guarantee that the Group will be able to pass these costs on
in the future. This could adversely impact on the overall financial performance and future prospects
of the Group. However, increases in raw material prices during 2007 which, for the most part, were
passed on to the Group’s franchisees, who in turn put up their prices, appear not to have had an
adverse impact on demand as witnessed by the continued momentum in Group sales since these
increases.
2.6 Environmental
The Group’s operations are subject to environmental regulation (including requirements to obtain
environmental permits). Such regulations cover a wide variety of matters, including, without
limitation, waste management, obligations in relation to packaging waste, air emissions and trade
effluent control and noise and odour control. The Group may also be subject to clean-up costs and
liability for contaminated land or water pollution which may exist on or under any of its properties or
which may result from its operations.
Enforcement and legislative authorities are likely, over time, to adopt stricter environmental standards
than those now in effect and move towards more stringent enforcement of those laws and regulations.
The costs of any clean-up or rehabilitation may also be higher than expected. Such higher costs or
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AI 8.2
16
breach of any environmental obligations could result in penalties and civil liabilities and/or
suspension of operations, any of which could adversely affect the Group’s business, financial
conditions or prospects.
The introduction of more stringent environmental regulations, including regulations associated with
indirect carbon and noise emissions, may result in the Group having to pay increased building costs
in relation to the sites it develops. The Group will look to pass on any increased regulatory costs to its
franchisees through increasing rental or service charge costs. Franchisees may however be unwilling
to accept any increased costs and may look to expand by moving outside of the Group’s business
model. An inability to pass on any increased regulatory costs or the loss of franchised stores as a result
of such increases (and in particular the loss of any material franchisee), would be likely to impact on
the financial performance, prospects and overall profitability of the Group.
2.7 Health and safety
The Group’s activities are and will continue to be subject to health and safety regulations. Health and
safety legislation is likely to evolve in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance and a heightened degree of responsibility for
companies and their directors and employees. Failure by the Group to comply with such requirements
in respect of its own operations in its commissaries may result in fines, penalties, closure of facilities
and/or litigation which could adversely affect the Group’s reputation and business, results of
operations, financial condition or prospects.
For example, should asbestos be found at any of the Group’s stores or commissary sites, employees
or others may bring claims against the Group in respect of any resultant health problems suffered. In
addition, local authorities may impose remedial requirements or close down facilities where they
represent a risk to health. Prosecutions may also be brought which could lead to fines on the Group.
Any employee claims or fines levied on the Group or any resultant shutdown of contaminated stores
or in particular of the Group’s commissaries, would be likely to have a material adverse affect on the
Group’s reputation, financial condition, result of operations and future prospects.
2.8 Illness associated with the Group’s food products
The Group can give no assurance that its internal controls and training will be fully effective in
maintaining adequate food health and safety standards or that franchisees of the Group will fully
adhere to and implement the Group’s standard controls and procedures in order to ensure that the
contamination of its food products is entirely prevented. There is a risk that franchisee employees may
handle food in an unhygienic or unsafe manner so as to lead to the possibility of customers contracting
food borne illnesses or that premises or plant and machinery are maintained in a way that gives rise
to a risk to human health. Illness resulting from the consumption of food products sold by the Group’s
stores, or the recall of products even where no illness has been caused, could subject the Group to
third party litigation and if publicised on a large scale, reduce the Group’s turnover.
Furthermore, the actions of third-party food suppliers outside of the Group’s control could fail to meet
required health and safety standards so as to lead to the contamination of the Group’s food products.
New bacterial strains resistant to the Group’s current precautions may develop in the future, or
illnesses with long incubation periods could arise that could give rise to claims or allegations on a
retroactive basis. One or more instances of poor food management practices or illness arising from
food prepared in franchisee stores which, if highly publicised, could adversely affect the Group. If any
person becomes ill, or alleges illness as a result of eating food prepared by the Group or any franchisee
of the Group, the Group may be liable for damages, or be subject to regulatory action or adverse
publicity (as described at paragraph 1.5 (The reputation, value and protection of the Domino’s brand)above). Such brand damage and negative publicity could adversely affect the Group’s business,
financial, prospects and results of operations. This risk exists even if it were later determined that the
illness was wrongly attributed to one of the Group’s stores.
AI 9.2.3
17
2.9 The Group’s sales are subject to seasonality
The Group’s sales experience moderate seasonal fluctuations. Overall, sales by the stores are
generally at their highest in the winter and lower during the summer months, due to a reduced demand
for hot food during warmer periods. In the past, particularly hot summers have impacted on the
Group’s financial performance. It follows that future changes to the climate in the UK and Ireland
such as increasing temperatures and prolonged and warmer summers, may have an adverse impact on
the Group’s revenues, sales and financial performance.
2.10 Financing arrangements
The Group has a moderate amount of debt currently, but may incur additional borrowings from time
to time. The Group may be unable to service interest payments levied on such borrowings and
principal repayments or to comply with other requirements of its financing arrangements, rendering
borrowings (subject to various grace periods) capable of being declared immediately repayable in
whole or in part, together with any associated cost. In addition, a decline in the value of the Group’s
assets may result in a breach of the loan to value and/or the debt service cover ratios specified in the
Group’s financing arrangements, thereby causing an event of default with the result that the lenders
could enforce their security and take possession of the Group’s assets. Any cross-default provisions
would magnify the effect of an individual default, which could result in a substantial loss for the
Group.
The Group’s indebtedness could:
(a) require the Group to dedicate much of its cashflow to servicing repayments, this reducing the
availability of cashflow to fund its working capital, capital expenditures, service development
and other general corporate purposes;
(b) limit the Group’s ability to obtain additional financing to fund future working capital, capital
expenditures, service development and other general corporate purposes;
(c) increase the Group’s vulnerability to adverse economic and industry conditions; or
(d) limit the Group’s flexibility in planning for, or reacting to changes in its business, in the home
delivery and convenience food industry, and in the economy generally,
thereby impacting on the overall profitability of the Group’s business, result of operations, financial
condition and future prospects.
This risk factor does not in any way prejudice or qualify the working capital statement set out in
paragraph 19 of Part VIII of this document as it is only a risk outside the 12 month period to which
the working capital statement relates.
2.11 Cashflow
The Group’s ability to make principal and interest payments on its indebtedness and dividend
payments will depend on its ability to generate cash in the future. This is, to a certain extent, subject
to general economic, financial, competitive, regulatory, legislative and other factors that are beyond
the Group’s control. If (amongst other things) the Group’s business does not generate sufficient cash
flow from operations or if anticipated cost savings and operating improvements are not realised on
schedule, the Group’s financial condition and results of its operations may be adversely affected.
2.12 Strategic factors may affect operations
The level of growth in revenues from the Group’s stores will be a critical factor affecting profit
growth. The Group’s ability to increase revenue depends in part on the ability of franchisees to grow
sales by offering good service, attractive menu items and competitive prices. If the Group’s existing
stores do not increase sales in line with the Group’s targets, it is possible that the Group will not
achieve its targeted revenue growth or that the change in revenue may be negative and could adversely
impact on the Group’s overall profit growth and financial results.
18
2.13 Dependence on key personnel and franchisees
The Group’s future success is substantially dependent on the continued services and continuing
contributions of its Directors, senior management and other key personnel and its ability to continue
to attract and retain highly skilled and qualified personnel. There can be no assurance that the
Company will be able to retain its Directors, senior management or other key personnel. The
individual success of each of the Group’s stores substantially depends on the Group’s ability to attract
and retain suitable franchisees, who in turn need to attract and retain qualified store managers and
staff. The loss of the services of any of the Directors or the Company’s senior management, key
personnel, or existing franchisees (in particular material franchisees operating a number of the
Group’s stores) could adversely affect the Group’s business, results of operations, financial condition
or prospects.
2.14 Reliance on leased premises and failure to renew or extend the terms of any of the Group’s leases
The premises on which the Group’s and its franchisees’ stores are situated within the UK and
Republic of Ireland are generally leased. The early termination of any of the Group’s leases due to
non-compliance with the lease terms or the failure to renew leases that have expired or default by
licencees or assignees, could adversely affect the Group’s profitability.
The Group’s operating performance depends in part on its ability to secure leases for its stores in
appropriate locations at rents it believes to be cost effective for that business. The Group will typically
take a twenty year lease subject to five yearly upward only rent reviews to the prevailing market rent,
and the store will then be sublet (on the same terms and conditions) to an appropriate franchisee for
a ten year term to match that of his franchise agreement. Personal guarantees are required in the event
that the sublease and franchise agreement are taken in the name of a company. The franchise
agreement has an automatic right of renewal upon expiry, which would also trigger the renewal of the
sublease, up to the unexpired term of the superior lease.
Barring the failure of a franchisee’s business, the Group’s exposure is thus limited to those periods
that a store is vacant, either because it is awaiting a franchisee or because it has been decided that it
is an unprofitable trading location and the lease has yet to be surrendered or assigned. The franchising
nature of the Group’s operations means that it becomes readily aware of any financial issues affecting
a franchisee and enables it to take immediate measures to minimise any potential losses, through
action such as terminating the sublease and franchise agreement and selling the store to another
franchisee.
The nature of the Group’s property portfolio, which is concentrated in properties in secondary
locations with local landlords, means that although it believes that it will be able to renew its leases
as they expire, it can offer no assurances in this respect.
2.15 Past performance is not an indicator of future performance
This document includes information about the historical financial performance of the Group. Past
performance is not however a guarantee as to the future financial performance of the Company and
the Group, which may be materially different from its past performance and which may be adversely
affected by, amongst other things, the risk factors described in this Part II.
2.16 Fluctuations in the value of the Euro
Exchange rate fluctuations could have an adverse effect on the Group’s operations. The Group’s sales
in the Republic of Ireland will be made in Euros. Euros may become less valuable prior to conversion
to Pounds Sterling as a result of exchange rate fluctuations. Unfavourable currency fluctuations could
result in lower revenues for the Group, on a Pounds Sterling basis, from such customers and
franchisees.
19
3. RISKS ASSOCIATED WITH THE ORDINARY SHARES
3.1 Maintaining an active public market for the Ordinary Shares post Admission
Although the Company has applied for Admission, and it is expected that these applications will be
approved, the Group can give no assurance that an active trading market for the Ordinary Shares in
the Company will develop or, if developed, will be sustained following Admission. If an active trading
market is not developed or maintained, the liquidity and trading price of the Ordinary Shares could be
adversely affected.
3.2 Share price volatility and liquidity
The share price of quoted companies can be highly volatile and shareholdings illiquid. The price at
which the Ordinary Shares are quoted and the price which investors may realise for their Ordinary
Shares will be influenced by a large number of factors, some of which are specific to the Group and
its operations and some of which may affect quoted companies generally. These factors could include
the performance of the Group, large purchases or sales of the Ordinary Shares, legislative changes and
general economic, political or regulatory conditions.
3.3 Dividends
As a holding company, the Company’s ability to pay dividends will depend upon the level of
distributions, if any, received from its operating subsidiaries and the level of cash balances. There can
be no guarantee that the Company will have sufficient distributable reserves after the receipt of
amounts from its subsidiary companies. Therefore, there is no guarantee that the Company will be in
a position to pay out dividends to investors.
3.4 Additional future capital
The Group’s capital requirements depend on numerous factors, including cash generated from the
Group’s stores. If its capital requirements vary materially from its current plans, the Group may
require further financing. Any additional equity financing may be dilutive to Shareholders and debt
financing, if available, may involve restrictions on financing and operating activities. In addition, there
can be no assurance that the Group will be able to raise additional funds when needed or that such
funds will be available on terms favourable to the Group. This risk factor does not in any way
prejudice or qualify the working capital statement set out in paragraph 19 of Part VIII of this
document as it is only a risk outside the 12 month period to which the working capital statement
relates.
3.5 Taxation
Any change in the Company’s tax status or in taxation legislation could negatively affect the
Company’s ability to provide returns to Shareholders. Statements in this document concerning the
taxation of investors in Ordinary Shares are based on current tax law and practice which is subject to
change. The taxation of an investment in the Company depends on the individual circumstances of the
relevant investor.
3.6 Future sales of Ordinary Shares
The Company is unable to predict when and if substantial numbers of Ordinary Shares will be sold in
the open market following Admission. Any such sales, or the perception that such sales might occur,
could result in a material adverse effect on the market price of the Ordinary Shares.
4. FORWARD LOOKING STATEMENTS
Some of the statements in this document include forward looking statements which reflect the Directors’
current views with respect to financial performance, business strategy, plans and objectives of management
for future operations (including development plans relating to the Group’s products and services). These
statements include forward looking statements both with respect to the Group and the sectors and industries
in which the Group operates. Statements which include the words “expects’’, “intends’’, plans’’, “believes’’,
20
“projects’’, “anticipates’’, “will’’, “targets’’, “aims’’, “may’’, “would’’, “could’’, “continue’’ and similar
statements are of a future or forward looking nature.
All forward looking statements address matters that involve risks and uncertainties. Accordingly, there are
or will be important factors that could cause the Group’s actual results to differ materially from those
indicated in these statements. These factors include but are not limited to those described in the part of this
document entitled “Risk Factors’’, which should be read in conjunction with the other cautionary statements
that are included in this document. Any forward looking statements in this document reflect the Directors’
current views with respect to future events and are subject to these and other risks, uncertainties and
assumptions relating to the Group’s operations, results of operations, growth strategy and liquidity. Given
these uncertainties investors are cautioned not to place any undue reliance on such forward looking
statements.
These forward looking statements speak only as of the date of this document. Subject to any obligations
under the Prospectus Rules, the Listing Rules, Disclosure Rules and Transparency Rules or as otherwise
required by law, the Company undertakes no obligation to publicly update or review any forward looking
statement, whether as a result of new information, future developments or otherwise. All subsequent written
and oral forward looking statements attributable to the Group or individuals acting on behalf of the Group
are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider
the factors identified in this document which could cause actual results to differ before making an investment
decision.
21
PART III
DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS
Directors Stephen Hemsley (Executive Chairman)Colin Halpern (Non-Executive Vice Chairman)Christopher Moore (Chief Executive Officer)Lee Ginsberg (Chief Financial Officer)Nigel Wray (Non-Executive Director)John Hodson (Independent Non-Executive Director)Michael Shallow (Senior Independent Non-Executive Director)Dianne Thompson (Independent Non-Executive Director)
Company Secretary Adam Batty
Registered Office Domino’s House
Lasborough Road
Kingston
Milton Keynes
MK10 0AB
Sponsor and Joint Broker Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Joint Broker Altium Capital Limited
30 St James Square
London SW1Y 4AL
Solicitors to the Company Mayer Brown International LLP
11 Pilgrim Street
London EC4V 6RW
Solicitors to Numis Travers Smith
10 Snow Hill
London EC1A 2AL
Ernst & Young LLP
400 Capability Green
Luton LU1 3LU
Bankers Barclays Bank plc
Eagle Point
1 Capability Green
Luton LU1 3US
Registrars Capita Registrars Limited
Bourne House
34 Beckenham Road
Beckenham
Kent BR3 4TU
AIII 4.3
AI 2.1Reporting Accountants
and Auditor
AIII 10.1
AI 1.1
AIII 1.1
22
PART IV
DEFINITIONS
The following definitions apply throughout this document, unless the context otherwise requires:
“1985 Act” the Companies Act 1985 of England and Wales, as amended from
time to time;
“1999 Schemes” the Approved Scheme and the Unapproved Scheme;
“2006 Act” the Companies Act 2006 of England and Wales, as amended from
time to time;
“2001 Regulations” the Uncertified Securities Regulations 2001, as amended or
replaced from time to time and any subordinate legislation or rules
made under them for the time being in force;
“Admission” admission of the Ordinary Shares to trading on the Official List of
the Financial Services Authority and to trading on the London Stock
Exchange’s main market for listed securities;
“AGM” an Annual General Meeting of the Company;
“AIM” the AIM market operated by the London Stock Exchange;
“AIM Rules for Companies” the rules and guidance for companies whose shares are admitted to
trading on AIM entitled “AIM Rules for Companies” published by
the London Stock Exchange, as amended from time to time;
“Approved Scheme” Domino’s Pizza Share Option (Approved) Scheme (as amended);
“Articles” the amended articles of association of the Company as adopted by
a special resolution of members passed on 24 April 2008;
“Auditor” an auditor of the Company;
Ernst & Young LLP, of 400 Capability Green, Luton LU1 3LU;
“Barclays” Barclays Bank plc;
“Board” the board of directors of the Company from time to time, including
any duly constituted committee thereof;
“Business Day” a day on which banks are open for business in London;
“Capita” Capita Registrars Limited, whose registered office is at The
Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, the
Company’s registrars;
“Certificated Share” a share which is not for the time being an Uncertificated Share;
“Combined Code” The Combined Code on Corporate Governance (June 2006);
“Companies Acts” the 1985 Act and the 2006 Act, as amended from time to time;
“Company” Domino’s Pizza UK & IRL plc, a company registered in England
and Wales with registered number 03853545 having its registered
office at Domino’s House, Lasborough Road, Kingston, Milton
Keynes, MK10 0AB;
“Auditors”, “E&Y”, or
“Reporting Accountants”
AIII 4.1
23
“Connected Person” has the meaning given in section 252 of the 2006 Act;
“CREST” the computerised settlement system operated by Euroclear UK &
Ireland Limited to facilitate the transfer of title to shares in
uncertificated form;
“CREST Regulations” the Uncertified Securities Regulations 2001 as amended or replaced
from time to time and any subordinate legislation or rules made
under them for the time being in force;
“Daily Official List” the Daily Official List of the London Stock Exchange;
“Direction Notice” a notice issued under the 2006 Act, following a failure to comply
with a Disclosure Notice issued pursuant to section 793 of the 2006
Act;
“Directors” the directors of the Company as at the date of this document whose
names are set out in Part III of this document;
“Disclosure Notice” a notice served pursuant to section 793 of the 2006 Act;
the disclosure and transparency rules made by the Financial
Services Authority under section 73A of the Financial Services and
Markets Act 2000;
“Domino’s” the brand name owned by Domino’s IP Holder LLC which the
Group has the right to use in the UK and the Republic of Ireland
under the Master Franchise Agreement;
“Domino’s System” the comprehensive system and business model developed by DPII
and operated by the Group for the sale of pizza, including carry out
and delivery services, specially designed equipment, recipes,
methods, procedures and designs;
“DP Capital” DP Capital Limited, a wholly owned Subsidiary of the Company;
“DPD” DP Group Developments Limited, a wholly owned Subsidiary of
the Company;
“DPG” Domino’s Pizza Group Ltd, a wholly owned Subsidiary of the
Company;
“DPGHL” DPG Holdings Limited, a wholly owned Subsidiary of the
Company;
“DPI” Domino’s Pizza, Inc.;
“DPIF” Domino’s Pizza International Franchising Inc.;
“DPII” Domino’s Pizza International, Inc.;
“DPP (Ireland)” DP Pizza Limited, a wholly owned Subsidiary of the Company;
“DPR” DP Realty Limited, a wholly owned Subsidiary of the Company;
“DTL” Dough Trading Limited;
“EBT” Domino’s Pizza UK & IRL plc Employee Benefit Trust;
“EMI Scheme” Domino’s Pizza UK & IRL plc 2003 Enterprise Management
Incentive Scheme (as amended);
“Disclosure Rules and
Transparency Rules”
24
“EPS” earnings per share;
the Financial Services Authority of the UK;
“franchisee” any franchisee who has been granted a franchise by DPG pursuant
to the Master Franchise Agreement;
“FSMA” the Financial Services and Markets Act 2000 of England and Wales,
as amended and supplemented from time to time;
“gross dividend” in respect of an individual shareholder’s liability to income tax, the
sum of the dividend and tax credit received;
“Group” the Company and its Subsidiaries;
“HMRC” HM Revenue & Customs;
“HS Real” HS Real Company LLC, a company owned by a discretionary trust,
the beneficiaries of which are the adult children of Colin Halpern;
“IFRS” International Financial Reporting Standards;
“IFS” International Franchise Systems, Inc.;
“Ireland” the Republic of Ireland;
“Know-How Agreement” know-how and technical knowledge licence and management
agreement made between (1) DPII and (2) DPG, dated
29 December 1993 as subsequently assigned by DPII to DPIF on
16 April 2007;
“Listing Rules” the listing rules made by the Financial Services Authority under
section 73A of the Financial Services and Markets Act 2000;
“London Stock Exchange” London Stock Exchange plc;
“Master Franchise Agreement” the master franchise agreement made between (1) DPII and (2)
DPG, dated 29 December 1993 (as amended and supplemented by
agreements dated 28 September 1995, 26 May 1997, 24 June 1997,
31 August 1998, 15 September 1999, 21 July 2003 and
20 September 2006) as subsequently assigned by DPII to DPIF on
16 April 2007;
“Memorandum of Association” the memorandum of association of the Company;
“Merchant Agreement” the agreement made between (1) DPG and (2) Midland Bank plc,
dated 23 September 1999;
“NAF” the National Advertising Fund of the Group;
“NatWest” National Westminster Bank plc;
“Non-Executive Directors” the non-executive directors of the Company as at the date of this
document who are identified as such in Part III of this document;
“Numis” Numis Securities Limited, the Company’s Sponsor;
“Official List The Official List of the Financial Services Authority;
“Old options” Options held over shares in DPG pursuant to the Old Scheme;
“Financial Services Authority” or
“FSA”
25
“Old Scheme” Domino’s Pizza Group Limited (Unapproved) Share Option
Scheme;
“Option” or “Options” any option to purchase Ordinary Shares in the Company, granted by
the Company under the Share Schemes;
“Ordinary Share” each ordinary share of 1.5625p, issued and to be issued, in the
capital of the Company;
“Placing” the admission of the Company to trading on AIM on 24 November
1999;
“Prospectus Rules” the prospectus rules made by the Financial Services Authority under
section 73A of the Financial Services and Markets Act 2000;
“Registrar” Capita Registrars Limited;
“Regulatory Information Service” a Regulatory Information Service that is approved by the FSA and
that is on the list of regulatory information service providers
maintained by the FSA;
“Relevant Shares” shares subject to and identified in a Direction Notice delivered by
the Company pursuant to the 2006 Act;
“Relevant System” any computer-based system, and procedures, permitted by the 2001
Regulations and the rules of the UK Listing Authority, which enable
title to units of a security to be evidenced and transferred without a
written instrument and which facilitate supplementary and
incidental matters;
“Rollover options” options over shares in the Company held under the Unapproved
Scheme granted to holders of Old options under the Old Scheme in
exchange for the release of their rights over shares in DPG;
“Royalty Fee” the royalty fee paid by DPG to DPIF pursuant to the terms of the
Master Franchise Agreement;
“RPI” Retail Price Index;
“SDRT” Stamp Duty Reserve Tax;
“section 80 authority” authority granted to the Directors, pursuant to section 80 of the
1985 Act, to allot Ordinary Shares and other relevant securities (as
defined in section 80(2) of the 1985 Act);
“Seventh Amendment Agreement” the seventh amendment agreement to the Master Franchise
Agreement, made between (1) DPII and (2) DPG, dated
20 September 2006;
“Shareholders” holders of Ordinary Shares;
“Sharesave Scheme” the sharesave scheme implemented by the Group on 29 December
2005 (as amended);
“SMS” Short Message Service;
“Sponsor” Numis, acting as sponsor to the Company pursuant to the
requirements of the Listing Rules;
26
“Sponsor’s Agreement” the sponsor’s agreement made between (1) the Company and (2)
Numis, dated 14 May 2008, pursuant to which Numis agrees to act
as Sponsor of the Company;
“Subsidiary” or “Subsidiaries” a subsidiary and/or subsidiary undertaking of the Company as each
of those terms is defined in the 2006 Act;
“Territory” the UK and the Republic of Ireland;
“UK” or “United Kingdom” the United Kingdom of Great Britain and Northern Ireland;
“Unapproved Scheme” Domino’s Pizza Share Option (Unapproved) Scheme (as amended);
“Uncertificated Share” a share or any other security of the Company title to which is
evidenced and which may be transferred by the use of a Relevant
System;
“US Dollars” the currency of the United States of America; and
“VAT” Value Added Tax.
27
PART V
INFORMATION ON THE GROUP
1. Introduction
The Domino’s brand was founded in the United States of America in 1960 by Tom Monaghan. Since then,
that business has grown into a global network of over 8,000 stores in more than 50 countries, employing
around 170,000 staff and involving over 2,000 franchises.
DPG is the master franchisee in the UK and Ireland of Domino’s Pizza, one of the world’s leading home
delivery pizza brands. Since the business of the Group was purchased from DPII in 1993, it has developed
to become the leading UK home delivery pizza brand. DPII subsequently assigned the Master Franchise
Agreement to DPIF on 16 April 2007. The Group is not affiliated to DPI, DPIF or DPII other than by virtue
of the terms of the Master Franchise Agreement and the Know How Agreement. Since the first store opened
in the UK in 1985 and in Ireland in 1991, the Group has expanded to 501 stores (as at 30 December 2007)
in the UK and Ireland and is accessible to 50 per cent. of UK and 37 per cent. of Irish households. Of these
stores, 398 are located in England, 38 in Scotland, 19 in Wales, 12 in Northern Ireland and 34 in Ireland.
The Group’s total annual system sales for the 52 weeks ended 30 December 2007 amounted to £296.3
million, representing growth of 23.4 per cent. over prior year sales. The Group’s operating profits from
continuing operations increased from £13.7 million to £18.3 million over the same period.
The Group is well placed to continue the rollout of this proven concept by the further development of the
franchise system. The Group’s target is to reach a total of 1,000 stores in the UK and Ireland by
approximately 2017, opening 50 new stores on an annual basis. The Directors believe that sales at existing
stores will be increased through the continued use of targeted marketing, the growth in the advertising
budget, the growth of the e-commerce channel and the superior product quality and service proposition.
2. The Business of the Group
(a) The Domino’s Pizza Concept
The Directors believe that the Group’s stores offer a focused menu of high quality pizza along with a
range of starters, desserts and drinks. Pizzas are “slapped out” by hand in store from a fresh dough ball
and topped with pizza sauce made from Portuguese vine-ripened tomatoes, real mozzarella cheese, and
a choice of high quality meats and fresh vegetables.
The Group is committed to the use of fresh produce, where possible, in the preparation of its pizzas and
the Group constantly reviews the quality of its ingredients with a view to maintaining the highest
standards and identifying opportunities to improve the nutritional content of its food. One particular
aspect of this commitment that the Directors believe distinguishes a Domino’s pizza from the majority
of its major competitors is the use of fresh, as opposed to frozen dough. The dough is prepared to
Domino’s own recipe at the Company’s commissaries in Milton Keynes, Naas and Penrith.
The Group’s target is to safely deliver its product to its customers within 30 minutes of an order being
placed. To accomplish this, the focus in-store is on efficiency and speed of process. Since 2000, the
Group has reduced the average time to make a pizza by one minute (which represents a 22 per cent.
improvement) and the average time to get the customers order out of the door and on its way by two
minutes (which represents a 14 per cent. improvement). The average delivery leaves the store within
13.5 minutes after the order has been placed.
(b) Key Strengths
The Directors believe the key strengths of the Group are:
• its distinctive brand;
• an emphasis on consistently high quality product as a result of the stringent selection of high
quality ingredients and delivery across the portfolio of stores;
AI 6.2
AI 6.1.1
AI 6.1.2
AI 6.4
AI 5.1.5
AI 6.5
28
• an emphasis on service whereby stores aim to consistently deliver their product to the customer
in less than 30 minutes, through a focus on staff training, exacting brand standards and the use
of standardised systems and processes;
• its proven management team;
• a loyal customer base;
• its market leading position;
• its highly cash generative business model; and
• a scalable business concept that provides the Group with the opportunity to roll-out a further
50 new stores each year in order to reach the Group’s longer term goal of targeting 1,000 stores
in total in the UK and Ireland by approximately 2017.
(c) Master Franchise Agreement
The success of the Group’s business is substantially dependent on the rights included in the Master
Franchise Agreement. The Master Franchise Agreement sets out how DPG has to introduce, manage
and grow its franchised business in the UK and Ireland.
Under the Master Franchise Agreement, DPG enjoys rights to the Domino’s System in the UK and
Ireland indefinitely until all of the franchise agreements that DPG has with its franchisees (and itself
for corporate stores) have expired or otherwise been terminated, subject to DPIF’s rights on a breach
by DPG. Therefore, so long as any franchise agreements with DPG remain in force, the Master
Franchise Agreement shall remain in force as well.
DPG is required to meet minimum store growth targets under the Master Franchise Agreement and
must confirm that these have been achieved on an annual basis. These minimum targets are for a net
27 store openings per annum and are materially below the Group’s own target of 50 store openings
per annum. As stated in the Company’s AGM announcement which was released on 24 April 2008,
the Group is on track at this stage to meet the target of 50 new stores for this year. The Group has
opened an average of 47 stores each year over the past five years.
DPG is required to pay a continuing royalty fee to DPIF calculated on the total sales of all stores
(excluding VAT). The royalty fee payable to DPIF on a monthly basis is currently 2.7 per cent. of all
store sales (excluding VAT) for the preceding month. If the minimum store growth requirements are
not met, the royalty percentage increases by 0.3 per cent. to 3.0 per cent.
Breaches of the Master Franchise Agreement may lead to termination of the Master Franchise
Agreement, and also the Know-How Agreement pursuant to which DPG is granted the right by DPIF
to establish and operate the commissaries. DPIF has the right to require the sale or assignment to it of
any stores or franchise agreements at their fair value on termination of the Master Franchise
Agreement by DPIF due to a breach by DPG. DPG has never received such a notice and the Directors
consider that their compliance with the material terms of the Master Franchise Agreement is such that
this is highly unlikely.
Further descriptions of the terms of the Master Franchise Agreement and the Know-How Agreement
are set out at paragraphs 18.1 and 18.2 respectively, of Part VIII of this document.
(d) Franchisee Relationship
Franchisees are granted franchise agreements by DPG for ten years, with an option to renew at the
franchisee’s option. The renewed franchise agreement will be subject to further renewal in accordance
with the provisions in the standard terms at that time. Each franchise covers a defined geographical
area. There are currently approximately 144 franchisees in the Domino’s System operating an average
of approximately 3.5 stores each. Currently there are 56 franchisees with three or more stores of which
43 franchisees hold four or more stores.
AI 6.4
29
DPG supports its franchisees by providing comprehensive training, infrastructure and marketing
support and this has resulted in very low failure rates. The Directors believe that the economic model
on which the stores are based is attractive to franchisees as evidenced by historic sales growth (for
example, the average annual increase in like-for-like sales is 9.1 per cent. over the last five years) and
also by the number of franchisees with more than one store. It allows franchisees to payback the initial
store investment cost within an average of less than three years. DPG encourages an open dialogue
with franchisees by holding regular meetings, workshops, training and an annual awards banquet.
There are also a number of advisory committees at which franchisees consider such matters as
marketing, information technology, menu developments and operational issues.
In addition, the Company, through its subsidiary DP Capital, provides leasing finance to franchisees
for new equipment and the refurbishing of existing stores. DP Capital has in place a facility out of
which it makes leasing finance available to franchisees on a back-to-back basis with the facility from
Barclays Bank. The availability of specialist financing for refurbishments allows franchisees to
improve the appearance and quality of the older stores and upgrade store equipment where necessary.
(e) The Group’s stores
Each store is awarded a franchise in respect of a defined geographical area that is designed to ensure
that pizzas can be safely and consistently delivered within 30 minutes of an order being received.
Typically 75 per cent. of sales (by value) are delivered to customers homes with the balance being
carryout.
Since Domino’s Pizza was founded in the United States, it has developed a simple, cost effective
model. The stores are designed for delivery and do not offer an eat-in service. As a result the Group’s
stores require relatively modest floor space and limited capital expenditure and can be generally found
in locations where the franchisee does not pay premium rent. The straight forward menu and simple
operating model also help to ensure a consistent quality of product and controllable store operating
costs.
In terms of site selection, the Group identifies parts of the UK and Ireland that have a high number of
its core potential customers but no current store. Once a target area has been identified, the Group’s
surveyors visit the area and assess the local property market for the Group’s size, access to parking
and other site requirements. If a site is identified as matching the Group’s requirements, it will
approach the landlord or agent to secure a lease at a rent that is consistent with the local market and
is economically viable for a store.
Properties for new stores are fitted out to the Group’s corporate specification either by the Group (at
the franchisee’s cost) or by the franchisee under the Group’s supervision. During 2007, DPG
commissioned a new store design to further enhance the image of the store design which was
introduced seven years ago. Recent store openings have already started to feature this new design and
it is envisaged that up to 100 refits to some of the Group’s oldest stores will be carried out during 2008
with the balance to be updated over the next four years.
The Group’s estate of stores is held and managed by DP Realty, which owns nine freehold properties
and 472 short leasehold properties. The Group holds the head lease and then those properties are sub-
leased to franchisees for sole use as Domino’s stores. Most franchisees pay a rent equivalent to the
rent payable on the head lease, and a management fee of five per cent. Freehold properties are leased
to franchisees at market rates.
In line with the Group’s strategy to focus on developing the business through the franchise model, the
Group has disposed of all its wholly owned corporate stores. However the Group does have an interest
in 25 stores through joint venture agreements with Full House Restaurants Limited (which owns 14
stores) Dominoid Limited (which owns six stores), DP Peterborough Limited (which owns four
stores) and DP Milton Keynes Limited (which owns one store).
AI 8.1
30
(f) Commissaries
The Group’s headquarters are located in Milton Keynes and it is from here that the Group’s stores are
provided with support functions. These functions include: dough production, ingredients and
equipment purchasing and supply, training, operations, IT, marketing, franchise sales, warehousing,
property, franchise development and administration. The Group operates three commissaries in
Milton Keynes, Penrith and Naas.
The commissaries are central to the Company’s commitment to the use of fresh produce, where
possible, in the preparation of its pizzas and the maintenance of the highest standards. Fresh dough is
prepared daily to Domino’s own recipe at the commissaries and the Group’s dedicated refrigerated
transport fleet then delivers the trays of dough balls and all other pizza toppings and side orders to all
stores throughout the UK and Ireland, three times per week.
The Group has recently embarked on a major capital expenditure programme that will result in the
doubling in size of the Penrith commissary and the construction of a new state-of-the-art commissary
and headquarters on a newly acquired ten acre site in Milton Keynes which is scheduled to be in
operation during the latter part of 2009. The project cost of £25 million for the Milton Keynes project
will be incurred over the two financial years 2008 and 2009 and funded from a loan facility. The
expansion of the commissary in Penrith, which will cost £4 million during the current financial year,
will double that facility’s capacity. The Group also intends to expand the commissary operation in
Naas to meet the increasing demand for Domino’s Pizza in Ireland. These developments, combined
with the addition of a fourth commissary, which it is anticipated will be needed by 2012 in the UK,
will complete the infrastructure required for 1,000 stores.
The commissaries at Penrith and Milton Keynes are freehold properties owned by DP Group
Developments Limited, a subsidiary of the Company. The commissary at Naas is a long leasehold and
is owned by DPP (Ireland).
(g) Marketing
Each UK store currently contributes five per cent. of net sales (four per cent. for each Irish store) to
the NAF that is administered by the Group on behalf of franchisees. The NAF also draws some
additional revenue from e-commerce sales. The majority of the NAF is spent on TV advertising and
sponsorship properties which includes Britain’s Got Talent on ITV channels and The Simpsons on
Sky One. Resources are also spent on print and production in respect of store menus, local store
marketing, public relations, direct mail shots and on-line promotions. It is forecast that the NAF will
collect £18 million in the 2008 financial year which will be allocated to new product campaigns,
which will include around 20 weeks of TV advertising and sponsorship of Britain’s Got Talent on
ITV, Britain’s Got More Talent on ITV2 and America’s Got Talent on ITV2.
The Group launched its e-commerce channel in 1998 and now approximately 21 per cent. of its
delivered sales in the UK are generated via e-commerce. An important factor behind this sales growth
is the popularity of online shopping. According to the Mintel Group (“Mintel”), online shopping is
continuing to rise with online sales having risen by 42 per cent. since 2006. E-commerce is the
Group’s fastest growing channel to market and in 2007 total sales through these platforms reached
£32.2 million, an increase of over 60 per cent. on the previous year.
(h) Brand standards and other considerations
DPG regularly inspects every store to ensure that quality is maintained and each store is objectively
assessed for compliance with health, safety and operating standards. The Group aims to conduct a
minimum of three unannounced standards audits a year. To encourage high standards, special
incentive prizes are given to the managers of those stores that achieve high marks. Franchisees who
consistently underperform to the required standards are ultimately required to leave the system.
During 2007, the Group substantially removed added hydrogenated fats and MSG (Monosodium
Glutamate) from its products on its menu. This was in addition to the long-standing policy of
prohibiting the inclusion of any GMO’s (Genetically Modified Organisms) in its ingredients.
AI 6.2
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31
A portion of the Group’s truck fleet which deliver food to the stores are already registered “Euro 5”,
currently the highest standard in emissions control and it is anticipated that half the fleet will be
registered “Euro 5” by the end of the current year and that all trucks will be registered to this level by
2012. The Group also investigates from time to time the use of new fuel alternatives, such as biodiesel,
to operate the truck fleet.
Currently 80 per cent. of every pizza box used by the Group is made with recycled board and therefore
100 per cent. recyclable. Furthermore all invoices and statements are now sent to franchisees
electronically. Not only is this more efficient but it saves substantial paper, fuel and wastage in the
process.
The new commissary and headquarters in Milton Keynes, which are scheduled to be completed
towards the latter part of 2009, are being designed to be certified to BREEAM excellence (Building
Research Establishment Environmental Assessment Method).
3. Market Overview
Mintel has estimated that the value of the home delivery market (all foods) in the UK reached £1,474 million
(gross) in 2007 and expects the market to grow 30 per cent. to £1,918 million by 2011. Furthermore, it has
been observed that although home delivery represents only five per cent. of the overall eating out market in
the UK, it is the fastest-growing sector and increased 40 per cent. between 2001 and 2006. In contrast, the
eat-in sector (restaurants) grew by 25 per cent. over the same period.
Mintel has stated that 80 per cent. of the UK home delivery market is represented by three cuisine types,
pizza, chinese and indian. Pizza is currently the largest segment at 41 per cent. and the only segment that
features national branded chains. The Directors’ believe that the Group currently accounts for £1 of every £6
spent on (based on current Mintel data) home delivered meals in the UK.
The Directors believe that the home delivery market is being driven by a number of factors including:
• consumers increasingly having busier working lifestyles and the development of a “cash-rich, time-
poor” society; it has been reported that 55 per cent. of adults state they are under time pressure on a
regular basis whereas this figure rises to 70 per cent. for those with families. This time pressure,
combined with higher disposable income has led to an increased reliance being placed by consumers
on pre-prepared food and meals, including home delivery meals;
• the number of women in the workforce. This is estimated to have increased four per cent. since 2001
with 14.4 million women in employment in 2006. As a group, working women will tend to have less
inclination to prepare food at home;
• more single person households which tend to favour home delivery; and
• home as a leisure destination. It has been reported that £39 billion was spent on in-home leisure in
1999, rising to £63 billion by 2005 (and estimated to grow to £91 billion by 2010). Home leisure tends
to complement home delivery as consumers seek to combine their leisure activities with eating.
4. Strategy for Growth
The Directors intend to grow the Group’s business through the opening of 50 new stores each year without
diluting the quality associated with the Domino’s brand. The immediate growth will be generated by
increasing the number of stores with the longer term goal of targeting 1,000 in total in the UK and Ireland
by approximately 2017.
AI 5.2.2, 5.23
32
Fig. 1
Fig. 1 shows a compound annual growth rate in stores of 12.09 per cent. over the period from1999 to 2007
5. Selected summary financial information
The summary financial information set out below has been extracted or derived without material adjustment
from the financial information of the Group set out in Part VII of this document. Investors should read the
whole of the document and not rely on this summarised information.
52 weeks 52 weeks 52 weeks 52 weeks ended ended ended ended
1 January 31 December 31 December 30 December2006 2006 2006 2007
UK GAAP UK GAAP IFRS IFRS£000 £000 £000 £000
System sales 200,678 240,115 240,115 296,349
Group revenue 81,660 94,965 94,965 114,891
Profit before taxation 11,169 14,292 14,189 18,576
Earnings per share – basic (pence) 5.08* 6.49* 6.23* 8.38*
Equity dividends paid (3,169) (4,234) (4,234) (5,816)
Cash and cash equivalents 5,885 10,262 10,262 14,629
Net indebtedness (4,141) (5,582) (5,582) (1,568)
* Adjusted for the share split of 3.2 ordinary shares of 1.5625 pence each for 1 ordinary share of 5 pence approved at the Annual
General Meeting held on 24 April 2007.
6. Current trading and prospects
Trading in the first 16 weeks of 2008 has got off to a strong start with like-for-like sales for stores which
have been open for 12 months up 13.3 per cent. (2006: 14.6 per cent.). This is particularly encouraging given
the strong comparatives of last year. E-commerce has continued to show robust growth with an increase of
95.2 per cent. in the same 16 week period. E-commerce in the first 16 weeks of 2008 accounted for 21.0 per
cent. of all UK delivered sales.
The Group’s store opening programme is looking more encouraging than at the same stage last year. The
Group has more sites in the pipeline with planning than at the same time last year and the Group is optimistic
at this stage that it is on track to again achieve its target of 50 new store openings this year.
Cash flows remains strong and we have the debt facilities in place to secure the expansion of our existing
commissary in Penrith and the investment in our new commissary in Milton Keynes. Accordingly it is the
Directors’ intention to continue to return surplus cash to Shareholders by further share buybacks and
dividends.
The Directors believe that the Company is well positioned for another year of strong growth.
AI 12.2
AI 3.1
600
500
400
300
200
100
0
Financial year end
Num
ber
of S
tore
s
201
1999 2000 2001 2002 2003 2004 2005 2006 2007
215237
269
318
357
407
451
501
33
7. Biographies of Directors and senior management
The Board currently consists of eight directors, brief biographies of whom are set out below. Details of the
service contracts and letters of appointment of the Directors are set out in paragraph 11 of Part VIII of this
document.
Stephen Hemsley, Age 50 (Executive Chairman)
Stephen joined the Company as Finance Director in April 1998 and saw the Company through its admission
to AIM in 1999. In January 2001, he was appointed Chief Executive of the Company heading up the
Company’s UK and Irish system from its head quarters in Milton Keynes. Stephen qualified as a Chartered
Accountant in 1982 and in 1984 joined the venture capital specialists 3i, rising to the position of Investment
Director with direct responsibility for an offshore portfolio of approximately £100 million. In 1994, after a
brief return to the profession, Stephen was appointed Group Finance Director of Meltek Group plc, an
international computer services company, which became one of the first to float on the newly launched AIM
market in 1995. Stephen was appointed Executive Chairman of the Company at the beginning of 2008.
Christopher Moore, Age 48 (Chief Executive Officer)
Following an early career in international advertising working with McCann Erickson, Chris joined DPII in
1990 to set up their European marketing department with a remit that covered France, Holland, Belgium and
Spain as well as the UK and later, Ireland. Since 1993, following DPG’s acquisition of the master franchise
for Domino’s Pizza in the UK and Ireland, Chris has focused full-time on these two markets. He completed
an MBA with the London Business School in 1996, was appointed to the board of DPG in 1998 and became
a board Director of the Company in 1999, becoming Chief Operating Officer in 2006. Chris was appointed
Chief Executive Officer of the Company at the beginning of 2008.
Lee Ginsberg, Age 50 (Chief Financial Officer)
Lee joined the Company as Finance Director in November 2004. Previously he held the position of Group
Finance Director at Health Club Holdings Limited, formerly Holmes Place plc, and an 18 month role as
Deputy Chief Executive of the former company. Born and educated as a Chartered Accountant in South
Africa, Lee moved to the UK in 1993 after being transferred to a new post within the Anglo American
Group/Hunt Leuchars and Hepburn Group. Lee acted as UK Finance Director of Signet Group plc from June
1995 to March 1996. Lee acted as Finance Director and Company Secretary of Etam plc for two years and
subsequently joined Holmes Place assuming responsibility for driving UK and international growth in
September 1998. Whilst at Holmes Place plc, he successfully secured the financing of a £250 million capital
expenditure programme.
Colin Halpern, Age 71 (Non-Executive Vice Chairman and Member of Nomination Committee)
In 1993, Colin acquired the Domino’s Master Franchise Agreement in the UK and Ireland through
International Franchise Systems Inc (the then parent company of DPG). In November 1999, with Colin as
Chairman, the Company was taken public and listed on AIM. Colin is the Chairman of Cheval Property
Finance plc, Dayenn Limited and several other companies. Colin was appointed Non-Executive Vice
Chairman at the beginning of 2008.
Nigel Wray, Age 60 (Non-Executive Director)
Nigel was appointed to the Board on 15 November 1999. He is the Chairman of Saracens Rugby Club and
British Seafood Group Holdings Limited, Non-Executive Director of Prestbury Investment Holdings
Limited, Play Holdings Limited, Networkers International Plc, English Wines Group Plc, Seymour Pierce
Holdings Limited and several other private companies.
John Hodson, Age 62 (Independent Non-Executive Director, Chairman of the Remuneration Committeeand Member of the Audit Committee)
John previously worked with the Singer and Friedlander Group since 1970 where he was a board member
since 1987. In 1993 he was appointed Chief Executive of the Singer and Friedlander Group, a position he
held until December 2004. John is Non-Executive Chairman of Cenkos Securities plc, UBC Media Group
AI 14.1
AIII 1.1
34
and Strategic Equity Capital plc and is a director of Prestbury Group. John was appointed to the Domino’s
Board as a Non-Executive Director in 2005 and is Chairman of the Remuneration Committee.
Michael Shallow, Age 53 (Senior Independent Non-Executive Director, Chairman of the Audit Committee,Member of the Remuneration Committee and Nomination Committee)
Michael Shallow joined the Board of the Company in January 2006 and was appointed as the Senior
Independent Non-Executive Director on 24 April 2008. Michael, a Chartered Accountant, was Finance
Director for Greene King plc from 1991 to 2005. Michael is also a non-executive director of Britvic plc and
Spice plc.
Dianne Thompson, Age 57 (Independent Non-Executive Director, Member of the RemunerationCommittee and Chairperson of the Nomination Committee)
Dianne Thompson joined the Board of the Company as a Non-Executive Director in February 2006. Dianne
is the Chief Executive Officer of Camelot Group plc which she joined in 1997. She was Veuve Clicquot
Business Woman of the Year in 2000 and was voted Marketer of the Year by the Marketing Society in 2001.
Dianne is a fellow of the Royal Society of Arts, the Marketing Society, the Chartered Institute of Marketing
and is a Companion of the Chartered Management Institute. Dianne sits on the Press Compliants
Commission and is a Trustee of Born Free. She was awarded a CBE in the New Year’s Honours List 2006
and in 2006 was awarded the Chartered Institute of Management Gold Medal.
Senior Management
In addition to the executive management on the Board of the Company, the following Senior Managers
(whose management expertise and experience is set out below) are considered relevant to establishing that
the Group has the appropriate expertise and experience for the management of its business:
Robin Auld, Age 35 (Sales and Marketing Director)
Robin Auld is the Group’s Sales and Marketing Director. Robin joined the Group in 2004 to take up the
position of Brand Controller and took up his current position in 2007. Robin was previously employed by
HeadlightVision Limited as a Senior Consultant and by Carlsberg Tetley plc as a Senior Brand Manager.
Adam Batty, Age 36 (General Counsel and Company Secretary)
Adam Batty is the Group’s General Counsel and Company Secretary. He is a qualified solicitor and joined
the Group in 2008. Previously Adam was Director of Legal Affairs at Mitchells & Butlers plc and a corporate
lawyer at Six Continents plc and Norton Rose.
Jon Campbell, Age 40 (Procurement Director)
Jon Campbell is the Group’s Procurement Director. Jon joined the Group in 2008 to take up the position of
Procurement Director. Jon was previously employed by the Sara Lee Group as Head of Purchasing and more
recently by Bakkavor as Purchasing Director.
Andrew Emmerson, Age 46 (Business Development Director)
Andrew Emmerson is the Group’s Business Development Director. Andrew joined the Group in 2006.
Previously, Andrew was employed by Compass Group plc latterly as Managing Director of Millie’s Cookies
and before that as Global Brand Director of Upper Crust.
Gareth Franks, Age 42 (Food Service Director)
Gareth Franks is the Group’s Food Service Director. Gareth joined the Group in 1991 as commissary
manager, becoming Head of Food Service in 2003. Gareth previously worked in logistics for the Burton
Group.
Jane Kimberlin, Age 48 (IT Director)
Jane Kimberlin is the Group’s IT Director. Jane joined the Group in 2006. Jane previously was employed by
Spirit Group plc and Powergen plc, both as IT director.
35
Patricia Thomas, Age 50 (Operations Director)
Patricia Thomas is the Group’s Operations Director. Patricia joined the Group in 2006 to take up the position
of Operations Director. Patricia was previously employed by DPI where she held the roles of Area Vice
President for Distribution, Vice President of Quality Assurance and Vice President of Learning and
Development.
8. Corporate Governance
The Directors recognise the value of the Principles of Good Governance and Code of Best Practice (the
“Combined Code”) and, following Admission, they will take appropriate measures to ensure that the
Company complies with the Combined Code to the extent appropriate for a company of its size and nature
of business. Upon Admission, it is expected that the Company will not be fully compliant with the Combined
Code, notably the Company is not in compliance with provision A.2.2 of the Combined Code as the
Executive Chairman (Stephen Hemsley) did not on appointment meet the Combined Code’s independence
criteria and furthermore, Stephen was Chief Executive of the Company before his appointment as Executive
Chairman. The Directors believe Stephen’s appointment as Executive Chairman was, and continues to be, in
the best interests of the shareholders and is vitally important to the success of the Group. Stephen enjoys a
strong and effective working relationship with Chris Moore and the Directors consider that the continuity of
strong management within the Company is an absolute priority in order to implement the Group strategy of
continued growth.
There is a clear division of the responsibilities of the Chairman and Chief Executive as detailed below:
Chairman
• setting a vision for the Company and formulating its strategy;
• providing leadership to the Board and ensuring its effectiveness;
• ensuring there is effective communication with shareholders; and
• facilitating the effective contribution of non-executive directors.
Chief Executive
• supporting the executive chairman in the delivery and implementation of strategy;
• setting the operating plans and budgets to deliver the agreed strategy;
• managing the Group’s day to day activities;
• developing the executive and senior management team; and
• supporting the executive chairman in effective communication with various stakeholders in the
business.
Upon Admission, the Board will comprise eight members, five of whom, being Colin Halpern, Nigel Wray,
John Hodson, Michael Shallow and Dianne Thompson, are Non-Executive Directors. John Hodson, Michael
Shallow and Dianne Thompson are viewed by the Company as independent for the purposes of the
Combined Code and Michael Shallow is considered to be the senior independent Non-Executive Director.
Upon Admission, the Company will be considered a small company for the purposes of the Combined Code.
Provision A.3.2 of the Combined Code requires that except for smaller companies, at least half the Board,
excluding the Chairman, should comprise non-executive directors determined by the Board to be
independent. Currently less than half the Board are considered to be independent Non-Executive Directors.
As the Company grows from a small company into a size that will take it into the FTSE350 the Board will
review the requirement to appoint additional independent non-executive directors.
The corporate governance framework includes terms of reference for the audit, nomination and remuneration
committees of the Board.
Audit Committee
The Audit Committee currently comprises Michael Shallow (Chairman) and John Hodson. It meets not less
than four times a year and is responsible for ensuring that the financial performance of the Group is properly
AI 16.3
AI 16.4
36
reported on and monitored, for meeting the auditors and reviewing the reports from the auditors relating to
the financial statements and internal control systems. As the Company moves from a smaller company into
a size that will take it into the FTSE350 the Board will consider the requirement to appoint an additional
independent non-executive director to the Audit Committee in accordance with provision C.3.1 of the
Combined Code.
Nomination CommitteeThe Nomination Committee currently comprises Dianne Thompson (Chairperson), Colin Halpern and
Michael Shallow. It meets not less than twice a year and is responsible for the skill and composition of the
Board and for appointing and replacing Directors.
Remuneration CommitteeThe Remuneration Committee currently comprises of John Hodson (Chairman), Dianne Thompson and
Michael Shallow. It meets not less than twice each year and has a primary responsibility to review the
performance of Executive Directors and senior management and set the scale and structure of their
remuneration.
9. Reasons for moving to the Official ListSince its AIM Admission in 1999, the Group has expanded from 190 to 501 stores (30 December 2007) and
as such the Directors believe that a move to Official List and to trading on the main market of the London
Stock Exchange is now appropriate. In addition, the Directors believe that due to the higher number of
institutional investors who regularly trade in companies admitted to the Official List and the higher profile
of such companies, the Company will be better placed to achieve improved liquidity in the Ordinary Shares
following Admission.
10. EmployeesDuring the year ended 30 December 2007, the Group had an average monthly number of 633 employees
consisting of 316 employees involved in administration, production and distribution and 317 employed in
subsidiary company stores.
11. Dividend policyThe Group intends to maintain its existing policy of returning cash not required for the growth and expansion
of the business to Shareholders through its share buy backs programme and dividends. The final dividend for
the 52 weeks ended 30 December 2007 was 2.50 pence per share (2006: 1.76 pence per share) and the total
dividend for the year was 4.40 pence per share (2006: 3.06 pence per share) a 43.8 per cent. increase
compared to the previous financial year. The full year dividend was 1.9 times covered by profits after tax
(2006: 2.1 times).
12. TaxationThe attention of investors is drawn to the information contained in paragraph 17 of Part VIII (Additional
Information) of this document.
13. CREST and trading in Ordinary SharesCREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a
certificate and transferred otherwise than by a written instrument. The Articles of Association of the
Company permit the holding of Ordinary Shares under the CREST system. The Company’s Ordinary Shares
were admitted to CREST on the date of its admission to AIM.
Accordingly, settlement of transactions of the Ordinary Shares following Admission may take place with
CREST if any Shareholder wishes. However, CREST is a voluntary system and holders of Ordinary Shares
who wish to receive and retain certificates will be able to do so.
14. Further informationProspective investors should carefully consider the additional information set out in the other parts of this
document and in particular the risk factors set out in Part II of this document.
AIII 4.3
AIII 4.11
AI 20.1
AI 17.1
37
PART VI
OPERATING AND FINANCIAL REVIEW
1. INTRODUCTION
This operating and financial review contains financial information stated under UK GAAP for the two 52
week financial periods ended 1 January 2006 and 31 December 2006, and financial information stated under
International Financial Reporting Standards (“IFRS”) as adopted by the European Union, for the two 52
week financial periods ended 30 December 2007 and 31 December 2006.
2007 is the first financial year in which the consolidated financial statements of the Company have been
prepared in accordance with IFRS and the comparative amounts for 2006 have been restated from UK
Generally Accepted Accounting Practice (UK GAAP) to comply with IFRS. The Group’s date of transition
to IFRS was 1 January 2006, and the results for the 52 weeks ended 1 January 2006 have been restated from
UK GAAP to IFRS.
Investors should not rely solely on the summary information contained in this Part VI in making an
investment decision, but instead, should read the whole of this Prospectus and use the financial information
contained in this Part VI as reference only.
For the purposes of the discussion below, the term “financial year” means the 52 weeks ended 1 January
2006 with regard to 2005, the 52 weeks ended 31 December 2006 with regard to 2006, and the 52 weeks
ended 30 December 2007 with regard to 2007.
2. OVERVIEW
DPG is a wholly owned subsidiary of the Company which is quoted on AIM. DPG is the UK and Ireland’s
leading pizza delivery company and holds the master franchise to own, operate and franchise Domino’s Pizza
stores in these markets. The first UK store opened in 1985 and the first Irish store opened in 1991.
DPG awards the right to operate local Domino’s Pizza stores to entrepreneurs (franchisees) who, once
approved, have to pay around £250,000 to own their Domino’s Pizza business. Franchisees are both DPG’s
customers and business partners.
It is part of DPG’s role to support franchisees in their efforts to run profitable local Domino’s Pizza
businesses and to ensure that high brand standards are achieved at all stores. To do this, DPG employs a team
of over 300 team members who work in a range of store support functions at locations in the UK (Milton
Keynes and Penrith) and Ireland (Naas). These functions include: dough production, ingredients and
equipment purchasing and supply, training, operations, IT, marketing, finance, HR, property, franchise sales,
leasing, transport, warehousing and administration.
The majority of the stores are operated by franchisees who are responsible for delivering the brand’s high
standards to customers. There are over 500 Domino’s Pizza stores in a growing number of towns and cities
throughout England, Scotland, Wales and Ireland.
3. FINANCIAL INFORMATION
3.1 Basis of preparation
As noted in section 1 of this Part VI, this operating and financial review contains financial information stated
under UK GAAP for the two 52 week financial periods ended 1 January 2006 and 31 December 2006, and
financial information stated under IFRS for the two 52 week financial periods ended 31 December 2006 and
30 December 2007.
Other than the cessation of goodwill amortisation, lease inducements spread over the full lease term and the
treatment of the exercise of share options by employees under IFRS, there are no material differences
between the financial information reviewed herein under UK GAAP compared to IFRS. Consequently the
AI 3, 9, 20, 25
38
comments included in this operating and financial review apply equally to the UK GAAP and IFRS
information.
3.2 Key accounting policies
Details of all key accounting policies adopted in the preparation of the IFRS results, balance sheets and cash
flow statements for the 2006 and 2007 financial years are set out in full in Part VII.
The main differences between IFRS and UK GAAP, which impact on the Group’s results, are:
• Goodwill amortisation
• Taxation impact of share options exercised by employees
• Non current assets held for sale
• Treatment of lease incentives over the period of the lease
3.3 Historical Profit and Loss Accounts
The Group 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended1 January 31 December 31 December 30 December
2006 2006 2006 2007UK GAAP UK GAAP IFRS IFRS
£000 £000 £000 £000
System sales* 200,678 240,115 240,115 296,349———— ———— ———— ————
Group Revenue 81,660 94,965 94,965 114,891———— ———— ———— ————
Cost of sales (48,778) (57,811) (57,811) (70,736)———— ———— ———— ————
Gross margin 32,882 37,154 37,154 44,155
Distribution costs (8,538) (8,177) (8,177) (9,246)
Administrative costs (13,504) (14,860) (14,963) (16,240)———— ———— ———— ————
Group operating profit before exceptional
items and accelerated LTIP charge 10,840 14,117 14,014 18,670
Exceptional operating items and accelerated
LTIP charge (626) (499) (499) (507)———— ———— ———— ————
Group operating profit 10,214 13,618 13,515 18,163
Share of profit of associated undertakings 164 171 171 158
Profit on the sale of non current assets
and assets held for sale 206 159 159 288
Profit on the sale of subsidiary undertakings 670 454 454 58
Net finance charges (85) (110) (110) (91)———— ———— ———— ————
Profit before taxation 11,169 14,292 14,189 18,576
Taxation (2,922) (3,865) (4,193) (5,337)———— ———— ———— ————
Profit for the financial period after taxation 8,247 10,427 9,996 13,239
———— ———— ———— ————Earnings per share
– Basic (pence) 5.08 6.49 6.23 8.38
– Diluted (pence) 4.83 6.38 6.12 8.24
*System sales are the total sales of the Group’s franchisee system in the UK and the Republic of Ireland, to
external customers.
3.4 Key factors affecting the Group’s results of operations
Set out below are certain key factors which the Directors believe have affected the Group’s results of
operations, or could affect its results of operations in the future.
39
(a) Expansion and accelerating roll-out
During 2005 the Group took the decision to move away from corporately owned stores, and as a result
two subsidiary companies (which included twelve stores) where disposed of. Since then the Group
has disposed of further corporately owned stores in 2006 (three stores) and 2007 (one store). During
2007 the Group also disposed of a further subsidiary undertaking (which included 5 stores). At the
end of 2007, the Group owned one corporate store and has a further interest in nine stores in three
subsidiary companies.
In 2007 the Group opened 50 new stores (2006: 46, 2005: 50) and closed none (2006: two, 2005:
none) bringing the year-end store count to 501 stores (2006: 451, 2005: 407). Whilst the Group
continues to experience some inconsistency in planning decisions, this has not significantly hampered
its expansion over the past three years. The aim of many local authorities appears to be the
regeneration of secondary retail space and this has worked in the Group’s favour, with its franchisees
being recognised as a responsible and attractive occupant of previously redundant units.
It is important to the Group that the number of stores operated by each franchisee is increased so that
they have a viable, long-term business. However, the Group only allows franchisees with the highest
standards to expand which in turn assures the quality growth of its system. As at 30 December 2007,
the Group had 144 franchisees (2006: 150), of whom 56 are single unit operators. Each franchisee has
an average of 3.5 stores. (2006: 3.0 stores). This consolidation of the number of stores for each
franchisee also means that the Group can manage its growing system more efficiently and further
improve operational gearing.
(b) Consumer spending
The home delivery market has been steadily growing throughout the three year period under review,
and this growth is forecast to continue, mainly driven by consumers increasing preference for
socialising at home instead of going out.
The UK eating out market was estimated by Mintel to be worth £30bn in 2007. The home-delivered
food market continues to grow at a fast pace and in 2007 was worth 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 to grow at a compound rate of 7 per cent. a year over the next four years. Based
on these estimates the Group is currently accounting for £1 in every £6 spent on home delivered
meals. The popularity of home delivered food shows no signs of slowing down and lifestyle factors
such as longer working weeks, more dual income households, more in-home entertainment and more
one person households work in the Group’s favour.
(c) Operating costs
Unprecedented increases in the prices of raw materials since the middle of 2007, in particular wheat
and cheese, had a significant effect on both the Group and its franchisees. This was exacerbated by
the Group’s cheese supplier going into receivership and the consequential ending of the Group’s fixed
price contract with that supplier. As a result, new supply arrangements saw the cost of cheese
increasing by over 50 per cent. over the course of 2007. Wheat also increased significantly in price
over this same period.
These increases in raw material prices, were for the most part, passed on to the Group’s franchisees
who have had time to reflect them in their menu prices. The new menu pricing, saw increases average
around 4 per cent. This new pricing has been accepted by customers as witnessed by the continued
momentum in sales since November 2007 when prices first increased.
3.4 Key factors affecting the Group’s results of operations (continued)
A number of fixed contracts have been negotiated for the duration of the 2008-year notably for wheat
and boxes, to eliminate the impact of any further price increases. The outlook for pricing in 2008 looks
more stable.
AI 5.2.1, 5.2.2
40
(d) Seasonality
Traditionally seasonality plays a part in the sale of pizza in that more pizzas are sold during the colder
winter months when it is dark and people are in their houses – the prime point of sale for home
delivery pizza. Pizza sales do slow down during initial periods of hot weather but revert to normal
trends in prolonged periods of hot weather.
Furthermore pizza sales respond particularly well to promotional and price based offerings and to this
extent sales can be driven as a result of these activities.
Over the past three years system sales for the Group have remained at fairly stable levels at 45 per
cent. in the first half and 55 per cent. in the second half of the year.
(e) Trends
Trading in the first six weeks of 2008 got off to a strong start with like-for-like sales up 11.0 per cent.
(2007: 14.3 per cent.). This is particularly encouraging given the strong comparatives of last year. E-
commerce has continued to show robust growth with an increase of 90.6 per cent. in the same period
(2007: 36.2 per cent.). E-commerce sales in the first six weeks accounted for 21 per cent. of all UK
delivered sales.
The Group’s store opening programme is looking more encouraging than at the same stage last year,
with more sites in the pipeline with planning than at the same time last year. This gives the Group
optimism, at this early stage, that it is on track to once again achieve its target of 50 new store
openings in 2008.
Cash flows remains strong and the Group has the debt facilities in place to secure the expansion of its
existing commissary in Penrith and the investment in its new commissary in Milton Keynes.
Accordingly it is the Directors’ intention to continue to return surplus cash to shareholders by further
share buybacks and dividends.
3.5 Comparison of results of the Group for its 2005, 2006 and 2007 financial years
System Sales
During the 2006 financial year, system sales rose by 19.7 per cent. to £240.1 million. Like-for-like sales in
the 357 stores open for more than twelve months in both periods grew by 9.7 per cent.. During the 2007
financial year system sales rose by 23.4 per cent. and like-for-like sales in the 404 stores open for more than
twelve months in both periods grew by 14.7 per cent., the highest percentage increase recorded since 2001.
To further reinforce its leading position in the home delivery pizza market, during the 2006 financial year
the Group agreed with its UK franchisees to increase the contribution franchisees make to the NAF. This has
provided the Group with a greater opportunity for more integrated marketing campaigns that included a mix
of targeted direct mail, online activity, local store marketing, PR and TV. At the heart of these campaigns are
new product launches, which provide news flow and generate sales right across the menu.
Group Revenue
Group revenue, which includes the sales generated by the Group from royalties, fees on new store openings,
food sales, finance lease and rental income, as well as the turnover of corporately owned and operated stores,
grew by 16.3 per cent. to £95.0 million during the 2006 financial year. This rate of growth was marginally
slower than the system sales growth rate due to lower revenues from corporately owned and operated stores,
following the sale of DPGS Limited (14 stores disposed of with the subsidiary undertaking) during the first
half of the 2005 financial year and a further three corporate store disposals in 2006.
The 2007 financial year witnessed Group revenue growth of 21.0 per cent. to £114.9 million. This rate of
growth was marginally slower than the system sales growth rate due to lower revenues from corporately
owned and operated stores, following the sale of DP Newcastle & Sunderland Limited during the first half
of the 2007 financial year (five stores disposed with the subsidiary undertaking) and the corporate store
located in Sunderland.
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41
Revenue recognition
Revenue consists of and is recognised as follows:
Pizza delivery – on delivery of pizzas to franchisee customers
Commissary and equipment sales – on delivery to franchisees
Royalties (based on system sales) – on delivery of pizzas by franchisees to customers
Franchise fee income for initial services – recognised when the services have been substantially
performed which is on commencement of franchisee trading
Finance lease interest income – as set out in lease accounting policy
Rental income on leasehold properties – on a straight line basis in accordance with the lease terms
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured.
Revenue is measured at the fair value of consideration net of returns, rebates and value-added taxes.
Gross margin influencers
The gross profit growth during the 2005 and 2006 financial years reflects revenue growth. The dilution of
gross margin from 40.2 per cent. for the 2005 financial year to 39.1 per cent. for the 2006 financial year is
a function of the reduction in the number of corporate stores owned by the Group as a result of the sale of
DPGS Limited in the first half of 2005.
The dilution of gross margin from 39.1 per cent. for the 52 weeks ended 31 December 2006 to 38.4 per cent.
for the 52 weeks ended 30 December 2007 is a function of food cost pressures absorbed in 2007 and changes
in the level of the commissary rebate scheme as well as the sale of corporate stores in 2006 and 2007
financial years.
The Group saw unprecedented increases in the prices of many raw materials towards the latter part of the
2007 financial year. This had an adverse impact to the Group’s food margin of £0.5 million during the 2007
financial year, as the Group was unable to pass those increases onto the ultimate consumers as quickly as
they impacted the Group.
The commissary rebate scheme, first launched during the 2005 financial year in order to assist the Group’s
franchisees overcome the burden of new external cost pressures, continued to benefit the system strongly
during the 2007 financial year. This scheme enhances the profitability of franchisees who achieve like-for-
like sales targets and fully comply with the Group’s operating standards. Included in Group operating profit
is the cost of this rebate, which amounted to £1.4 million during the 2007 financial year (2006: £0.6 million).
The rebate was substantially higher than that provided during the 2006 financial year as a result of stronger
like-for-like sales and an increase in the number of franchisees qualifying for participation in the scheme.
Distribution costs
Distribution costs includes the costs of the vehicles used to distribute the fresh dough and ingredients to the
stores of the franchisees (fuel, insurance, rentals and repairs), the wages and salaries of the employees in the
distribution process and the in-store labour and distribution costs of the Subsidiaries with stores.
Distribution costs for the commissaries reduced from 9.8 per cent. of commissary sales for the 2005 financial
year to 8.8 per cent. for the 2006 financial year, and to 8.6 per cent. for the 2007 financial year. The reduction
across the 2005 and 2006 financial years was mainly due to the implementation of software used to
determine the most efficient routes for the delivery of product to the stores and vehicle utilisation. The
reduction in percentage terms from the 2006 financial year to the 2007 financial year is due to distribution
costs being linked to the number of stores and vehicle efficiency. This reflects the operational gearing as the
distribution costs grow at a lesser rate that the sales growth.
42
Administration charges
Administration charges include the compensation and overhead costs for the head office and commissaries
administration functions as well as the overheads for the Subsidiaries.
Administration charges have reduced from 16.5 per cent. of Group revenue for the 2005 financial year to
15.6 per cent. for the 2006 financial year. The administration charges increased by 10.0 per cent. for the 2006
financial year compared to the 2005 financial year. The increase was predominantly driven by the investment
in the operations team in 2006 to ensure the high standards of service and standards in store are achieved and
adhered to by the store teams and franchisees.
Administration charges further reduced to 14.1 per cent. of Group revenue for the 52 weeks ended 30
December 2007 and increased 8.3 per cent. compared to the charges for the 52 weeks ended 31 December
2006. This increase was driven by the investment in the IT and Business Development teams to enable the
business to reach its growth targets.
The decrease in the percentage of Group revenue for both periods reflects the operational gearing in the
business as the overhead costs are growing at a lesser rate than the sales growth.
Exceptional operating items
During the 2005 financial year the Group accelerated the charge relating to reversionary interests in ordinary
shares granted in 2003, as the performance targets set were achieved earlier than expected. This resulted in
an additional charge of £626,000 for the 2005 financial year.
The Group took the decision during the 2005 financial year not to invest in or trade in corporately owned
stores and therefore sold DPGS Limited (which held 14 stores at the time of the sale) and a further two
corporately owned stores. During the 2006 financial year an additional three corporately owned stores were
sold and one closed. Exceptional costs (£499,000) relating to these stores sold and closed in 2006 related to
the assets written off, lease finance and other bad debts provided for, onerous lease and dilapidation
provisions and restructuring and reorganisation costs incurred in the disposal and closure of these stores.
During the 2007 financial year the Group accelerated the charge relating to reversionary interests in Ordinary
Shares granted in 2004, as the performance targets set were achieved earlier than expected. This resulted in
an additional charge of £174,000 in 2007.
In addition, exceptional charges of £333,000 were incurred by the Group in the disposal of a further
corporate store and providing for the net book value and onerous lease and dilapidation provisions for a
corporate store trading under a management agreement with a franchisee.
Profit on the sale of non current assets and assets held for sale
Profit on the disposal of non current assets and assets held for sale relate to the disposal of tangible fixed
assets and corporately owned stores. DP Newcastle & Sunderland Limited (included five stores at the date
of disposal) was disposed of during the 2007 financial year. During the 2006 financial year the Group
disposed of three corporate stores (2005: two).
Profit on the sale of subsidiary undertakings
During the 2005 financial year the Group disposed of DPGS Limited (which owned 14 stores at the date of
the disposal) and provided for certain future legal and property costs in relation to this disposal. During the
2006 and 2007 financial years partial resolution relating to the conditions for the provisions made were
reached and as a result the portion of the provisions created and no longer required were released.
Net finance charges
Interest charges included bank interest on the Employee Benefit Trust (“EBT”) loan, the revolving facility
and finance charges on the Group’s finance leases and hire purchase contracts.
Interest received relates to bank interest earned on monies placed on deposit, interest earned on loans to
franchisees and interest charged to the NAF on debit balances of the fund.
43
Interest paid increased during the 2006 financial year compared to 2005 due to interest charged on the EBT
loan and interest on the revolving facility for the fourth quarter of the 2006 financial year. This was partially
offset by an increase in the interest earned on monies placed on deposit throughout the year.
During the 2007 financial year the interest charged on the revolving facility increased compared to 2006, due
to the facility being utilised for only part of the 2006 financial year as opposed to the majority of the period
in 2007. This increase in the interest expense was more than offset by the interest charged to the NAF.
3.6 Historical Balance Sheets
A summary of the balance sheets for the Group for the three 52 week financial periods ended 1 January 2006,
31 December 2006 and 30 December 2007, which has been extracted without material adjustment from the
UK GAAP and IFRS historical information in Part VII, is set out in the two tables below:
UK GAAPAs at As at
1 January 31 December2006 2006£000 £000
Fixed assetsIntangible assets 1,326 2,159
Tangible assets 13,593 13,780
Investment in joint ventures 451 589———— ————
15,370 16,528———— ————
Current assetsInventories 2,186 1,838
Debtors 12,921 12,244
Cash at bank and in hand 5,885 10,262———— ————
Total current assets 20,992 24,344
Creditors: amounts falling due within one year (13,742) (22,607)———— ————
Net current assets 7,250 1,737———— ————
Total assets less current liabilities 22,620 18,265———— ————
Creditors: amounts falling due after more than one year (9,085) (9,009)
Provision for liabilities (1,447) (652)———— ————
12,088 8,604———— ————
Capital and reservesCalled up share capital 2,645 2,574
Share premium account 4,677 4,765
Capital redemption reserve 171 261
Treasury shares held by Employee Benefit Fund (7,500) (4,216)
Profit and Loss Account 12,013 5,172———— ————
Equity shareholders’ funds 12,006 8,556
Minority interest 82 48———— ————
12,088 8,604
———— ————
44
IFRS
At At31 December 30 December
2006 2007£000 £000
Non current assetsGoodwill and intangible assets 1,496 713
Property, plant and equipment 12,378 13,816
Prepaid operating lease charges 683 702
Net investment in finance leases 1,748 1,923
Investments in associates 589 685
Deferred tax asset 1,209 565———— ————
18,103 18,404
Current assetsInventories 1,818 2,340
Trade and other receivables 9,632 10,071
Net investment in finance leases 864 857
Prepaid operating lease charges 247 220
Cash and cash equivalents 10,262 14,629———— ————
22,823 28,117
Non current assets held for sale 1,172 1,772———— ————
Total assets 42,098 48,293———— ————
Current liabilitiesTrade and other payables (13,433) (18,187)
Deferred income (31) (68)
Financial liabilities (6,835) (6,817)
Current tax liabilities (2,339) (2,503)———— ————
(22,638) (27,575)
Non current liabilitiesProvisions (233) (155)
Financial liabilities (9,009) (9,380)
Deferred income (989) (1,071)
Deferred tax liabilities (243) (215)———— ————
Total liabilities (33,112) (38,396)———— ————
Net assets 8,986 9,897———— ————
Shareholders’ equityCalled up share capital 2,574 2,538
Share premium account 4,765 5,307
Capital redemption reserve 261 319
Treasury share reserve (4,216) (4,403)
Currency translation reserve (21) 209
Retained earnings 5,575 5,888———— ————
Equity shareholders’ funds 8,938 9,858
Minority interest 48 39———— ————
Total equity 8,986 9,897
———— ————
45
Intangible non-current assets
For the financial periods reported under UK GAAP this represents the goodwill on the purchase of stores or
Subsidiaries, the franchise fees in connection with the Master Franchise Agreement and the interest in leases.
The increase from the 2005 to the 2006 financial year was due to goodwill on the purchase of a franchisee
owned store by a subsidiary undertaking of the Group, costs incurred on the renewal of the Master Franchise
Agreement and additional lease premiums.
Under IFRS software is recognised under intangible non-current assets and prepaid operating lease charges
disclosed separately on the balance sheet under non-current assets. The majority of the movement in
intangible non-current assets from the 2006 to 2007 financial year was due to the transfer of corporately
owned stores and subsidiary undertakings with stores, to assets held for sale.
Tangible non-current assets
Tangible non-current assets include freehold land and buildings, leasehold improvements and equipment.
The movement from the 2006 to 2007 financial year was predominantly due to the assets under construction
(£1.4 million) for the new Milton Keynes commissary and the extension to the Penrith commissary.
Non-current assets held for sale reflects the net book value of the corporate stores and the Subsidiaries with
trading stores.
Investment in associates
The Group has a 41 per cent. interest in Full House Restaurants Limited and a 50 per cent. interest in
Dominoid Limited, private companies which manage pizza delivery stores in the United Kingdom.
Deferred tax asset
Under IFRS the benefit of the exercise of share options by employees is reflected in reserves and not through
the corporation tax charge in the profit and loss as per UK GAAP.
The reduction in the deferred tax asset from the 2006 to 2007 financial year was due to the exercise of share
options by employees and the reduction in the share price of the Company as at 30 December 2007 compared
to 31 December 2006.
Current assets
The inventories within current assets represent the inventory on hand at the commissaries.
The remainder of the current assets is made up of trade receivables, prepayments for rents payable and other
debtors (includes NAF and store deposits for new stores). Under IFRS the net investment in finance leases
is disclosed separately under non-current and current assets. Under UK GAAP this was included, in total,
within current assets.
There has not been any significant movements year on year within current assets.
46
Current liabilities
Current liabilities include trade creditors, other taxes (PAYE/NIC) and liabilities (VAT) and overhead and
inventory accruals.
The increase between from the 2005 to 2006 financial year was predominantly due to the revolving credit
facility, which was utilised during the fourth quarter of the 2006 financial year as part of the share buyback
programme in that year.
The increase in current liabilities between the 2006 and 2007 financial years was due to the following:
• Trade payables – increase in the payment terms with certain food suppliers and increase in volumes
due to the higher sales in quarter 4, 2007.
• Accruals – share buyback accrual for share buybacks in December 2007, increase in inventory
accruals due to sales volume increases in the fourth quarter of the 2007 financial year and an increase
in rent accruals due to store openings.
Non-current liabilities
Non-current liabilities under UK GAAP and IFRS comprise the EBT loan and finance leases between the
Group and franchisees for the purchase of the equipment in store. These have not varied significantly over
the past three financial years.
Under IFRS rent free periods are spread over the term of the lease and the long-term portion is included
under non-current liabilities as deferred income. There has not been a significant movement in this balance
year on year.
Provisions for liabilities and charges
These comprise deferred tax provisions and provisions for legal and property costs on the disposal of
subsidiary undertakings. The most significant movement in the provisions balance has been between the
2005 and 2006 financial years and related to the utilisation and release of provisions made on the disposal
of DPGS Limited during 2005.
Capital and reserves
The called up share capital account and the share premium account has increased over the three financial
years due to the exercise of share options by employees (2007: 1.4 million, 2006: 1.2 million).
The capital redemption reserve has increased due to the share buyback programme (2007: 3.7 million
Ordinary Shares, 2006: 5.8 million Ordinary Shares).
The treasury share reserve reduced by £3.3 million in the 2006 financial year due to the vesting of LTIP’s
granted in 2003, equity-settled in 2006.
The profit and loss reserve reduced by £6.8 million in the 2006 financial year, despite £10.4 million profit
after taxation for the period. This was mainly due to the vesting of the LTIP’s mentioned above (£3.3 million)
and share buybacks of £10.2 million during the financial year.
47
3.7 Historical cash flows
The Group has had a net cash inflow for the last three 52 week financial periods as follows:
UK GAAP52 weeks 52 weeks
ended ended1 January 31 December
2006 2006£000 £000
Operating profit after exceptional items 10,214 13,618Depreciation and amortisation charges 1,639 1,832Share option and LTIP charge 963 344Decrease in stocks 489 349Decrease in debtors 337 82(Decrease)/increase in creditors (968) 2,764
———— ————Net cash inflow from operating activities 12,674 18,989
Returns on investment and servicing of financeInterest received 273 389Interest paid (307) (455)Interest element of finance lease payments (4) (4)Dividends received from joint ventures – 21
———— ————Profit on disposal of non current assets (38) (49)
———— ————TaxationCorporation tax paid (1,549) (3,755)
———— ————Capital expenditure and financial investmentPayments to acquire intangible fixed assets (395) (898)Payments to acquire tangible fixed assets (2,246) (2,262)Receipts from sales of intangible and tangible fixed assets 576 453Receipts from the repayment of joint venture loan 60 105Payments to acquire finance lease assets and advance of franchisee loans (1,166) (1,026)Receipts from repayment of finance leases and franchisee loans 1,172 1,349
———— ————(1,999) (2,279)
———— ————Acquisitions and disposalsSale of subsidiary undertakings – net of costs 3,354 –Utilisation of provisions relating to the disposal of subsidiary undertakings (309) (221)Cash balances disposed of with subsidiary undertakings (5) –Sale of minority interest 90 30Purchase of minority interest (82) (133)
———— ————3,048 (324)
———— ————Equity dividends paid (3,169) (4,234)
———— ————Net cash inflow before financing 8.967 8,348
———— ————FinancingIssue of ordinary capital 472 403New loan term loans 2,146 1,244Repayment of long term loans (1,146) (1,445)Repayment of capital element of finance leases and hire purchase contracts (16) (12)Short term loans – bank overdraft* – 6000Purchase of own shares by Employee Benefit Trust (1,140) –Purchase of own shares (8,222) (10,161)
———— ————(7,906) (3,971)
———— ————Increase in cash 1,061 4,377
———— ————*Adjustment made to the reported UK GAAP accounts.
The bank balance per the UK GAAP accounts was shown net of this inflow in the reported accounts.
48
IFRS52 weeks 52 weeks
ended ended31 December 30 December
2006 2007£000 £000
Cash flows from operating activitiesProfit before taxation 14,189 18,576
Net finance costs 110 91
Share of post tax profits of associates (171) (158)
Amortisation and depreciation 1,815 1,545
Profit on disposal of non current assets (613) (346)
Share option and LTIP charge (including accelerated LTIP charge) 344 880
(Increase)/decrease in inventories 349 (535)
(Increase)/decrease in debtors 82 (685)
Increase in creditors 2,764 4,956
Increase in deferred income 120 119
Decrease in provisions (221) (20)———— ————
Cash generated from operations 18,768 24,423
UK corporation tax (3,624) (4,117)
Overseas corporation tax paid (131) (218)———— ————
Net cash generated by operating activities 15,013 20,088
Cash flows from investing activitiesInterest received 389 528
Dividends received 21 62
Receipts from repayment of associate loan 105 171
Receipts from repayment of franchisee finance leases 1,349 1,127
Purchase of property, plant and equipment (2,294) (3,509)
Purchase of other non current assets (866) (451)
Net cash acquired on the disposal of subsidiary undertaking – 1,118
Receipts from the sale of other non current assets 453 335
Purchase of minority interests (103) –———— ————
Net cash used by investing activities (946) (619)———— ————
Cash inflow before financing 14,067 19,469
Cash flow from financing activitiesInterest paid (459) (619)
Issue of ordinary share capital 403 700
Purchase of own shares (10,161) (8,346)
Short term loans – bank overdraft 6,000 (6,000)
Bank revolving facility – 6,000
New long term loans 1,244 1,302
Repayment of long term loans (1,457) (1,169)
Payments to acquire finance lease assets (1,026) (1,295)
Equity dividends paid (4,234) (5,816)———— ————
Net cash used by financing activities (9,690) (15,243)———— ————
Net increase in cash and cash equivalents 4,377 4,226
Cash and cash equivalents at beginning of period 5,885 10,262
Foreign exchange gains on cash and cash equivalents – 141———— ————
Cash and cash equivalents at end of period 10,262 14,629
———— ————
49
Cash generated from operations is higher than operating profit primarily as a consequence of positive
working capital movements.
Working capital movements
• Inventories – despite inventories increasing between the 2006 and 2007 financial years (£0.5 million),
inventory days have decreased from 23 days in 2006 to 22 days in 2007. The increased level of
inventories was driven by the sales volume increases.
• Debtors – debtor balances have increased between the 2006 and 2007 financial years (£0.7 million)
due to the invoicing in December 2007 for two stores, which were built in December 2007 and opened
in January 2008, and due to the increase in sales and the number of new store openings in the 2007
financial period.
• Creditors – creditor balances have increased between the 2006 and 2007 financial years (£5.0 million)
due to the increase in the payment terms for certain food suppliers, the increase in sales volumes and
an increase in accruals at the 2007 financial period end. The accruals increased due to the accrual for
the payment of share buybacks in December 2007 (£1.5 million), increase in the inventory accruals
due to volume increases and an increase in the rent accruals due to new store openings.
Capital expenditure
Purchase of property, plant and equipment relates principally to computer equipment, and fixtures and
fittings for the Group’s commissaries. During the 2007 financial year, £1.4 million of capital expenditure was
incurred relating to the new Milton Keynes commissary and the extension to the existing Penrith
commissary.
Issue of ordinary share capital
During the 2007 financial year 1.4 million (2006: 1.2 million) Ordinary Shares were issued by the Company
pursuant to which the Company received £700,000 (2006: £403,000) to satisfy share options that were
exercised.
Purchase of own shares
During the 2007 financial year the Company bought back a total of 3.7 million (2006: 5.8 million) Ordinary
Shares for a total value of £8.3 million (2006: £10.2 million).
AI 10.2
50
4. CAPITAL RESOURSES, LIQUIDITY AND INDEBTEDNESS
4.1 Capital resources
The net cash flow movements for the three 52 week financial periods resulted in the following year end cash
and net debt balances, the latter reflecting the following gearing levels:
UK GAAP IFRS52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended1 January 31 December 31 December 30 December
2006 2006 2006 2007£000 £000 £000 £000
Net cash 5,885 10,262 10,262 14,629
Bank loan (7,500) (7,500) (7,500) (7,721)
Other loans (2,500) (2,299) (2,299) (2,448)
Finance leases (26) (45) (45) (28)
Bank overdraft/ Bank revolving facility – (6,000) (6,000) (6,000)———— ———— ———— ————
Net debt (4,141) (5,582) (5,582) (1,568)
Share capital and reserves 12,006 8,556 8,938 9,858
Gearing 34.5% 65.2% 62.4% 15.9%
Interest cover (times) 132.4 130.9 130.0 205.1
Net cash
The Group’s cash position continues to remain strong. Cash generated from operations reached £24.4 million
for the 2007 financial year, up from £18.8 million for 2006 (See table on page 41). This increase was mainly
attributable to the higher operating profits as well as an improvement in working capital. Until 2006 the
Group had never entered into or applied for bank overdraft or revolving facilities. The facility obtained
during the 2006 financial year was required for the Company’s share buyback programme implemented due
to the structure of the distributable reserves within the Group.
New store openings generate a net cash inflow to the Group and therefore do not deplete the Group’s cash
reserves.
During the fourth quarter of the 2007 financial year, the Group secured a £25 million rolling credit facility
(“RCF”) to finance the building of the new commissary in Milton Keynes and the purchase of the equipment
for the commissary. The facility is available until December 2012. The Group has covenants in place
whereby the ratio of net borrowings to EBITDA shall not be more than 2.5:1 and the ratio of EBITDAR to
fixed charges shall not be less than 1.5:1.
As at 30 December 2007, the Group had committed to £5 million for plant, property and equipment in
relation to the new commissary in Milton Keynes and the extension to the Penrith commissary.
Bank loans
The Group has entered into an agreement to obtain bank loans and mortgage facilities. These are secured by
a fixed and floating charge over the Group’s assets and an unlimited guarantee provided by the Company. At
30 December 2007 the balance due under these facilities was £7.7 million (2006: £7.5 million) all of which
is in relation to the Employee Benefit Trust. During the 2007 financial year, the terms of this loan were
renegotiated and transferred from National Westminster Bank plc to Barclays Bank plc. The loan bears
interest at 0.50 per cent. (2006: 0.625 per cent. above National Westminster Bank plc base rate) above
LIBOR. The loan has a term of seven years and matures on 31 January 2014.
Other loans
The Group’s other loans relate to the financing arm of the Group, DP Capital Limited. Franchisees have the
opportunity to finance the purchase of the equipment to be installed in the stores through DP Capital Limited.
AI 10.1
51
DP Capital Limited purchases the equipment and in turn finances the purchase with bank loans. These loans
are repayable in equal instalments over a period of up to five years and are unsecured.
Finance lease obligations
The Group’s exposure in terms of finance lease and hire purchase commitments is not significant.
Revolving credit facility
The Group has entered into an agreement to obtain a revolving credit facility from Barclays Bank plc. The
limit for this facility is £6.0 million. The facility is repayable within three to twelve months and interest is
charged at 0.50 per cent. per annum above LIBOR. The facility is secured by share pledges, constituting first
fixed charges over the shares of DPGHL and DPG as well as negative pledges given by the Company,
DPGHL and DPG.
Other available facilities
At 30 December 2007, the Group had available £25.0 million of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met. The facilities are available until December 2012.
Share capital and reserves
Share capital and reserves at 30 December 2007 consists of share capital and associated share premium of
£7.8 million, retained earnings and other reserves.
Share buybacks and dividends
In line with the Group’s strategy of returning cash not required for the growth and expansion of the business
to Shareholders, the Company has a progressive dividend policy. The full year dividend for the 2007
financial year was 1.9 times covered by profits after tax (2006: 2.1 times).
Since 2005 the Company has returned £26.7 million to shareholders via share buybacks and £13.2 million
via dividends. The Company has returned 127 per cent. of profit after tax during this three-year period.
Borrowing costs
The Group’s borrowing costs are currently 0.50 per cent. above LIBOR for all facilities and bank loans (EBT
loan and RCF’s).
Borrowing requirements
At 30 December 2007 the Group had in place a RCF for £25 million for the purchase of the land, building
of the new Milton Keynes commissary and the equipment needed.
Other than the new commissary and the extension to the Penrith commissary, the Group is not committed to
any future capital expenditure plans, which would require it to raise funds.
Restrictions on use of capital resources
The Group is not subject to any material restrictions over the use of its capital resources other than the facility
limits and covenants outlined above.
4.2 Liquidity
The Group’s gearing decreased to 15.9 per cent. at the end of the 2007 financial period, despite the increase
in the dividends paid and the share buyback programme, reflecting the strong cash generation of the
business.
Interest cover has increased during the 3 year period as operating profit growth has increased at a
significantly greater rate than interest charges, reflecting the semi-fixed nature of the Group’s overhead cost
base.
52
4.3 Capitalisation and indebtedness statement
The following tables show the capitalisation and the indebtedness of the Group as at 30 March 2008:
4.3.1 Capitalisation
As at30 March
2008£000
Share Capital 2,543
Share Premium 5,604
Capital Redemption Reserve 279
Treasury Share Reserve (7,906)
Currency Translation Reserve 356
Retained Earnings 7,997————
8,873————
4.3.2 Indebtedness
As at30 March
2008£000
Total current debt
Guaranteed and secured –
Secured 6,000
Unguaranteed/unsecured 857————
6,857————
Total non current debt
Guaranteed and secured 12,035
Secured –
Unguaranteed/unsecured 1,719
13,754————
Total indebtedness as at 30 March 2008 20,611————
4.3.3 Net financial indebtedness
As at30 March
2008£000
Cash 13,445————
Total liquidity 13,445————
Current bank revolving facility (6,000)
Finance leases - current (9)
Current loans – DP Capital Limited (848)————
Current financial indebtedness (6,857)————
Net current financial liquidity 6,588————
Non current loans – DP Capital Limited (1,705)
Bank loans – EBT (12,035)
Finance leases – non current (14)
Non current financial indebtedness (13,754)————
Net financial indebtedness as at 30 March 2008 (7,166)————
53
54
5. QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISKS
The Group’s financial risk management objectives consist of identifying and monitoring those risks, which
have an adverse impact on the value of the Group’s financial assets and liabilities or on reported profitability
and on the cash flows of the Group.
The Group’s principal financial liabilities comprise bank loans, bank overdrafts, other loans and finance
leases. The Group has various financial assets such as trade receivables and cash and short-term deposits,
which arise directly from its operations.
The Group has not entered into any derivative transactions such as interest rate swaps or financial foreign
currency contracts.
It is the Group’s policy, as it has been during the period under review, that no trading in derivatives shall be
undertaken.
The main risks arising from the Group’s financial instruments are credit risk, price risk, liquidity risk and
cash flow interest rate risk.
The Board reviews and agrees policies for managing each of these risks, which are summarised below. In
view of the low level of foreign currency transactions the Board does not consider there to be any significant
foreign currency risks.
5.1 Credit risk
Due to the nature of customers who trade on credit terms, being predominantly franchisees, the franchisee
selection process is sufficiently robust to ensure an appropriate credit verification procedure.
In addition, trade debtor balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Since the Group trades only with franchisees that have been subject
to the franchisee selection process and provide personal guarantees as required under the franchisee
agreements, there is no requirement for collateral.
5.2 Price risk
The Board considers that the Group’s exposure to changing market prices on the values of financial
instruments does not have a significant impact on the carrying value of financial assets and liabilities. As
such no specific policies are applied currently, although the Board will continue to monitor the level of price
risk and its exposure should the need occur.
5.3 Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its operations with cash collection
targets set throughout the Group. All major investment decisions are considered by the Board as part of the
project appraisal and approval process. In this way the Group aims to maintain a good credit rating to
facilitate fund raising.
5.4 Interest rate risk
The Board has a policy of ensuring a mix of fixed and floating rate borrowings. Whilst fixed rate interest
bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to benefit
from a reduction in borrowing costs when market rates are declining. Conversely, whilst floating rate
borrowings are not exposed to changes in fair value, the Group is exposed to cash flow interest rate risk as
costs increase if market rates rise.
6. TRANSITION TO IFRS
The Group’s financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union as they apply to the financial statements of the Group
for the 52 weeks ended 30 December 2007 and applied in accordance with the Companies Act 1985.
The 52 weeks ended 30 December 2007 is the first financial period in which the consolidated financial
statements of the Company have been prepared in accordance with IFRS and the comparative amounts for 2006
have been restated from UK Generally Accepted Accounting Practice (UK GAAP) to comply with IFRS.
PART VII
FINANCIAL INFORMATION ON THE GROUP
SECTION A: ACCOUNTANT’S REPORT ON IFRS HISTORICAL FINANCIAL INFORMATIONRELATING TO DOMINO’S PIZZA UK & IRL PLC FOR THE YEARS ENDED
31 DECEMBER 2006 AND 30 DECEMBER 2007
The Directors 14 May 2008
Domino’s Pizza UK & IRL plc
Domino House
Lasborough Road
Kingston
Milton Keynes
MK10 0AB
Dear Sirs
Domino’s Pizza UK & IRL plc
We report on the financial information set out on pages 57 to 112. This financial information has been
prepared for inclusion in the prospectus dated 14 May 2008 of Domino’s Pizza UK & IRL plc on the basis
of the accounting policies set out in 1 to the financial information. This report is required by Annex I item
20.1 of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph
and for no other purpose.
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent
there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept
any liability to any other person for any loss suffered by any such other person as a result of, arising out of,
or in connection with this report or our statement, required by and given solely for the purposes of complying
with item 23.1 of Annex I to the Prospectus Directive Regulation, consenting to its inclusion in the
prospectus.
Responsibilities
The Directors of Domino’s Pizza UK & IRL plc are responsible for preparing the financial information on
the basis of preparation set out in note 1 to the financial information and in accordance with International
Financial Reporting Standards as adopted by the European Union.
It is our responsibility to form an opinion as to whether the financial information gives a true and fair view,
for the purposes of the prospectus, and to report our opinion to you.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the
amounts and disclosures in the financial information. It also included an assessment of significant estimates
and judgments made by those responsible for the preparation of the financial information and whether the
accounting policies are appropriate to the entity's circumstances, consistently applied and adequately
disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the
financial information is free from material misstatement whether caused by fraud or other irregularity or
error.
AI 20.1, 20.3,
20.4.1, 20.5.1
55
Our work has not been carried out in accordance with auditing or other standards and practices generally
accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.
Opinion
In our opinion, the financial information gives, for the purposes of the prospectus dated 14 May 2008, a true
and fair view of the state of affairs of Domino’s Pizza UK & IRL plc as at the dates stated and of its profits,
cash flows and changes in equity for the periods then ended in accordance with International Financial
Reporting Standards as adopted by the European Union.
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the prospectus
and declare that we have taken all reasonable care to ensure that the information contained in this report is,
to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import.
This declaration is included in the prospectus in compliance with item 1.2 of Annex I of the Prospectus
Directive Regulation.
Yours faithfully
Ernst & Young LLP
56
57
Group income statement
52 weeks 52 weeksended ended
31 December 30 December2006 2007
Notes £000 £000
Revenue 2 94,965 114,891
Cost of sales (57,811) (70,736)––––––– –––––––
Gross profit 37,154 44,155
Distribution costs (8,177) (9,246)
Administrative costs (including operating exceptional
charges) (15,462) (16,746)––––––– –––––––
13,515 18,163
Share of post tax profits of associates 171 158––––––– –––––––
Operating profit 4 13,686 18,321
Accelerated LTIP charge 7 – (174)
Operating exceptional charges 6 (499) (333)
Operating profit before exceptional charges 4 14,185 18,828
Profit on the sale of non current assets and assets held for sale 6 159 288
Profit on the sale of subsidiary undertakings 6 454 58––––––– –––––––
Profit before interest and taxation 14,299 18,667
Finance income 8 397 528
Finance expense 9 (507) (619)––––––– –––––––
Profit before taxation 14,189 18,576
Taxation 10 (4,193) (5,337)––––––– –––––––
Profit for the year 9,996 13,239––––––– –––––––
Profit for the year attributable to:
Equity holders of the parent 10,084 13,245
Minority interest (88) (6)––––––– –––––––
9,996 13,239––––––– –––––––
Earnings per share – Basic (pence) 11 6.23 8.38
– Diluted (pence) 11 6.12 8.24
Group balance sheet
At At31 December 30 December
2006 2007Notes £000 £000
Non current assetsGoodwill and intangible assets 14 1,496 713
Property, plant and equipment 15 12,378 13,816
Prepaid operating lease charges 16 683 702
Net investment in finance leases 17 1,748 1,923
Investments in associates 18 589 685
Deferred tax asset 10 1,209 565––––––– –––––––
18,103 18,404––––––– –––––––
Current assetsInventories 20 1,818 2,340
Trade and other receivables 21 9,632 10,071
Net investment in finance leases 17 864 857
Prepaid operating lease charges 16 247 220
Cash and cash equivalents 22 10,262 14,629––––––– –––––––
22,823 28,117
Non current assets held for sale 23 1,172 1,772––––––– –––––––
Total assets 42,098 48,293––––––– –––––––
Current liabilitiesTrade and other payables 24 (13,433) (18,187)
Deferred income (31) (68)
Financial liabilities 25 (6,835) (6,817)
Current tax liabilities (2,339) (2,503)––––––– –––––––(22,638) (27,575)
Non current liabilitiesProvisions 27 (233) (155)
Financial liabilities 25 (9,009) (9,380)
Deferred income (989) (1,071)
Deferred tax liabilities 10 (243) (215)––––––– –––––––
Total liabilities (33,112) (38,396)––––––– –––––––
Net assets 8,986 9,897––––––– –––––––
Shareholders’ equityCalled up share capital 30 2,574 2,538
Share premium account 4,765 5,307
Capital redemption reserve 261 319
Treasury share reserve (4,216) (4,403)
Currency translation reserve (21) 209
Retained earnings 5,575 5,888––––––– –––––––
Equity shareholders’ funds 8,938 9,858
Minority interest 48 39––––––– –––––––
Total equity 8,986 9,897––––––– –––––––
58
59
Gro
up s
tate
men
t of
cha
nges
in e
quit
ySh
are
Cap
ital
Trea
sury
Cur
renc
yE
quit
ySh
are
Pre
miu
mR
edem
ptio
nSh
are
Tran
slat
ion
Ret
aine
d Sh
areh
olde
rs’
Min
orit
yTo
tal
Cap
ital
Acc
ount
Res
erve
Res
erve
Res
erve
Ear
ning
sF
unds
Inte
rest
Equ
ity
£000
£000
£000
£000
£000
£000
£000
£000
£000
At
1 J
anuar
y 2
006 a
s pre
vio
usl
y s
tate
d2,6
45
4,6
77
171
(7,5
00)
–12,0
13
12,0
06
82
12,0
88
Pri
or
per
iod e
ffec
t of
adopti
on o
f IF
RS
––
––
–(7
0)
(70)
–(7
0)
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
At
1 J
anuar
y 2
006 a
s re
stat
ed2,6
45
4,6
77
171
(7,5
00)
–11,9
43
11,9
36
82
12,0
18
Exch
ange
dif
fere
nce
on t
he
tran
slat
ion o
f net
ass
ets
of
subsi
dia
ry u
nder
takin
g–
––
–(2
1)
–(2
1)
–(2
1)
Tax
cre
dit
on e
mplo
yee
shar
e opti
ons
––
––
–883
883
–883
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
Tota
l in
com
e an
d e
xpen
se f
or
the
yea
r re
cognis
ed
dir
ectl
y i
n e
quit
y–
––
–(2
1)
883
862
–862
Pro
fit
for
the
per
iod
––
––
–10,0
84
10,0
84
(88)
9,9
96
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
Tota
l in
com
e an
d e
xpen
se f
or
the
yea
r–
––
–(2
1)
10,9
67
10,9
46
(88)
10,8
58
Pro
ceed
s fr
om
shar
e is
sue
19
384
––
––
403
–403
Shar
e buybac
ks
(90)
(296)
90
––
(10,1
61)
(10,4
57)
–(1
0,4
57)
Tre
asury
shar
es h
eld b
y E
BT
––
–3,2
84
–(3
,284)
––
–S
har
e opti
on a
nd L
TIP
char
ge
––
––
–344
344
–344
Equit
y d
ivid
ends
pai
d–
––
––
(4,2
34)
(4,2
34)
–(4
,234)
Min
ori
ty i
nte
rest
movem
ent
––
––
––
–54
54
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
At
31 D
ecem
ber
2006
2,5
74
4,7
65
261
(4,2
16)
(21)
5,5
75
8,9
38
48
8,9
86
Exch
ange
dif
fere
nce
on t
he
tran
slat
ion o
f net
ass
ets
of
subsi
dia
ry u
nder
takin
g–
––
–230
–230
–230
Tax
cre
dit
on e
mplo
yee
shar
e opti
ons
––
––
–214
214
–214
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
Tota
l in
com
e an
d e
xpen
se f
or
the
yea
r re
cognis
ed
dir
ectl
y i
n e
quit
y–
––
–230
214
444
–444
Pro
fit
for
the
per
iod
––
––
–13,2
45
13,2
45
(6)
13,2
39
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
Tota
l in
com
e an
d e
xpen
se f
or
the
yea
r–
––
–230
13,4
59
13,6
89
(6)
13,6
83
Pro
ceed
s fr
om
shar
e is
sue
22
678
––
––
700
–700
Shar
e buybac
ks
(58)
–58
––
(8,2
10)
(8,2
10)
–(8
,210)
Tre
asury
shar
es h
eld b
y E
BT
––
–(1
87)
––
(187)
–(1
87)
Shar
e tr
ansa
ctio
n c
har
ges
–(1
36)
––
––
(136)
–(1
36)
Shar
e opti
on a
nd L
TIP
char
ge
––
––
–880
880
–880
Equit
y d
ivid
ends
pai
d–
––
––
(5,8
16)
(5,8
16)
–(5
,816)
Min
ori
ty i
nte
rest
movem
ent
––
––
––
–(3
)(3
)–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
At
30 D
ecem
ber
2007
2,5
38
5,3
07
319
(4,4
03)
209
5,8
88
9,8
58
39
9,8
97
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
Group cash flow statement
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Cash flows from operating activitiesProfit before taxation 14,189 18,576
Net finance costs 110 91
Share of post tax profits of associates (171) (158)
Amortisation and depreciation 1,815 1,545
Profit on disposal of non current assets (613) (346)
Share option and LTIP charge (including accelerated LTIP charge) 344 880
(Increase)/decrease in inventories 349 (535)
(Increase)/decrease in debtors 82 (685)
Increase in creditors 2,764 4,956
Increase in deferred income 120 119
Decrease in provisions (221) (20)––––––– –––––––
Cash generated from operations 18,768 24,423
UK corporation tax (3,624) (4,117)
Overseas corporation tax paid (131) (218)––––––– –––––––
Net cash generated by operating activities 15,013 20,088
Cash flows from investing activitiesInterest received 389 528
Dividends received 21 62
Receipts from repayment of associate loan 105 171
Receipts from repayment of franchisee finance leases 1,349 1,127
Purchase of property, plant and equipment (2,294) (3,509)
Purchase of other non current assets (866) (451)
Net cash acquired on the disposal of subsidiary undertaking – 1,118
Receipts from the sale of other non current assets 453 335
Purchase of minority interests (103) –––––––– –––––––
Net cash used by investing activities (946) (619)––––––– –––––––
Cash inflow before financing 14,067 19,469
Cash flow from financing activitiesInterest paid (459) (619)
Issue of ordinary share capital 403 700
Purchase of own shares (10,161) (8,346)
Short term loans – bank overdraft 6,000 (6,000)
Bank revolving facility – 6,000
New long term loans 1,244 1,302
Repayment of long term loans (1,457) (1,169)
Payments to acquire finance lease assets (1,026) (1,295)
Equity dividends paid (4,234) (5,816)––––––– –––––––
Net cash used by financing activities (9,690) (15,243)––––––– –––––––
Net increase in cash and cash equivalents 4,377 4,226
Cash and cash equivalents at beginning of period 5,885 10,262
Foreign exchange gains on cash and cash equivalents – 141––––––– –––––––
Cash and cash equivalents at end of period 10,262 14,629––––––– –––––––
60
Notes to the financial information
1. ACCOUNTING POLICIES
Basis of preparation
The financial information has been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union as they apply to the financial statements of the Group for the
52 weeks ended 30 December 2007 and applied in accordance with the Companies Act 1985.
The year ended 31 Decembeeer 2007 is the first financial year in which the Group financial statements of
Domino’s Pizza UK & IRL plc have been prepared in accordance with IFRS and the comparative amounts
for 2006 have been restated from UK Generally Accepted Accounting Practice (UK GAAP) to comply with
IFRS.
Note 36 to the financial information sets out the reconciliations to IFRS from the previously published UK
GAAP financial statements.
The financial information is presented in sterling and all values are rounded to the nearest thousand pounds
(£000) except when otherwise indicated.
In the preparation of the financial information management has made certain estimates and assumptions that
effect the amounts reported for assets and liabilities as at balance sheet date and the amounts reported for
revenues and expenses during the financial period. The nature of estimation means that actual outcomes
could differ from those estimates.
Key source of estimation uncertainty
The key source of estimation uncertainty that has a significant risk of causing material adjustment to the
carrying amounts of assets and liabilities within the next financial year is the estimation of share-based
payment costs. The estimation of share-based payment costs requires the selection of an appropriate
valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation
of the number of awards that will ultimately vest, inputs for which arise from judgments relating to the
probability of meeting non-market performance conditions and the continuing participation of employees.
Basis of consolidation
The Financial information incorporates the results and net assets of Domino’s Pizza UK & Irl plc (the
“Company”) and its subsidiary undertakings (together the “Group”) drawn up to the nearest Sunday to 31
December each year.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date that such control ceases. Control comprises the power
to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is
achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential
voting rights; or by way of contractual agreement. The financial statements of subsidiaries used in the
preparation of the consolidated financial statements are prepared for the same reporting period as the parent
company and are based on consistent accounting policies. All inter-company transactions and balances
between Group entities, including unrealised profits arising from them, are eliminated upon consolidation.
Minority interests represent the portion of profit and loss and net assets in subsidiaries that is not held by the
Group and is presented separately within equity in the consolidated balance sheet, separately from parent
shareholders’ equity.
Interests in associates
The Group’s interests in its associates, being those entities over which it has significant influence and which
are neither subsidiaries nor joint ventures, are accounted for using the equity method of accounting.
61
1. ACCOUNTING POLICIES (continued)
Under the equity method, the investment in an associate is carried in the balance sheet at cost plus post
acquisition changes in the Group’s share of net assets of the associate, less distributions received and less
any impairment in value of individual investments. The Group’s income statement reflects the Group’s share
of the associate’s results after tax. The Group statement of changes in equity reflects the Group’s share of
any income and expense recognised by the associate outside profit and loss.
Any goodwill arising on the acquisition of an associate, representing the excess of the cost of the investment
compared to the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and
contingent liabilities, is included in the carrying amount of the associate and is not amortised. To the extent
that the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities is greater than
the cost of the investment, a gain is recognised and added to the Group’s share of the associate’s profit or
loss in the period in which the investment is acquired.
Financial statements of associates are prepared for the same reporting period as the Group. Where necessary,
adjustments are made to bring the accounting policies used in line with those of the Group; to take into
account fair values assigned at the date of acquisition and to reflect impairment losses where appropriate.
Adjustments are also made in the financial information to eliminate the Group’s share of unrealised gains
and losses on transactions between the Group and its associates.
Foreign currencies
Foreign operations
The income and expenses of overseas subsidiaries are translated at the average rate of exchange ruling during
the year. The balance sheet of the overseas subsidiary undertaking is translated into sterling at the rate of
exchange ruling at the balance sheet date. Exchange differences arising, if any, are included within equity
and transferred to the Group’s translation reserve. Such translation differences are recognised as income or
as expenses in the period in which the operation is disposed.
The Group has utilised the exemption available in IFRS 1 whereby cumulative translation differences are
deemed to be zero at the date of transition to IFRS.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions.
Foreign currency transactions
Transactions denominated in foreign currencies are translated at the exchange rate on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the exchange rate ruling at that date. Foreign exchange differences arising on translation are
recognised in the income statement for the period.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of
the Group’s share of the identifiable net assets and contingent liabilities of the acquired subsidiary at the date
of acquisition. Goodwill is recognised as an asset on the Group’s balance sheet in the year in which it arises
and is not amortised. Any goodwill asset arising on the acquisition of equity accounted entities is included
within the cost of those entities.
Goodwill is recognised on the purchase of further minority interests under the parent entity extension
method, whereby the entire difference between the cost of the additional interest in the subsidiary and the
minority interest’s share of the assets and liabilities reflected in the consolidated balance sheet at the date of
the acquisition of the minority interest is reflected as goodwill.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying
value being reviewed for impairment, at least annually and more frequently if events or changes indicate that
the carrying value may be impaired.
62
1. ACCOUNTING POLICIES (continued)
For the purpose of impairment testing, goodwill is allocated to the related cash-generating units monitored
by management, usually at business segment level or statutory company level as the case may be. Where the
recoverable amount of the cash-generating unit is less than its carrying amount, including goodwill, an
impairment loss is recognised in the income statement.
The carrying amount of goodwill allocated to a cash-generating unit is taken into account when determining
the gain or loss on disposal of the unit, or of an operation within it.
Goodwill arising on acquisitions before 1 January 2006 (the date of transition to IFRS) has been recorded at
its carrying amount under UK GAAP, subject to being tested for impairment at that date.
Intangible assets
Computer software
Computer software is carried at cost less accumulated amortisation and any impairment loss. Externally
acquired computer software and software licences are capitalised at the costs incurred to acquire and bring
into use the specific software. Internally developed computer software programs are capitalised to the extent
that costs can be separately identified and attributed to particular software programs, measured reliably, and
that the asset developed can be shown to generate future economic benefits. These assets are considered to
have finite useful lives and are amortised on a straight line basis over the estimated useful economic lives of
each of the assets, considered to be between three and five years.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised
impairment in value. Cost comprises the aggregate amount paid and the fair value of any other consideration
given to acquire the asset and includes costs directly attributable to making the asset capable of operating as
intended.
Depreciation is calculated to write down the cost of the assets to their residual values, on a straight-line
method on the following bases:
• Freehold buildings and leasehold properties – 50 years, or the lease term if shorter.
• Plant, equipment, fixtures and fittings and motor vehicles – at rates varying from 10 per cent. to 50
per cent.
• Leasehold building improvements – over the life of the lease.
• Freehold land is not depreciated.
Land and buildings under construction and non current assets held for sale are not depreciated.
The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted if
appropriate on an annual basis. An item of property, plant and equipment is derecognised upon disposal or
when no future economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the income statement in the year that the asset is derecognised.
All property, plant and equipment are reviewed for impairment in accordance with IAS 36, Impairment of
Assets, when there are indications that the carrying value may not be recoverable.
Prepaid short leasehold costs
Prepaid short lease hold property costs are classified as non-current prepayments. On initial recognition these
assets are held at cost and subsequently at amortised cost over the length of the lease.
63
1. ACCOUNTING POLICIES (continued)
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered through sales rather
than continuing use. This condition is regarded as met if a sale is expected to materialise within twelve months
after the balance sheet date and the asset is available for immediate disposal in its present condition. Non-
current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell. After classification as assets held for sale, no further depreciation is provided for on the assets.
Leases
Group as lessee
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and
rewards of ownership to the Group. All other leases are classified as operating leases.
Assets held as finance leases are recognised as assets of the Group at their fair value or, if lower, at the present
value of the minimum lease payments during the lease term at the inception of the lease. Lease payments are
apportioned between the reduction of the lease liability and finance charges in the income statement so as to
achieve a constant rate of interest in the remaining balance of the liability. Assets held under finance leases are
depreciated over the shorter of the estimated useful life of the assets and the lease term.
Assets leased under operating leases are not recorded on the balance sheet. Rental payments are charged
directly to the income statement. Lease incentives, primarily up-front cash payments or rent-free periods, are
capitalised and spread over the period of the lease term. Payments made to acquire operating leases are
treated as prepaid lease expenses and amortised over the life of the lease.
Group as lessor
Assets leased out under operating leases are included in property, plant and equipment and depreciated over
their useful lives. Rental income, including the effect of lease incentives, is recognised on a straight line basis
over the lease term.
Where the Group transfers substantially all the risks and benefits of ownership of the asset, the arrangement
is classified as a finance lease and a receivable is recognised for the initial direct costs of the lease and the
present value of the minimum lease payments. As payments fall due, finance income is recognised in the
income statement so as to achieve a constant rate of return on the remaining net investment in the lease.
Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If
any such indication exists, or when annual impairment testing for an asset is required, the Group makes an
estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-
generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset,
unless the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. Impairment losses on
continuing operations are recognised in the income statement in those expense categories consistent with the
function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable
amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.
If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.
64
1. ACCOUNTING POLICIES (continued)
After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Provisions
Provisions are recognised when there is a present legal or constructive obligation as a result of past events,
for which it is probable that an outflow of economic benefit will be required to settle the obligation and
where the amount of the obligation can be reliably measured.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in, first out
basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred
to disposal.
Trade and other receivables
Trade receivables, which generally have 7 – 28 days terms, are recognised and carried at the lower of their
original invoiced value and recoverable amount. Provision is made when it is likely that the balance will not
be recovered in full. Balances are written off when the probability of recovery is considered remote.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits
with an original maturity of three months or less.
Interest bearing loans and borrowings
Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts
and are measured initially at fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost
using the effective interest method. Gains and losses arising on the repurchase, settlement or otherwise
cancellation of liabilities are recognised respectively in finance revenue and finance cost.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognised using the balance sheet liability method, providing for temporary
differences between the tax bases and the accounting bases of assets and liabilities. Deferred tax is calculated
on an undiscounted basis at the tax rates that are expected to apply in the period when the liability is settled
or the asset is realised, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Deferred income tax liabilities are recognised for all temporary differences, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill or of an asset or liability
in a transaction that is not a business combination and at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss;
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and
joint ventures, where the timing of the reversal of the temporary differences can be controlled and it
is probable that the temporary differences will not reverse in the foreseeable future; and
• deferred income tax assets are recognised only to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences, carried forward tax credits or losses
can be utilised.
65
1. ACCOUNTING POLICIES (continued)
Income tax is charged or credited to the income statement, except when it relates to items charged or credited
directly to equity, in which case the income tax is also dealt with in equity.
Deferred tax assets and liabilities are offset against each other when the Group has a legally enforceable right
to set off current tax assets and liabilities and the deferred tax relates to income taxes levied by the same tax
jurisdiction on either the same taxable entity, or on different taxable entities which intend to settle current
tax assets and liabilities on a net basis or to realise the assets and settle the liabilities simultaneously in each
future period in which significant amounts of deferred tax liabilities are expected to be settled or recovered.
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold,
cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, such that the
difference in the respective carrying amounts together with any costs or fees incurred are recognised in profit
or loss.
Pensions
The Group contributes to the personal pension plans of certain staff. The contributions are charged as an
expense as they fall due. Any contributions unpaid at the balance sheet date are included as an accrual at that
date. The Group has no further payment obligations once the contributions have been paid.
Treasury shares
Domino’s Pizza UK & IRL plc shares held by the Group are classified in shareholders’ equity as “treasury
shares” and are recognised at cost. Consideration received for the sale of such shares is also recognised in
equity, with any difference between the proceeds from sale and the original cost being taken to revenue
reserves except that where the proceeds exceed the consideration paid then the excess is transferred to the
share premium account. No gain or loss is recognised on the purchase, sale issue or cancellation of equity
shares.
The Employee Benefit Trust has waived its entitlement to dividends. The Group will meet the expenses of
the trust as and when they fall due.
Revenue recognition
Revenue consists and is recognised as follows:
Pizza delivery – on delivery of pizzas to franchisee customers
Commissary and equipment sales – on delivery to franchisees
Royalties (based on system sales) – on delivery of pizzas by franchisees to customers
Franchise fee income for initial services – recognised when the services have been substantially
performed which is on commencement of franchisee
trading
Finance lease interest income – as set out in lease accounting policy
Rental income on leasehold properties – on a straight line basis in accordance with the lease
terms
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured.
Revenue is measured at the fair value of consideration net of returns, rebates and value-added taxes.
66
1. ACCOUNTING POLICIES (continued)
Borrowing costs
Borrowing costs are generally expensed as incurred. Borrowing costs that are directly attributable to the
acquisition or construction of an asset are capitalised while the asset is being constructed as part of the cost
of that asset.
The policy is adopted for all assets that meet the definition of qualifying assets under the standard.
Capitalisation of borrowing costs should commence when:
• expenditures for the asset and borrowing costs are being incurred; and
• activities necessary to prepare the asset for its intended use are in progress.
Capitalisation ceases when the asset is substantially ready for its intended use. If active development is
interrupted for an extended period, capitalisation is suspended. When construction occurs piecemeal and use
of each part is possible as construction continues, capitalisation for each part ceases on substantial
completion of that part.
For borrowing associated with a specific asset, the actual rate on that borrowing is used. Otherwise, a
weighted average cost of borrowings is used.
Exceptional items
The Group presents as exceptional items on the face of the income statement, those material items of income
and expense which, because of the nature and expected infrequency of the events giving rise to them, merit
separate presentation to allow shareholders to understand better the elements of financial performance in the
year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.
Share based payments
The Group provides benefits to employees (including Directors) in the form of share based payment
transactions, whereby employees render services in exchange for rights over shares (“equity-settled
transactions”). The cost of the equity-settled transactions with employees and Directors are measured by
reference to the fair value at the date at which they are granted and is recognised as an expense over the
vesting period, which ends on the date at which the relevant employees become fully entitled to the award.
Fair values of employee share option plans are calculated using the Black-Scholes and Binomial models. In
valuing equity settled transactions, no account is taken of any vesting conditions, other than conditions
linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the market
condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to
which the vesting period has expired and the Directors’ best estimate of the number of equity instruments
that will ultimately vest on achievement or otherwise of non-market conditions or in the case of an
instrument subject to a market condition, be treated as vested as described above. The movement in the
cumulative expense since the previous balance sheet date is recognised in the income statement, with the
corresponding increase in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a
cancelled or settled award, the cost based on the original award terms continues to be recognised over the
original vesting period. In addition, an expense is recognised over the remainder of the new vesting period
for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification.
No reduction is recognised if this difference is negative.
67
1. ACCOUNTING POLICIES (continued)
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any cost not yet recognised in the income statement for the award is expensed immediately. Any
compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the income statement.
The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards
so as to apply IFRS 2 only to those equity-settled awards granted after 7 November 2002 that had not vested
before 3 January 2005.
New standards and interpretations not applied
During the year ended 30 December 2007, the IASB and IFRIC have issued the following standards and
interpretations with an effective date after the date of this financial information:
International Accounting Standards (IAS/IFRS) Effective date
IFRS 8 – Operating segments 1 January 2009
IAS 23 – Borrowing cost (revised) 1 January 2009
IAS 27 – (Revised) Consolidations 1 July 2009
IFRS 3 – (Revised) Business combinations 1 July 2009
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 11 – IFRS 2 group and treasury share transactions * 1 March 2007
IFRIC 12 – Service concession arrangements * 1 January 2008
IFRIC 13 – Customer Loyalty Programmes * 1 July 2008
IFRIC 14 – Limit on Defined Benefit Asset, Minimum Funding Requirements
and their interaction * 1 January 2008
* Not yet adopted by the European Union
The Directors do not anticipate that the adoption of these standards and interpretations will have a material
impact on the Group’s financial statements in the period of application.
Upon adoption of IFRS 8, the Group will be required to disclose financial and descriptive information about
its reportable segments. Whilst the criteria used to identify the reportable segments differs from that currently
applied in accordance with IAS 14, there will be no effect on reported income or net assets.
The revisions to IFRS 3 and IAS 27 will impact the way in which acquisitions of minority interests are
accounted for that will impact the amount of goodwill recognised, the results in the period that an acquisition
occurs and future revenues reported. However the size of minority interest transactions are not significant to
the results of the Group.
2. REVENUE
Revenue recognised in the income statement is analysed as follows:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Royalties and sales to franchisees 87,269 106,147
Rental income on leasehold and freehold property 7,406 8,479
Finance lease income 290 265––––––– –––––––
94,965 114,891––––––– –––––––
68
3. SEGMENT INFORMATION
For management purposes, the Group is organised into two geographical business units, United Kingdom
and Ireland, based on the territories governed by the Master Franchise Agreement.
In both the current and the prior year all assets held for sale are included within the United Kingdom
segment.
Primary reporting format – Geographical segments
The following tables present revenue and profit and certain asset and liability information regarding the
Group’s geographical segments for the 52 weeks ended 31 December 2006 and 30 December 2007:
52 weeks ended 31 December 2006United
Ireland Kingdom Total£000 £000 £000
RevenueSales to external customers 9,500 85,465 94,965
–––––– –––––– ––––––Segment revenue 9,500 85,465 94,965
–––––– –––––– ––––––ResultsSegment result 2,042 11,473 13,515
Unallocated expenses
Share of profit of associates – 171 171–––––– –––––– ––––––
Group operating profit 2,042 11,644 13,686
Profit on sale of subsidiary undertakings – 454 454
Profit on sale of assets and assets held for sale – 159 159–––––– –––––– ––––––
2,042 12,257 14,299
Net finance costs (110)––––––
Profit before taxation 14,189
Taxation (4,193)––––––
Profit for the period 9,996––––––
Assets and liabilitiesSegment assets 2,226 29,021 31,247
Equity accounted investments – 589 589
Unallocated assets – – 10,262–––––– –––––– ––––––
Total assets 2,226 29,610 42,098–––––– –––––– ––––––
Segment liabilities 584 16,689 17,273
Unallocated liabilities – – 15,839–––––– –––––– ––––––
Total liabilities 584 16,689 33,112–––––– –––––– ––––––
Other segment informationCapital expenditure:
Property, plant and equipment:
– Freehold land and buildings 38 – 38
– Assets under construction – 56 56
– Leasehold improvements – 311 311
– Equipment 41 1,848 1,889
Intangible assets – 950 950
Depreciation 76 1,462 1,538
Amortisation – 277 277
Share-based payment expense – 344 344
Write-off of inventories – 13 13
69
3. SEGMENT INFORMATION (continued)
52 weeks ended 30 December 2007
UnitedIreland Kingdom Total
£000 £000 £000RevenueSales to external customers 12,292 102,599 114,891
–––––––– –––––––– ––––––––Segment revenue 12,292 102,599 114,891
–––––––– –––––––– ––––––––ResultsSegment result 2,628 15,535 18,163
Unallocated expenses
Share of profit of associates – 158 158–––––––– –––––––– ––––––––
Group operating profit 2,628 15,693 18,321
Profit on sale of subsidiary undertakings – 58 58
Profit on sale of assets and assets held for sale – 288 288–––––––– –––––––– ––––––––
2,628 16,039 18,667
Net finance costs (91)––––––––
Profit before taxation 18,576
Taxation (5,337)––––––––
Profit for the period 13,239––––––––
Assets and liabilitiesSegment assets 2,614 30,365 32,979
Equity accounted investments – 685 685
Unallocated assets – – 14,629–––––––– –––––––– ––––––––
Total assets 2,614 31,050 48,293–––––––– –––––––– ––––––––
Segment liabilities 1,163 21,009 22,172
Unallocated liabilities – – 16,224–––––––– –––––––– ––––––––
Total liabilities 1,163 21,009 38,396–––––––– –––––––– ––––––––
Other segment informationCapital expenditure:
Property, plant and equipment:
– Freehold land and buildings 15 349 364
– Assets under construction – 1,444 1,444
– Leasehold improvements – 165 165
– Equipment 65 1,471 1,536
Intangible assets – 210 210
Depreciation 77 1,234 1,311
Amortisation – 234 234
Share-based payment expense – 880 880
Write-off of inventories 2 19 21
70
3. SEGMENT INFORMATION (continued)
Secondary reporting format – Business segments
The following tables present revenue, expenditure and certain information regarding the Group’s business
segments for the 52 weeks ended 31 December 2006 and 30 December 2007.
52 weeks ended 31 December 2006Rental
income onRoyalties and leasehold Finance
sales to and freehold leasefranchisees property income Total
£000 £000 £000 £000RevenueSales to external customers 86,625 8,050 290 94,965
–––––––– –––––––– –––––––– ––––––––Revenue from continuing operations 86,625 8,050 290 94,965
–––––––– –––––––– –––––––– ––––––––Other segment informationSegment assets 24,624 3,954 2,669 31,247
Equity accounted investments 589 – – 589
Unallocated assets – – – 10,262–––––––– –––––––– –––––––– ––––––––
Total assets 25,213 3,954 2,669 42,098–––––––– –––––––– –––––––– ––––––––
Capital expenditure:
Property, plant and equipment:
– Freehold land and buildings 38 – – 38
– Assets under construction 56 – – 56
– Leasehold improvements 268 43 – 311
– Equipment 1,889 – – 1,889
Intangible assets 950 – – 950
52 weeks ended 30 December 2007
Rentalincome on
Royalties and leasehold Financesales to and freehold lease
franchisees property income Total£000 £000 £000 £000
RevenueSales to external customers 105,333 9,293 265 114,891
–––––––– –––––––– –––––––– ––––––––Revenue from continuing operations 105,333 9,293 265 114,891
–––––––– –––––––– –––––––– ––––––––Other segment informationSegment assets 25,565 4,578 2,836 32,979
Equity accounted investments 685 – – 685
Unallocated assets – – – 14,629–––––––– –––––––– –––––––– ––––––––
Total assets 26,250 4,578 2,836 48,293–––––––– –––––––– –––––––– ––––––––
Capital expenditure:
Property, plant and equipment:
– Freehold land and buildings 64 300 – 364
– Assets under construction 1,444 – – 1,444
– Leasehold improvements 143 22 – 165
– Equipment 1,536 – – 1,536
Intangible assets 210 – – 210
71
4. GROUP OPERATING PROFIT
This is stated after charging/(crediting):
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Depreciation of property, plant and equipment 1,529 1,302
Depreciation of assets held under finance leases and hire
purchase contracts 9 9
Amortisation of prepaid lease charges 101 113
Amortisation of intangible assets 176 121–––––––– ––––––––
Total depreciation and amortisation expense 1,815 1,545–––––––– ––––––––
Net foreign currency gain/(losses) (16) 100–––––––– ––––––––
Cost of inventories recognised as an expense 40,719 50,516–––––––– ––––––––
Write-down of inventories to net realisable value 9 21–––––––– ––––––––
Operating lease payments
– land and buildings 7,217 8,287
– plant, machinery and vehicles 1,480 1,747–––––––– ––––––––
Total operating lease payments recognised in the income statement 8,697 10,034–––––––– ––––––––
5. AUDITORS’ REMUNERATION
The Group paid the following amounts to its auditors in respect of the audit of the financial statements and
for other services provided to the Group.
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Audit of the financial statements* 75 82–––––––– ––––––––
Other fees to auditors
– local statutory audit for subsidiaries 44 46
– other services 2 28–––––––– ––––––––
46 74–––––––– ––––––––
* of which £2,000 (2006: £2,000) relates to the Company
72
6. EXCEPTIONAL ITEMS
Recognised as part of operating profit
The Group has taken the decision not to invest in or trade in corporately owned stores. During the year one
(2006: three) corporately owned store was sold and none (2006: one) closed.
The Group has incurred the following exceptional charges relating to store closures and stores sold during
the financial period:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Onerous lease and dilapidation provisions 76 45
Restructuring and reorganisation costs 252 143
Assets written off 52 145
Lease finance and other bad debts provided for* 119 ––––––––– ––––––––
499 333–––––––– ––––––––
* relates to a store owned and operated by a franchisee, closed during the 2006 financial year.
Except for the assets written off, for stores closed, the charges should be deductible for corporation tax
purposes. Except for the restructuring and reorganisation costs, these charges had no impact on the cash flow
of the Group during the year.
Recognised below operating profit
Profit on the sale of subsidiary undertakings
During the 2005 financial year the Group sold two subsidiary undertakings, DPGS Limited and Triple A
Pizza Limited (which included 12 corporate stores at the date of the transaction). As a result of this
transaction, certain legal and property provisions were made (see note 28).
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Movement in provisions 454 58–––––––– ––––––––
During the year partial resolution relating to the conditions for the provisions made in relation to the sale of
the subsidiary undertakings was reached and as a result £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 the income
statement.
Profit on the sale of non current assets and assets held for sale
The Group disposed of its subsidiary undertaking, DP Newcastle & Sunderland Limited in June 2007,
generating a profit of £279,000. The gain in respect of this disposal will be exempt from corporation tax due
to the substantial shareholdings exemption. The transaction will however give rise to a degrouping or exit
charge which will result in a tax liability of circa £140,000.
73
6. EXCEPTIONAL ITEMS (continued)
In addition the Group sold one (2006: three) corporate store resulting in a profit of £6,000 (2006: £159,000).
The gain in respect of this disposal will be chargeable to corporation tax at the statutory rate of 30 per cent.
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Sale of one (2006: three) corporate store 159 6
Profit on sale of assets held for sale – DP Newcastle & Sunderland Limited – 279
Profit on sale of other non current assets – 3–––––––– ––––––––
159 288–––––––– ––––––––
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS
(a) Employee benefits expense
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Wages and salaries 11,717 12,939
Social security costs 1,136 1,158
Other pension costs 227 298
Share-based payments 344 880–––––––– ––––––––
13,424 15,275–––––––– ––––––––
During the 52 weeks ended 30 December 2007 the Group’s IFRS 2 charge relating to reversionary interests
in ordinary shares granted in 2004 has increased as the performance targets set are forecast to be achieved
earlier than expected, resulting in an accelerated charge of £174,000 (2006: £nil).
This charge was not and will not become deductible for taxation purposes (note 10). This charge had no
impact on the cash flow of the Group during the period.
The average monthly number of employees during the year was made up as follows:
52 weeks 52 weeksended ended
31 December 30 December2006 2007
No. No.
Administration 130 145
Production and distribution 157 171
Store employees 306 317–––––––– ––––––––
593 633–––––––– ––––––––
74
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS (continued)
(b) Directors’ emoluments
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Directors’ emoluments 1,631 1,829–––––––– ––––––––
Aggregate contributions to defined contribution pension schemes 59 61–––––––– ––––––––
Number of directors accruing benefits under:
– Defined contribution schemes 3 3–––––––– ––––––––
Additional information regarding directors’ emoluments:
The Remuneration Committee consists of John Hodson (Chairman), Dianne Thompson and Michael
Shallow. It has the primary responsibility to review the performance of executive directors and similar
employees and set the scale and structure of their remuneration. The underpinning objective is to recruit,
retain and motivate a top quality team of executive directors and senior executives through a competitive
remuneration structure, which provides incentives to deliver exceptional performance. This is achieved
through offering remuneration packages, which include salaries and bonuses benchmarked against similar
companies and a long-term incentive plan, which provides significant reward for achieving stretching targets.
These arrangements are described more fully below.
Service agreements
Stephen Hemsley, Lee Ginsberg and Christopher Moore have entered into service agreements with the
Company, which are subject to twelve month’s notice by the Company. The remuneration packages consist
of basic salary, pension contributions, health and life insurance benefits and the use of a company car or cash
equivalent allowance.
Colin Halpern is seconded to the Company from International Franchise System, Inc. (“IFS”) as non-
executive vice chairman under the terms of a management agreement. The agreement is reviewed annually
and the level of compensation paid to IFS agreed by the Remuneration Committee.
The non-executive directors are appointed on three-year agreements with the Company terminable at one
weeks notice. Fees for non-executive directors are set by the Board.
75
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS (continued)
Directors’ remuneration
Salary Pensionor fees Bonus Benefits contributions Total
52 weeks 52 weeks 52 weeks 52 weeks 52 weeksended ended ended ended ended
30 December 30 December 30 December 30 December 30 December2007 2007 2007 2007 2007£000 £000 £000 £000 £000
Executive directors:Stephen Hemsley 240 240 35 24 539
Lee Ginsberg 180 180 31 18 409
Christopher Moore 200 200 24 19 443
Non-executive directors:Colin Halpern 214 100 69 – 383
Nigel Wray 28 – – – 28
John Hodson 30 – – – 30
Michael Shallow 30 – – – 30
Dianne Thompson 28 – – – 28–––––––– –––––––– –––––––– –––––––– ––––––––
950 720 159 61 1,890–––––––– –––––––– –––––––– –––––––– ––––––––
Salary Pensionor fees Bonus Benefits contributions Total
52 weeks 52 weeks 52 weeks 52 weeks 52 weeksended ended ended ended ended
31 December 31 December 31 December 31 December 31 December2006 2006 2006 2006 2006£000 £000 £000 £000 £000
Executive directors:Colin Halpern 204 100 136 – 440
Stephen Hemsley 230 174 32 23 459
Lee Ginsberg 170 105 33 17 325
Christopher Moore 185 128 22 19 354
Non-executive directors:Nigel Wray 28 – – – 28
John Hodson 30 – – – 30
Michael Shallow 30 – – – 30
Dianne Thompson 24 – – – 24–––––––– –––––––– –––––––– –––––––– ––––––––
901 507 223 59 1,690–––––––– –––––––– –––––––– –––––––– ––––––––
The value of benefits relates primarily to the provision of a company car or equivalent allowance.
Colin Halpern is not remunerated by the Company. A management fee of £214,000 (2006: £204,000) and a
bonus of £100,000 (2006: £100,000) was paid to IFS in respect of his services. A further benefit of £36,000
(2006: £100,000) relating to life insurance premiums was paid to IFS during the year.
Nigel Wray was not directly remunerated by the Company. A management fee of £28,000 (2006: £28,000)
was paid to Brendon Street Investments Limited, a company of which Nigel Wray is a director, in respect of
his services.
The Company makes contributions of 10 per cent. of annual basic salary to personal pension plans of
Stephen Hemsley, Lee Ginsberg and Christopher Moore.
76
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS (continued)
Reversionary interests and share options
The Employee Benefit Trust (“EBT”) operates a long-term incentive plan under which senior executives may
be incentivised by the grant to them of reversionary interests over a portion of the assets of the trust.
The following is a summary of the reversionary interests granted by the EBT:
At Exercised Granted At31 December during during 30 December
2006 the year the year 2007No. No. No. No.
Stephen Hemsley 1,600,000 – 1,600,000 3,200,000
Christopher Moore 1,632,000 – 1,120,000 2,752,000
Lee Ginsberg 2,400,000 – 400,000 2,800,000–––––––– –––––––– –––––––– ––––––––5,632,000 – 3,120,000 8,752,000–––––––– –––––––– –––––––– ––––––––
Weighted average exercise price per
reversionary interest 111.84p – 210.00p 146.83p
At Exercised Granted At1 January during during 31 December
2006 the year the year 2006No. No. No. No.
Stephen Hemsley 6,400,000 (6,400,000) 1,600,000 1,600,000
Christopher Moore 2,400,000 (1,888,000) 1,120,000 1,632,000
Lee Ginsberg 2,400,000 – – 2,400,000––––––––– ––––––––– ––––––––– –––––––––11,200,000 (8,288,000) 2,720,000 5,632,000––––––––– ––––––––– ––––––––– –––––––––
Weighted average exercise price per
reversionary interest 50.65p 42.19p 151.56p 111.84p
77
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS (continued)
The following is a summary of the performance criteria and vesting conditions relating to the reversionary
interests granted to the directors:
InterestPotential Diluted represented by
vesting Grant price earnings Net profit such numberperiod per interest per share before tax of Shares
Stephen Hemsley
Grant date27 April 2006 151.56p 9.66p £22,300,000 1,600,000
6 March 2007 210.00p 12.50p £28,600,000 1,600,000
––––––––3,200,000––––––––
Christopher Moore
Grant date16 December 2004 62.50p 7.50p £17,000,000 512,000
27 April 2006 151.56p 9.66p £22,300,000 1,120,000
6 March 2007 210.00p 12.50p £28,600,000 1,120,000
––––––––2,752,000––––––––
Lee Ginsberg
Grant date16 December 2004 62.50p 7.50p £17,000,000 1,200,000
31 October 2005 92.19p 8.44p £20,000,000 1,200,000
6 March 2007 210.00p 12.50p £28,600,000 400,000
––––––––2,800,000––––––––
The performance conditions for the 1,712,000 reversionary interests granted during December 2004 have
been met. Based on the year end share price of 171.75p, the total number of shares receivable under the
scheme is 1,089,001 and have been included in the diluted earnings per share (see note 11).
These shares vest as follows:
Value atyear end
No. share price
Christopher Moore 325,682 559,360
Lee Ginsberg 763,319 1,311,000–––––––– ––––––––1,089,001 1,870,360–––––––– ––––––––
31 December 2010 –
31 December 2012
31 December 2008 –
31 December 2010
31 December 2007 –
31 December 2009
31 December 2010 –
31 December 2012
31 December 2009 –
31 December 2011
31 December 2007 –
31 December 2009
31 December 2010 –
31 December 2012
31 December 2009 –
31 December 2011
78
7. EMPLOYEE BENEFITS AND DIRECTORS’ EMOLUMENTS (continued)
Directors and their interests
The directors during the year under review and their interest in the share capital of the Company, other than
with respect to the reversionary interests held over ordinary shares (which are detailed in the analysis of
reversionary interests included in the Report on Directors’ Remuneration) were as follows:
At At31 December 30 December
2006 2007Ordinary Ordinary
shares shares
Colin Halpern (i) 20,427,328 15,007,328
Stephen Hemsley (ii) 7,865,059 7,040,000
Christopher Moore 2,880,077 2,880,077
Nigel Wray (iii) 45,327,120 36,495,120
Michael Shallow 48,000 48,000
John Hodson 48,000 48,000
(i) Nil (2006: 19,609,552) shares are held by International Franchise Systems Inc., beneficially for HS
Real Company LLC and 15,007,328 (2006: 817,776) shares are held by HS Real Company LLC (HS
Real Company LLC is owned by a discretionary trust, the beneficiaries of which are the adult children
of Colin and Gail Halpern).
(ii) 3,200,000 (2006: 3,200,000) shares are held by CTG Investment Limited, a discretionary trust of
which Stephen Hemsley and his family are potential beneficiaries.
(iii) 17,104,916 (2006: 24,364,800) shares are held by RBC Trustees (CI) Limited (previously held by
Abacus (CI) Limited which merged with RBC Trustees (CI) Limited), which is beneficially owned by
the family trusts of Nigel Wray, principal beneficiaries of which are Nigel Wray’s children.
19,377,404 (2006: 19,377,404) shares are held by Syncbeam Limited, a company wholly owned by
Nigel Wray.
During the period from the end of the financial year to 19 February 2008, there have been no changes in
directors’ shareholdings or their interests in share options or reversionary interests.
8. FINANCE INCOME
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Bank interest receivable 307 311
Franchisee loans 71 75
Other interest 19 142–––––––– ––––––––
Total finance income 397 528–––––––– ––––––––
79
9. FINANCE EXPENSE
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Bank loan in relation to the EBT 398 405
Bank credit facility interest payable 51 203
Finance charges payable under finance leases and hire purchase contracts 4 4
Other interest payable 54 7–––––––– ––––––––
507 619–––––––– ––––––––
10. TAXATION
(a) Tax on profit on ordinary activities
Tax charged in the income statement
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Current income tax:
UK corporation tax
– current year 4,677 5,497
– adjustment in respect of prior periods (418) (430)–––––––– ––––––––
4,259 5,067
Income tax of overseas operations on profits for the year 154 198–––––––– ––––––––
Total current income tax 4,413 5,265–––––––– ––––––––
Deferred tax:
Origination and reversal of temporary differences (220) (81)
Effect of change in tax rate – (28)
Adjustment in respect of prior periods – 181–––––––– ––––––––
Total deferred tax (220) 72–––––––– ––––––––
Tax charge in the income statement 4,193 5,337–––––––– ––––––––
The tax charge in the income statement is disclosed as follows:Income tax expense on continuing operations 4,193 5,337
–––––––– ––––––––
Tax relating to items (charged) or credited to equity:Reduction in current tax liability as a result of the exercise of share options 400 780
Origination and reversal of temporary differences in relation to unexercised
share options 483 (566)–––––––– ––––––––
Tax credit in the group statement of changes in equity 883 214–––––––– ––––––––
80
10. TAXATION (continued)
(b) Reconciliation of the total tax charge
The tax expense in the income statement for the 52 weeks ended 30 December 2007 is lower than the
statutory corporation tax rate of 30 per cent. (2006: 30 per cent.). The differences are reconciled below:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Profit before taxation 14,189 18,576–––––––– ––––––––
Accounting profit before income tax 14,189 18,576–––––––– ––––––––
Accounting profit multiplied by the UK statutory rate of corporation tax
of 30 per cent. (2006: 30 per cent.) 4,257 5,573
Expenses not deductible for tax purposes 171 168
Profit on disposal of tangible assets – not taxable (6) 19
Accounting depreciation not eligible for tax purposes 196 135
Adjustments relating to prior years corporation tax (418) (247)
Effect of decreased tax rate – (28)
Tax rate differences (7) (283)–––––––– ––––––––
Total tax expense reported in the income statement 4,193 5,337–––––––– ––––––––
Effective tax rate 29.55% 28.73%–––––––– ––––––––
The standard UK rate of corporation tax will reduce to 28 per cent. from 1 April 2008. On the basis that the
Group’s deferred tax assets and liabilities are not expected to materially crystallise before 1 April 2008 the
Group’s deferred tax balances have been recognised at 28 per cent. 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’s subsidiaries, 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 of dividends by the Group to
its shareholders.
81
10. TAXATION (continued)
(d) Deferred tax
The deferred tax included in the balance sheet is as follows:
At At31 December 30 December
2006 2007£000 £000
Deferred tax liabilities (243) (215)
Deferred tax assets 1,209 565–––––––– ––––––––
966 350–––––––– ––––––––
At At31 December 30 December
2006 2007£000 £000
Gross movement in the deferred income tax accountOpening balance 263 966
Tax (charged)/credited to equity 483 (566)
Income statement (charge)/credit 220 (72)
Release on sale of subsidiary undertaking – 22–––––––– ––––––––
Closing balance 966 350–––––––– ––––––––
Deferred tax assets
Share Accelerated Goodwill based capital Lease and
payments allowances inducements amortisation Provisions Total£000 £000 £000 £000 £000 £000
At 1 January 2006 751 (671) 270 – 159 509
Credit to equity 483 – – – – 483
Credit/(charge) to income 41 290 36 (5) (145) 217–––––– –––––– –––––– –––––– –––––– ––––––
At 31 December 2006 1,275 (381) 306 (5) 14 1,209
Charge to equity (566) – – – – (566)
Credit/(charge) to income 68 (170) 13 (10) (1) (100)
Released on sale of
subsidiary undertaking – 22 – – – 22–––––– –––––– –––––– –––––– –––––– ––––––
At 30 December 2007 777 (529) 319 (15) 13 565–––––– –––––– –––––– –––––– –––––– ––––––
Deferred tax liabilities
Accelerated Roll over capital
relief allowances Total£000 £000 £000
At 1 January 2006 191 55 246
Credit to income – (3) (3)–––––––– –––––––– ––––––––
At 31 December 2006 191 52 243
Credit to income (13) (15) (28)–––––––– –––––––– ––––––––
At 30 December 2007 178 37 215–––––––– –––––––– ––––––––
82
11. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity
holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would have been issued on the conversion of all dilutive potential
ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share
computations:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Profit for the period 9,996 13,239
Adjusted for – minority interests 88 6–––––—–––– –––––—––––
Profit attributable to equity holders of the parent 10,084 13,245–––––—–––– –––––—––––
Analysed as:
Profit attributable to equity holders of the parent – adjusted
for the effect of dilution 10,084 13,245–––––—–––– –––––—––––
At At31 December 30 December
2006 2007No. No.
Reconciliation of basic and diluted weighted average number of shares*:
Basic weighted average number of shares (excluding treasury shares) 161,967,072 157,975,572
Dilutive potential ordinary shares:
Employee share options 2,342,486 1,759,797
Reversionary interests (see director’s remuneration report) 672,592 1,089,001–––––—–––– –––––—––––
Diluted weighted average number of shares 164,982,150 160,824,370–––––—–––– –––––—––––
*After the share split of 3.2 ordinary shares of 1.5625 pence each for 1 ordinary share of 5 pence approved at the Annual General
Meeting held on 26 April 2007.
There have been no other transactions involving ordinary shares or potential ordinary shares between the
reporting date and the date of completion of these financial 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 and therefore the dilutive effect of the number of shares which would have been issued at the period
end have not been included in the diluted earnings per share calculation.
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 and expected infrequency of the events giving rise to them, merit
separate presentation to allow shareholders to understand better the elements of financial performance in the
year, so as to facilitate comparison with prior periods and to assess better the trends in financial performance.
83
11. EARNINGS PER SHARE (continued)
To this end, basic and diluted earnings from continuing operations per share is also presented on this basis
and using the weighted average number of shares for both basic and diluted amounts as per the table above.
The amounts for earnings per share from continuing operations before exceptional items are as follows:
52 weeks 52 weeksended ended
31 December 30 December2006 2007
Basic earnings per share 6.10p 8.48p––––––––– –––––––––
Diluted earnings per share 5.99p 8.33p––––––––– –––––––––
Net profit before exceptional items and attributable to equity
holders of the parent is derived as follows:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Profit for the period 9,996 13,239
Adjusted for – minority interests 88 6––––––––– –––––––––
Profit attributable to equity holders of the parent 10,084 13,245
Exceptional items after tax – attributable to equity holders of the parent (200) 148––––––––– –––––––––
Profit before exceptional items attributable to equity holders of the parent 9,884 13,393––––––––– –––––––––
12. DIVIDENDS PAID AND PROPOSED
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2006: 1.76p (2005: 1.30p) 2,115 2,792
Interim dividend for 2007: 1.90p (2006: 1.30p) 2,119 3,024––––––––– –––––––––
Dividends paid 4,234 5,816––––––––– –––––––––
Proposed for approval by shareholders at the AGM
(not recognised as a liability at 30 December 2007 or 31 December 2006)
Final dividend for 2007: 2.50p (2006: 1.76p) 2,792 3,896
84
13. PROPERTY, PLANT AND EQUIPMENT
Freehold land Assets under Leasehold
and buildings construction improvements Equipment Total
£000 £000 £000 £000 £000
Cost or valuation:
At 1 January 2006 8,245 – 994 8,276 17,515
Additions 38 56 311 1,889 2,294
Disposals – – (13) (215) (228)
Transfers to non current assets
held for sale – – (647) (415) (1,062)–––––––– –––––––– –––––––– –––––––– ––––––––
At 31 December 2006 8,283 56 645 9,535 18,519
Additions 364 1,444 165 1,536 3,509
Disposals – – – (146) (146)
Transfers to non current assets
held for sale – – (527) (766) (1,293)
Foreign exchange on translation 80 – – 41 121–––––––– –––––––– –––––––– –––––––– ––––––––
At 30 December 2007 8,727 1,500 283 10,200 20,710–––––––– –––––––– –––––––– –––––––– ––––––––
Depreciation and impairment:
At 1 January 2006 648 – 106 4,177 4,931
Provided during the year 124 – 170 1,244 1,538
Disposals – – – (34) (34)
Transfers to non current assets
held for sale – – (135) (159) (294)–––––––– –––––––– –––––––– –––––––– ––––––––
At 31 December 2006 772 – 141 5,228 6,141
Provided during the year 130 – 79 1,102 1,311
Disposals – – (14) (198) (212)
Transfers to non current assets
held for sale – – (147) (223) (370)
Foreign exchange on translation 4 – – 20 24–––––––– –––––––– –––––––– –––––––– ––––––––
At 30 December 2007 906 – 59 5,929 6894–––––––– –––––––– –––––––– –––––––– ––––––––
Net book value at 30 December 2007 7,821 1,500 224 4,271 13,816–––––––– –––––––– –––––––– –––––––– ––––––––
Net book value at 31 December 2006 7,511 56 504 4,307 12,378–––––––– –––––––– –––––––– –––––––– ––––––––
Freehold land and buildings
Included within freehold land and buildings is an amount of £1,690,000 (2006: £1,690,000) in respect of
land which is not depreciated.
Assets held under finance leases
The net book value of equipment includes an amount of £28,000 (2006: £47,000) in respect of assets held
under finance leases and hire purchase contracts, the depreciation charge on which was £9,000 (2006:
£9,000).
Assets under construction
Included is an amount of £59,000 (2006: £nil) of capitalised interest.
85
14. INTANGIBLE ASSETS
FranchiseeGoodwill fees Software Total
£000 £000 £000 £000
Cost or valuation:At 1 January 2006 295 832 783 1,910
Additions 155 573 222 959
Disposals (20) (30) – (50)–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 430 1,375 1,005 2,810
Additions – 117 93 210
Disposals (81) (53) – (134)
Transfers to non current assets held for sale (349) (390) – (739)–––––––– –––––––– –––––––– ––––––––
At 30 December 2007 – 1,049 1,098 2,147–––––––– –––––––– –––––––– ––––––––
Depreciation and impairment:At 1 January 2006 – 517 620 1,137
Provided during the year – 43 133 176–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 – 560 753 1,313
Provided during the year – 49 72 121–––––––– –––––––– –––––––– ––––––––
At 30 December 2007 – 609 825 1,434–––––––– –––––––– –––––––– ––––––––
Net book value at 30 December 2007 – 440 273 713–––––––– –––––––– –––––––– ––––––––
Net book value at 31 December 2006 430 816 250 1,496–––––––– –––––––– –––––––– ––––––––
Franchisee fees consist of costs relating to the Master Franchise Agreement with Dominos Pizza Inc and are
written off over the term of the franchise agreement. The Master Franchise Agreement is renewable on a 10
year basis.
As from 1 January 2006, the date of transition to IFRS, goodwill was no longer amortised but is now subject
to annual impairment testing (see note 16).
15. IMPAIRMENT TESTING OF GOODWILL
Goodwill acquired through business combinations is allocated for impairment testing purposes to cash
generating units considered to be at an individual store level. This represents the lowest level within the
Group at which goodwill is monitored for internal management purposes.
The recoverable amount of the stores has been determined based on net realisable value, on the grounds that
this value exceeded the value in use calculation.
Net realisable value is based on the average weekly sales of the stores at a multiple range of 30 – 40 less
disposal costs. The multiple is based on the average multiple applicable to the latest 10 stores sold in the
franchise community. The multiple is calculated by dividing the sale price of the store by the 52-week
average weekly sales prior to the sale of the store.
86
16. PREPAID OPERATING LEASE CHARGES
At At31 December 30 December
2006 2007£000 £000
Balance at the beginning of the year 716 930
Additions 315 241
Disposals – (136)
Amortisation (101) (113)–––––––– ––––––––
Balance at the end of the year 930 922–––––––– ––––––––
Analysed as follows:
Non current assets 683 702
Current assets 247 220–––––––– ––––––––
930 922–––––––– ––––––––
17. FINANCIAL ASSETS
At At31 December 30 December
2006 2007£000 £000
Net investment in finance leases 2,612 2,780–––––––– ––––––––
Analysis of net investment in finance leases
Current 864 857
Non current 1,748 1,923–––––––– ––––––––
2,612 2,780–––––––– ––––––––
The finance leases consist of leases over store equipment granted to franchisees. The aggregate rentals
receivable in respect of finance leases was £1,392,000 (2006: £1,623,000), and the interest element of this is
included in turnover.
At At31 December 30 December
2006 2007£000 £000
Future minimum payments receivable:
Not later than one year 1,095 1,096
After one year but not more than five years 2,042 2,233–––––––– ––––––––
3,137 3,329
Less: finance income allocated to future periods (525) (549–––––––– ––––––––
2,612 2,780–––––––– ––––––––
The present value of minimum lease payments
receivable is analysed as follows:
Not later than one year 864 857
After one year but not more than five years 1,748 1,923–––––––– ––––––––
2,612 2,780–––––––– ––––––––
87
18. INVESTMENTS IN ASSOCIATES
At At31 December 30 December
2006 2007£000 £000
Investment in associates 589 685–––––––– ––––––––
The Group has a 41 per cent. interest in Full House Restaurants Limited and a 50 per cent. interest in
Dominoid Limited, private companies which manage pizza delivery stores in the United Kingdom.
The following table illustrates summarised financial information of the Group’s investment in Full House
Restaurants Limited:
At At31 December 30 December
2006 2007£000 £000
Share of the associate’s balance sheet:
Current assets 108 169
Non current assets 1,245 1,397
Current liabilities (352) (272)
Non current liabilities (587) (813)–––––––– ––––––––
Share of net assets 414 481–––––––– ––––––––
Share of associate’s revenue and profit:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Revenue 2,663 3,417
Profit after tax for the year 104 128
–––––––– ––––––––
The following table illustrates summarised financial information of the Group’s investment in Dominoid
Limited:
At At31 December 30 December
2006 2007£000 £000
Share of the associate’s balance sheet:
Current assets 12 11
Non current assets 653 626
Current liabilities (113) (103)
Non current liabilities (377) (330)–––––––– ––––––––
Share of net assets 175 204–––––––– ––––––––
Share of associate’s revenue and profit:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Revenue 1,309 1,652
Profit after tax for the year 5 30–––––––– ––––––––
88
19. BUSINESS COMBINATIONS AND ACQUISITION OF MINORITY INTERESTS
Acquisitions in 2007
There were no acquisitions of subsidiaries during the year ended 30 December 2007.
Acquisitions in 2006
Minority interest in DPGL Birmingham Limited
In October 2006, the Group acquired an additional 20 per cent. of the voting shares of DPGL Birmingham
Limited, taking its ownership to 100 per cent. Cash consideration of £85,000 was paid. The book value of
the net assets of DPGL Birmingham Limited at this date was £70,000, and the book value of the additional
interest acquired was £14,000. The difference of £71,000 between the consideration and the book value of
the interest acquired has been recognised as goodwill.
Minority interest in DP Newcastle & Sunderland Limited
In October 2006, the Group acquired an additional 20 per cent. of the voting shares of DP Newcastle &
Sunderland Limited, taking its ownership to 100 per cent. Cash consideration of £48,000 was paid. The book
value of the net liabilities of DP Newcastle & Sunderland Limited at this date was £180,000, and the book
value of the additional liability acquired was £36,000. The difference of £84,000 between the consideration
and the book value of the interest acquired has been recognised as goodwill.
20. INVENTORIES
At At31 December 30 December
2006 2007£000 £000
Raw materials 78 126
Finished goods and goods for sale 1,740 2,214–––––––– ––––––––
Total inventories at lower of cost or net realisable value 1,818 2,340–––––––– ––––––––
21. TRADE AND OTHER RECEIVABLES
At At31 December 30 December
2006 2007£000 £000
Trade receivables 2,865 4,001
Amounts owed by associates 432 364
Other debtors 2,795 2,277
Prepayments and accrued income 3,540 3,429–––––––– ––––––––
9,632 10,071–––––––– ––––––––
Trade receivables are non-interest bearing and are generally on 7 – 28 days terms.
As at 30 December 2007, trade receivables at nominal value of £nil (2006: £63,000) were impaired and fully
provided for.
89
21. TRADE AND OTHER RECEIVABLES (continued)
The ageing analysis of trade receivables is as follows:
Neitherpast due Past due but not impaired
Total nor impaired < 30 days > 30 days£000 £000 £000 £000
As at 31 December 2006 2,865 2,185 549 131
As at 30 December 2007 4,001 3,393 419 189
Included in other debtors is the following:
– Loans to franchisees of £205,000 (2006: £122,000), which are repayable within 1 – 5 years and bear
interest on a quarterly basis at an average of 3.0 per cent. above Barclays Bank plc base rate.
– NAF balance of £527,000 (2006: £1,258,000), due to the timing of the cash flows of the marketing
activities committed to by the fund and the contributions received from the franchisees. The
outstanding balance of the NAF bears interest at 2.5 per cent. above Barclays Bank plc base rate.
22. CASH AND SHORT-TERM DEPOSITS
At At31 December 30 December
2006 2007£000 £000
Cash at bank and in hand 4,523 2,204
Short-term deposits 5,739 12,425–––––––– ––––––––
10,262 14,629–––––––– ––––––––
Cash at bank earns interest at floating rates based on daily deposit rates. Short-term deposits are made for
varying periods of between one day and three months depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term deposit rates depending on the balance on deposit. The
interest rates applicable to the short-term deposits during the financial period varied between 3.0 per cent.
and 5.75 per cent. The fair value of cash and cash equivalents is £14,629,000 (2006: £10,262,000).
At 30 December 2007, the Group had available £25,000,000 (2006: £nil) of undrawn committed borrowing
facilities in respect of which all conditions precedent had been met. The facilities are available until
December 2011.
23. NON CURRENT ASSETS HELD FOR SALE
At At31 December 30 December
2006 2007£000 £000
Balance at the beginning of the year 857 1,172
Additions:
– Transferred from property, plant and equipment and intangible
non current assets 768 1,662
– Inventories 15 18
– Acquired during the year 181 –
Impaired during the year – (145)
Disposals during the year (649) (935)–––––––– ––––––––
Balance at the end of the year 1,172 1,772–––––––– ––––––––
Non current assets held for sale represent stores and their associated assets, which are currently being
actively marketed for sale.
90
23. NON CURRENT ASSETS HELD FOR SALE (continued)
The disposals during the year consist of the assets and stock disposed of as part of the sale of DP Newcastle
& Sunderland Limited in June 2007.
The balance at the end of the year consists of the following:
Net book value ofnon-current assets Stock value Total
£000 £000 £000
DP Peterborough Limited 563 7 570
DPGL Birmingham Limited 1,005 11 1,016
Corporate stores 186 – 186–––––––– –––––––– ––––––––
1,754 18 1,772–––––––– –––––––– ––––––––
The above-mentioned assets held for sale are recorded in the United Kingdom geographical segment.
It is envisaged that DPGL Birmingham Limited will be disposed of by June 2008 and a sale agreed for the
disposal of DP Peterborough Limited by the end of 2008. The remaining corporate stores are actively being
marketed within the franchisee community and externally and expectations are that the stores will be
disposed of by the end of 2008.
24. TRADE AND OTHER PAYABLESAt At
31 December 30 December2006 2007£000 £000
Trade payables 4,059 6,010
Other taxes and social security costs 1,415 1,615
Other payables 1,808 1,828
Accruals and deferred income 6,151 8,734–––––––– ––––––––
13,433 18,187–––––––– ––––––––
Terms and conditions of the above financial liabilities:
• Trade payables are non-interest bearing and are normally settled on 7 – 30 day terms.
• Other payables are non-interest bearing and have an average term of six months.
25. FINANCIAL LIABILITIESAt At
31 December 30 December2006 2007£000 £000
CurrentBank overdraft 6,000 –
Bank revolving facility – 6,000
Current obligations under finance leases and hire purchase contracts 13 10
Current instalments due on other loans 822 807–––––––– ––––––––
6,835 6,817–––––––– ––––––––
Non currentNon current obligations under finance leases and hire purchase contracts 32 18
Non current instalments due on bank loans 7,500 7,721
Non current instalments due on other loans 1,477 1,641–––––––– ––––––––
9,009 9,380–––––––– ––––––––
91
25. FINANCIAL LIABILITIES (continued)
Bank overdraft
In 2006 the Group entered into an agreement to obtain a bank overdraft facility from Barclays Bank plc. The
limit for this facility was £6,000,000. The facility was repayable on demand and interest was charged at 1.0
per cent. above Barclays Bank plc base rate. The facility was secured by share pledges, constituting first
fixed charges over the shares of DPG Holdings Limited and Domino’s Pizza Group Limited as well as
negative pledges given by the Company, DPG Holdings Limited and Domino’s Pizza Group limited. This
overdraft facility was repaid during the 2007 financial year.
Bank revolving facility
The Group has entered into an agreement to obtain a revolving credit facility from Barclays Bank plc. The
limit for this facility is £6,000,000. The facility is repayable within 3 – 12 months and interest is charged at
0.50 per cent. per annum above LIBOR. The facility is secured by share pledges, constituting first fixed
charges over the shares of DPG Holdings Limited and Domino’s Pizza Group Limited as well as negative
pledges given by the Company, DPG Holdings Limited and Domino’s Pizza Group Limited.
Bank loans
The Group has entered into an agreement to obtain bank loans and mortgage facilities. These are secured by
a fixed and floating charge over the Group’s assets and an unlimited guarantee provided by the Company. At
30 December 2007 the balance due under these facilities was £ 7,721,000 (2006: £7,500,000) all of which
is in relation to the Employee Benefit Trust. During the financial year, the terms of this loan were
renegotiated and transferred from National Westminster Bank plc to Barclays Bank plc. The loan bears
interest at 0.50 per cent. (2006: 0.625 per cent. above National Westminster Bank plc base rate) above
LIBOR. The loan has a term of 7 years and matures on 31 January 2014.
Other loans
The remaining loans are repayable in equal instalments over a period of up to 5 years and these loans are
unsecured. The interest rate on these loans is fixed at an average of 8.5 per cent. (2006: 8.2 per cent.).
26. OBLIGATIONS UNDER LEASES AND HIRE PURCHASE CONTRACTS
Finance lease and hire purchase commitments
The Group uses finance leases and hire purchase contracts to acquire certain plant, machinery and
equipment. These leases have terms of renewal but no purchase options or escalation clauses. Renewals are
at the option of the lessee. Future minimum lease payments under finance leases and hire purchase contracts
are as follows:
At At31 December 30 December
2006 2007£000 £000
Future minimum payments due:
Not later than one year 18 13
After one year but not more than five years 36 20–––––––– ––––––––
54 33
Less: finance charges allocated to future periods (9) (5)–––––––– ––––––––
45 28–––––––– ––––––––
The present value of minimum lease payments is analysed as follows:
Not later than one year 13 10
After one year but not more than five years 32 18–––––––– ––––––––
45 28–––––––– ––––––––
92
26. OBLIGATIONS UNDER LEASES AND HIRE PURCHASE CONTRACTS (continued)
Operating lease commitments where the Group is lessee
For the stores in the franchisee system, the Group has entered into commercial leases, taking the head lease,
and then subletting the properties to the franchisees. These leases have an average duration of between 10
and 25 years. Under the terms of the franchise agreement the franchisee is granted an initial period of 10
years to operate a Domino’s Pizza delivery store under the Domino’s system. Under the agreement the
franchisee also has the option to renew for a further 10 years at the end of the initial period, provided at the
time of the renewal the franchisee is not in default of any material provision of the franchise agreement. In
addition the Group has entered into commercial leases on motor vehicles and items of plant, machinery and
equipment. These leases have an average duration of between 3 and 5 years. Only the property lease
agreements contain an option for renewal, with such options being exercisable three months before the
expiry of the lease term at rentals based on market prices at the time of exercise. There are no restrictions
placed upon the lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases are as follows:
At At31 December 30 December
2006 2007£000 £000
Not later than one year 9,233 10,070
After one year but not more than five years 32,454 34,504
After five years 68,992 71,904–––––––– ––––––––
110,679 116,478–––––––– ––––––––
Operating lease commitments where the Group is lessor
For the stores in the franchisee system, the Group has entered into commercial leases, taking the head lease,
and then subletting the properties to the franchisees. These non-cancellable leases have remaining terms of
between 5 and 10 years. All leases include a provision for five-yearly rent reviews according to prevailing
market conditions.
Future minimum rentals receivable under non-cancellable operating leases are as follows:
At At31 December 30 December
2006 2007£000 £000
Not later than one year 7,247 8,330
After one year but not more than five years 25,052 28,647
After five years 17,785 19,392–––––––– ––––––––
50,084 56,369–––––––– ––––––––
27. PROVISIONS
Legal Propertyprovisions provisions Total
£000 £000 £000
At 31 December 2006 51 182 233
Utilised during the period (15) (5) (20)
Reversal of unused amounts – (58) (58)–––––––– –––––––– ––––––––
At 30 December 2007 36 119 155–––––––– –––––––– ––––––––
93
27. PROVISIONS (continued)
Legal provisions
The legal provisions relate to fees charged in relation to the disposal of subsidiary undertakings as well as
outstanding litigation matters arising on the sale of stores. The outcome of the litigation is at present
uncertain, and a final decision is not imminently expected. No estimate of the likely outcome of the litigation
can yet be made by the directors, but full provision for the potential costs likely to be incurred has been made.
Property provisions
The property provisions relate to outstanding rent reviews, rates, service charges and dilapidation costs for
stores sold as part of the sale of subsidiary undertakings during prior years. The completion of the
outstanding rent and rates reviews vary depending on the lease and on average are resolved within 1 – 3 years
following the review dates stipulated in the leases. The dilapidation costs are determined at the end of the
lease. During the year resolution was reached on various of the outstanding items relating to the property
provisions, resulting in the release of provisions held at the beginning of the year.
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s financial risk management objectives consist of identifying and monitoring those risks, which
have an adverse impact on the value of the Group’s financial assets and liabilities or on reported profitability
and on the cash flows of the Group.
The Group’s principal financial liabilities comprise bank loans, bank overdrafts, other loans and finance
leases. The Group has various financial assets such as trade receivables and cash and short-term deposits,
which arise directly from its operations.
The Group has not entered into any derivative transactions such as interest rate swaps or financial foreign
currency contracts.
It is, and has been throughout 2007 and 2006 the Group’s policy that no trading in derivatives shall be
undertaken.
The main risks arising from the Group’s financial instruments are credit risk, price risk, liquidity risk and
cash flow interest rate risk.
The Board reviews and agrees policies for managing each of these risks, which are summarised below. In
view of the low level of foreign currency transactions the Board does not consider there to be any significant
foreign currency risks.
Credit risk
Due to the nature of customers who trade on credit terms, being predominantly franchisees, the franchisee
selection process is sufficiently robust to ensure an appropriate credit verification procedure.
In addition, trade debtor balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Since the Group trades only with franchisees that have been subject
to the franchisee selection process and provide personal guarantees as required under the franchisee
agreements, there is no requirement for collateral.
Price risk
The Board considers that the Group’s exposure to changing market prices on the values of financial
instruments does not have a significant impact on the carrying value of financial assets and liabilities. As
such no specific policies are applied currently, although the Board will continue to monitor the level of price
risk and its exposure should the need occur.
94
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its operations with cash collection
targets set throughout the Group. All major investment decisions are considered by the Board as part of the
project appraisal and approval process. In this way the Group aims to maintain a good credit rating to
facilitate fund raising.
The table below summarises the maturity profile of the Group’s financial liabilities at 30 December 2007
based on contractual undiscounted payments.
LessOn than 3 3 to 12 1 to 5 > 5
demand months months years years Total£000 £000 £000 £000 £000 £000
Year ended 31 December 2006
Bank loan – – – – 7,500 7,500
Other loans – 245 739 1,665 – 2,649
Bank overdraft 6,000 – – – – 6,000
Trade and other payables – 13,433 – – – 13,433
Other financial liabilities – 5 8 32 – 45–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
6,000 13,683 747 1,697 7,500 29,627–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Year ended 30 December 2007
Bank loan – – – – 7,721 7,721
Other loans – 245 737 1,861 – 2,843
Bank revolving facility – – 6,000 – – 6,000
Trade and other payables – 18,187 – – – 18,187
Other financial liabilities – 3 7 18 – 28–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
– 18,435 6,744 1,879 7,721 34,779–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Interest rate risk
The Board has a policy of ensuring a mix of fixed and floating rate borrowings. Whilst fixed rate interest
bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to benefit
from a reduction in borrowing costs when market rates are declining. Conversely, whilst floating rate
borrowings are not exposed to changes in fair value, the Group is exposed to cash flow interest rate risk as
costs increase if market rates rise.
95
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Interest rate risk table
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, which all
other variables held constant, of the Group’s profit before tax (through the impact on floating rate
borrowings). There is no impact on the Group’s equity.
Increase/ Effect ondecrease in profitbasis points before tax
£000
2006Sterling +20 (10)
Sterling –15 8
Euro +20 5
Euro –15 (3)
2007Sterling +20 (2)
Sterling –15 2
Euro +20 5
Euro –15 (3)
Capital management
The primary objective of the Group’s capital management is to ensure that it remains a strong credit rating
and healthy capital ratios in order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to
shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives,
policies or processes during the years ended 30 December 2007 and 31 December 2006.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The
Group includes within net debt, interest bearing loans and borrowings, bank revolving facilities, less cash
and cash equivalents. Capital consists of the equity attributable to the equity holders of the parent less the
treasury share reserve.
At At31 December 30 December
2006 2007£000 £000
Bank loan 7,500 7,721
Other loans 2,299 2,448
Finance leases 45 28
Bank revolving facility 6,000 6,000
Less: cash and cash equivalents (10,262) (14,629)–––––––– ––––––––
Net debt 5,582 1,568–––––––– ––––––––
Equity attributable to equity holders of the parent 13,154 14,261
Treasury share reserve (4,216) (4,403)–––––––– ––––––––
Total capital 8,938 9,858–––––––– ––––––––
Gearing ratio 62.45% 15.91%–––––––– ––––––––
96
29. FINANCIAL INSTRUMENTS
Fair values
Set out below is a comparison by category of carry amounts and fair values of all the Group’s financial
instruments that are carried in the financial statements:
Carrying value Fair value2006 2007 2006 2007£000 £000 £000 £000
Financial assetsCash and cash equivalents 10,262 14,629 10,262 14,629
Net investment in finance leases 2,612 2,780 2,612 2,780
Trade receivables 2,865 4,001 2,865 4,001
Financial liabilitiesBank revolving facility – 6,000 – 6,000
Bank overdraft 6,000 – 6,000 –
Interest bearing loans and borrowings:
Obligations under finance leases and hire
purchase contracts 45 28 45 28
Floating rate borrowings 7,500 7,721 7,500 7,721
Fixed rate borrowings 2,299 2,448 2,299 2,448
Trade and other payables 13,433 18,187 13,433 18,187
The fair values of the financial assets are not considered materially different from carrying value.
The fair values of the financial liabilities are not considered materially different from the carrying value.
30. AUTHORISED AND ISSUED SHARE CAPITAL
Authorised
At At31 December 30 December
2006 2007
Ordinary shares of 1.56p each
– Number 256,000,000 256,000,000–––––––––– ––––––––––
– Value – £ 4,000,000 4,000,000–––––––––– ––––––––––
Allotted, called up and fully paid
At At31 December 30 December
2006 2007Number £ Number £
At 31 December 2006 169,326,435 2,645,726 164,758,762 2,574,356
Issued on exercise of share options 1,192,154 18,627 1,402,298 21,911
Share buybacks (5,759,827) (89,997) (3,725,000) (58,203)––––––––––– ––––––––––– ––––––––––– –––––––––––
At 30 December 2007 164,758,762 2,574,356 162,436,060 2,538,064––––––––––– ––––––––––– ––––––––––– –––––––––––
At the Annual General Meeting held on 26 April 2007, a resolution was tabled and passed to subdivide the
80,000,000 ordinary shares of 5p each, both issued and unissued, into 256,000,000 ordinary shares of 1.56p
each.
97
30. AUTHORISED AND ISSUED SHARE CAPITAL (continued)
During the year 1,402,298 (2006: 1,192,154) ordinary shares of 1.56p each with a nominal value of £21,911
(2006: £18,627) were issued at between 13.16p (2006: 13.16p) and 210.00p (2006: 107.03p) for total cash
consideration received of £700,000 (2006: £403,000) to satisfy share options that were exercised.
During the year the Company bought back a total of 3,725,000 (2006: 5,759,827) ordinary shares of 1.56p
each for a total value of £8,346,000 (including costs of £136,000) (2006: £10,161,000 (including costs of
£172,000)). The average price for which these shares were purchased was 220.39p (2006: 173.44p) per
share.
As at 31 December 2006, the following share options were outstanding:
OutstandingOutstanding Granted Exercised Forfeited at 31
1 January during during during DecemberExercise 2006 the year the year the year 2006
price No. No. No. No. No.
Date of grantDomino’s Pizza
(unapproved) Scheme24 November 1999 13.16p 781,757 – (419,203) – 362,554
24 November 1999 15.63p 685,024 – (82,938) (6,400) 595,686
4 August 2000 16.56p 393,920 – (170,560) (6,400) 216,960
25 October 2001 17.19p 406,403 – (109,066) (19,197) 278,140
23 March 2004 64.53p 32,000 – (32,000) – –
15 December 2005 107.03p 2,458,019 – (30,672) (284,701) 2,142,646–––––––– –––––––– –––––––– –––––––– ––––––––4,757,123 – (844,439) (316,698) 3,595,986
EMI Scheme23 March 2004 64.53p 1,208,003 – (347,715) (62,688) 797,600
Sharesave Scheme – – (115,808)
29 December 2005 75.88p 735,008 619,200–––––––– –––––––– –––––––– –––––––– ––––––––6,700,134 – (1,192,154) (495,194) 5,012,786–––––––– –––––––– –––––––– –––––––– ––––––––
Weighted average
exercise price 64.69p – 32.97p 70.78p 69.88p
As at 30 December 2007, the following share options were outstanding:
OutstandingOutstanding Granted Exercised Forfeited at 30
31 December during during during DecemberExercise 2006 the year the year the year 2007
price No. No. No. No. No.
Date of grantDomino’s Pizza (unapproved) Scheme24 November 1999 13.16p 362,554 – (296,904) – 65,650
24 November 1999 15.63p 595,686 – (253,608) – 342,078
4 August 2000 16.56p 216,960 – (70,400) – 146,560
25 October 2001 17.19p 278,140 – (90,371) (1,599) 186,170
15 December 2005 107.03p 2,142,646 – (338,346) (73,661) 1,730,639
30 March 2007 210.00p – 1,090,536 (5,939) (34,151) 1,050,446–––––––– –––––––– –––––––– –––––––– ––––––––3,595,986 1,090,536 (1,055,568) (109,411) 3,521,543
EMI Scheme23 March 2004 64.53p 797,600 – (346,138) (19,200) 432,262
Sharesave Scheme29 December 2005 75.88p 619,200 – (592) – 618,608
–––––––– –––––––– –––––––– –––––––– ––––––––5,012,786 1,090,536 (1,402,298) (128,611) 4,572,413–––––––– –––––––– –––––––– –––––––– ––––––––
Weighted average
exercise price 69.88p 210.00p 50.19p 126.91p 107.71p
98
30. AUTHORISED AND ISSUED SHARE CAPITAL (continued)
The weighted average remaining contractual life of the options outstanding at 30 December 2007 is 6.4 years
(2006: 6.3 years). The weighted average share price for options exercised during 2007 was 165.30p (2006:
143.44p).
The following share options were exercisable at year end:
At At31 December 30 December
2006 2007No. No.
Domino’s Pizza (unapproved) Scheme24 November 1999 362,554 65,650
24 November 1999 595,686 342,078
4 August 2000 216,960 146,560
25 October 2001 278,141 186,170
15 December 2005 503,968 302,209–––––––––– ––––––––––
1,957,309 1,042,667
EMI Scheme23 March 2004 284,534 432,262
–––––––––– ––––––––––2,241,843 1,474,929
–––––––––– ––––––––––
Weighted average exercise price 42.28p 48.87p
On 24 November 1999 participants in the Domino’s Pizza Group Limited (Unapproved) Share Option
Scheme (which had been in place since 31 March 1999) had the option of exchanging options over shares in
Domino’s Pizza Group Limited in return for equivalent options over ordinary shares in the Company under
the Domino’s Pizza Share Option (Unapproved) Scheme.
On 23 March 2004, the Company established the Domino’s Pizza UK & IRL plc Enterprise Management
Incentive Scheme (EMI Scheme). Under the scheme 1,539,200 options were granted at 64.53p, the market
price on the date of the grant. The options are only exercisable if the growth in the Company’s EPS during
a performance year exceeds the growth in RPI during that performance year by at least 5 per cent. The EMI
options lapse after 10 years or in certain other circumstances connected with leaving the Company.
In respect of all outstanding options under these schemes, options may be exercised as follows:
One year after date of grant – maximum 1/3 of options held
Two years after date of grant – maximum 2/3 of options held
Three years after date of grant – in full
The options expire 10 years after the date granted.
Domino’s Pizza UK & IRL plc Employee Benefit Trust is established for the benefit of employees. The trust
holds and deals in the Company’s shares under two share incentive schemes. These are the Domino’s Pizza
UK & IRL plc 2003 Enterprise Management Incentive Scheme and the Domino’s Pizza Share Option
(Unapproved) Scheme, under which the Company may grant options over ordinary shares to eligible full
time employees.
In addition the Group has a Sharesave scheme giving employees the option to acquire shares in the Company.
Employees have the option to save an amount per month up to a maximum of £250 and at the end of three
years they have the option to purchase shares in the Company or to take their savings in cash.
99
30. AUTHORISED AND ISSUED SHARE CAPITAL (continued)
The Employee Benefit Trust also operates a long-term incentive plan under which senior executives may be
incentivised by the grant to them of reversionary interests over a portion of the assets of the trust. During the
year further reversionary interests were granted over 5,200,000 (2006: 3,520,000) shares. At 30 December
2007, the Trust held 6,609,878 (2006: 6,609,878) shares, which had a historic cost of £4,402,810 (2006:
£4,215,810). These shares had a market value at 30 December 2007 of £11,352,465 (2006: £12,310,900).
At 30 December 2007 reversionary interests over 11,632,000 (2006: 6,640,000) shares in Domino’s Pizza
UK & IRL plc have been granted. Further details are contained in the Report on Director’s Remuneration.
31. SHARE-BASED PAYMENTS
The expense recognised for share-based payments in respect of employee services received during the year
to 30 December 2007 is £880,000 (2006: £344,000). This all arises on equity settled share-based payment
transactions.
Long Term Senior Executive Incentive Plan
Reversionary interests over assets held in the Domino’s Pizza UK & IRL plc employee benefit trust are
approved and granted, at the discretion of the trustees, to senior executives. The interests are capable of
vesting within a five year period should certain performance targets be achieved by the Group.
The following table lists the performance criteria attached to the reversionary interests granted and not
vested:
Interest represented
Diluted by such Grant price earnings Net profit number of
Grant date per interest per share before tax Shares
16 December 2004 62.50p 7.50p £17,000,000 1,712,000
31 October 2005 92.19p 8.44p £20,000,000 1,200,000
27 February 2006 130.16p 9.66p £22,300,000 480,000
27 April 2006 151.56p 9.66p £22,300,000 2,720,000
16 May 2006 146.97p 9.66p £22,300,000 320,000
6 March 2007 210.00p 12.50p £28,600,000 5,200,000–––––––––11,632,000–––––––––
The contractual life of each interest is 5 years.
The trustees have undertaken to ensure that where possible the fair value of reversionary interests, which may
be equity-settled, is estimated as at the date of granting using a Black Scholes model, taking into account the
terms and conditions upon which they were granted. The following table lists the inputs to the model used
for the valuations in 2006 and 2007:
2006 2007
Dividend yield (%) 3.8 3.8
Expected volatility (%) 17.0 15.0 – 20.0
Historical volatility – 250 day (%) 27.3 18.8 – 24.1
Risk-free interest rate (%) 4.4 – 4.8 5.3 – 5.8
Expected life of reversionary interests (years) 3.9 – 4.1 4.0
Weighted average exercise price (pence) 130.16 – 151.56 210.00p
Weighted average share price (pence) 130.16 – 151.56 210.00p
100
31. SHARE-BASED PAYMENTS (continued)
The expected life of the reversionary interests is based on historical data and is not necessarily indicative of
exercise patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
The weighted average fair value of each reversionary interest granted during the year was 32.0p (2006:
20.0p).
For further details regarding the reversionary interests granted and outstanding, see the Report on Directors’
Remuneration.
Employee Share-option
All other employees are eligible for grants of options, which are approved by the Board.
The options vest over a 3 year period and are exercisable subject to the condition that the growth in basic
earnings per share in any financial year between grant and vesting exceeds the growth in the Retail Price
Index in the previous financial year by at least 5 per cent. (see note 30 for further details).
The contractual life of each option granted is 10 years. There are no cash settlement alternatives and all
awards are equity settled.
The fair value of equity-settled share options granted, for the EMI and Domino’s Pizza (unapproved)
schemes, is estimated as at the date of granting using a Black Scholes model, taking into account the terms
and conditions upon which the options were granted. The following table lists the inputs to the model used
for the valuations for the Domino’s Pizza (unapproved) schemes in 2007:
2007
Dividend yield (%) 3.8
Expected volatility (%) 20.0
Historical volatility – 250 day (%) 26.7
Risk-free interest rate (%) 5.3
Expected life of reversionary interests (years) 4.0
Weighted average exercise price (pence) 210.00p
Weighted average share price (pence) 210.00p
The expected life of the options is based on historical data and is not necessarily indicative of exercise
patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
There were 1,090,536 options granted on 30 March 2007. The weighted average fair value of each option
granted in 2007 was 28.1p.
101
31. SHARE-BASED PAYMENTS (continued)
Sharesave scheme
During 2005 the Group introduced a Sharesave scheme giving employees the option to acquire shares in the
Company. Employees have the option to save an amount per month up to a maximum of £250 and at the end
of three years they have the option to purchase shares in the Company or to take their savings in cash.
The contractual life of the scheme is 3 years. The fair value of equity-settled options granted, is estimated as
at the date of granting using a Binomial model, taking into account the terms and conditions upon which the
options were granted. The following table lists the inputs to the model used for the valuations for the
Sharesave scheme in 2005:
2005
Dividend yield (%) 3.75
Expected volatility (%) 17.0
Historical volatility – 250 day (%) 28.1
Risk-free interest rate (%) 4.2
Expected life of reversionary interests (years) 3.3
Weighted average exercise price (pence) 75.88
Weighted average share price (pence) 75.88
The expected life of the options is based on an average of exercise period, which is between 3 – 3.5 years.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
There were no options granted in the year. The weighted average fair value of each option granted in 2005
was 20.6p.
32. ADDITIONAL CASH FLOW INFORMATION
Analysis of Group net debt
At At 3031 December Cash Exchange Non-cash December
2006 flow differences movements 2007£000 £000 £000 £000 £000
Cash and cash equivalents 10,262 4,226 141 – 14,629
Bank 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) 4,094 141 (221) (1,568)–––––––– –––––––– –––––––– –––––––– ––––––––
Analysis of Group net debt
At At 31 1 January Cash Exchange Non-cash December
2006 flow differences movements 2006£000 £000 £000 £000 £000
Cash and cash equivalents 5,885 4,377 – – 10,262
Bank overdraft – (6,000) – – (6,000)
Loans (10,000) 201 – – (9,799)
Finance leases (26) 12 – (31) (45)–––––––– –––––––– –––––––– –––––––– ––––––––
(4,141) (1,410) – (31) (5,582)–––––––– –––––––– –––––––– –––––––– ––––––––
102
33. CAPITAL COMMITMENTS
At 30 December 2007, amounts contracted for but not provided in the financial statements for the acquisition
of property, plant and equipment amounted to £4,950,000 (2006: £nil) for the Group.
34. CONTIGENT LIABILITIES
Pursuant to the relevant regulation of the European Communities (Companies: Group Accounts)
Regulations, 1992 the Company has guaranteed the liabilities of the Irish subsidiary, DP Pizza Ltd and as a
result the Irish company has been exempted from the filing provisions section 7, Companies (Amendment)
Act 1986 of the Republic of Ireland.
35. RELATED PARTY TRANSACTIONS
The financial statements include the financial statements of Domino’s Pizza UK & IRL plc and the
subsidiary undertakings listed below.
Proportionof voting
Country of rights and Nature ofName of company incorporation shares held business
Directly held subsidiary undertakingsDPG Holdings Limited England 100% ordinary Investment
DP Realty Limited England 100% ordinary Property management
DP Group Developments Limited England 100% ordinary Property development
DP Capital Limited England 100% ordinary Leasing of equipment
DP Newcastle Limited England 100% ordinary
American Pizza Company Limited England 100% ordinary
DPGL Birmingham Limited England 100% ordinary
DP Peterborough Limited England 80% ordinary
DP Milton Keynes Limited England 80% ordinary
Indirectly held subsidiary undertakingsDomino’s Pizza Group Limited England 100% ordinary
Livebait Limited England 100% ordinary Property management
DP Pizza Limited 100% ordinary
Associate undertakingsFull House Restaurants Limited England 41% ordinary
Dominoid Limited England 50% ordinary Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Republic
of Ireland
Operation and
management of
franchise business
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
103
35. RELATED PARTY TRANSACTIONS (continued)
During the year the Group entered into transactions, in the ordinary course of business, with related parties.
Transactions entered into, and trading balances outstanding at 30 December with related parties, are as
follows:
AmountsSales to owed byrelated related
party party£000 £000
Related partyAssociates
2006 4,087 100
2007 3,781 202
Minority interests
2006 907 315
2007 1,148 86
Other*
2006 2,593 44
2007 2,454 43
* During the year, the Group traded with DPGS Limited and Triple A Limited, subsidiaries of Dough Trading Limited. Dough
Trading Limited is controlled by Marc Halpern, the son of Colin Halpern (Non-executive Vice Chairman).
Terms and conditions of transactions with related parties
Sales and purchases between related parties are made at normal market prices. Outstanding balances with
entities are unsecured, interest free and cash settlement is expected within 7 days of invoice. The Group has
not provided for or benefited from any guarantees for any related party receivables or payables. During the
financial year ended 30 December 2007, the Group has not made any provision for doubtful debts relating
to amounts owed by related parties (2006: Nil).
Compensation of key management personnel (including directors)
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Short-term employee benefits 2,186 2,656
Post-employment benefits 71 119
Share-based payment (including accelerated portion) 183 635–––––––– ––––––––
2,440 3,410–––––––– ––––––––
The table above includes the remuneration costs of the directors of the Company and the directors of
Domino’s Pizza Group Limited.
104
35. RELATED PARTY TRANSACTIONS (continued)
Other related parties
During the period, the Group traded with International Franchise Systems Inc., in the normal course of
business and at normal market prices. Colin Halpern is a director of International Franchise Systems Inc.
Transactions between the Group and International Franchise Systems Inc., are set out below:
52 weeks 52 weeksended ended
31 December 30 December2006 2007£000 £000
Current account:
Costs incurred by Domino’s Pizza Group Limited on behalf of
International Franchise Systems Inc. 331 355
Transfer of funds (from) International Franchise Systems Inc. (91) (115)
Management charges from International Franchise Systems Inc. (440) (340)–––––––– ––––––––
Closing debt due to International Franchise Systems Inc. (200) (100)–––––––– ––––––––
36. REPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
These financial statements for the year ended 30 December 2007 are the first to be prepared by the Company
using policies in accordance with IFRS as adopted by the European Union. The comparative figures have
been prepared on the same basis and have therefore been restated from those previously prepared under UK
GAAP. The commentary below details the key changes that have arisen due to the transition to reporting
under IFRS. The Group’s date of transition is 1 January 2006, which is the beginning of the comparative
period for the 2007 financial year. Therefore the opening balance sheet for IFRS purposes is that reported at
1 January 2006, as amended for changes due to IFRS.
To explain the impact of the transition, reconciliations have been included in this note that show the changes
made to the statements previously reported under UK GAAP. The following reconciliations are included in
this note:
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.
The transition from UK GAAP to IFRS does not affect the cash flows generated by the Group. The IFRS
cash flow statement is presented in a different format than that required under UK GAAP. The reconciling
items between the UK GAAP format and the IFRS format have no net impact on the cash flows generated
and accordingly reconciliations have not been presented.
The accounting policies used for IFRS are set out in note 1 of this financial information.
First time adoption
The Group has applied the provisions of IFRS 1 – First Time Adoption of International Financial Reporting
Standards which, generally, requires that IFRS accounting policies be applied retrospectively in determining
the opening balance sheet at the date of transition. IFRS 1 contains both mandatory and optional exemptions
to the principle of retrospective application. Where the Group has made use of an exemption it is noted
below.
105
36. REPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS(continued)
The Group has taken the following exemptions:
• Share based payments
The Group operates a number of executive and employee share schemes. For all grants of share
options and awards the fair value at the date of grant is calculated using an appropriate pricing model
and the corresponding expense is recognised over the vesting period. The Group has elected to take
advantage of the transitional provisions of IFRS 2 and has applied the fair value model to all grants
of equity instruments after 7 November 2002 that had not vested as at 3 January 2005.
• Goodwill and business combinations
The Group has taken the exemption not to apply IFRS 3 retrospectively to business combinations
occurring prior to the date of transition to IFRS. Goodwill arising on acquisitions prior to this date has
been retained at its carrying value as at 1 January 2006. The Group under the provisions of IAS 36,
only recognises impairment. This results in the reversal of the goodwill amortisation previously
charged to the income statement in the 52 weeks to 31 December 2006.
• Cumulative translation differences
Under IAS 21, exchange differences arising on consolidation of overseas subsidiaries are required to
be recognised as a separate equity reserve. The Group has utilised the exemption available in IFRS 1
whereby cumulative translation differences are deemed to be zero at the date of transition to IFRS.
• Use of fair value or revaluation as deemed cost of property, plant and equipment, investmentproperties and certain intangible assets
The standard permits a first-time adopter to measure an item in its opening balance sheet using an
amount based on its deemed costs. The Group has taken advantage of this exemption and has adopted
the historical cost as its deemed cost.
Descriptions of the reconciling items between UK GAAP and IFRS are listed below. The amounts of the
reconciling items are detailed in tables set out beneath each of the reconciliations.
• Assets held for sale
As at date of transition and the comparative periods the Group owned various corporate stores, which
met the criteria of assets, held for sale under IFRS 5. These have been reclassified to a separate line
within total assets on the Group balance sheet.
• Intangible assets
On transition, the Group following the provisions of IAS 36 has reclassified separately identifiable
computer software assets from tangible assets to intangible assets.
• Prepaid operating lease costs
The Group incurs costs in acquiring property leases. The Group previously treated these costs as
additions to tangible fixed assets, however under IAS 17 they are more correctly described as prepaid
operating lease charges. Accordingly on transition these expenses are reclassified from tangible fixed
assets to prepaid lease charges. The charges are amortised over the lives of the operating leases on
which they were incurred.
106
36. REPORTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS(continued)
• Lease inducements
The Group under UK GAAP recognised rent-free periods over the period to the commencement of
the first market rent review. According to provisions in SIC 15 lease incentives are spread over the full
term of the lease. As at the date of transition, deferred income reflecting the amount of lease
inducements to be taken to the income statement in future periods has been recognised on the balance
sheet.
• Employee benefits
Under IAS 19 the Group is required to recognise untaken holiday pay entitlements. The Group’s
holiday year runs from January to December and therefore this provision will only impact on the
Group’s interim accounts. At the year-end, the Group does not have an obligation to carry over to the
next holiday year or to pay employees for untaken holiday.
• Deferred taxation
On transition, the Group following the provisions of IAS 12 has recalculated the deferred tax balances
based on the temporary method. The most significant impact has been the recognition of deferred tax
assets relating to share based payments and roll over relief.
• Goodwill
The Group has reclassified goodwill previously recognised under UK GAAP on the acquisition of a
store as an intangible asset. This relates to the right that it had previously granted to the acquiree to
use the Group’s trade name under a franchise agreement
107
Reconciliation of the Group Balance Sheet at 1 January 2006
UK GAAP IFRSAs at Effect of As at
1 January Transition 1 January2006 to IFRS 2006£000 £000 £000
Non current assetsGoodwill and intangible assets 1,326 (553) 773
Property, plant and equipment 13,593 (1,009) 12,584
Prepaid operating lease charges – 656 656
Net investment in finance leases 1,939 – 1,939
Investments in associates 451 – 451
Deferred tax asset – 751 751–––––––– –––––––– ––––––––
17,309 (155) 17,154
Current assetsInventories 2,186 (10) 2,176
Trade and other receivables 9,985 – 9,985
Net investment in finance leases 997 – 997
Prepaid operating lease charges – 59 59
Cash and cash equivalents 5,885 – 5,885–––––––– –––––––– ––––––––
19,053 49 19,102
Non current assets held for sale – 857 857–––––––– –––––––– ––––––––
Total assets 36,362 751 37,113–––––––– –––––––– ––––––––
Current liabilitiesTrade 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 liabilitiesProvisions (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 equityCalled up share capital 2,645 – 2,645
Share premium account 4,677 – 4,677
Capital redemption reserve 171 – 171
Treasury share reserve (7,500) – (7,500)
Retained earnings 12,013 (70) 11,943–––––––– –––––––– ––––––––
Equity shareholder’s funds 12,006 (70) 11,936
Minority interest 82 – 82–––––––– –––––––– ––––––––
Total equity 12,088 (70) 12,018–––––––– –––––––– ––––––––
108
Reconciliation of the Group Balance Sheet at 1 January 2006Non Non current Non
Current Current Assets held Current Current Shareholder’sAssets Assets For sale Liabilities Liabilities Funds£000 £000 £000 £000 £000 £000
IAS38 – reclassification of software from
tangible to intangible fixed assets (162) – – – – –
IAS38 – reclassification of software from
tangible to intangible fixed assets 162 – – – – –
IAS17 – reclassification of prepaid operating
lease charges from intangible fixed
assets (lease premiums) (715) – – – – –
IAS17 – reclassification of prepaid operating
lease charges from intangible fixed
assets (lease premiums) 656 59 – – – –
SIC15 – lease inducements spread over
the full lease term (rent frees) – – – (53) (847) (900)
IFRS5 – reclassification of corporate stores
as assets held for sale (847) (10) 857 – – –
IAS12 – recognition of deferred tax asset for
share based payments 751 – – – – 751
IAS12 – recognition of deferred tax
liabilities for roll over relief – – – – (191) (191)
IAS12 – tax effects of conversion – – – – 270 270––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Net movement (155) 49 857 (53) (768) (70)––––––– ––––––– ––––––– ––––––– ––––––– –––––––
109
Reconciliation of the Group Balance Sheet at 31 December 2006
UK GAAP IFRSAs at Effect of As at
31 December Transition 31 December2006 to IFRS 2006£000 £000 £000
Non current assetsGoodwill and intangible assets 2,159 (663) 1,496
Property, plant and equipment 13,780 (1,402) 12,378
Prepaid operating lease charges – 683 683
Net investment in finance leases 1,748 – 1,748
Investments in associates 589 – 589
Deferred tax asset – 1,209 1,209–––––––– –––––––– ––––––––
18,276 (173) 18,103
Current assetsInventories 1,838 (20) 1,818
Trade and other receivables 9,632 – 9,632
Net investment in finance leases 864 – 864
Prepaid operating lease charges – 247 247
Cash and cash equivalents 10,262 – 10,262–––––––– –––––––– ––––––––
22,596 227 22,823
Non current assets held for sale – 1,172 1,172–––––––– –––––––– ––––––––
Total assets 40,872 1,226 42,098–––––––– –––––––– ––––––––
Current liabilitiesTrade 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 liabilitiesProvisions (233) – (233)
Financial liabilities (9,009) – (9,009)
Deferred income – (989) (989)
Deferred tax liabilities (419) 176 (243)–––––––– –––––––– ––––––––
Total liabilities (32,268) (844) (33,112)–––––––– –––––––– ––––––––
Net assets 8,604 382 8,986–––––––– –––––––– ––––––––
Shareholder’s equityCalled up share capital 2,574 – 2,574
Share premium account 4,765 – 4,765
Capital redemption reserve 261 – 261
Treasury share reserve (4,216) – (4,216)
Currency translation reserve (21) – (21)
Retained earnings 5,193 382 5,575–––––––– –––––––– ––––––––
Equity shareholder’s funds 8,556 382 8,938
Minority interest 48 – 48–––––––– –––––––– ––––––––
Total equity 8,604 382 8,986–––––––– –––––––– ––––––––
110
Reconciliation of the Group Balance Sheet at 31 December 2006Non Non current Non
Current Current Assets held Current Current Shareholder’sAssets Assets For sale Liabilities Liabilities Funds£000 £000 £000 £000 £000 £000
IAS38 – reclassification of software from
tangible to intangible fixed assets (250) – – – – –
IAS38 – reclassification of software from
tangible to intangible fixed assets 250 – – – – –
IAS38 – goodwill no longer amortised 17 – – – – 17
IAS38 – reclassification of goodwill to
intangible fixed assets – purchase of
Edgbaston store (360) – – – – –
IAS38 – reclassification of goodwill to
intangible fixed assets – purchase of
Edgbaston store 360 – – – – –
IAS17 – reclassification of prepaid operating
lease charges from intangible fixed
assets (lease premiums) (930) – – – – –
IAS17 – reclassification of prepaid operating
lease charges from intangible fixed
assets (lease premiums) 683 247 – – – –
SIC15 – lease inducements spread over
the full lease term (rent frees) – – – (31) (989) (1,020)
IFRS5 – reclassification of corporate stores
as assets held for sale (1,152) (20) 1,172 – – –
IAS12 – recognition of deferred tax asset
for share based payments 1,209 – – – – 1,209
IAS12 – recognition of deferred tax
liabilities for roll over relief – – – – (191) (191)
IAS12 – tax effects of conversion – – – – 367 367
IAS12 – tax effects of share options
exercised – – – – – (400)
IAS12 – tax effects of share options
exercised – – – – – 400–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Net movement (173) 227 1,172 (31) (813) 382–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
111
Reconciliation of the Group Income Statement for the 52 weeks ended 31 December 2006
UK GAAP IFRS52 weeks 52 weeks
ended Effect of As at31 December Transition 31 December
2006 to IFRS 2006£000 £000 £000
Revenue from continuing operations 94,965 – 94,965
Cost of sales (57,811) – (57,811)–––––––– –––––––– ––––––––
Gross Profit 37,154 – 37,154
Distribution costs (8,177) – (8,177)
Administrative costs (including operating exceptionals) (15,359) (103) (15,462)–––––––– –––––––– ––––––––
13,618 (103) 13,515
Share of post tax profits of associates 171 – 171–––––––– –––––––– ––––––––
Operating profit from continuing operations 13,789 (103) 13,686
Operating exceptionals (499) – (499)
Operating profit from continuing operationsbefore exceptional items 14,288 (103) 14,185
Profit on the sale of non current assets and assets held for sale 159 – 159
Profit on the sale of subsidiaries 454 – 454–––––––– –––––––– ––––––––
Profit before interest 14,402 (103) 14,299
Finance income 397 – 397
Finance expense (507) – (507)–––––––– –––––––– ––––––––
Profit before taxation 14,292 (103) 14,189
Taxation (3,865) (328) (4,193)–––––––– –––––––– ––––––––
Profit for the year 10,427 (431) 9,996–––––––– –––––––– ––––––––
Profit for the year attributable to:
Equity holders of the parent 10,515 (431) 10,084
Minority interest (88) – (88)–––––––– –––––––– ––––––––
10,427 (431) 9,996–––––––– –––––––– ––––––––
Earnings per share– Basic (pence) 6.49 (0.26) 6.23
– Diluted (pence) 6.38 (0.26) 6.12
Basic£000 EPS (p)
Conversion effects comprise:SIC15 – lease inducements spread over
the full lease term (rent frees) (120) (0.07)
IAS38 – goodwill no longer amortised annually 17 0.01–––––––– ––––––––
Profit before taxation (103) (0.06)
IAS12 – tax effects of conversion 31 0.02
IAS12 – tax effects of share based payments (359) (0.22)–––––––– ––––––––
Profit for the period (431) (0.26)–––––––– ––––––––
112
113
PART VII
FINANCIAL INFORMATION ON THE GROUP
SECTION B: GAAP HISTORICAL FINANCIAL INFORMATION RELATING TODOMINO’S PIZZA UK & IRL PLC FOR THE YEAR ENDED 31 DECEMBER 2006
Independent auditor’s reportto the members of Domino’s Pizza UK & IRL plc
We have audited the Group and parent Company financial statements (the “financial statements”) of
Domino’s Pizza UK & IRL plc for the 52 weeks ended 31 December 2006, which comprise the Group profit
and loss account, the Group statement of total recognised gains and losses, the Group and Company balance
sheets, the Group statement of cash flows and the related notes 1 to 29. These financial statements have been
prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance with Section 235 of the
Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) as set out in the statement of directors' responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are properly
prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the
information given in the Directors’ report is consistent with the financial statements. In addition we report
to you if, in our opinion the company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, of if information specified by law regarding directors’
remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether it is consistent with the
audited financial statements. This other information comprises the Chairman's Statement, the Chief
Executive’s Statement, Report on Director’s Remuneration, the Directors' Report and Five Year Financial
Summary. We consider the implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do not extend to any other
information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by
the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an assessment of the significant
estimates and judgments made by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the Group’s and Company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in
the financial statements.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with United Kingdom Generally
Accepted Accounting Practice, of the state of the Group’s and the parent Company's affairs as at 31
December 2006 and of the Group’s profit for the 52 weeks then ended;
• the financial statements have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the directors’ report is consistent with the financial statements.
Ernst & Young LLP
Registered auditorLuton
20 February 2007
114
Group profit and loss account
52 weeks 52 weeksended ended
31 December 1 January2006 2006
Notes £000 £000
Turnover from continuing operationsTurnover: group and share of
joint ventures’ turnover 98,937 85,004
Less: share of joint ventures’ turnover (3,972) (3,344)–––––––– ––––––––
Group turnover from continuing operations 2 94,965 81,660
Cost of sales (57,811) (48,778)–––––––– ––––––––
Gross profit 37,154 32,882
Distribution costs (8,177) (8,538)
Administrative expenses – pre accelerated LTIP charge (14,860) (13,504)
Accelerated LTIP charge 3 – (626)
–––––––– ––––––––Administrative expenses (14,860) (14,130)
–––––––– ––––––––
Group operating profit pre exceptionals and share of joint ventures 3 14,117 10,214
Share of operating profit in joint ventures 184 179
Amortisation of goodwill on joint ventures (13) (15)
171 164–––––––– ––––––––
Total operating profit pre exceptionals 14,288 10,378
Operating exceptionals 3 (499) ––––––––– ––––––––
Total group operating profit from continuing operations 13,789 10,378
Profit on sale of fixed assets 3 159 206
Profit on sale of subsidiary undertakings 3 454 670–––––––– ––––––––
Profit on ordinary activities before interest and taxation 14,402 11,254
Interest receivable 6 397 273
Interest payable and similar charges 7 (507) (358)–––––––– ––––––––
Profit on ordinary activities before taxation 14,292 11,169
Tax on profit on ordinary activities 8 (3,865) (2,922)–––––––– ––––––––
Profit on ordinary activities after taxation 10,427 8,247
Minority interests 88 8–––––––– ––––––––
Profit for the financial year attributable tomembers of the parent company 10,515 8,255
–––––––– ––––––––Earnings per share – basic – continuing operations 10 20.78p 16.25p
– diluted – continuing operations 10 20.40p 15.47p
115
Group statement of total recognised gains and losses
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Profit for the financial year attributable to members
of the parent company 10,515 8,255
Exchange difference on translation of
net assets of subsidiary undertaking (21) ––––––––– ––––––––
Total gains and losses recognised since the last annual report 10,494 8,255
–––––––– ––––––––
116
Group balance sheet
At At31 December 1 January
2006 2006Notes £000 £000
Fixed assets
Intangible assets 11 2,159 1,326
Tangible assets 12 13,780 13,593
Investment in joint ventures: 13
Share of gross assets 2,018 1,477
Share of gross liabilities (1,429) (1,026)–––––––– ––––––––
589 451–––––––– ––––––––
Total fixed assets 16,528 15,370–––––––– ––––––––
Current assetsStocks 14 1,838 2,186
Debtors: 15
Amounts falling due within one year 10,304 10,753
Amounts falling due after more than one year 1,940 2,168–––––––– ––––––––
12,244 12,921
Cash at bank and in hand 10,262 5,885–––––––– ––––––––
Total current assets 24,344 20,992–––––––– ––––––––
Creditors: amounts falling due within one year 16 (22,607) (13,742)–––––––– ––––––––
Net current assets 1,737 7,250–––––––– ––––––––
Total assets less current liabilities 18,265 22,620–––––––– ––––––––
Creditors: amounts falling due after more than one year 17 (9,009) (9,085)
Provision for liabilities 18 (652) (1,447)–––––––– ––––––––
8,604 12,088
–––––––– ––––––––Capital and reservesCalled up share capital 22 2,574 2,645
Share premium account 24 4,765 4,677
Capital redemption reserve 24 261 171
Treasury shares held by Employee Benefit Trust 24 (4,216) (7,500)
Profit and loss account 24 5,172 12,013–––––––– ––––––––
Equity shareholders’ funds 8,556 12,006
Minority interest 48 82–––––––– ––––––––
8,604 12,088
–––––––– ––––––––
Director
20 February 2007
117
Company balance sheet
At At31 December 1 January
2006 2006Notes £000 £000
Fixed assetsInvestment in subsidiary undertakings 13 3,506 3,253
Investment in joint ventures 13 255 205–––––––– ––––––––
3,761 3,458–––––––– ––––––––
Current assetsAmounts owed by group undertakings 13,453 15,382
Bank 132 ––––––––– ––––––––
13,585 15,382
Creditors: amounts falling due within one year 16 (191) (10)–––––––– ––––––––
Net current assets 13,394 15,372–––––––– ––––––––
Total assets less current liabilities 17,155 18,830–––––––– ––––––––
Creditors: amounts falling due after more than one year 17 (7,500) (7,500)
Provision for liabilities 18 (220) (880)–––––––– ––––––––
9,435 10,450
–––––––– ––––––––Capital and reservesCalled up share capital 22 2,574 2,645
Share premium account 24 4,765 4,677
Capital redemption reserve 24 261 171
Treasury shares held by Employee Benefit Trust 24 (4,216) (7,500)
Profit and loss account 24 6,051 10,457–––––––– ––––––––
Equity shareholders’ funds 9,435 10,450
–––––––– ––––––––
Director
20 February 2007
118
Group statement of cash flows
52 weeks 52 weeksended ended
31 December 1 January2006 2006
Notes £000 £000
Net cash inflow from operating activities 26(a) 18,989 12,674–––––––– ––––––––
Returns on investments and servicing of financeInterest received 389 273
Interest paid (455) (307)
Interest element of finance lease payments (4) (4)
Dividends received from joint ventures 21 –
–––––––– ––––––––(49) (38)
–––––––– ––––––––
TaxationCorporation tax paid (3,755) (1,549)
–––––––– ––––––––
Capital expenditure and financial investmentPayments to acquire intangible fixed assets (898) (395)
Payments to acquire tangible fixed assets (2,262) (2,246)
Receipts from sales of tangible and intangible fixed assets 453 576
Receipts from repayment of joint venture loan 105 60
Payments to acquire finance lease assets and advance of
franchisee loans (1,026) (1,166)
Receipts from repayment of finance leases and franchisee loans 1,349 1,172–––––––– ––––––––
(2,279) (1,999)–––––––– ––––––––
Acquisitions and disposalsSale of subsidiary undertakings – net of costs – 3,354
Utilisation of provisions relating to the disposal of
subsidiary undertakings (221) (309)
Cash balances disposed of with subsidiary undertakings – (5)
Sale of minority interest 30 90
Purchase of minority interests (133) (82)–––––––– ––––––––
26(b) (324) 3,048–––––––– ––––––––
Equity dividends paid (4,234) (3,169)–––––––– ––––––––
Net cash inflow before financing 8,348 8,967–––––––– ––––––––
FinancingIssue of ordinary share capital 403 472
New long-term loans 1,244 2,146
Repayments of long term loans (1,445) (1,146)
Repayment of capital element of finance leases
and hire purchase contracts (12) (16)
Purchase of shares by Employee Benefit Trust – (1,140)
Purchase of own shares (10,161) (8,222)–––––––– ––––––––
(9,971) (7,906)
–––––––– ––––––––(Decrease)/Increase in cash 26 (d) (1,623) 1,061
–––––––– ––––––––
119
Notes to the financial statementsAt 31 December 2006
1. Accounting Policies
Basis of preparation
The accounts are prepared under the historical cost convention and in accordance with United Kingdom
Generally Accepted Accounting Practice.
Basis of consolidation
The Group accounts consolidate the accounts of Domino’s Pizza UK & IRL plc and all its subsidiary
undertakings drawn up to the nearest Sunday to 31 December each year. No profit and loss account is
presented for Domino’s Pizza UK & IRL plc as permitted by Section 230 of the Companies Act 1985.
Entities in which the Group holds an interest on a long-term basis and are jointly controlled by one or more
ventures under a contractual agreement are treated as joint ventures in the Group accounts. Joint ventures are
accounted for using the gross equity method. The Group accounts include the appropriate share of assets and
liabilities and earnings, based on management accounts for the period to 31 December 2006.
Goodwill
Positive goodwill arising on acquisitions of a subsidiary or business is capitalised, classified as an asset on
the balance sheet and amortised on a straight-line basis over its estimated useful economic life of 20 years.
It is reviewed for impairment at the end of the first full financial year following the acquisition and in other
periods if events or changes in circumstances indicate that the carrying value may not be recoverable.
If a subsidiary or business is subsequently sold or closed, any goodwill arising on acquisition that has not
been amortised through the profit and loss account is taken into account in determining the profit or loss on
sale or closure.
Goodwill arising on the acquisition of a joint venture is capitalised as part of the investment in the joint
venture and is amortised on a straight-line basis over its estimated useful economic life of 20 years.
Intangible assets
Intangible assets acquired separately from a business are capitalised at cost. Intangible assets acquired as part
of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured
reliably on initial recognition, subject to the constraint that, unless the asset has a readily ascertainable
market value, the fair value is limited to an amount that does not create or increase any negative goodwill
arising on the acquisition. Intangible assets created within the business are not capitalised and expenditure
is charged against profits in the year in which it is incurred.
Intangible assets are amortised on a straight-line basis over their estimated useful lives as follows:
Franchise fees – over 20 years
Interest in leases – over the life of the lease
The carrying value of intangible assets is reviewed for impairment at the end of the first full year following
acquisition and in other periods if events or changes in circumstances indicate the carrying value may not be
recoverable.
Significant property developments
Interest incurred on finance provided for significant property development is capitalised up to the date of
completion of the project. These costs are then depreciated in accordance with the Group’s policy for the
relevant class of tangible fixed assets.
120
1. Accounting Policies (continued)
Depreciation
Depreciation is provided on all tangible fixed assets, at rates calculated to write off the cost less residual
value of each asset evenly over its expected useful life as follows:
Freehold buildings – over 50 years
Equipment – over 2 to 10 years
Leasehold building improvements – over the life of the lease
Motor vehicles – over 18 months to 3 years
The carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in
circumstances indicate that the carrying value may not be recoverable.
Stocks
Stocks comprise raw materials, consumables and goods for resale (being equipment for resale to franchisees)
and are stated at the lower of cost and net realisable value. Cost of stock is determined on the weighted
average cost basis or, for computer and food stock, the first-in, first-out basis.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events have occurred at that date that will result in an obligation to
pay more, or right to pay less or to receive more, tax, with the following exceptions:
• Provision is made for tax on gains from the revaluation (and similar fair value adjustments) of fixed
assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to
the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets
concerned. However, no provision is made where, on the basis of all available evidence at the balance
sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets
and charged to tax only where the replacement assets are sold.
• Deferred tax assets are recognised only to the extent that the directors consider that it is more likely
than not that there will be suitable taxable profits from which the underlying timing differences can
be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods
in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the
balance sheet date.
Leasing and hire purchase commitments
As lessee
Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership
of the asset have passed to the Group, and hire purchase contracts, are capitalised in the balance sheet and
depreciated over their useful lives. The capital elements of future obligations under leases and hire purchase
contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are
charged in the profit and loss account over the periods of the leases and hire purchase contracts and represent
a constant proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged in the profit and loss account on a straight-line basis over
the lease term.
121
1. Accounting Policies (continued)
As lessor
Amounts receivable under finance leases are included under debtors and represent the total amount
outstanding under lease agreements less unearned income. Finance lease income, having been allocated to
accounting periods to give a constant periodic rate of return on the net cash investment is included in
turnover. Income and expenditure from the rental of leasehold properties and equipment have been included
in the gross income in turnover and the related expenditure within cost of sales.
Treasury shares
Treasury shares held by the Employee Benefit Trust are classified in capital and reserves, as ‘Treasury shares
held by Employee Benefit Trust’ and 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 taken
to revenue reserves except that where the proceeds exceed the consideration paid then the excess is
transferred to the share premium account. No gain or loss is recognised on the purchase, sale issue or
cancellation of equity shares.
The Employee Benefit Trust has waived its entitlement to dividends. The Group will meet the expenses of
the trust as and when they fall due.
Pensions
The Group makes contributions to certain individuals’ personal pension plans. Contributions are charged in
the profit and loss account as they accrue.
Share-based payment transactions
Employees (including directors) of the Group receive an element of remuneration in the form of share based
payment transactions, whereby employees render services as consideration for equity instruments.
The awards vest when certain performance and/or service conditions are met, see note 23 for the individual
vesting conditions for the various schemes.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date
at which they are granted and is recognised as an expense over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award. Fair value is determined by an external
valuer using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of the shares of the Company (market
conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the market
condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to
which the vesting period has expired, management’s best estimate of the achievement or otherwise of non-
market conditions and the number of equity instruments that will ultimately vest or in the case of an
instrument subject to a market condition, be treated as vesting as described above. The movement in the
cumulative expense since the previous balance sheet date is recognised in the income statement, with a
corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a
cancelled or settled award, the cost based on the original award terms continues to be recognised over the
original vesting period. In addition, an expense is recognised over the remainder of the new vesting period
for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification.
No reduction is recognised if this difference is negative.
122
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any cost not yet recognised in the income statement for the award is expensed immediately. Any
compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the income statement.
The Group has taken advantage of the transitional provisions in respect of equity settled awards and has
applied FRS 20 only to awards granted after 7 November 2002 that had not vested at 3 January 2005.
Revenue recognition
Revenue is recognised as follows:
Pizza delivery – on delivery of pizzas to franchisee customers
Commissary and equipment sales – on delivery to franchisees
Royalties (based on system sales) – on delivery of pizzas by franchisees to customers
Franchise sales – on commencement of franchisee trading
Finance lease interest income – as per leasing and hire purchase commitments (lessor)
Rental income on leasehold properties – on a straight line basis in accordance with the lease terms
Trade and Other Debtors
Trade debtors, which generally have 7 – 28 days terms are recognised and carried at original invoice amount
less an allowance for any uncollectible amounts when there is objective evidence that the Group will not be
able to collect the debts. Bad debts are written off when identified.
Interest-bearing loans and borrowings
All interest-bearing loans and borrowings are initially recognised at net proceeds. After initial recognition
debt is increased by the finance cost in respect of the reporting period and reduced by payments made in
respect of the debts of the period.
Finance costs of debt are allocated over the term of the debt at a constant rate on the carrying amount.
2. Turnover and segmental analysis
The principal components of turnover are royalties received, commissary and equipment sales, sale of
franchises, pizza delivery sales, rental income on leasehold and freehold properties and finance lease interest
income, stated net of value added tax. All of the turnover is in one continuing business segment being the
development of the Domino’s Pizza Franchise System and originates in the United Kingdom and the
Republic of Ireland. The directors believe that full compliance with the requirements of SSAP 25 ‘Segmental
Reporting’ would be seriously prejudicial to the interests of the Group as it would require disclosure of
commercially sensitive information. The requirements of SSAP 25 with which the Group do not comply are
the disclosure of profit before interest and tax and net operating assets by segment. All the turnover of the
Joint Ventures relates to the United Kingdom.
123
Geographical analysis
Turnover Turnover Turnover by Turnover byby origin by origin destination destination52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended31 December 1 January 31 December 1 January
2006 2006 2006 2006£000 £000 £000 £000
Group turnover
United Kingdom
– Royalties and sales to franchisees 80,296 69,327 77,759 68,253
– Rental income on leasehold and
freehold property 7,048 6,003 7,048 6,003
– Finance lease income 290 280 290 280–––––––– –––––––– –––––––– ––––––––
Total United Kingdom 87,634 75,610 85,097 74,536
Republic of Ireland
– Royalties and sales to franchisees 6,973 5,688 9,510 6,762
– Rental income on leasehold and
freehold property 358 362 358 362–––––––– –––––––– –––––––– ––––––––
Total Republic of Ireland 7,331 6,050 9,868 7,124–––––––– –––––––– –––––––– ––––––––
Total Group 94,965 81,660 94,965 81,660
–––––––– –––––––– –––––––– ––––––––3. Operating profit
This is stated after charging/(crediting):
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Auditors’ remuneration* 121 151
Depreciation of owned assets 1,662 1,498
Depreciation of assets held under finance leases and hire
purchase contracts 9 10
Amortisation of intangible fixed assets 161 131
Operating lease rentals
– land and buildings 7,337 6,281
– plant, machinery and vehicles 1,480 1,461
Foreign exchange (gain)/loss (16) 122
–––––––– ––––––––
124
3. Operating Profit (continued)
The remuneration of the auditors is further analysed as follows:
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Audit of the financial statements 75 72
Other fees to auditors
– local statutory audit for subsidiaries 44 28
– other services 2 51–––––––– ––––––––
121 151
–––––––– ––––––––* Of which £2,000 (2005: £2,000) relates to the Company
Accelerated LTIP charge
During the 2005 financial year the Company accelerated the charge relating to reversionary interests in
ordinary shares granted in 2003, as the performance targets set were achieved earlier than expected (further
details included in the Report on Directors’ Remuneration). This resulted in an additional charge of £626,000
during 2005. This charge was not deductible for corporation taxation purposes (see note 8). This charge had
no impact on the cash flow of the Group during the prior year.
Exceptional items
Recognised as part of operating profit
Following the sale of DPGS Limited and Triple A Pizza Limited in 2005 (noted below), the Group has taken
the decision not to invest in or trade in corporately owned stores. During the year three corporately owned
stores were sold and one closed. A further store, owned and operated by a franchisee, was also closed during
the year.
The Group incurred the following exceptional charges relating to the store closures and stores sold during
the year:
52 weeksended
31 December
2006£000
Onerous lease and dilapidation provisions 76
Restructuring and reorganisation costs 252
Assets written off 52
Lease finance and other bad debts provided for 119
––––––––499
––––––––Except for the assets written off, for stores closed, the charges should be deductible for corporation taxation
purposes. Except for the restructuring and reorganisation costs, these charges had no impact on the cash flow
of the Group during the year (see note 26(a)).
125
3. Operating Profit (continued)
Recognised below operating profit
During the 2005 financial year the Group sold two subsidiary undertakings, DPGS Limited and Triple A
Pizza Limited (which included 12 corporate stores at the date of the transaction). The main elements of the
transaction were as follows:
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Cash consideration received – 3,650
Net assets disposed of – (1,495)
Disposal costs – (296)
Provisions (note 18) 454 (1,189)–––––––– ––––––––
Profit on disposal of subsidiary undertakings 454 670
–––––––– ––––––––These subsidiary undertakings were sold to Dough Trading Limited a company controlled by Marc Halpern
(see related party transactions – note 29). In addition to the sale of DPGS Limited and Triple A Pizza
Limited, the Group sold one corporate store to Dough Trading Limited for a cash consideration of £350,000
resulting in a profit on sale of £144,000.
During the year partial resolution relating to the conditions for the property provisions made in relation to
the sale of the subsidiary undertakings in the prior year, was reached and as a result £454,000 of the
provisions created in the prior year have been released. These provisions were treated as timing differences
in 2005 hence the reversal will not be chargeable to corporation tax in 2006.
In addition the Group sold three corporate stores resulting in a profit of £115,000 (2005: £62,000). The gain
in respect of these disposals will be chargeable to corporation tax at the statutory rate of 30 per cent.
During the year the Group’s share of profit realised on the disposal of a joint venture store was £44,000.
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Profit on sale of fixed assets
Sale of three (2005: two) corporate stores resulting in a profit of 115 206
Group’s share of profit on disposal of joint venture stores 44 ––––––––– ––––––––
159 206
–––––––– ––––––––4. Directors’ emoluments
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Emoluments 1,631 1,185
Pension contributions 59 156–––––––– ––––––––
1,690 1,341
–––––––– ––––––––Further information concerning directors’ emoluments is disclosed within the Report on Directors’
Remuneration.
126
5. Staff costs
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Wages and salaries 12,061 12,088
Social security costs 1,136 1,008
Other pension costs 227 288–––––––– ––––––––
13,424 13,384
–––––––– ––––––––Included in wages and salaries is a total expense of share-based payments of £344,000 (2005: £963,000),
which arises from transactions, accounted for as equity-settled share-based payment transactions.
The average monthly number of employees (including directors) during the year was made up as follows:
52 weeks 52 weeksended ended
31 December 1 January2006 2006
No. No.
Administration 130 120
Production and distribution 157 146
Corporate stores 306 408–––––––– ––––––––
593 674
–––––––– ––––––––6. Interest receivable
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Bank interest 307 177
Franchisee loans 71 83
Other interest receivable 19 13–––––––– ––––––––
397 273
–––––––– ––––––––7. Interest payable and similar charges
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Bank loan in relation to the EBT 398 305
Overdraft interest payable 51 –
Other interest payable 6 2
Finance charges payable under finance leases and hire purchase contracts 4 4–––––––– ––––––––
459 311
Joint venture interest payable 48 47–––––––– ––––––––
507 358
–––––––– ––––––––
127
8. Tax on profit on ordinary activities
(a) Analysis of tax charge in the year.
The charge based on the profit for the year comprises:
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
UK Corporation tax:
Current year 4,219 3,082
Adjustment in respect of prior periods (418) (213)–––––––– ––––––––
3,801 2,869
Republic of Ireland corporation tax – 12.5% 154 60–––––––– ––––––––
3,955 2,929
Joint venture taxation charge 58 49–––––––– ––––––––
Total corporation tax 4,013 2,978–––––––– ––––––––
UK Deferred tax:
Origination and reversal of timing differences in respect of:
Credit to profit and loss account (148) (56)–––––––– ––––––––
Total deferred tax (148) (56)–––––––– ––––––––
Tax on profit on ordinary activities 3,865 2,922
–––––––– ––––––––(b) Factors affecting tax charge for the period
52 weeks 52 weeksended ended
31 December 1 January2006 2006
% %
Corporation tax at the statutory rate 30.0 30.0
Effects of:
Expenses not deductible for tax purposes * 2.8 4.1
Profit on disposal of subsidiary undertakings – not taxable (1.9) (4.7)
Accounting depreciation not eligible for tax purposes 1.3 1.0
Goodwill amortised – 0.3
Adjustments relating to prior years corporation tax (2.9) (1.9)
Other timing differences 1.0 1.5
Decelerated capital allowances 0.5 0.1
Tax rate differences – (0.1)
Share option exercise deduction (2.8) (3.6)–––––––– ––––––––
Total current tax rate 28.0 26.7
Deferred tax (1.0) (0.5)–––––––– ––––––––
Effective tax rate 27.0 26.2
–––––––– ––––––––* Includes impact of accelerated LTIP charge in 2005 (see note 3).
128
8. Tax on profit on ordinary activities (continued)
(c) Deferred taxation – Group
Deferred tax provided in the accounts is as follows:
At At31 December 1 January
2006 2006£000 £000
Accelerated capital allowances 432 725
Other timing differences (13) (158)–––––––– ––––––––
419 567
–––––––– ––––––––£000
Deferred tax provided at 1 January 2006 567
Credit to profit and loss account (148)––––––––
Deferred tax provided at 31 December 2006 419
––––––––(d) Factors that may affect future tax charges
No provision has been made for deferred tax where potentially taxable gains have been rolled over
into replacement assets. Such gains would become taxable only if the assets were sold without it being
possible to claim rollover relief. The amount not provided is £191,000 (2005: £191,000) in respect of
this. At present, it is not envisaged that any tax will become payable in the foreseeable future.
The Company is able to receive a tax deduction when new shares are issued to satisfy the exercise of
share options. The timing of the exercise and hence resultant tax deduction is at the discretion of the
option holder.
9. Dividends paid and proposed
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Declared and paid during the year:
Final dividend for 2005 4.15p (2004: 3.05p) 2,115 1,531
Interim dividend for 2006 4.15p (2005: 3.10p) 2,119 1,638–––––––– ––––––––
4,234 3,169
–––––––– ––––––––52 weeks 52 weeks
ended ended31 December 1 January
2006 2006£000 £000
Proposed for approval at AGM (not recognised as a liability
as at 31December 2006 and 1 January 2006)
Final dividend for 2006 5.65p (2005: 4.15p) 2,792 2,031
–––––––– ––––––––10. Earnings per ordinary share
The calculation of basic earnings per ordinary share is based on earnings of £10,515,000 (2005: £8,255,000)
and on 50,614,710 (2005: 50,810,785) ordinary shares.
129
10. Earnings per ordinary share (continued)
The diluted earnings per share is based on earnings of £10,515,000 (2005: £8,255,000) and on 51,556,922
(2005: 53,368,778) ordinary shares. The difference relates to the dilutive effect of share options and the
impact of reversionary interests where the performance conditions have been met.
Reconciliation of basic and diluted earnings per share
52 weeks 52 weeksended ended
31 December 1 January2006 2006
No. No.
Ordinary shares – basic earnings per share 50,614,710 50,810,785
Dilutive share options 732,027 832,056
Reversionary interests 210,185 1,725,937–––––––––– ––––––––––
Ordinary shares – diluted earnings per share 51,556,922 53,368,778
–––––––––– ––––––––––Reversionary interests granted over 2,075,000 shares and share options granted over 785,972 shares have not
yet vested at 31 December 2006. The performance conditions for these reversionary interests and share
options have not been met in the current year and therefore the dilutive effect of the number of shares which
would have vested at the year end have not been included in the diluted earnings per share calculation (for
further details see Report on Directors’ Remuneration).
11. Intangible fixed assets
Group
Franchise InterestGoodwill fees in leases Total
£000 £000 £000 £000
Cost:
At 1 January 2006 363 832 941 2,136
Additions 524 213 315 1,052
Disposals (60) (30) – (90)–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 827 1,015 1,256 3,098–––––––– –––––––– –––––––– ––––––––
Amortisation:
At 1 January 2006 68 517 225 810
Provided during the year 17 43 101 161
Disposals (31) (1) – (32)–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 54 559 326 939–––––––– –––––––– –––––––– ––––––––
Net book value:
At 31 December 2006 773 456 930 2,159
–––––––– –––––––– –––––––– ––––––––At 1 January 2006 295 315 716 1,326
–––––––– –––––––– –––––––– ––––––––
130
12. Tangible fixed assets
Group
Freehold land Leaseholdand buildings improvements Equipment Total
£000 £000 £000 £000
Cost:
At 1 January 2006 8,245 1,315 9,655 19,215
Additions 38 311 1,945 2,294
Disposals – (206) (317) (523)–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 8,283 1,420 11,283 20,986–––––––– –––––––– –––––––– ––––––––
Depreciation:
At 1 January 2006 648 116 4,858 5,622
Provided during the year 124 170 1,377 1,671
Disposals – (5) (82) (87)–––––––– –––––––– –––––––– ––––––––
At 31 December 2006 772 281 6,153 7,206–––––––– –––––––– –––––––– ––––––––
Net book value:
At 31 December 2006 7,511 1,139 5,130 13,780
–––––––– –––––––– –––––––– ––––––––At 1 January 2006 7,597 1,199 4,797 13,593
–––––––– –––––––– –––––––– ––––––––The net book value of equipment includes an amount of £47,000 (2005: £26,000) in respect of assets held
under finance leases and hire purchase contracts, the depreciation charge on which was £9,000 (2005:
£10,000).
Included within freehold land and buildings is an amount of £1,690,000 (2005: £1,690,000) in respect of
land which is not depreciated. Also included is an amount of £154,000 (2005: £154,000) of capitalised
interest. No interest was capitalised during the year.
13. Investments
Group
At At31 December 1 January
2006 2006£000 £000
Investments:
Joint ventures 589 451
–––––––– ––––––––£000
At 1 January 2006 451
Share of profit retained by joint ventures 109
Dividends received (21)
Reclassification of investment cost 50––––––––
At 31 December 2006 589
––––––––Included within the investment in joint ventures is an amount of £189,000 (2005: £202,000) of goodwill
arising on acquisition.
131
13. Investments (continued)
Company
Subsidiary JointUndertakings ventures Total
£000 £000 £000
Fixed asset investment
Cost:
At 1 January 2006 3,253 205 3,458
Reclassification of investment cost – 50 50
Investments acquired:
DP Milton Keynes Limited 120 – 120
DPGL Birmingham Limited* 85 – 85
DP Newcastle & Sunderland Limited* 48 – 48
DPG Holdings Limited 2,200 – 2,200
Investments disposed of:
Domino’s Pizza Group Limited (2,200) – (2,200)–––––––– –––––––– ––––––––
At 31 December 2006 3,506 255 3,761
–––––––– –––––––– ––––––––* purchase of minority interest
At 31 December 2006 the Company held directly more than 20 per cent. of the nominal value of the share
capital of the following:
Country ofName of company in corporation Proportion held Nature of business
Directly held subsidiary undertakingsDPG Holdings Limited England 100% ordinary
DP Realty Limited England 100% ordinary Property management
DP Group Developments Limited England 100% ordinary Property development
DP Capital Limited England 100% ordinary Leasing of equipment
DP Newcastle Limited England 100% ordinary
American Pizza Company Limited England 100% ordinary
DPGL Birmingham Limited England 100% ordinary
DP Newcastle & Sunderland Limited England 100% ordinary
DP Peterborough Limited England 80% ordinary
DP Milton Keynes Limited England 80% ordinary
Joint venturesFull House Restaurants Limited England 41% ordinary
Dominoid Limited Scotland 50% ordinary
Indirectly held subsidiariesDomino’s Pizza Group Limited England 100% ordinary
Livebait Limited England 100% ordinary Property management
DP Pizza Limited 100% ordinary Food service businessRepublic
of Ireland
Operation and management
of franchise business
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Investment of
franchise business
132
13. Investments (continued)
On 24 October 1998, a 41 per cent. interest in Full House Restaurants Limited was acquired for £205,000.
Sales of £2,843,000 (2005: £1,898,000) were made to Full House Restaurants Limited during the year.
At 31 December 2006, there was a receivable of £82,000 (2005: £62,000) from Full House Restaurants
Limited, which has arisen through normal trading activities.
On 11 November 2002, a 50 per cent. interest in Dominoid Limited was acquired. Two stores were sold to
Dominoid Limited and the consideration for the sale was satisfied by the issue of a Loan Note by Dominoid
Limited of £436,000, which is repayable on demand at least one year after date of the agreement. The loan
bears interest at a rate of 2.5 per cent. above Royal Bank of Scotland base rate. At 31 December 2006 the
balance outstanding on the loan was £332,000 (2005: £436,000).
Sales of £1,244,000 (2005: £1,057,000) were made to Dominoid Limited during the year. The Company
received interest of £25,000 (2005: £31,000) in respect of the loan. At 31 December 2006 there was a
receivable of £18,000 (2005: £19,000) from Dominoid Limited, which has arisen through normal trading
activities.
In October 2006 the Company purchased the remaining 20 per cent. shareholding of DPGL Birmingham
Limited for £85,000 and DP Newcastle & Sunderland Limited for £48,000. The goodwill arising on the
acquisitions of the minority shareholdings was £70,000 and £84,000 respectively. The purchase
considerations were calculated taking into consideration the market value of the assets and liabilities of the
respective companies. No fair value adjustments were made in respect of these acquisitions.
In December 2006, DPGL Birmingham Limited acquired a store, previously operated by an existing
franchisee, for £430,000, giving rise to goodwill of £370,000, when compared with fixed assets of £60,000
that were acquired. The purchase consideration was calculated taking into consideration the market value of
the store. No fair value adjustments were made in respect of this acquisition.
In June 2006 a new company was formed, DP Milton Keynes Limited. Domino’s Pizza UK & IRL plc
acquired 80 per cent. of the shareholding of the new company. DP Milton Keynes Limited is consolidated
within the financial statements of the Group.
Sales of £628,000 (2005: £349,000) were made to DP Peterborough Limited during the year. Sales of
£279,000 (2005: £nil) were made to DP Milton Keynes Limited during the year. At 31 December 2006 there
was a receivable due from DP Milton Keynes Limited of £138,470 (2005: £Nil) and a receivable due from
DP Peterborough Limited £176,935 (2005: £Nil), which have arisen through normal trading activities.
On 16 August 2006 the Company sold its investment in Domino’s Pizza Group limited for £2,200,000 in
exchange for shares in DPG Holdings Limited. There was no profit or loss arising on the disposal.
14. Stocks
Group at Group at31 December 1 January
2006 2006£000 £000
Raw materials and goods for resale 1,838 2,186
–––––––– ––––––––
133
15. Debtors
Group at Group at31 December 1 January
2006 2006£000 £000
Trade debtors 2,865 3,668
Amounts owed by joint ventures 432 517
Other debtors 2,795 3,166
Prepayments and accrued income 3,540 2,634
Net investment in finance leases 2,612 2,936–––––––– ––––––––
12,244 12,921
–––––––– ––––––––Amounts falling due after more than one year included above are:
Group at Group at31 December 1 January
2006 2006£000 £000
Trade debtors 75 156
Other debtors 117 73
Net investment in finance leases 1,748 1,939–––––––– ––––––––
1,940 2,168
–––––––– ––––––––The aggregate rentals receivable in respect of finance leases was £1,623,000 (2005: £1,456,000), and the
interest element of this is included in turnover.
The cost of assets acquired for the purpose of letting under finance leases was £4,803,000 (2005:
£5,227,000).
16. Creditors: amounts falling due within one year
Group at Group at Company at Company at31 December 1 January 31 December 1 January
2006 2006 2006 2006£000 £000 £000 £000
Other loans (note 19) 822 923 – –
Bank overdraft 6,000 – – –
Finance lease creditors (note 20) 13 18 – –
Trade creditors 4,059 3,930 – –
Corporation tax 2,339 2,194 – –
Other taxes and social security costs 1,415 1,230 – –
Other creditors 1,808 1,388 – –
Accruals and deferred income 6,151 4,059 191 10–––––––– –––––––– –––––––– ––––––––
22,607 13,742 191 10
–––––––– –––––––– –––––––– ––––––––Bank overdraft
The Group has entered into an agreement to obtain a bank overdraft facility from Barclays Bank plc. The
limit for this facility is £6,000,000. The facility is repayable on demand and interest is charged at 1.0 per
cent. per annum above Barclays Bank plc base rate. The facility is secured by share pledges, constituting first
fixed charges over the shares of DPG Holdings Limited and Domino’s Pizza Group Limited as well as
negative pledges given by the Company, DPG Holdings Limited and Domino’s Pizza Group Limited.
134
17. Creditors: amounts falling after more than one year
Group at Group at Company at Company at31 December 1 January 31 December 1 January
2006 2006 2006 2006£000 £000 £000 £000
Bank loans (note 19) 7,500 7,500 7,500 7,500
Finance lease creditors (note 20) 32 8 – –
Other loans (note 19) 1,477 1,577 – ––––––––– –––––––– –––––––– ––––––––
9,009 9,085 7,500 7,500
–––––––– –––––––– –––––––– ––––––––Bank loans
The Group has entered into an agreement to obtain bank loans and mortgage facilities. These are secured by
a fixed and floating charge over the Group’s assets and an unlimited guarantee provided by the Company. At
31 December 2006 the balance due under these facilities was £7,500,000 all of which is in relation to the
EBT (2005: £7,500,000). The loans bear interest at 0.625 per cent. (2005: 0.625 per cent.) above National
Westminster Bank plc base rate.
Other loans
The remaining loans are repayable in equal instalments over a period of up to five years, these are unsecured.
The interest rate on these loans is fixed at an average rate of 8.2 per cent. (2005: 7.0 per cent.).
18. Provisions for liabilities
Group at Group at Company at Company at31 December 1 January 31 December 1 January
2006 2006 2006 2006£000 £000 £000 £000
2006 2005 2006 2005£000 £000 £000 £000
Deferred tax (see note 8) 419 567 (13) –
Legal provisions 51 148 51 148
Property provisions 182 732 182 732–––––––– –––––––– –––––––– ––––––––
652 1,447 220 880
–––––––– –––––––– –––––––– ––––––––At 1 January Arising Releases Utilised At 31 December
2006 in the year in the year in the year 2006£000 £000 £000 £000 £000
Deferred tax 567 – – (148) 419
Legal provisions 148 28 – (125) 51
Property provisions 732 – (454) (96) 182–––––––– –––––––– –––––––– –––––––– ––––––––
Total provisions 1,447 28 (454) (369) 652
–––––––– –––––––– –––––––– –––––––– ––––––––The legal provisions relate to fees charged in relation to the disposal of subsidiary undertakings as well as
outstanding litigation matters arising on the sale of stores. The outcome of the litigation is at present
uncertain, and a final decision is not imminently expected. No estimate of the likely outcome of the litigation
can yet be made by the directors, but full provision for the potential costs likely to be incurred has been made.
The property provisions relate to outstanding rent reviews, rates, service charges and dilapidation costs for
stores sold as part of the sale of subsidiary undertakings during the prior year. The completion of the
outstanding rent and rates reviews vary depending on the lease and on average are resolved within 1 - 3 years
following the review dates stipulated in the leases. The dilapidation costs are determined at the end of the
lease. During the year resolution was reached on various of the outstanding items relating to the property
provisions, resulting in the release of provisions held at the beginning of the year (see note 3).
135
19. Loans
Group at Group at Company at Company at31 December 1 January 31 December 1 January
2006 2006 2006 2006£000 £000 £000 £000
Amounts falling due:
In one year or less or on demand 6,822 923 – –
Due between one and two years 664 717 – –
In more than two years but not more
than five 813 860 – –
In more than five years 7,500 7,500 7,500 7,500–––––––– –––––––– –––––––– ––––––––
15,799 10,000 7,500 7,500
–––––––– –––––––– –––––––– ––––––––20. Obligations under leases and hire purchase contracts
Group
At At31 December 1 January
2006 2006£000 £000
Amount payable:
Within one year 23 16
In two to five years 31 15–––––– ––––––
54 31
Less: Finance charges allocated to future periods (9) (5)–––––– ––––––
45 26
–––––– ––––––Annual commitments under non-cancellable operating leases are as follows:
Land and Land andbuildings at buildings at Other at Other at
31 December 1 January 31 December 1 January2006 2006 2006 2006£000 £000 £000 £000
Operating leases that expire:
Within one year 201 100 213 60
In two to five years 912 651 868 1,005
In over five years 6,570 6,068 209 209––––––– ––––––– ––––––– –––––––
7,683 6,819 1,290 1,274
––––––– ––––––– ––––––– –––––––21. Derivatives and other financial instruments
The Group’s financial risk management objectives consist of identifying and monitoring those risks which
have an adverse impact on the value of the Group’s financial assets and liabilities or on reported profitability
and on the cash flows of the Group.
The Group’s principal financial instruments are bank loans, bank overdrafts, other loans, finance leases and
cash.
The financial instruments are principally in place to finance the head office facility and associated
equipment, provide finance to franchisees and to provide finance for the EBT loan. The Group has other
financial instruments such as trade debtors and trade creditors that arise directly from its operations. As
permitted by FRS 13 short-term debtors and creditors have been excluded from the disclosure of financial
liabilities and assets.
136
21. Derivates and other financial instruments (continued)
The Group has not entered into any derivative transactions such as interest rate swaps or financial foreign
currency contracts. The main risks arising from the Group’s financial instruments are set out below. In view
of the low level of foreign currency transactions the Board does not consider there to be any significant
foreign currency risks.
Credit Risk
Due to the nature of customers who trade on credit terms, being predominantly franchisees, the franchisee
selection process is sufficiently robust to ensure an appropriate credit verification procedure.
In addition, trade debtors balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Since the Group trades only with franchisees that have been subject
to the franchisee selection process and provide personal guarantees as required under the franchise
agreements, there is no requirement for collateral.
Price risk
The Board considers that the Group’s exposure to changing market prices on the values of financial
instruments does not have a significant impact on the carrying value of financial assets and liabilities. As
such no specific policies are applied currently, although the Board will continue to monitor the level of price
risk and manage its exposure should the need occur.
Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its operations with cash collection
targets set throughout the Group. All major investment decisions are considered by the Board as part of the
project appraisal process. In this way the Group aims to maintain a good credit rating to facilitate fund
raising.
Interest rate risk
The Board has a policy of ensuring a mix of fixed and floating rate borrowings. Whilst fixed rate interest
bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a
reduction in borrowing costs when market rates are falling. Conversely, whilst floating rate borrowings are
not exposed to changes in fair value, the Group is exposed to cash flow risk as costs increase if market rates
rise.
Interest rate risk profile of financial assets
The interest rate profile of the financial assets of the Group was as follows:
FinancialFloating asset
Fixed rate rate on which Averagefinancial financial no interest period
Total asset asset is paid to maturity£000 £000 £000 £000
At 31 December2006
Trade debtors 75 – 75 –
Other debtors 117 – – 117 92 months
Joint venture loan 332 – 332 –
Finance lease receivable 2,612 2,612 – – 26 months
Cash 10,262 – 10,262 –––––––– ––––––– ––––––– –––––––
13,398 2,612 10,669 117
––––––– ––––––– ––––––– –––––––The floating rate financial assets are based on the Group’s bank base rate plus a fixed percentage of 2 per
cent. (2005: 2 per cent.).
The average interest on the fixed rate financial asset is 10.2 per cent. (2005: 11 per cent.).
137
21. Derivates and other financial instruments (continued)
FinancialFloating asset
Fixed rate rate on which Averagefinancial financial no interest period
Total asset asset is paid to maturity£000 £000 £000 £000
At 1 January 2006Trade debtors 156 – 156 –
Other debtors 73 – – 73 84 months
Joint venture loan 436 – 436 –
Finance lease receivable 2,936 2,936 – – 27 months
Cash 5,885 – 5,885 –––––––– ––––––– ––––––– –––––––
9,486 2,936 6,477 73
––––––– ––––––– ––––––– –––––––The fair value of the financial assets is not considered materially different from book value except for the
fixed rate financial asset where the fair value is £2,299,000 (2005: £2,500,000). The fair value has been
determined by discounting the cash flows of the fixed rate financial assets at prevailing market rates.
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group was as follows:
FinancialFloating asset
Fixed rate rate on whichfinancial financial no interest
Total asset asset is paid£000 £000 £000 £000
At 31 December 2006Bank loan 7,500 – 7,500 –
Other loan 2,299 2,299 – –
Finance leases 45 45 – –
Bank overdraft 6,000 – 6,000 –––––––– ––––––– ––––––– –––––––
15,844 2,344 13,500 –
––––––– ––––––– ––––––– –––––––Financial
Floating assetFixed rate rate on which
financial financial no interestTotal asset asset is paid£000 £000 £000 £000
At 1 January 2005Bank loan 7,500 – 7,500 –
Other loan 2,500 2,500 – –
Finance leases 26 26 – –––––––– ––––––– ––––––– –––––––
10,026 2,526 7,500 –
––––––– ––––––– ––––––– –––––––The average interest on the fixed rate financial liability is 8.2 per cent. (2005: 7.0 per cent.). This is fixed
over a weighted average period of 27 months (2005: 26 months). The bank loan relates to a revolving facility
granted to the EBT for the purpose of acquiring shares in the Company for the benefit of the Company’s
employees. The loan attracts interest at a rate of 0.625 per cent. (2005: 0.625 per cent.) above National
Westminster Bank plc base rate and expires on 11 September 2013. The bank overdraft relates to a facility
granted to a subsidiary of the Company by Barclays Bank plc. Interest is charged at a rate of 1.0 per cent.
above Barclays Bank plc base rate and the facility is repayable upon demand.
138
21. Derivates and other financial instruments (continued)
The maturity profile of the Group’s financial liabilities is set out in notes 17 and 19. The fair value of the
financial liabilities is not considered materially different from book value.
Other loan facilities at 31 December 2006 amounted to £5,000,000 (2005: £5,000,000) in respect of other
loans relating to a limited recourse loan facility. Of the other loan facilities, £5,000,000 expires on 31
December 2007 (2005: £5,000,000 expired on 31 December 2006).
22. Share capital
Authorised AuthorisedAt 31 December At 1 January
2006 2006No. £ No. £
Ordinary shares of 5p 80,000,000 4,000,000 80,000,000 4,000,000
–––––––––– –––––––––– –––––––––– ––––––––––Issued allotted and fully paid Issued allotted and fully paid
At 31 December At 1 January2006 2006
No. £ No. £
At 1 January 2006 52,914,511 2,645,726 54,808,550 2,740,428
Additions in the year 372,548 18,627 720,897 36,045
Share buybacks (1,799,946) (89,997) (2,614,936) (130,747)–––––––––– –––––––––– –––––––––– ––––––––––
At 31 December 2006 51,487,113 2,574,356 52,914,511 2,645,726
–––––––––– –––––––––– –––––––––– ––––––––––During the year 372,548 (2005: 720,897) shares of 5p each with a nominal value of £18,627 (2005: £36,045)
were issued at between 42.1p and 342.5p for total cash consideration received of £403,000 (2005: £472,000)
to satisfy options that were exercised. During December 2006 the Company bought back a total of 1,799,946
(2005: 2,614,936) ordinary shares of 5p each for a total value of £10,161,000 (including costs of £172,000)
(2005: £8,222,000). The price for which these shares were purchased was 555p per share.
As at 31 December 2006, the following share options were outstanding:
Outstanding at Granted Exercised Forfeited Outstanding atExercise 1 January during during during 31 December
Date of grant price 2006 the year the year the year 2006No. No. No. No. No.
Domino’s Pizza(unapproved) Scheme24 November 1999 42.1p 244,299 – (131,001) – 113,298
24 November 1999 50.0p 214,070 – (25,918) (2,000) 186,152
4 August 2000 53.0p 123,100 – (53,300) (2,000) 67,800
25 October 2001 55.0p 127,001 – (34,083) (5,999) 86,919
23 March 2004 206.5p 10,000 – (10,000) – –
15 December 2005 342.5p 768,131 – (9,585) (88,969) 669,577–––––––– –––––––– –––––––– –––––––– ––––––––1,486,601 – (263,887) (98,968) 1,123,746
EMI Scheme23 March 2004 206.5p 377,501 – (108,661) (19,590) 249,250
Sharesave Scheme29 December 2005 242.8p 229,690 – – (36,190) 193,500
–––––––– –––––––– –––––––– –––––––– ––––––––2,093,792 – (372,548) (154,748) 1,566,496
–––––––– –––––––– –––––––– –––––––– ––––––––Weighted average
exercise price 207.0p – 105.5p 226.5p 223.6p
The weighted average remaining contractual life of the options outstanding at 31 December 2006 is 6.3 years
(2005: 7.0 years). The weighted average share price for options exercised during 2006 was 459.0p (2005:
273.0p).
139
22. Share capital (continued)
As at 1 January 2006 the following share options were outstanding:
Outstanding at Granted Exercised Forfeited OutstandingExercise 2 January during during during at 1 January
Date of grant price 2005 the year the year the year 2006No. No. No. No. No.
Domino’s Pizza(unapproved) Scheme24 November 1999 42.1p 555,316 – (300,198) (10,819) 244,299
24 November 1999 50.0p 332,605 – (116,535) (2,000) 214,070
4 August 2000 53.0p 183,601 – (50,700) (9,801) 123,100
25 October 2001 55.0p 242,882 – (88,132) (27,749) 127,001
11 March 2002 74.5p 100,000 – (100,000) – –
23 March 2004 206.5p – 10,000 – – 10,000
15 December 2005 342.5p – 768,131 – – 768,131–––––––– –––––––– –––––––– –––––––– ––––––––
1,414,404 778,131 (655,565) (50,369) 1,486,601
EMI Scheme23 March 2004 206.5p 473,750– – (65,332) (30,917) 377,501
Sharesave Scheme29 December 2005 242.8p – 229,690 – – 229,690
–––––––– –––––––– –––––––– –––––––– ––––––––1,888,154 1,007,821 (720,897) (81,286) 2,093,792
–––––––– –––––––– –––––––– –––––––– ––––––––Weighted average
exercise price: 89.2p 318.4p 65.1p 110.5p 207.0p
The following share options were exercisable at the year end:
Exercisable Exercisableat 31 December at 1 January
2006 2006
Domino’s Pizza(unapproved) Scheme24 November 1999 113,298 244,299
24 November 1999 186,152 214,070
4 August 2000 67,800 123,100
25 October 2001 86,919 127,001
23 March 2004 – 3,333
15 December 2005 157,490 ––––––––– ––––––––
611,659 711,803
Exercisable Exercisableat 31 December at 1 January
2006 2006EMI Scheme23 March 2004 88,917 56,834
–––––––– ––––––––700,576 768,637
–––––––– ––––––––Weighted average exercise price 135.3p 61.1p
On 24 November 1999 participants in the Domino’s Pizza Group Limited (Unapproved) Share Option
Scheme (which had been in place since 31 March 1999) had the option of exchanging options over shares in
Domino’s Pizza Group Limited in return for equivalent options over ordinary shares in the Company under
the Domino’s Pizza Share Option (Unapproved) Scheme.
On 23 March 2004, the Company established the Domino’s Pizza UK & IRL plc Enterprise Management
Incentive Scheme (EMI Scheme). Under the scheme 481,000 options were granted at 206.5p, the market
price on the date of the grant. The options are only exercisable if the growth in the Company’s EPS during
a performance year exceeds the growth in RPI during that performance year by at least 5 per cent. The EMI
options lapse after 10 years or in certain other circumstances connected with leaving the Company.
140
22. Share capital (continued)
In respect of all outstanding options under these schemes, options may be exercised as follows:
One year after date of grant – maximum 1/3 of options held
Two years after date of grant – maximum 2/3 of options held
Three years after date of grant – in full
The options expire 10 years after the date granted.
Domino’s Pizza UK & IRL plc Employee Benefit Trust is established for the benefit of employees. The trust
holds and deals in the Company’s shares under two share incentive schemes. These are the Domino’s Pizza
UK & IRL plc 2003 Enterprise Management Incentive Scheme and the Domino’s Pizza Share Option
(Unapproved) Scheme, under which the Company may grant options over ordinary shares to eligible full
time employees.
In addition the Group has a Sharesave scheme giving employees the option to acquire shares in the Company.
Employees have the option to save an amount per month up to a maximum of £250 and at the end of three
years they have the option to purchase shares in the Company or to take their savings in cash.
The Employee Benefit Trust also operates a long-term incentive plan under which senior executives may be
incentivised by the grant to them of reversionary interests over a portion of the assets of the trust. During the
year further reversionary interests were granted over 1,100,000 shares. At 31 December 2006, the Trust held
2,065,587 shares, which had a historic cost of £4,215,810. These shares had a market value at 31 December
2006 of £12,310,900.
At 31 December 2006 reversionary interests over 2,075,000 shares in Domino’s Pizza UK & IRL plc have
been granted. Further details are contained in the Report on Directors’ Remuneration.
23. Share-based payment plans
The expense recognised for share-based payments in respect of employee services received during the year
to 31 December 2006 is £344,000 (2005: £963,000). This all arises on equity settled share-based payment
transactions.
Long Term Senior Executive Incentive Plan
Reversionary interests over assets held in the Domino’s Pizza UK & IRL plc employee benefit trust are
approved and granted, at the discretion of the trustees, to senior executives. The interests are capable of
vesting within a five year period should certain performance targets be achieved by the Group.
The following table lists the performance criteria attached to the reversionary interests granted and not
vested:
Interestrepresented
Grant price Diluted earnings Net profit by such numberGrant date per interest per share before tax of shares
16 December 2004 200.0p 24.0p £17,000,000 600,000
31 October 2005 295.0p 27.0p £20,000,000 375,000
27 February 2006 416.5p 30.9p £22,300,000 150,000
27 April 2006 485.0p 30.9p £22,300,000 850,000
16 May 2006 470.3p 30.9p £22,300,000 100,000––––––––2,075,000
––––––––The contractual life of each interest is 5 years and all awards are equity settled.
141
The fair value of reversionary interests, which will be equity-settled, is estimated as at the date of granting
using a Black Scholes model, taking into account the terms and conditions upon which they were granted.
The following table lists the inputs to the model used for the valuations in 2005 and 2006:
23. Share-based payment plans (continued)
2006 2005
Dividend yield (%) 3.8 3.3
Expected volatility (%) 17.0 17.0
Historical volatility – 250 day (%) 27.3 28.7
Risk-free interest rate (%) 4.4 – 4.8 4.3
Expected life of reversionary interests (years) 3.9 – 4.1 4.4
Weighted average exercise price (pence) 416.5 – 485.0 295.0
Weighted average share price (pence) 416.5 – 485.0 295.0
The expected life of the reversionary interests is based on historical data and is not necessarily indicative of
exercise patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
The weighted average fair value of each reversionary interest granted during the year was 64.0p (2005:
43.0p).
For further details regarding the reversionary interests granted and outstanding, see the Report on Directors’
Remuneration.
Employee Share-option
All other employees are eligible for grants of options, which are approved by the Board.
The options vest over a 3 year period and are exercisable subject to the condition that the growth in basic
earnings per share in any financial year between grant and vesting exceeds the growth in the Retail Price
Index in the previous financial year by at least 5 per cent. (see note 22 for further details).
The contractual life of each option granted is 10 years. There are no cash settlement alternatives and all
awards are equity settled.
The fair value of equity-settled share options granted, for the EMI and Domino’s Pizza (unapproved)
schemes, is estimated as at the date of granting using a Black Scholes model, taking into account the terms
and conditions upon which the options were granted. The following table lists the inputs to the model used
for the valuations for the EMI and Domino’s Pizza (unapproved) schemes in 2005:
2005
Dividend yield (%) 3.75
Expected volatility (%) 17.0
Historical volatility – 250 day (%) 28.1
Risk-free interest rate (%) 4.3
Expected life of options (years) 4.0
Weighted average exercise price (pence) 340.8
Weighted average share price (pence) 340.8
The expected life of the options is based on historical data and is not necessarily indicative of exercise
patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
142
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
There were no options granted in the year. The weighted average fair value of each option granted in 2005
was 44.0p.
23. Share-based payment plans (continued)
Sharesave scheme
During 2005 the Group introduced a Sharesave scheme giving employees the option to acquire shares in the
Company. Employees have the option to save an amount per month up to a maximum of £250 and at the end
of three years they have the option to purchase shares in the Company or to take their savings in cash.
The contractual life of the scheme is 3 years. The fair value of equity-settled options granted, is estimated as
at the date of granting using a Binomial model, taking into account the terms and conditions upon which the
options were granted. The following table lists the inputs to the model used for the valuations for the
Sharesave scheme in 2005:
2005
Dividend yield (%) 3.75
Expected volatility (%) 17.0
Historical volatility – 250 day (%) 28.1
Risk-free interest rate (%) 4.2
Expected life of options (years) 3.3
Weighted average exercise price (pence) 242.8
Weighted average share price (pence) 242.8
The expected life of the options is based on an average of exercise period, which is between 3 – 3.5 years.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
There were no options granted in the year. The weighted average fair value of each option granted in 2005
was 66.0p.
143
24. Reconciliation of shareholders’ funds and movement on reserves
Group
TreasuryShare Capital Shares Profit & Total
Share Premium Redemption held by Loss Shareholders’Capital Account Reserve EBT Account Funds
£000 £000 £000 £000 £000 £000
At 2 January 2005 2,740 4,241 40 (6,360) 14,186 14,847
Proceeds from share issue 36 436 – – – 472
Share buybacks (131) – 131 – (8,222) (8,222)
Treasury shares held
by EBT – – – (1,140) – (1,140)
Profit for the year – – – – 8,255 8,255
Share option and
LTIP charge – – – – 963 963
Dividends – – – – (3,169) (3,169)––––––– ––––––– ––––––– ––––––– ––––––– –––––––
At 1 January 2006 2,645 4,677 171 (7,500) 12,013 12,006
Proceeds from share issue 19 384 – – – 403
Share buybacks (90) (296) 90 – (10,161) (10,457)
Treasury shares
held by EBT – – – 3,284 (3,284) –
Profit for the year – – – – 10,515 10,515
Exchange difference on
translation of net assets
of subsidiary undertaking – – – – (21) (21)
Share option and
LTIP charge – – – – 344 344
Dividends – – – – (4,234) (4,234)––––––– ––––––– ––––––– ––––––– ––––––– –––––––
At 31 December 2006 2,574 4,765 261 (4,216) 5,172 8,556
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
144
24. Reconciliation of shareholders’ funds and movement on reserves (continued)
Company
Share Share Capital Treasury Profit & TotalCapital Premium Redemption Shares Loss Shareholders’
Account Reserve held by EBT Account Funds£000 £000 £000 £000 £000 £000
At 2 January 2005 2,740 4,241 40 (6,360) 7,891 8,552
Proceeds from share
issue 36 436 – – – 472
Share buybacks (131) – 131 – (8,222) (8,222)
Profit for the year – – – – 12,994 12,994
Share option and
LTIP charge – – – – 963 963
Dividends – – – – (3,169) (3,169)
Treasury shares held
by EBT – – – (1,140) – (1,140)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 1 January 2006 2,645 4,677 171 (7,500) 10,457 10,450
Proceeds from share
issue 19 384 – – – 403
Share buybacks (90) (296) 90 – (10,161) (10,457)
Treasury shares held
by EBT – – – 3,284 (3,284) –
Profit for the year – – – – 13,119 13,119
Share option and
LTIP charge – – – – 154 154
Dividends – – – – (4,234) (4,234)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 31December 2006 2,574 4,765 261 (4,216) 6,051 9,435
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––During December 2006 the Company bought back a total of 1,799,946 (2005: 2,614,936) ordinary shares of
5p each. The price for which these shares were purchased was 555p per share.
25. Profit and loss account
Profit after taxation amounting to £13,119,000 (2005: £12,994,000) has been dealt with in the accounts of
the Company.
145
26. Notes to the statement of cash flows
(a) Reconciliation of operating profit to net cash inflow from operating activities
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Operating profit after exceptionals (see note 3) 13,618 10,214
Depreciation charge 1,671 1,508
Amortisation charge 161 131
Share option and accelerated LTIP charge (see note 3) 344 963
Decrease in stocks 349 489
Decrease in debtors 82 337
Increase/(Decrease) in creditors 2,764 (968)
–––––––– ––––––––18,989 12,674
–––––––– ––––––––Operating exceptionals
– non cash flow items (see note 3) 247 –
– cash flow items (see note 3) 252 –
–––––––– ––––––––499 –
–––––––– ––––––––(b) Acquisitions and disposals
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Cash receipts on disposal of subsidiary undertakings – net of costs – 3,354
Cash balances disposed of with subsidiary undertakings – (5)
Utilisation of provisions relating to subsidiary undertakings (221) (309)
Purchase of shares previously held by minority shareholders (133) (82)
Receipts from – minority interests in new subsidiary undertakings 30 90
–––––––– ––––––––(324) 3,048
–––––––– ––––––––
146
26. Notes to the statement of cash flows (continued)
(c) Analysis of net debt
At Other At1 January non-cash 31December
2006 Cash flow movements 2006£000 £000 £000 £000
Cash at bank and in hand 5,885 4,377 – 10,262
Bank overdraft – (6,000) – (6,000)–––––––– –––––––– –––––––– ––––––––
5,885 (1,623) – 4,262
EBT loans (7,500) – – (7,500)
Other loans (within one year) (923) 1,445 (1,344) (822)
Other loans (due after one year) (1,577) (1,244) 1,344 (1,477)
Finance leases (26) 12 (31) (45)–––––––– –––––––– –––––––– ––––––––
Net debt (4,141) (1,410) (31) (5,582)
–––––––– –––––––– –––––––– ––––––––(d) Reconciliation of net cash flow to movement in net debt
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Decrease in cash before sale of subsidiary undertakings (1,623) (2,589)
Proceeds from the sale of subsidiary undertakings – 3,650–––––––– ––––––––
(Decrease)/Increase in cash including saleof subsidiary undertakings (1,623) 1,061
Cash outflow from increase in loans (1,244) (2,146)
Repayment of long-term loans 1,445 1,146
Repayments of capital element of finance leases and
hire purchase contracts 12 16
–––––––– ––––––––Change in net debt resulting from cash flows (1,410) 77
Other (31) –
–––––––– ––––––––Movement in net debt (1,441) 77
Net debt at 1 January 2006 (4,141) (4,218)–––––––– ––––––––
Net debt at 31 December 2006 (5,582) (4,141)
–––––––– ––––––––27. Capital commitments
Amounts contracted for but not provided in the accounts amounted to £ nil for the Group and £ nil for the
Company (2005: £nil and £nil respectively).
28. Contingent liabilities
Pursuant to the relevant regulation of the European Communities (Companies: Group Accounts)
Regulations, 1992 the Company has guaranteed the liabilities of the Irish subsidiary, DP Pizza Ltd and as a
result the Irish company has been exempted from the filing provisions section 7, Companies (Amendment)
Act 1986 of the Republic of Ireland.
147
29. Related parties
During the period, the Group traded with International Franchise Systems Inc. and Englewood Consulting
Inc., in the normal course of business and at normal market prices. Colin Halpern is a director of
International Franchise Systems Inc and Englewood Consulting Group Inc.
Transactions between the Group and International Franchise Systems Inc. and Englewood Consulting Group
Inc., are set out below:
52 weeks 52 weeksended ended
31 December 1 January2006 2006£000 £000
Current account:
Costs incurred by Domino’s Pizza Group Limited on behalf of
International Franchise Systems Inc. 331 365
Transfer of funds (from) International Franchise Systems Inc. (91) (125)
Management charges from International Franchise Systems Inc. (430) (240)
Management charges from Englewood Consulting Group Inc. (10) ––––––––– ––––––––
Closing debt due to International Franchise Systems Inc. (200) –
–––––––– ––––––––During the year, the Group traded with DPGS Limited and Triple A Limited, subsidiaries of Dough Trading
Limited. Dough Trading Limited is controlled by Marc Halpern, the son of Colin Halpern.
At the year end there is a balance owing from DPGS Ltd of £44,000 (2005: £65,000), which has arisen
during the course of normal trading. Sales of £2,593,000 (2005: £1,686,000 – June 2005 to December 2005)
have been made to DPGS Ltd at normal market prices during the year.
Transactions between the Group and its joint ventures are set out in note 13.
148
149
PART VII
FINANCIAL INFORMATION ON THE GROUP
SECTION C: GAAP HISTORICAL FINANCIAL INFORMATION RELATING TODOMINO’S PIZZA UK & IRL PLC FOR THE YEAR ENDED 1 JANUARY 2006
Independent auditor’s reportto the members of Domino’s Pizza UK & IRL plc
We have audited the Group and parent Company financial statements (the “financial statements”) of
Domino’s Pizza UK & IRL plc for the 52 weeks ended 1 January 2006, which comprise the Group profit and
loss Account, the Group statement of total recognised gains and losses, the Group and Company balance
sheets, the Group statement of cash flows and the related notes 1 to 29. These financial statements have been
prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance with Section 235 of the
Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) as set out in the statement of directors' responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are properly
prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors'
Report is not consistent with the financial statements, if the Company has not kept proper accounting
records, if we have not received all the information and explanations we require for our audit, or if
information specified by law regarding directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether it is consistent with the
audited financial statements. This other information comprises the Directors' Report, the Chairman's
Statement, the Chief Executive’s Statement, Report on Director’s Remuneration and Five Year Financial
Summary. We consider the implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do not extend to any other
information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by
the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an assessment of the significant
estimates and judgments made by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the Group’s and Company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in
the financial statements.
Opinion
In our opinion the financial statements give a true and fair view, in accordance with United Kingdom
Generally Accepted Accounting Practice, of the state of the Group’s and the parent Company's affairs as at
1 January 2006 and of the Group’s profit for the 52 weeks then ended and the financial statements have been
properly prepared in accordance with the Companies Act 1985.
Ernst & Young LLP
Registered auditorLuton
27 February 2006
150
Group profit and loss accountfor the 52 weeks ended 1 January 2006
2005 2004Notes £000 £000
TurnoverTurnover: group and share of joint ventures’ turnover 85,004 77,254
Less: share of joint ventures’ turnover (3,344) (3,039)–––––––– ––––––––
Group turnover 2 81,660 74,215
Cost of sales (48,778) (43,815)–––––––– ––––––––
Gross profit 32,882 30,400
Distribution costs (8,538) (8,404)
Administrative expenses – pre accelerated LTIP charge (13,504) (12,963)
Accelerated LTIP charge 3 (626) –
–––––––– ––––––––Administrative expenses (14,130) (12,963)
–––––––– ––––––––
Group operating profit 3 10,214 9,033
Share of operating profit in joint ventures 179 120
Amortisation of goodwill on joint ventures (15) (15)
164 105–––––––– ––––––––
Total operating profit: group and share of joint ventures 10,378 9,138
Profit/(loss) on sale of fixed assets 3 206 (47)
Profit on sale of subsidiary undertakings 3 670 ––––––––– ––––––––
Profit on ordinary activities before interest and taxation 11,254 9,091
Interest receivable 6 273 100
Interest payable and similar charges 7 (358) (370)–––––––– ––––––––
Profit on ordinary activities before taxation 11,169 8,821
Tax on profit on ordinary activities 8 (2,922) (2,058)–––––––– ––––––––
Profit on ordinary activities after taxation 8,247 6,763
Minority interests 8 (32)–––––––– ––––––––
Profit for the financial year attributable tomembers of the parent company 8,255 6,731
–––––––– ––––––––Earnings per share – basic 10 16.25p 13.23p
– diluted 10 15.47p 12.67p
151
Group statement of total recognised gains and lossesfor the 52 weeks ended 1 January 2006
2005 2004£000 £000
Profit attributable to the financial period 8,255 6,731–––––––– ––––––––
Total gains and losses recognised since the last annual report 8,255 6,731
–––––––– ––––––––The Company has adopted FRS 21 in 2005 (further details see note 1). This requires dividends, which are
proposed after the balance sheet date to be disclosed and not recognised as a liability. Although this has not
impacted on the recognised gains or losses in 2005 or the prior year, the net assets for the prior year have
increased by £1,531,000.
152
Group balance sheetat 1 January 2006
2005 2004Notes £000 £000
(Restated)
Fixed assetsIntangible assets 11 1,326 1,520
Tangible assets 12 13,593 14,595
Investments in joint ventures: 13
Share of gross assets 1,477 1,449
Share of gross liabilities (1,026) (1,066)–––––––– ––––––––
451 383–––––––– ––––––––
Total fixed assets 15,370 16,498–––––––– ––––––––
Current assetsStocks 14 2,186 2,700
Debtors: 15
amounts falling due within one year 10,753 10,735
amounts falling due after more than one year 2,168 2,721–––––––– ––––––––
12,921 13,456
Cash at bank and in hand 5,885 4,824–––––––– ––––––––
Total current assets 20,992 20,980–––––––– ––––––––
Creditors: amounts falling due within one year 16 (13,742) (13,590)–––––––– ––––––––
Net current assets 7,250 7,390–––––––– ––––––––
Total assets less current liabilities 22,620 23,888–––––––– ––––––––
Creditors: amounts falling due after more than one year 17 (9,085) (8,102)
Provision for liabilities 18 (1,447) (857)–––––––– ––––––––
12,088 14,929
–––––––– ––––––––Capital and reservesCalled up share capital 22 2,645 2,740
Share premium account 24 4,677 4,241
Capital redemption reserve 24 171 40
Treasury shares held by Employee Benefit Trust 24 (7,500) (6,360)
Profit and loss account 24 12,013 14,186–––––––– ––––––––
Equity shareholders’ funds 12,006 14,847
Minority interest 82 82–––––––– ––––––––
12,088 14,929
–––––––– ––––––––Director
153
Company balance sheetat 1 January 2006
2005 2004Notes £000 £000
(Restated)
Fixed assetsInvestments in subsidiary undertakings 13 3,253 2,595
Investment in joint ventures 13 205 205–––––––– ––––––––
3,458 2,800–––––––– ––––––––
Current assetsAmounts owed by group undertakings 15,382 12,118
–––––––– ––––––––15,382 12,118
Creditors: amounts falling due within one year 16 (10) (6)–––––––– ––––––––
Net current assets 15,372 12,112–––––––– ––––––––
Total assets less current liabilities 18,830 14,912–––––––– ––––––––
Creditors: amounts falling due more than one year 17 (7,500) (6,360)
Provision for liabilities 18 (880) ––––––––– ––––––––
10,450 8,552
–––––––– ––––––––Capital and reservesCalled up share capital 22 2,645 2,740
Share premium account 24 4,677 4,241
Capital redemption reserve 24 171 40
Treasury shares held by Employee Benefit Trust 24 (7,500) (6,360)
Profit and loss account 24 10,457 7,891–––––––– ––––––––
Equity shareholders’ funds 10,450 8,552
–––––––– ––––––––Director
27 February 2006
154
Group statement of cash flowsfor the 52 weeks ended 1 January 2006
2005 2004Notes £000 £000
Net cash inflow from operating activities 26(a) 12,674 9,943–––––––– ––––––––
Returns on investments and servicing of financeInterest received 273 100
Interest paid (307) (307)
Interest element of finance lease payments (4) (7)–––––––– ––––––––
(38) (214)–––––––– ––––––––
TaxationCorporation tax paid (1,549) (2,021)
–––––––– ––––––––
Capital expenditure and financial investmentPayments to acquire intangible fixed assets (395) (200)
Payments to acquire tangible fixed assets (2,246) (3,905)
Receipts from sales of tangible and intangible fixed assets 576 421
Receipts from repayment of joint venture loan 60 108
Payments to acquire finance lease assets and advance of
franchisee loans (1,166) (946)
Receipts from repayment of finance leases and franchisee loans 1,172 1,098–––––––– ––––––––
(1,999) (3,424)–––––––– ––––––––
Acquisitions and disposalsSale of subsidiary undertakings – net of costs 3,354 –
Utilisation of provisions relating to the disposal of subsidiary
undertakings (309) –
Cash balances disposed of with subsidiary undertakings (5) –
Purchase of subsidiary undertaking and minority share interest 8 (280)–––––––– ––––––––
26(b) 3,048 (280)–––––––– ––––––––
Equity dividends paid (3,169) (2,240)–––––––– ––––––––
Net cash inflow before financing 8,967 1,764–––––––– ––––––––
FinancingIssue of ordinary share capital 472 1,071
New long-term loans 2,146 3,299
Repayments of long-term loans (1,146) (2,198)
Repayment of capital element of finance leases
and hire purchase contracts (16) (23)
Purchase of shares by Employee Benefit Trust (1,140) (1,200)
Purchase of own shares (8,222) (1,610)–––––––– ––––––––
(7,906) (661)–––––––– ––––––––
Increase in cash 26(d) 1,061 1,103
–––––––– ––––––––
155
Notes to the financial statements at 1 January 2006
1. Accounting Policies
Basis of preparation
The accounts are prepared under the historical cost convention and in accordance with United Kingdom
Generally Accepted Accounting Practice.
Changes in Accounting Policy
The accounting policies adopted are the same as the previous financial year except that the Group has
adopted the following standards which are applicable to the Group:–
FRS 20 - Share based payment
FRS 21 - Events after the balance sheet date
FRS 22 - Earnings per share
FRS 25* - Financial instruments disclosure and presentation
FRS 28 - Corresponding amounts
FRS 20 – Share based payment
The revised accounting policy for share based payment transactions is described below. The effect of the
revised accounting policy has an insignificant impact on the charge in the current year (except for the
accelerated LTIP charge in note 3), and it also has an insignificant impact on retained earnings. This standard
has been adopted in advance of the effective date.
FRS 21 – Events after the balance sheet date
This requires dividends, which are proposed after the balance sheet date to be disclosed and not recognised
as a liability. As a result of adopting this accounting standard, retained earnings have been increased by
£1,083,000 as at 28 December 2003, and increased by £1,531,000 as at 2 January 2005. Liabilities have been
decreased by £1,531,000 as at 2 January 2005. There has been no effect on current or previous year results
from adopting this standard.
FRS 22, FRS 25 and FRS 28 have not resulted in a restatement of retained earnings and have had no impact
on the results or net assets for the current or prior year.
* The Group has only adopted the presentation requirements of this standard, as it does not have to comply with the disclosure
requirements in this year.
Basis of consolidation
The Group accounts consolidate the accounts of Domino’s Pizza UK & IRL plc and all its subsidiary
undertakings drawn up to the nearest Sunday to 31 December each year. No profit and loss account is
presented for Domino’s Pizza UK & IRL plc as permitted by Section 230 of the Companies Act 1985.
Entities in which the Group holds an interest on a long-term basis and are jointly controlled by one or more
ventures under a contractual agreement are treated as joint ventures in the Group accounts. Joint ventures are
accounted for using the gross equity method. The Group accounts include the appropriate share of assets and
liabilities and earnings, based on management accounts for the period to 1 January 2006.
Goodwill
Positive goodwill arising on acquisitions of a subsidiary or business is capitalised, classified as an asset on
the balance sheet and amortised on a straight-line basis over its estimated useful economic life of 20 years.
It is reviewed for impairment at the end of the first full financial year following the acquisition and in other
periods if events or changes in circumstances indicate that the carrying value may not be recoverable.
156
1. Accounting Policies (continued)
If a subsidiary or business is subsequently sold or closed, any goodwill arising on acquisition that has not
been amortised through the profit and loss account is taken into account in determining the profit or loss on
sale or closure.
Goodwill arising on the acquisition of a joint venture is capitalised as part of the investment in the joint
venture and is amortised on a straight-line basis over its estimated useful economic life of 20 years.
Intangible assets
Intangible assets acquired separately from a business are capitalised at cost. Intangible assets acquired as part
of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured
reliably on initial recognition, subject to the constraint that, unless the asset has a readily ascertainable
market value, the fair value is limited to an amount that does not create or increase any negative goodwill
arising on the acquisition. Intangible assets created within the business are not capitalised and expenditure
is charged against profits in the year in which it is incurred.
Intangible assets are amortised on a straight-line basis over their estimated useful lives as follows:
Franchise fees – over 20 years
Interest in leases – over the life of the lease
The carrying value of intangible assets is reviewed for impairment at the end of the first full year following
acquisition and in other periods if events or changes in circumstances indicate the carrying value may not be
recoverable.
Significant property developments
Interest incurred on finance provided for significant property development is capitalised up to the date of
completion of the project. These costs are then depreciated in accordance with the Group’s policy for the
relevant class of tangible fixed assets.
Depreciation
Depreciation is provided on all tangible fixed assets, at rates calculated to write off the cost less residual
value of each asset evenly over its expected useful life as follows:
Freehold buildings – over 50 years
Equipment – over 2 to 10 years
Leasehold building improvements – over the life of the lease
Motor vehicles – over 18 months to 3 years
The carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in
circumstances indicate that the carrying value may not be recoverable.
Stocks
Stocks comprise raw materials, consumables and goods for resale (being equipment for resale to franchisees)
and are stated at the lower of cost and net realisable value. Cost of stock is determined on the average cost
basis or, for computer and food stock, the first-in, first-out basis.
157
1. Accounting Policies (continued)
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events have occurred at that date that will result in an obligation to
pay more, or right to pay less or to receive more, tax, with the following exceptions:
• Provision is made for tax on gains from the revaluation (and similar fair value adjustments) of fixed
assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to
the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets
concerned. However, no provision is made where, on the basis of all available evidence at the balance
sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets
and charged to tax only where the replacement assets are sold.
• Deferred tax assets are recognised only to the extent that the directors consider that it is more likely
than not that there will be suitable taxable profits from which the underlying timing differences can
be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods
in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the
balance sheet date.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the
contracted rate if the transaction is covered by a forward foreign currency contract. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance
sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss
account. Non-monetary items that are measured in terms of the historical cost are translated using the
historical exchange rates.
Income and expenses relating to foreign operations are converted at the monthly average rates throughout
the year. The assets and liabilities of foreign operations are translated using the year end rate. Exchange
differences arising on retranslation of foreign operations are recognised in reserves.
Leasing and hire purchase commitments
As lessee
Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership
of the asset have passed to the Group, and hire purchase contracts, are capitalised in the balance sheet and
depreciated over their useful lives. The capital elements of future obligations under leases and hire purchase
contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are
charged in the profit and loss account over the periods of the leases and hire purchase contracts and represent
a constant proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged in the profit and loss account on a straight-line basis over
the lease term.
As lessor
Amounts receivable under finance leases are included under debtors and represent the total amount
outstanding under lease agreements less unearned income. Finance lease income, having been allocated to
accounting periods to give a constant periodic rate of return on the net cash investment is included in
turnover. Income and expenditure from the rental of leasehold properties and equipment have been included
in the gross income in turnover and the related expenditure within cost of sales.
158
1. Accounting Policies (continued)
Employee Benefit Trusts
The Company has adopted UITF 38 Accounting for ESOP Trusts. Shares in the Company held by the
trustees of the Employee Benefit Trust are stated at cost and included as a deduction to shareholders’ funds.
The trust has waived its entitlement to dividends. The Group will meet the expenses of the trust as and when
they fall due.
Pensions
The Company makes contributions to certain individuals’ personal pension plans. Contributions are charged
in the profit and loss account as they accrue.
Share based payment transactions
Employees (including directors) of the Group receive an element of remuneration in the form of share based
payment transactions, whereby employees render services as consideration for equity instruments.
The awards vest when certain performance and/or service conditions are met, see note 23 for the individual
vesting conditions for the various schemes.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date
at which they are granted and is recognised as an expense over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award. Fair value is determined by an external
valuer using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of the shares of the company (market
conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the market
condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to
which the vesting period has expired and management’s best estimate of the achievement or otherwise of
non-market conditions number of equity instruments that will ultimately vest or in the case of an instrument
subject to a market condition, be treated as vesting as described above. The movement in cumulative expense
since the previous balance sheet date is recognised in the income statement, with a corresponding entry in
equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a
cancelled or settled award, the cost based on the original award terms continues to be recognised over the
original vesting period. In addition, an expense is recognised over the remainder of the new vesting period
for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification.
No reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any cost not yet recognised in the income statement for the award is expensed immediately. Any
compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the income statement.
The Group has taken advantage of the transitional provisions in respect of equity settled awards and has
applied FRS 20 only to awards granted after 7 November 2002 that had not vested at 3 January 2005.
159
1. Accounting Policies (continued)
Revenue recognition
Revenue is recognised as follows:
Pizza delivery – on delivery of pizzas to franchisee customers
Commissary and equipment sales – on delivery
Royalties (based on system sales) – on delivery
Franchise sales – on commencement of franchisee trading
Finance lease interest income – as per leasing and hire purchase commitments (lessor) above
Rental income on leasehold properties – on a straight line basis in accordance with the lease terms
Trade and Other Debtors
Trade debtors, which generally have 7 - 28 days terms are recognised and carried at original invoice amount
less an allowance for any uncollectible amounts when there is objective evidence that the Group will not be
able to collect the debts. Bad debts are written off when identified.
Bank and other loans
All loans and borrowings are initially recognised at the fair value of the consideration received less directly
attributable transaction costs. Interest expenses are recognised in the profit and loss account at a constant rate
based on the carrying amount.
2. Turnover and segmental analysis
The principal components of turnover are royalties received, commissary and equipment sales, sale of
franchises, pizza delivery sales, rental income on leasehold and freehold properties and finance lease interest
income, stated net of value added tax. All of the turnover is in one continuing business segment being the
development of the Domino’s Pizza Franchise System and originates in the United Kingdom and the
Republic of Ireland. The directors believe that full compliance with the requirements of SSAP 25 ‘Segmental
Reporting’ would be seriously prejudicial to the interests of the Group as it would require disclosure of
commercially sensitive information. The requirements of SSAP 25 with which the Group do not comply are
the disclosure of profit before interest and tax and net operating assets by segment. All the turnover of the
Joint Ventures relates to the United Kingdom.
Geographical analysis
Turnover by origin Turnover by destination2005 2004 2005 2004£000 £000 £000 £000
Group turnoverUnited Kingdom
– Royalties and sales to franchisees 69,327 63,495 68,253 62,623
– Rental income on leasehold and
freehold property 6,003 5,162 6,003 5,162
– Finance lease income 280 256 280 256–––––––– –––––––– –––––––– ––––––––
Total United Kingdom 75,610 68,913 74,536 68,041
Republic of Ireland
– Royalties and sales to franchisees 5,688 5,002 6,762 5,874
– Rental income on leasehold and
freehold property 362 300 362 300–––––––– –––––––– –––––––– ––––––––
Total Republic of Ireland 6,050 5,302 7,124 6,174–––––––– –––––––– –––––––– ––––––––
Total Group 81,660 74,215 81,660 74,215
–––––––– –––––––– –––––––– ––––––––
160
3. Operating profit
This is stated after charging/(crediting):
2005 2004£000 £000
Auditors’ remuneration – audit services* 100 94
– non-audit services 51 154
Depreciation of owned assets 1,498 1,329
Depreciation of assets held under finance leases and hire
purchase contracts 10 57
Amortisation of intangible fixed assets 131 133
Operating lease rentals – land and buildings 6,281 5,536
– plant, machinery and vehicles 1,461 1,329
Foreign exchange loss/(gain) 122 (25)
–––––––– ––––––––* Of which £2,000 (2004: £2,000) relates to the Company
Accelerated LTIP charge
During the year the Company has accelerated the charge relating to reversionary interests in ordinary shares
granted in 2003, as the performance targets set will be achieved earlier than expected (further details
included in the Report on Directors’ Remuneration). This resulted in an additional charge of £626,000 during
2005. This charge is not deductible for corporation taxation purposes (see note 8). This charge had no impact
on the cash flow of the Group during the year.
Exceptional item
Recognised below operating profit
During the year the Group sold two subsidiary undertakings, DPGS Limited and Triple A Pizza Limited
(which included 12 corporate stores at the date of the transaction). The main elements of the transaction were
as follows:
£000Cash consideration received 3,650
Net assets disposed of (1,495)
Disposal costs (296)
Provisions (note 18) (1,189)––––––––
Profit on disposal of subsidiary undertakings 670
––––––––These subsidiary undertakings were sold to Dough Trading Limited a company controlled by Marc Halpern
(see related party transactions - note 29). In addition to the sale of DPGS Limited and Triple A Pizza Limited,
the Group sold one corporate store to Dough Trading Limited for a cash consideration of £350,000 resulting
in a profit on sale of £144,000 (see related party transaction - note 29). The principal component of the net
assets disposed of in the subsidiary undertakings was fixed assets of £1,828,000.
Due to the relief available under the substantial shareholding exemption, the profit arising in the Company
on the sale of the subsidiary undertakings is not taxable. The Group accounting profit in respect of the
disposal is £670,000. At the statutory corporation tax rate of 30 per cent., this would lead to an expected
reduction in the tax charge of £210,000 (1.9 per cent.). However, the provisions included within the
accounting profit are expected to be largely allowable for corporation tax purposes. Therefore the profit to
be excluded from corporation tax in respect of the disposal is increased to £1,770,000 (a reduction in the tax
charge of £531,000 at 30 per cent.). This has reduced the effective tax rate for 2005 by 4.7 per cent. (see note
8) (2004: nil).
161
3. Operating profit (continued)
In addition the Group sold one corporate store resulting in a profit of £62,000 (2004: loss £56,000). This
profit has been included in the corporation tax for the period at the statutory rate. In 2004 the Group’s share
of profit realised on the disposal of a joint venture store was £9,000.
4. Directors’ emoluments
2005 2004£000 £000
Emoluments 1,185 966
Pension contributions 156 233–––––––– ––––––––
1,341 1,199
–––––––– ––––––––Further information concerning directors’ emoluments are disclosed within the Report on Directors’
Remuneration.
5. Staff costs
2005 2004£000 £000
(Restated)
Wages and salaries 12,088 10,735
Social security costs 1,008 942
Other pension costs 288 330–––––––– ––––––––
13,384 12,007
–––––––– ––––––––Included in wages and salaries is a total expense of share-based payments of £963,000 (2004: £332,000),
which arises from transactions, accounted for as equity-settled share-based payment transactions.
The average monthly number of employees (including directors) during the year was made up as follows:
2005 2004No. No.
Administration 120 112
Production and distribution 146 133
Corporate stores 408 471–––––––– ––––––––
674 716
–––––––– ––––––––6. Interest receivable
2005 2004£000 £000
Bank interest 177 8
Franchisee loans 83 81
Other interest receivable 13 11–––––––– ––––––––
273 100
–––––––– ––––––––
162
7. Interest payable and similar charges
2005 2004£000 £000
Bank loan in relation to the EBT 305 298
Other interest payable 2 9
Finance charges payable under finance leases and hire purchase contracts 4 7–––––––– ––––––––
311 314
Joint venture interest payable 47 56–––––––– ––––––––
358 370
–––––––– ––––––––8. Tax on profit on ordinary activities
(a) Analysis of tax charge in the year.
The charge based on the profit for the year comprises:
2005 2004£000 £000
UK Corporation tax:
Current year 3,082 2,162
Adjustment in respect of the previous period (213) (345)–––––––– ––––––––
2,869 1,817
Republic of Ireland corporation tax - 12.5% 60 ––––––––– ––––––––
2,929 1,817
Joint venture taxation charge 49 14–––––––– ––––––––
Total corporation tax 2,978 1,831–––––––– ––––––––
UK Deferred tax:
Origination and reversal of timing differences in respect of:
Profit in the period (56) 227–––––––– ––––––––
Total deferred tax (56) 227–––––––– ––––––––
Tax on profit on ordinary activities 2,922 2,058
–––––––– ––––––––(b) Factors affecting tax charge for the period.
2005 2004% %
Corporation tax at the statutory rate 30.0 30.0
Effects of:
Expenses not deductible for tax purposes* 4.1 4.8
Profit on disposal of subsidiary undertakings - not taxable (4.7) –
Accounting depreciation not eligible for tax purposes 1.0 1.6
Goodwill amortised 0.3 0.3
Adjustments relating to prior years corporation tax (1.9) (3.9)
Other timing differences 1.5 –
Decelerated capital allowances 0.1 0.1
Tax rate differences (0.1) –
Share option exercise deduction (3.6) (12.1)–––––––– ––––––––
Total current tax rate 26.7 20.8
–––––––– ––––––––* Includes impact of accelerated LTIP charge (see note 3).
163
8. Tax on profit on ordinary activities (continued)
(c) Deferred taxation - Group
Deferred tax provided in the accounts is as follows:
2005 2004£000 £000
Accelerated capital allowances 725 857
Other timing differences (158) ––––––––– ––––––––
567 857
–––––––– ––––––––£000
Deferred tax provided at 2 January 2005 857
Charge to profit and loss account (56)
Deferred tax released on sale of subsidiary undertakings (234)––––––––
Deferred tax provided at 1 January 2006 567
––––––––(d) Factors that may affect future tax charges
No provision has been made for deferred tax where potentially taxable gains have been rolled over
into replacement assets. Such gains would become taxable only if the assets were sold without it being
possible to claim rollover relief. The amount not provided is £191,000 (2004: £191,000) in respect of
this. At present, it is not envisaged that any tax will become payable in the foreseeable future.
The company is able to receive a tax deduction when new shares are issued to satisfy the exercise of
share options. The timing of the exercise and hence resultant tax deduction is at the discretion of the
option holder.
9. Dividends paid and proposed
2005 2004£000 £000
Declared and paid during the year:
Final dividend for 2004 3.05p (2003: 2.18p) 1,531 1,083
Interim dividend for 2005 3.10p (2004: 2.20p) 1,638 1,157–––––––– ––––––––
3,169 2,240
–––––––– ––––––––2005 2004£000 £000
Proposed for approval at AGM (not recognised as a liabilityas at 1 January 2006 and 2 January 2005)Final dividend for 2005 4.15p (2004: 3.05p) 2,031 1,531
–––––––– ––––––––10. Earnings per ordinary share
The calculation of basic earnings per ordinary share is based on earnings of £8,255,000 (2004: £6,731,000)
and on 50,810,785 (2004: 50,883,095) ordinary shares.
The diluted earnings per share is based on earnings of £8,255,000 (2004: £6,731,000) and on 53,368,778
(2004: 53,108,892) ordinary shares. The difference related to the dilutive effect of share options and the
impact of reversionary interests where the performance conditions have been met.
164
10. Earnings per ordinary share (continued)
Reconciliation of basic and diluted earnings per share
2005 2004No. No.
Ordinary shares - basic earnings per share 50,810,785 50,883,095
Dilutive share options 832,056 2,225,797
Reversionary interests 1,725,937 –––––––––– –––––––––
Ordinary shares - diluted earnings per share 53,368,778 53,108,892
––––––––– –––––––––Reversionary interests have been granted over 3,800,000 shares, which have not yet vested at 1 January 2006.
The dilutive effect of the number of shares which would have vested at the year end based on the share price
at the year end of 347p, have been included in the diluted earnings per share calculation as the performance
conditions have been met (for further details see Report on Directors’ Remuneration).
11. Intangible fixed assets
Group
Franchise InterestGoodwill fees in leases Total
£000 £000 £000 £000
Cost:
At 2 January 2005 812 853 679 2,344
Additions – 50 345 395
Disposals
– subsidiary undertakings (257) (43) (60) (360)
– other (192) (28) (23) (243)–––––––– –––––––– –––––––– ––––––––
At 1 January 2006 363 832 941 2,136–––––––– –––––––– –––––––– ––––––––
Amortisation:
At 2 January 2005 175 487 162 824
Provided during the year 20 45 66 131
Disposals
– subsidiary undertakings (32) (10) (3) (45)
– other (95) (5) – (100)–––––––– –––––––– –––––––– ––––––––
At 1 January 2006 68 517 225 810–––––––– –––––––– –––––––– ––––––––
Net book value:
At 1 January 2006 295 315 716 1,326
–––––––– –––––––– –––––––– ––––––––At 2 January 2005 637 366 517 1,520
–––––––– –––––––– –––––––– ––––––––
165
12. Tangible fixed assets
Group
Freehold land Leasehold Motorand buildings improvements vehicles Equipment Total
£000 £000 £000 £000 £000
Cost:
At 2 January 2005 8,271 1,843 14 9,129 19,257
Additions 6 454 – 1,786 2,246
Disposals
– subsidiary undertakings – (889) (7) (1,050) (1,946)
– other (32) (93) – (217) (342)–––––––– –––––––– –––––––– –––––––– ––––––––
At 1 January 2006 8,245 1,315 7 9,648 19,215–––––––– –––––––– –––––––– –––––––– ––––––––
Depreciation:
At 2 January 2005 523 74 8 4,057 4,662
Provided during the year 125 92 2 1,289 1,508
Disposals
– subsidiary undertakings – (41) (7) (385) (433)
– other – (9) – (106) (115)–––––––– –––––––– –––––––– –––––––– ––––––––
At 1 January 2006 648 116 3 4,855 5,622–––––––– –––––––– –––––––– –––––––– ––––––––
Net book value:
At 1 January 2006 7,597 1,199 4 4,793 13,593
–––––––– –––––––– –––––––– –––––––– ––––––––At 2 January 2005 7,748 1,769 6 5,072 14,595
–––––––– –––––––– –––––––– –––––––– ––––––––The net book value of equipment includes an amount of £26,000 (2004: £168,000) in respect of assets held
under finance leases and hire purchase contracts, the depreciation charge on which was £10,000 (2004:
£57,000).
Included within freehold land and buildings is an amount of £1,690,000 (2004: £1,690,000) in respect of
land which is not depreciated. Also included is an amount of £154,000 (2004: £154,000) of capitalised
interest. No interest was capitalised during the year.
13. Investments
Group
Investments: 2005 2004£000 £000
Joint ventures 451 383
–––––––– ––––––––£000
At 2 January 2005 383
Share of profit retained by joint ventures 68––––––––
At 1 January 2006 451
––––––––Included within the investment in joint ventures is an amount of £202,000 (2004: £217,000) of goodwill
arising on acquisition.
166
13. Investments (continued)
Subsidiary Jointundertakings ventures Total
Company £000 £000 £000
Fixed asset investment
Cost:
At 2 January 2005 2,595 205 2,800
Investments sold:
DPGS Limited (75) – (75)
Investments Acquired:
American Pizza Company Limited* 291 291
DP Peterborough Limited 120 120
DPGL Birmingham Limited 120 120
DP Newcastle & Sunderland Limited 120 120
DP Newcastle Limited** 82 82–––––––– –––––––– ––––––––
At 1 January 2006 3,253 205 3,458
–––––––– –––––––– ––––––––* previously held by subsidiary undertaking
** purchase of minority interest
At 1 January 2006 the Company held directly more than 20 per cent. of the nominal value of the share capital
of the following:
Country ofName of company incorporation Proportion held Nature of business
Directly held subsidiary undertakingsDomino’s Pizza Group Limited England 100% ordinary
DP Realty Limited England 100% ordinary Property management
DP Group Developments Limited England 100% ordinary Property development
DP Capital Limited England 100% ordinary Leasing of equipment
DP Newcastle Limited England 100% ordinary
American Pizza Company Limited England 100% ordinary
DP Peterborough Limited England 80% ordinary
DPGL Birmingham Limited England 80% ordinary
DP Newcastle & Sunderland Limited England 80% ordinary
Joint ventures
Full House Restaurants Limited England 41% ordinary
Dominoid Limited Scotland 50% ordinary
Indirectly held subsidiariesLivebait Limited England 100% ordinary Property management
DP Pizza Limited 100% ordinary Food service businessRepublic of
Ireland
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Management of pizza
delivery stores
Operation and management
of franchise business
167
13. Investments (continued)
On 24 October 1998, a 41 per cent. interest in Full House Restaurants Limited was acquired for £205,000.
Additionally, a loan of £345,000 was advanced to Full House Restaurants Limited, which was repayable by
equal quarterly instalments of £12,000, which commenced on 30 June 2001. Interest at a rate of 2 per cent.
above National Westminster Bank plc base rate was charged on the loan. At 1 January 2006 the balance
outstanding on the loan was £nil (2004: £60,000).
Sales of £1,898,000 (2004: £1,777,000) were made to Full House Restaurants Limited during the year. The
Company received interest of £2,000 (2004: £9,000) in respect of the loan.
At 1 January 2006, there was a receivable of £62,000 (2004: £76,000) from Full House Restaurants Limited,
which has arisen through normal trading activities.
On 11 November 2002, a 50 per cent. interest in Dominoid Limited was acquired. Two stores were sold to
Dominoid Limited and the consideration for the sale was satisfied by the issue of a Loan Note by Dominoid
Limited of £436,000, which is repayable on demand at least one year after date of the agreement. The loan
bears interest at a rate of 2.5 per cent. above Royal Bank of Scotland base rate. At 1 January 2006 the balance
outstanding on the loan was £436,000 (2004: £436,000).
Sales of £1,057,000 (2004: £852,000) were made to Dominoid Limited during the year. The Company
received interest of £31,000 (2004: £31,000) in respect of the loan.
At 1 January 2006 there was a receivable of £19,000 (2004: £36,000) from Dominoid Limited, which has
arisen through normal trading activities.
During the year three new companies were formed, DP Peterborough Ltd, DPGL Birmingham Ltd and DP
Newcastle & Sunderland Ltd. These companies started trading on 26 August 2005. Domino’s Pizza UK &
IRL plc acquired 80 per cent. of the shareholding in each of these companies. These companies are
consolidated within the financial statements of the Group.
DPGS Limited and Triple A Pizza Limited were sold in June 2005 for a cash consideration of £3,650,000
(see related party transactions - note 29).
14. Stocks
Group2005 2004£000 £000
Raw materials and goods for resale 2,186 2,700
–––––––– ––––––––15. Debtors
Group2005 2004£000 £000
Trade debtors 3,668 3,109
Amounts owed by joint ventures 517 496
Other debtors 3,166 4,557
Prepayments and accrued income 2,634 2,354
Net investment in finance leases 2,936 2,940–––––––– ––––––––
12,921 13,456
–––––––– ––––––––
168
15. Debtors (continued)
Amounts falling due after more than one year included above are:
Group2005 2004£000 £000
Trade debtors 156 238
Amounts owed by joint ventures – 436
Other debtors 73 74
Net investment in finance leases 1,939 1,973–––––––– ––––––––
2,168 2,721
–––––––– ––––––––The aggregate rentals receivable in respect of finance leases was £1,456,000 (2004: £1,354,000), and the
interest element of this is included in turnover.
The cost of assets acquired for the purpose of letting under finance leases was £5,227,000 (2004:
£4,948,000).
16. Creditors: amounts falling due within one year
Group Company2004 2004
2005 £000 2005 £000£000 (Restated) £000 (Restated)
Other loans (note 19) 923 916 – –
Finance lease creditors (note 20) 18 24 – –
Trade creditors 3,930 4,318 – –
Corporation tax 2,194 814 – –
Other taxes and social security costs 1,230 1,217 – –
Other creditors 1,388 1,909 – –
Accruals and deferred income 4,059 4,392 10 6–––––––– –––––––– –––––––– ––––––––
13,742 13,590 10 6
–––––––– –––––––– –––––––– ––––––––17. Creditors: amounts falling due after more than one year
Group Company2005 2004 2005 2004£000 £000 £000 £000
Bank loans (note 19) 7,500 6,360 7,500 6,360
Finance lease creditors (note 20) 8 18 – –
Other loans (note 19) 1,577 1,724 – ––––––––– –––––––– –––––––– ––––––––
9,085 8,102 7,500 6,360
–––––––– –––––––– –––––––– ––––––––Bank loans
The Group has entered into an agreement to obtain bank loans and mortgage facilities. These are secured by
a fixed and floating charge over the Group’s assets and an unlimited guarantee provided by the Company. At
1 January 2006 the balance due under these facilities was £7,500,000 all of which is in relation to the EBT
(2004: £6,360,000). The loans bear interest at 0.625 per cent. (2004: 0.625 per cent.) above National
Westminster Bank plc base rate.
Other loans
The remaining loans are repayable in equal instalments over a period of up to five years, these are unsecured.
The average interest on the loans is 7.0 per cent. (2004: 7.1 per cent.).
169
18. Provisions for liabilities
Group Company2005 2004 2005 2004£000 £000 £000 £000
Deferred tax (see note 8) 567 857 – –
Legal provisions 148 – 148 –
Property provisions 732 – 732 ––––––––– –––––––– –––––––– ––––––––
1,447 857 880 –
–––––––– –––––––– –––––––– ––––––––At 2 January Arising Utilised At 1 January
2005 in the year in the year 2006£000 £000 £000 £000
Deferred tax 857 – (290) 567
Legal provisions – 284 (136) 148
Property provisions – 905 (173) 732–––––––– –––––––– –––––––– ––––––––
Total provisions 857 1,189 (599) 1,447
–––––––– –––––––– –––––––– ––––––––The legal provisions relate to fees charged in relation to the disposal of subsidiary undertakings as well as
outstanding litigation matters arising on the sale of stores. The outcome of the litigation is at present
uncertain, and a final decision is not imminently expected. No estimate of the likely outcome of the litigation
can yet be made by the directors, but full provision for the potential costs likely to be incurred has been made.
The property provisions relate to outstanding rent reviews, rates, service charges and dilapidation costs for
stores sold as part of the sale of subsidiary undertakings during the year (see note 29). The completion of the
outstanding rent and rates reviews vary depending on the lease and on average are resolved within 1 - 3 years
following the review dates stipulated in the leases. The dilapidation costs are determined at the end of the
lease.
19. Loans
Group Company2005 2004 2005 2004£000 £000 £000 £000
Amounts falling due:
In one year or less or on demand 923 916 – –
Due between one and two years 717 775 – –
In more than two years but not more
than five years 8,360 7,309 7,500 6,360–––––––– –––––––– –––––––– ––––––––
10,000 9,000 7,500 6,360
–––––––– –––––––– –––––––– ––––––––20. Obligations under leases and hire purchase contracts
Amounts due under finance leases and hire purchase contracts:
2005 2004Group £000 £000
Amount payable:
Within one year 16 32
In two to five years 15 20–––––––– ––––––––
31 52
Less: finance charges allocated to future periods (5) (10)–––––––– ––––––––
26 42
–––––––– ––––––––
170
20. Obligations under leases and hire purchase contracts (continued)
Annual commitments under non-cancellable operating leases are as follows:
Land and buildings Other2005 2004 2005 2004£000 £000 £000 £000
Operating leases that expire:
Within one year 100 84 60 155
In two to five years 651 550 1,005 1,007
In over five years 6,068 5,205 209 ––––––––– –––––––– –––––––– ––––––––
6,819 5,839 1,274 1,162
–––––––– –––––––– –––––––– ––––––––21. Derivatives and other financial instruments
The Group’s financial risk management objectives consist of identifying and monitoring those risks which
have an adverse impact on the value of the Group’s financial assets and liabilities or on reported profitability
and on the cash flows of the Group.
The Group’s principal financial instruments are bank loans, other loans, finance leases and cash.
The financial instruments are principally in place to finance the head office facility and associated
equipment, provide finance to franchisees and to provide finance for the EBT loan. The Group has other
financial instruments such as trade debtors and trade creditors that arise directly from its operations. As
permitted by FRS 13 short-term debtors and creditors have been excluded from the disclosure of financial
liabilities and assets.
The Group has not entered into any derivative transactions such as interest rate swaps or financial foreign
currency contracts. The main risks arising from the Group’s financial instruments are set out below. In view
of the low level of foreign currency transactions the Board does not consider there to be any significant
foreign currency risks.
Credit Risk
Due to the nature of customers who trade on credit terms, being predominantly franchisees, the franchisee
selection process is sufficiently robust to ensure an appropriate credit verification procedure. In addition,
trade debtors balances are monitored on an ongoing basis with the result that the Group’s exposure to bad
debts is not significant. Since the Group trades only with franchisees that have been subject to the franchisee
selection process and provide personal guarantees as required under he franchise agreements, there is no
requirement for collateral.
Price risk
The Board considers that the Group’s exposure to changing market prices on the values of financial
instruments does not have a significant impact on the carrying value of financial assets and liabilities. As
such no specific policies are applied currently, although the Board will continue to monitor the level of price
risk and manage its exposure should the need occur.
Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its operations with cash collection
targets set throughout the Group. All major investment decisions are considered by the Board as part of the
project appraisal process. In this way the Group aims to maintain a good credit rating to facilitate fund
raising.
171
21. Derivatives and other financial instruments (continued)
Interest rate risk
The Board has a policy of ensuring a mix of fixed and floating rate borrowings. Whilst fixed rate interest
bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a
reduction in borrowing costs when market rates are falling. Conversely, whilst floating rate borrowings are
not exposed to changes in fair value, the Group is exposed to cash flow risk as costs increase if market rates
rise.
Interest rate risk profile of financial assets
The interest rate profile of the financial assets of the Group as at 1 January was as follows:
FinancialFloating asset
Fixed rate rate on which Averagefinancial financial no interest period
Total asset asset is paid to maturity2005 £000 £000 £000 £000
Trade debtors 156 – 156 –
Other debtors 73 – – 73 84 months
Joint venture loan 436 – 436 –
Finance lease receivable 2,936 2,936 – – 27 months
Cash 5,885 – 5,885 ––––––––– –––––––– –––––––– ––––––––
9,486 2,936 6,477 73
–––––––– –––––––– –––––––– ––––––––The floating rate financial assets are based on the Group’s bank base rate plus a fixed percentage of 2 per
cent. (2004: 2 per cent.).
The average interest on the fixed rate financial asset is 11 per cent. (2004: 11 per cent.).
FinancialFloating asset
Fixed rate rate on which Averagefinancial financial no interest period
Total asset asset is paid to maturity2004 £000 £000 £000 £000
Trade debtors 238 – 238 –
Other debtors 73 – – 73 85 months
Joint venture loan 496 – 496 –
Finance lease receivable 2,940 2,940 – – 28 months
Cash 4,824 – 4,824 ––––––––– –––––––– –––––––– ––––––––
8,571 2,940 5,558 73
–––––––– –––––––– –––––––– ––––––––The fair value of the financial assets is not considered materially different from book value except for the
fixed rate financial asset where the fair value is £2,500,000 (2004: £2,640,000). The fair value has been
determined by discounting the cash flows of the fixed rate financial assets at prevailing market rates.
172
21. Derivatives and other financial instruments (continued)
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 1 January was as follows:
FinancialFloating liability
Fixed rate rate on whichfinancial financial no interest
Total liability liability is paid2005 £000 £000 £000 £000
Bank loan 7,500 – 7,500 –
Other loan 2,500 2,500 – –
Finance leases 26 26 – –
Provisions 1,447 – – 1,447–––––––– –––––––– –––––––– ––––––––
11,473 2,526 7,500 1,447
–––––––– –––––––– –––––––– ––––––––Financial
Floating liabilityFixed rate rate on which
financial financial no interestTotal liability liability is paid£000 £000 £000 £000
2004 (Restated) (Restated)
Bank loan 6,360 – 6,360 –
Other loan 2,640 2,640 – –
Finance leases 42 42 – –
Provisions 857 – – 857–––––––– –––––––– –––––––– ––––––––
9,899 2,682 6,360 857
–––––––– –––––––– –––––––– ––––––––The average interest on the fixed rate financial liability is 7.0 per cent. (2004: 7.1 per cent.). This is fixed
over a weighted average period of 26 months (2004: 29 months). The bank loan relates to a revolving facility
granted to the EBT for the purpose of acquiring shares in the Company for the benefit of the Company’s
employees. The loan attracts interest at a rate of 0.625 per cent. (2004: 0.625 per cent.) above National
Westminster Bank plc base rate and expires on 11 September 2013.
The maturity profile of the Group’s financial liabilities is set out in notes 17 and 19.The fair value of the
financial liabilities is not considered materially different from book value.
Other loan facilities at 1 January 2006 amounted to £5,000,000 (2004: £4,500,000) in respect of other loans
relating to a limited recourse loan facility. Of the other loan facilities, £5,000,000 expires on 31 December
2006 (2004: £3,000,000 expired on 05 March 2005 and £1,500,000 expired on 30 November 2005).
22. Share capital
AuthorisedNumber £
At 2 January 2005 & 28 December 2003 80,000,000 4,000,000
Additions in the year – ––––––––––– ––––––––––
At 1 January 2006 & 2 January 2005 80,000,000 4,000,000
–––––––––– ––––––––––
173
22. Share capital (continued)
Issued allotted and fully paid2005 2004
Number £ Number £
At 2 January 2005 54,808,550 2,740,428 53,199,008 2,659,967
Additions in the year 720,897 36,045 2,409,542 120,461
Share buybacks (2,614,936) (130,747) (800,000) (40,000)–––––––––– –––––––––– –––––––––– ––––––––––
At 1 January 2006 52,914,511 2,645,726 54,808,550 2,740,428
–––––––––– –––––––––– –––––––––– ––––––––––During the year 720,897 (2004: 2,409,542) shares of 5p each with a nominal value of £36,045 (2004:
£120,461) were issued at between 42.1p and 206.5p for total cash consideration received of £472,000 (2004:
£1,071,000) to satisfy options that were exercised. During the period May 2005 to December 2005 the
Company bought back a total of 2,614,936 (2004: 800,000) ordinary shares of 5p each for a total value of
£8,222,000 (including costs of £138,000) (2004: £1,610,000). The price for which these shares were
purchased ranged between 270.5p and 316p per share.
As at 1 January 2006, the following share options were outstanding:
Outstanding at Granted Exercised Forfeited Outstanding
Exercise 2 January during during during at 1 January
Date of grant price 2005 the year the year the year 2006
£
Domino’s Pizza
(unapproved) Scheme
24 November 1999 42.1p 555,316 – (300,198) (10,819) 244,299
24 November 1999 50.0p 332,605 – (116,535) (2,000) 214,070
4 August 2000 53.0p 183,601 – (50,700) (9,801) 123,100
25 October 2001 55.0p 242,882 – (88,132) (27,749) 127,001
11 March 2002 74.5p 100,000 – (100,000) – –
23 March 2004 206.5p – 10,000 – – 10,000
15 December 2005 342.5p – 768,131 – – 768,131–––––––– –––––––– –––––––– –––––––– ––––––––
1,414,404 778,131 (655,565) (50,369) 1,486,601
EMI Scheme
23 March 2004 206.5p 473,750 – (65,332) (30,917) 377,501
Sharesave Scheme
29 December 2005 242.8p – 229,690 – – 229,690–––––––– –––––––– –––––––– –––––––– ––––––––
1,888,154 1,007,821 (720,897) (81,286) 2,093,792
–––––––– –––––––– –––––––– –––––––– ––––––––Weighted average
exercise price 89.2p 318.4p 65.1p 110.5p 207.0p
The weighted average remaining contractual life of the options outstanding at 1 January 2006 is 7.0 years
(2004: 6.4 years). The weighted average share price for options exercised during 2005 was 273p (2004:
199p).
174
22. Share capital (continued)
As at 2 January 2005 the following share options were outstanding:
Outstanding at Granted Exercised Forfeited Outstanding
Exercise 2 January during during during at 1 January
Date of grant price 2005 the year the year the year 2006
£
Domino’s Pizza
(unapproved) Scheme
24 November 1999 42.1p 1,943,786 – (1,388,470) – 555,316
24 November 1999 50.0p 746,240 – (407,905) (5,730) 332,605
4 August 2000 53.0p 344,867 – (161,266) – 183,601
1 January 2001 33.5p 278,794 – (278,794) – –
25 October 2001 55.0p 365,758 – (115,209) (7,667) 242,882
11 March 2002 74.5p 100,000 – – – 100,000
2 April 2002 76.0p 75,000 – (50,000) (25,000) ––––––––– –––––––– –––––––– –––––––– ––––––––
3,854,445 – (2,401,644) (38,397) 1,414,404
EMI Scheme
23 March 2004 206.5p – 481,000 – (7,250) 473,750–––––––– –––––––– –––––––– –––––––– ––––––––
3,854,445 481,000 (2,401,644) (45,647) 1,888,154
–––––––– –––––––– –––––––– –––––––– ––––––––Weighted average
exercise price 46.7p 206.5p 44.5p 89.9p 89.2p
The following share options were exercisable at the year end:
Exercisable ExercisableDomino’s Pizza at 1 January at 2 January(unapproved) Scheme 2006 2005
24 November 1999 244,299 555,316
24 November 1999 214,070 332,605
4 August 2000 123,100 183,601
25 October 2001 127,001 242,882
11 March 2002 – 66,667
23 March 2004 3,333 –––––––––– –––––––––
711,803 1,381,071
Exercisable Exercisableat 1 January at 2 January
2006 2005
EMI Scheme23 March 2004 56,834 –
––––––––– –––––––––768,637 1,381,071
––––––––– –––––––––Weighted average exercise price 61.1p 49.3p
On 24 November 1999 participants in the Domino’s Pizza Group Limited (Unapproved) Share Option
Scheme (which had been in place since 31 March 1999) had the option of exchanging options over shares in
Domino’s Pizza Group Limited in return for equivalent options over ordinary shares in the Company under
the Domino’s Pizza Share Option (Unapproved) Scheme.
175
22. Share capital (continued)
On 23 March 2004, the Company established the Domino’s Pizza UK & IRL plc Enterprise Management
Incentive Scheme (EMI Scheme). Under the scheme 481,000 options were granted at 206.5p, the market
price on the date of the grant. The options are only exercisable if the growth in the Company’s EPS during
a performance year exceeds the growth in RPI during that performance year by at least 5 per cent. The EMI
options lapse after 10 years or in certain other circumstances connected with leaving the Company.
In respect of all outstanding options under these schemes, options may be exercised as follows:
One year after date of grant - maximum 1/3 of options held
Two years after date of grant - maximum 2/3 of options held
Three years after date of grant - in full
The options expire 10 years after the date granted.
In 2003 the Domino’s Pizza UK & IRL plc Employee Benefit Trust was established for the benefit of
employees. The trust was established to hold and deal in the Company’s shares under two new share
incentive schemes. These are the Domino’s Pizza UK & IRL plc 2003 Enterprise Management Incentive
Scheme, under which the Company may grant options over ordinary shares to eligible full time employees.
During the year the Group introduced a Sharesave scheme giving employees the option to acquire shares in
the Company. Employees have the option to save an amount per month up to a maximum of £250 and at the
end of three years they have the option to purchase shares in the Company or to take their savings in cash.
The Employee Benefit Trust also operates a long-term incentive plan under which senior executives may be
incentivised by the grant to them of reversionary interests over a portion of the assets of the trust. During the
year further reversionary interests were granted over 375,000 shares. At 1 January 2006, the Trust held
3,974,921 shares, which had a historic cost of £7,499,864. These shares had a market value at 1 January 2006
of £13,792,976.
At 1 January 2006 reversionary interests over 3,800,000 shares in Domino’s Pizza UK & IRL plc have been
granted. Further details are contained in the Report on Directors’ Remuneration.
23. Share-based payment plans
Long Term Senior Executive Incentive Plan
Reversionary interests over assets held in the Domino’s Pizza UK & IRL plc employee benefit trust are
approved and granted, at the discretion of the Board, to senior executives. The interests vest within a five
year period when certain performance targets have been achieved by the Group.
For the interests granted in 2003 to vest, the diluted earnings per share must have reached 14p per share, the
profit before tax must be greater than £11,000,000 and the 2005 financial statements must have been
approved by the Board. The interests granted in 2004 vest when the diluted earnings per share reaches 24p
and the profit before tax exceeds £17,000,000. The interests granted in 2005 vest when the diluted earnings
per share reach 27p and the profit before tax is more than £20,000,000.
The contractual life of each interest is 5 years and all awards are equity settled.
The fair value of reversionary interests, which will be equity-settled, is estimated as at the date of granting
using a Black Scholes model, taking into account the terms and conditions upon which they were granted.
The following table lists the inputs to the model used for the valuations in 2004 and 2005:
2005 2004
Dividend yield (%) 3.3 3.3
Expected volatility (%) 17.0 20.0
Historical volatility – 250 day (%) 28.7 28.8
Risk-free interest rate (%) 4.3 4.5
Expected life of reversionary interests (years) 4.4 5.3
Weighted average exercise price (pence) 295.0 200.0
Weighted average share price (pence) 295.0 200.0
176
23. Share-based payment plans (continued)
The expected life of the reversionary interests is based on historical data and is not necessarily indicative of
exercise patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
Employee Share-option
All other employees are eligible for grants of options, which are approved by the Board.
The options vest over a 3 year period and are exercisable subject to the condition that the growth in basic
earnings per share in any financial year between grant and vesting exceeds the growth in the Retail Price
Index in the previous financial year by at least 5 per cent. (see note 22 for further details).
The contractual life of each option granted is 10 years. There are no cash settlement alternatives and all
awards are equity settled.
The fair value of equity-settled share options granted, for the EMI and Domino’s Pizza (unapproved)
schemes, is estimated as at the date of granting using a Binomial model, taking into account the terms and
conditions upon which the options were granted. The following table lists the inputs to the model used for
the valuations for the EMI and Domino’s Pizza (unapproved) schemes in 2004 and 2005:
2005 2004
Dividend yield (%) 3.3 2.9
Expected volatility (%) 19.0 23.0
Historical volatility – 250 day (%) 28.1 27.7
Risk-free interest rate (%) 4.3 4.6
Expected life of options (years) 3.5 7.0
Weighted average exercise price (pence) 340.8 206.5
Weighted average share price (pence) 340.8 206.5
The expected life of the options is based on historical data and is not necessarily indicative of exercise
patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
Sharesave scheme
During the year the Group introduced a Sharesave scheme giving employees the option to acquire shares in
the Company. Employees have the option to save an amount per month up to a maximum of £250 and at the
end of three years they have the option to purchase shares in the Company or to take their savings in cash.
The contractual life of the scheme is 3 years. The fair value of equity-settled options granted, is estimated as
at the date of granting using a Black Scholes model, taking into account the terms and conditions upon which
the options were granted. The following table lists the inputs to the model used for the valuations for the
Sharesave scheme in 2005:
2005
Dividend yield (%) 3.0
Expected volatility (%) 23.0
Historical volatility – 250 day (%) 28.1
Risk-free interest rate (%) 4.2
Expected life of options (years) 3.3
Weighted average exercise price (pence) 242.8
Weighted average share price (pence) 242.8
177
23. Share-based payment plans (continued)
The expected life of the options is based on an average of exercise period, which is between 3 – 3.5 years.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome. No other features of options were incorporated into
the measurement of fair value, and non-market conditions have not been included in calculating the fair
value.
24. Reconciliation of shareholders’ funds and movement on reserves
Group
TreasuryShare Capital Shares Profit & Total
Share Premium Redemption held by Loss Shareholders’Capital Account Reserve EBT Account Funds
£000 £000 £000 £000 £000 £000
At 28 December
2003 – previously
reported 2,660 3,290 – (5,160) 9,890 10,680
2003 Final
Dividend – prior
year adjustment – – – – 1,083 1,083–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 28 December
2003 – restated 2,660 3,290 – (5,160) 10,973 11,763
Proceeds from
share issue 120 951 – – – 1,071
Share buybacks (40) – 40 – (1,610) (1,610)
Treasury shares
held by EBT – – – (1,200) – (1,200)
Profit for the year – – – – 6,731 6,731
Share option and
LTIP charge – – – – 332 332
Dividends – – – – (2,240) (2,240)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 2 January 2005 2,740 4,241 40 (6,360) 14,186 14,847
Proceeds from
share issue 36 436 – – – 472
Share buybacks (131) – 131 – (8,222) (8,222)
Treasury shares
held by EBT – – – (1,140) – (1,140)
Profit for the year – – – – 8,255 8,255
Share option and
LTIP charge – – – – 963 963
Dividends – – – – (3,169) (3,169)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 1 January 2006 2,645 4,677 171 (7,500) 12,013 12,006
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
178
24. Reconciliation of shareholders’ funds and movement on reserves (continued)
Company
TreasuryShare Capital Shares Profit & Total
Share Premium Redemption held by Loss Shareholders’Capital Account Reserve EBT Account Funds
£000 £000 £000 £000 £000 £000
At 28 December
2003 - previously
reported 2,660 3,290 – (5,160) 5,160 5,950
2003 Final
Dividend - prior
year adjustment – – – – 1,083 1,083–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 28 December
2003 - restated 2,660 3,290 – (5,160) 6,243 7,033
Proceeds from
share issue 120 951 – – – 1,071
Share buybacks (40) – 40 – (1,610) (1,610)
Profit for the year – – – – 5,166 5,166
Share option and
LTIP charge – – – – 332 332
Dividends – – – – (2,240) (2,240)
Treasury shares
held by EBT – – – (1,200) – (1,200)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 2 January 2005 2,740 4,241 40 (6,360) 7,891 8,552
Proceeds from
share issue 36 436 – – – 472
Share buybacks (131) – 131 – (8,222) (8,222)
Profit for the year – – – – 12,994 12,994
Share Option and
LTIP Charge – – – – 963 963
Dividends – – – – (3,169) (3,169)
Treasury shares
held by EBT – – – (1,140) – (1,140)–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
At 1 January 2006 2,645 4,677 171 (7,500) 10,457 10,450
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––During the period May 2005 to December 2005 the Company bought back a total of 2,614,936 (2004:
800,000) ordinary shares of 5p each. The price for which these shares were purchased ranged between
270.5p and 316p per share.
25. Profit and Loss Account
Profit after taxation amounting to £12,994,000 (2004: £5,166,000) has been dealt with in the accounts of the
Company.
179
26. Notes to the statement of cash flows
(a) Reconciliation of operating profit to net cash inflow from operating activities
2005 2004£000 £000
Operating profit 10,214 9,033
Depreciation charge 1,508 1,386
Amortisation charge 131 133
Share option and accelerated LTIP charge 963 333
Decrease/(increase) in stocks 489 (857)
Decrease/(increase) in debtors 337 (1,505)
(Decrease)/increase in creditors (968) 1,420–––––––– ––––––––
12,674 9,943
–––––––– ––––––––(b) Acquisitions and disposals
2005 2004£’000 £’000
Cash receipts on disposal of subsidiary undertakings - net of costs 3,354 –
Cash balances disposed of with subsidiary undertakings (5) –
Utilisation of provisions relating to subsidiary undertakings (309) –
Purchase of shares previously held by minority shareholders (82) (280)
Receipts from - minority interests in new subsidiary undertakings 90 ––––––––– ––––––––
3,048 (280)
–––––––– ––––––––(c) Analysis of net debt
At Other At2 January non-cash 1 January
2005 Cash flow movements 2006£000 £000 £000 £000
Cash at bank and in hand 4,824 (2,589) – 2,235
Cash receipts on disposal of subsidiary
undertakings – 3,650 – 3,650
–––––––– –––––––– –––––––– ––––––––
Cash at bank and in hand 4,824 1,061 – 5,885
EBT Loans (6,360) (1,140) – (7,500)
Other loans (within one year) (916) 1,146 (1,153) (923)
Other loans (due after one year) (1,724) (1006) 1,153 (1,577)
Finance leases (42) 16 – (26)
–––––––– –––––––– –––––––– ––––––––
Net debt (4,218) 77 – (4,141)
–––––––– –––––––– –––––––– ––––––––
180
26. Notes to the statement of cash flows (continued)
(d) Reconciliation of net cash flow to movement in net debt
2005 2004£000 £000
(Decrease)/increase in cash before sale of subsidiary undertakings (2,589) 1,103
Proceeds from the sale of subsidiary undertakings 3,650 ––––––––– ––––––––
Increase in cash including sale of subsidiary undertakings 1,061 1,103
Cash outflow from increase in loans (2,146) (3,278)
Repayment of long-term loans 1,146 2,177
Repayments of capital element of finance leases and hire purchase
contracts 16 23–––––––– ––––––––
Movement in net debt 77 25
Net debt at 2 January 2005 (4,218) (4,243)–––––––– ––––––––
Net debt at 1 January 2006 (4,141) (4,218)
–––––––– ––––––––27. Capital commitments
Amounts contracted for but not provided in the accounts amounted to £ nil for the Group and £ nil for the
Company (2004: £nil and £nil respectively).
28. Contingent liabilities
Additional consideration up to a maximum of £500,000 in cash, may become payable for the acquisition of
American Pizza Company Limited, dependent upon certain conditions being met. Due to the remote
probability of these conditions being met, the directors consider a provision of these amounts to be
inappropriate.
Pursuant to the relevant regulation of the European Communities (Companies: Group Accounts)
Regulations, 1992 the Company has guaranteed the liabilities of the Irish subsidiary, DP Pizza Ltd and as a
result the Irish company has been exempted from the filing provisions section 7, Companies (Amendment)
Act 1986 of the Republic of Ireland.
29. Related parties
During the period, the Group traded with International Franchise Systems Inc., in the normal course of
business and at normal market prices. Colin Halpern is a director of International Franchise Systems Inc.
Transactions between the Group and International Franchise Systems Inc, are set out below:
2005 2004£000 £000
Current account:
Costs incurred by Domino’s Pizza Group Limited on behalf of
International Franchise Systems Inc. 365 424
Costs incurred by International Franchise Systems Inc., on behalf of
Domino’s Pizza Group Limited – (8)
Transfer of funds (from)/to International Franchise Systems Inc. (125) 16
Management charges from International Franchise Systems Inc. (240) (432)–––––––– ––––––––
Closing debt due to International Franchise Systems Inc. – –
–––––––– ––––––––
181
182
29. Related parties (continued)
In June 2005 the Company sold its subsidiary undertakings, DPGS Limited and Triple A Pizza Limited for
a cash consideration of £3,650,000 to Dough Trading Limited. Dough Trading Limited is controlled by Marc
Halpern, the son of Colin Halpern. HS Real Company is guaranteeing part of the debt funding that Dough
Trading Limited has used for the acquisition. HS Real Company is owned by a discretionary trust, the
beneficiaries of which are the adult children of Colin and Gail Halpern. By virtue of Colin Halpern’s position
in the Company and his relationship with HS Real Company, he took no part in the voting at the Company’s
board meeting on the approval of the transaction.
The consideration for the sale of the companies was calculated taking into account market rates and the full
consideration was received prior to the year end. A further corporate store was sold for a cash consideration
of £350,000 to Dough Trading Limited during the year. The transactions resulted in a profit on sale of
£814,000 in total (see note 3).
At the year end there is a balance owing from DPGS Ltd of £65,000, which has arisen during the course of
normal trading. Since June 2005 sales of £1,686,000 have been made to DPGS Ltd at normal market prices.
Transactions between the Group and its joint ventures are set out in note 13.
PART VIII
ADDITIONAL INFORMATION
1. RESPONSIBILITY
1.1 The Company and its Directors (whose names, business addresses and functions are set out at Part III
of this document) accept responsibility for the information contained in this document. To the best of
the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that
such is the case), the information contained in this document is in accordance with the facts and
contains no omission likely to affect its import.
1.2 Ernst & Young LLP whose registered address is at One More London Place, London SE1 2AF, accepts
responsibility for its letter set out in Part VII of this document. To the best of the knowledge of Ernst
& Young LLP (who have taken all reasonable care to ensure that such is the case) the information
contained therein is in accordance with the facts and contains no omissions likely to affect its import.
2. THE COMPANY
2.1 The Company was incorporated and registered in England and Wales on 5 October 1999 as a public
limited company under the 1985 Act with the registered number 03853545 and the name
Doublemeasure plc. The Company changed its name to Domino’s Pizza Plc on 15 October 1999 and
to Domino’s Pizza UK & IRL plc on 1 November 1999. The Company was issued with a certificate
under section 117 of the 1985 Act entitling it to do business on 15 November 1999.
2.2 The registered office of the Company and the Company’s principal place of business is at
Domino’s House, Lasborough Road, Kingston, Milton Keynes MK10 0AB (telephone number
+44 1908 580000). The registrars of the Company are Capita.
2.3 The principal legislation under which the Company operates is the Companies Acts.
2.4 The entire issued share capital of the Company was admitted to trading on AIM on 24 November
1999.
3. SHARE CAPITAL
3.1 The following table shows the authorised and issued share capital of the Company as at 13 May 2008
(the latest practicable date prior to the printing of this document), and as it will be immediately
following Admission:
Authorised share capital Issued and fully paid share capitalNominal Value Number Nominal Value Number
£4,000,000.00 256,000,000 £2,543,845.16 162,806,090
Ordinary Shares Ordinary Shares
3.2 No additional shares are being issued pursuant to the Admission. The issued share capital of the
Company following Admission will therefore be £2,543,845.16.
3.3 None of the capital of the Company was paid for with assets other than cash within the period
beginning on 1 January 2005 and ending on 30 December 2007.
3.4 The authorised but unissued share capital of the Company immediately following Admission will be
£1,456,154.84, consisting of 93,193,910 Ordinary Shares, representing approximately 36.40 per cent.
of the authorised share capital of the Company. Of this amount, up to £295,781.31 is reserved for the
issue of Ordinary Shares in respect of options granted under the share option schemes described in
paragraph 15 (Share Option Schemes) of this Part VIII, representing 11.63 per cent. of the issued share
capital of the Company.
AI 21.2.2
AI 21.1.1
AIII 4.2
AI 5.1.2
AI 5.1.4
AI 5.1.2
AI 5.1.3
AI 5.1.4
AI 1.2
AIII 1.2
183
3.5 As at the date of this document, 7,377,696 Ordinary Shares (which for the purposes of the Annual
Reports are held as treasury shares) by the EBT.
3.6 As at the date of this document, 66,886,218 Ordinary Shares, representing approximately 41.08 per
cent. of the issued share capital of the Company are considered to be held other than in the hands of
the public.
4. SHARE CAPITAL HISTORY
4.1 The Company was incorporated on 5 October 1999 with an authorised share capital of £100,000,
divided into 100,000 ordinary shares of £1.00 each.
4.2 By a written resolution of the Company dated 15 November 1999, the authorised share capital of the
Company was increased to £4,000,000, divided into 4,000,000 ordinary shares of £1.00, by the
creation of 3,900,000 ordinary shares of £1.00. Each share of £1.00 each was then subdivided into 20
ordinary shares of 5p each, thereby altering the share capital of the Company to 80,000,000 ordinary
shares of 5p each. The Directors were generally and unconditionally authorised pursuant to and in
accordance with section 80 of the 1985 Act to allot relevant securities (as defined in section 80(2) of
the 1985 Act) up to an aggregate nominal value of £3,950,000. By special resolution and pursuant to
section 95 of the 1985 Act, the Directors were authorised to allot shares for cash pursuant to the
section 80 authority as if section 89(1) of the 1985 Act did not apply to such allotment, limited to:
(a) the allotment of shares in connection with a rights issue in favour of the holders of the Ordinary
Shares on the register of members at such record dates as the Directors may determine where
the equity securities respectively attributable to the interest of the ordinary shareholders are
proportionate (as nearly as may be) to the respective numbers of Ordinary Shares held by them;
(b) the allotment wholly for cash in connection with the placing and offer of subscription to AIM
of 6,000,000 ordinary shares up to an aggregate nominal amount of £300,000; and
(c) the allotment wholly for cash of equity securities up to an aggregate nominal amount of
£250,000, being 10 per cent. of the issued ordinary share capital of the Company following the
Placing.
4.3 The entire issued share capital of the Company was admitted to trading on AIM on 24 November
1999, pursuant to a placing and offer for subscription of 8,000,000 ordinary shares of 5p each in the
Company at a price to investors of 50p per ordinary share.
4.4 Since the Placing, the Company has issued new shares in the Company and has made several
applications for the admission of those shares to trading on AIM, pursuant to the exercise of options
under the Unapproved Scheme. Further details of the shares in the Company that have been issued in
the period covered by the historical financial information set out in Parts VI and VII are set out in
paragraph 4.8 below.
4.5 On 31 December 2006, being the last day of the financial year ended 31 December 2006, the
Company had an issued share capital of 164,758,762 Ordinary Shares (as if the resolution passed on
26 April 2007 to subdivide the 80,000,000 ordinary shares of 5p each into 256,000,000 Ordinary
Shares had been passed as at 31 December 2006) with a nominal value of £2,574,356. During the
financial year ended 30 December 2007, the Company issued a total of 1,402,298 Ordinary Shares
with a nominal value of £21,911. These shares were issued at between 13.16p and 210.00p for a total
cash consideration received of £700,000 in order to satisfy share options that were exercised during
the year. As at 30 December 2007, the Company’s authorised share capital was 256,000,000 Ordinary
Shares with a nominal value of £4,000,000 and the Company had an issued share capital of
162,436,060 Ordinary Shares with a nominal value of £2,538,064.
4.6 Since the Placing, the Company has also entered into a number of share buy-back programmes, the
objective of which, together with a progressive dividend policy, has been to return surplus funds to the
shareholders of the Company. During the financial year ended 30 December 2007, a total of 3,725,000
Ordinary Shares were purchased at a total cost of £8,210,000 before expenses of £136,000. This
AI 21.1.7
AIII 4.4
AIII 4.6
AI 21.1.5
AI 21.1.3
184
represented approximately 2.3 per cent. of the Company’s issued share capital as at 30 December
2007. These shares have been cancelled and are no longer part of the Company’s issued share capital.
4.7 In addition to the share buy-back programmes described in paragraph 4.6 above, the Company also
underwent a capital reorganisation during 2007 as a means of returning surplus funds to shareholders.
By an ordinary resolution of the Company dated 26 April 2007, 80,000,000 ordinary shares of 5p each
in the capital of the Company were sub-divided into 256,000,000 ordinary shares of 1.5625p each.
4.8 In addition to the changes otherwise described in this paragraph 4, the following changes to the share
capital of Company have occurred in the period covered by the historical financial information set out
in Parts VI and VII:
(a) On 10 March 2005, the Company applied for 300,380 ordinary shares of 5p each to be admitted
to trading on AIM.
(b) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 21 April 2005:
(i) on 29 April 2005, the Company repurchased 150,000 ordinary shares of 5p each at a
price of 272.50p per share;
(ii) on 9 May 2005, the Company repurchased 150,000 ordinary shares of 5p each at a price
of 270.50p per share;
(iii) on 11 May 2005, the Company repurchased 100,000 ordinary shares of 5p each at a
price of 270.50p per share; and
(iv) on 7 October 2005, the Company repurchased 2,214,936 ordinary shares of 5p each at a
price of 316p per share.
(c) During the financial year ended 1 January 2006, 720,897 ordinary shares of 5p were issued
pursuant to the exercise of options by certain employees of the Company under the Unapproved
Scheme. These shares were issued at between 42.1p and 206.5p for total cash consideration
received of £472,000 in order to satisfy share options that were exercised during the year.
(d) On 21 March 2006, the Company applied for 86,405 ordinary shares of 5p each to be admitted
to trading on AIM.
(e) On 18 May 2006, the Company applied for 65,833 ordinary shares of 5p each to be admitted
to trading on AIM.
(f) On 23 June 2006, the Company applied for 67,145 ordinary shares of 5p each to be admitted
to trading on AIM.
(g) On 18 August 2006, the Company applied for 27,566 ordinary shares of 5p each to be admitted
to trading on AIM.
(h) On 21 August 2006, the Company applied for 1,624,421 ordinary shares of 5p each to be
admitted to trading on AIM.
(i) On 5 September 2006, the Company applied for 30,000 ordinary shares of 5p each to be
admitted to trading on AIM.
(j) On 2 October 2006, the Company applied for 4,000 ordinary shares of 5p each to be admitted
to trading on AIM.
(k) On 18 October 2006, the Company applied for 9,500 ordinary shares of 5p each to be admitted
to trading on AIM.
(l) On 26 October 2006, the Company applied for 66,957 ordinary shares of 5p each to be
admitted to trading on AIM.
185
(m) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 27 April 2006, on 5 December 2006, the Company repurchased 1,799,946
ordinary shares of 5p each at a price of 5.55p per share.
(n) On 20 December 2006, the Company applied for 20,081 ordinary shares of 5p each to be
admitted to trading on AIM.
(o) During the financial year ended 31 December 2006, 372,548 ordinary shares of 5p were issued
pursuant to the exercise of options by certain employees of the Company under the Unapproved
Scheme. These shares were issued at between 42.1p and 342.5p for total cash consideration
received of £403,000 in order to satisfy share options that were exercised during the year.
(p) On 9 January 2007, the Company applied for 700 ordinary shares of 5p each to be admitted to
trading on AIM.
(q) On 18 January 2007, the Company applied for 63,186 ordinary shares of 5p each to be admitted
to trading on AIM.
(r) On 21 February 2007, the Company applied for 34,722 ordinary shares of 5p each to be
admitted to trading on AIM.
(s) On 5 March 2007, the Company applied for 17,563 ordinary shares of 5p each to be admitted
to trading on AIM.
(t) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 27 April 2006, on 14 March 2007, the Company repurchased 125,000
ordinary shares of 5p each at a price of 646p per share.
(u) On 30 March 2007, the Company applied for 1,850 ordinary shares of 5p each to be admitted
to trading on AIM.
(v) On 3 April 2007, the Company applied for 1,000 ordinary shares of 5p each to be admitted to
trading on AIM.
(w) On 19 April 2007, the Company applied for 99,250 ordinary shares of 5p each to be admitted
to trading on AIM.
(x) On 3 May 2007, the Company applied for 162,523 Ordinary Shares to be admitted to trading
on AIM.
(y) On 23 May 2007, the Company applied for 205,586 Ordinary Shares to be admitted to trading
on AIM.
(z) On 4 June 2007, the Company applied for 149,612 Ordinary Shares to be admitted to trading
on AIM.
(aa) On 13 July 2007, the Company applied for 151,289 Ordinary Shares to be admitted to trading
on AIM.
(bb) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 26 April 2007:
(i) on 2 August 2007, the Company repurchased 200,000 Ordinary Shares at a price of
259.50p per share;
(ii) on 3 August 2007, the Company repurchased 200,000 Ordinary Shares at a price of 258p
per share;
(iii) on 15 August 2007, the Company repurchased 350,000 Ordinary Shares at a price of
250p per share;
(iv) on 17 August 2007, the Company repurchased 100,000 Ordinary Shares at a price of
244.50p per share;
186
(v) on 22 August 2007, the Company repurchased 150,000 Ordinary Shares at a price of
248p per share;
(vi) on 23 August 2007, the Company repurchased 250,000 Ordinary Shares at a price of
250p per share;
(vii) on 29 August 2007, the Company repurchased 100,000 Ordinary Shares at a price of
246.50p per share;
(viii) on 31 August 2007, the Company repurchased 150,000 Ordinary Shares at a price of
250p per share;
(ix) on 25 September 2007, the Company repurchased 250,000 Ordinary Shares at a price of
225p per share; and
(x) on 1 October 2007, the Company repurchased 400,000 Ordinary Shares at a price of
226p per share.
(cc) On 18 October 2007, the Company applied for 2,176 Ordinary Shares to be admitted to trading
on AIM.
(dd) On 25 October 2007, the Company applied for 2,683 Ordinary Shares to be admitted to trading
on AIM.
(ee) On 9 November 2007, the Company applied for 25,052 Ordinary Shares to be admitted to
trading on AIM.
(ff) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 26 April 2007, on 20 November 2007, the Company repurchased 250,000
Ordinary Shares each at a price of 204p per share.
(gg) On 17 December 2007, the Company applied for 4,910 Ordinary Shares each to be admitted to
trading on AIM.
(hh) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 26 April 2007, on 27 December 2007, the Company repurchased 250,000
Ordinary Shares each at a price of 170p per share.
(ii) Pursuant to a special resolution passed by the Shareholders at the annual general meeting of the
Company held on 26 April 2007, on 28 December 2007, the Company repurchased 575,000
Ordinary Shares each at a price of 170p per share.
(jj) During the financial year ended 30 December 2007, 1,402,298 Ordinary Shares were issued
pursuant to the exercise of options by certain employees of the Company under the Domino’s
Pizza Share Option (Unapproved) Scheme. These shares were issued at between 13.16p and
210.00p for a total cash consideration received of £700,000 in order to satisfy share options that
were exercised during the year.
(kk) On 8 April, 2008 6,000 Ordinary Shares were issued pursuant to the exercise of options by a
certain employee of the Company under the EMI Scheme.
(ll) On 17 April 2008, 104,291 Ordinary Shares were issued pursuant to the exercise of options by
certain employees of the Company under the Unapproved Scheme.
(mm) On 29 April 2008, 40,210 Ordinary Shares were issued pursuant to the exercise of options by
certain employees of the Company under the Unapproved Scheme.
4.9 The Company applied:
(i) on 11 January 2008, for 6,400 Ordinary Shares to be admitted to trading on AIM;
(ii) on 28 January 2008, for 3,200 Ordinary Shares to be admitted to trading on AIM;
(iii) on 30 January 2008, for 9,044 Ordinary Shares to be admitted to trading on AIM;
(iv) on 15 April 2008, for 6,000 Ordinary Shares to be admitted to trading on AIM;
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(v) on 23 April 2008, for 104,291 Ordinary Shares to be admitted to trading on AIM; and
(vi) on 7 May 2008, for 40,210 Ordinary Shares to be admitted to trading on AIM.
4.10 At the annual general meeting of the Company held on 24 April 2008, the Company resolved
(amongst other things) to:
(a) authorise generally and unconditionally the directors of the Company, for the purposes of section
80 of the 1985 Act to exercise all powers of the Company to allot relevant securities (as defined
in the 1985 Act), up to an aggregate nominal amount of £846,317 such authority to expire on the
earlier of 15 months after the passing of this resolution or the date of the next following AGM;
(b) empower the directors of the Company pursuant to section 95 of the 1985 Act to allot Ordinary
Shares without first offering those Ordinary Shares to existing shareholders, for cash pursuant to
the section 80 authority (referred to in paragraph (a) above), limited to:
(i) the allotment of shares in connection with a rights issue; and
(ii) the allotment of equity securities up to an aggregate nominal value of £127,075 which
is equal to but not more than 5 per cent. of the issued Ordinary Share capital.
(c) authorise generally and unconditionally, the Company to purchase its own Ordinary Shares in
the capital of the Company provided that:
(i) the maximum aggregate number of Ordinary Shares authorised to be purchased is
16,265,558 (representing 10 per cent. of the current issued Ordinary Share capital as at
28 March 2008);
(ii) the minimum price to be paid for an Ordinary Share is 1.5625p; and
(iii) the maximum price which may be paid for an Ordinary Share is the higher of (i) an
amount equal to 105 per cent. of the average of the market value for an Ordinary Share
as derived from the Daily Official List for the five business days immediately preceding
the day on which that Ordinary Share is purchased and (ii) the higher of the price of the
last independent trade and the highest current bid on the London Stock Exchange at the
time the purchase is carried out, both the maximum and minimum prices being exclusive
of any advance corporation tax and any expenses.
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5. SHARE OPTIONS
5.1 As at 13 May 2008 (the latest practicable date prior to the printing of this document), the following
options in the share capital of the Company were outstanding:
No. outstanding
at 13 May
Date of grant Exercise price 2008
Domino’s Pizza (Unapproved) Scheme24 November 1999 13.16p 65,649
24 November 1999 15.63p 338,878
4 August 2000 16.56p 137,600
25 October 2001 17.19p 177,103
15 December 2005 107.03p 1,527,260
30 March 2007 210.00p 1,024,888
4 April 2008 209.00p 1,017,620––––––––4,288,998
EMI Scheme23 March 2004 64.53p 312,397
Sharesave Scheme29 December 2005 75.88p 618,608
––––––––Totals 5,220,003
––––––––Weighted average exercise price 128.34
5.2 The weighted average remaining contractual life of the options outstanding at 30 December 2007 is
6.4 years. The weighted average share price for options exercised during 2007 was 165.30p.
5.3 At 30 December 2007, the expense recognised for share based payments in respect of employee
services during the year was £880,000. This amount arose on equity settled share-based payment
transactions.
5.4 Save as disclosed at paragraph 5.1 above, paragraph 15 (Share Option Schemes) and paragraph 6 (TheCompany and its Subsidiaries) of this Part VIII, no share or loan capital of the Company or any of its
Subsidiaries is under option or agreed conditionally or unconditionally to be put under option.
5.5 Other than pursuant to the exercise of options duly granted under the share option schemes as
highlighted at paragraph 5.1 above and described at paragraph 15 (Share Option Schemes) of this
Part VIII, there is no present intention to issue any of the authorised but unissued share capital of the
Company.
5.6 As at the date of this document there are no outstanding convertible debt securities, exchangeable debt
securities, or debt securities with warrants in relation to the Company.
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6. THE COMPANY AND ITS SUBSIDIARIES
6.1 The Company is the holding company within the Group and is ultimate parent to 12 Subsidiaries
(direct and indirect). The Company also has interest in two associate undertakings. Details of the
Subsidiaries and Associates are as follows:
Proportion ofCountry of voting rights
Name of company incorporation and shares held Nature of business
Directly held SubsidiariesDPG Holdings Limited England 100% ordinary Investment
DP Realty Limited England 100% ordinary Property management
DP Capital Limited England 100% ordinary Leasing of equipment
DP Newcastle & Sunderland England 100% ordinary Management of
Limited pizza delivery stores
The American Pizza Company England 100% ordinary Management of pizza
Limited delivery stores
DP Peterborough Limited England 80% ordinary Management of
pizza delivery stores
DP Milton Keynes Limited England 100% ordinary Management of
pizza delivery stores
Indirectly held SubsidiariesDomino’s Pizza Group England 100% ordinary Operation and
Limited management of
franchise business
Live Bait Limited England 100% ordinary Property management
DP Pizza Limited Republic of 100% ordinary Management of
Ireland pizza delivery stores
DP Group Developments England 100% ordinary Property
Limited development
DP Newcastle Limited England 100% ordinary Management of
pizza delivery stores
AssociatesFull House Restaurants England 41% ordinary Management of
Limited pizza delivery stores
Dominoid Limited England 50% ordinary Management of
pizza delivery stores
6.2 Prior to the Placing, DPG was the parent company of the Group. However, pursuant to the Placing
and as a result of certain intra-group share-for-share arrangements implemented by written resolution
of the Company dated 24 November 1999, the Company acquired the entire issued share capital of
DPG.
6.3 On 26 December 1999, the Company acquired a 41 per cent. interest in Full House Restaurants
Limited for £205,000.
6.4 On 11 November 2002, the Company acquired a 50 per cent. interest in Dominoid Limited. Two stores
were sold to Dominiod Limited and the consideration for the sale was satisfied by the issue of a loan
note between Dominoid Limited and DPG of £441,636, which is repayable on demand at least one
year after the date of the agreement. The loan note bears interest at a rate of 2.5 per cent. above the
Royal Bank of Scotland base rate. At 30 December 2007 the balance outstanding on the loan note was
£161,041.71. The Company received interest of £18,274.73 during the financial year ended
30 December 2007 in respect of the loan note.
6.5 In June 2006, DP Milton Keynes Limited was formed and the Company acquired an 80 per cent.
shareholding in the company.
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6.6 On 16 August 2006, the Company sold its investment in DPG for £2,200,000 in exchange for shares
in DPG Holdings Limited the holding company of DPG, thereby becoming the ultimate parent of the
Group.
6.7 In November 2006, the Company purchased the remaining 20 per cent. shareholding of DPGL
Birmingham Ltd for £85,000 and the entire issued share capital of DP Newcastle & Sunderland
Limited for £48,000.
6.8 On 16 April 2008, the Company sold DPGL Birmingham Limited for £1,000,000. The Company
proposes during the course of 2008 to dispose of its 41 per cent. interest in Full House Restaurants
Limited.
6.9 No acquisitions of any Subsidiaries were made during the financial year ended 30 December 2007.
6.10 It is envisaged that a sale will be agreed for the disposal of DP Peterborough Limited by the end of
2008. The remaining corporate stores which the Company has interests in are actively being marketed
within the franchisee community and externally and expectations are that the stores will be disposed
of by the end of 2008.
7. RELATED PARTY TRANSACTIONS
7.1 Save as disclosed in this paragraph 7, paragraph 6 above (The Company and its Subsidiaries), and
elsewhere in this Part VIII, the Company has not been a party to any related party transaction for the
three year period up to 13 May 2008 (being the latest practicable date before publication of this
document).
7.2 In June 2005, the Company sold its subsidiary undertakings, DPGS Limited and Triple A Pizza
Limited for a cash consideration of £3,650,000 to Dough Trading Limited (“DTL”). DTL is controlled
by Marc Halpern, the son of Colin Halpern. HS Real guaranteed part of the debt funding used by DTL
for the transaction. HS Real holds 13,007,328 Ordinary Shares in the Company and is owned by a
discretionary trust, the beneficiaries of which are the adult children of Colin and Gail Halpern. By
virtue of Colin Halpern’s position within the Company and his relationship with HS Real, he took no
part in the voting at the Company’s board meeting to approve the transaction. During the financial
year ended 31 December 2006 and 30 December 2007, the Group traded with DPGS Limited and
Triple A Pizza Limited in the ordinary course of business at normal prices.
7.3 During the financial year ended 1 January 2006, 31 December 2006 and 30 December 2007, the
Group traded with International Franchise Systems Inc., in the normal course of business on arm’s
length terms and at normal market prices. Colin Halpern is a director of IFS.
8. MEMORANDUM OF ASSOCIATION
The Company’s principal objects are set out in Clause 4 of its Memorandum of Association and include the
carrying on of the business of a holding and management company. The Memorandum of Association of the
Company is available for inspection at the address specified at paragraph 23 (Documents available forinspection) of this Part VIII.
9. ARTICLES OF ASSOCIATION
The following is a summary of certain provisions of the amended Articles that were adopted pursuant to a
special resolution of the Company passed at an AGM of the Company held on 24 April 2008. This Summary
does not purport to be complete and is qualified in its entirety by the full terms of the Articles. The Articles
are available for inspection at the address specified at paragraph 23 (Documents available for inspection) of
this Part VIII.
9.1 Voting rights
(a) Subject to any specials terms as to voting upon which any shares may be issued, or may for the
time being be held and any restriction on voting referred to below, every shareholder present in
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person or by one or more proxies or (in the case of a corporation), by one or more duly
authorised representatives, at a general meeting of the Company shall have one vote on a show
of hands and, on a poll, every shareholder present in person or by one or more proxies or (in
the case of a corporation) by one or more duly authorised representatives, shall have one vote
for every share of which he is the holder.
(b) The duly authorised representative of a corporate shareholder may exercise the same powers
on behalf of that corporation as it could exercise if it were an individual shareholder.
(c) A shareholder is not entitled to vote unless all calls due from him in respect of his shares have
been paid.
(d) A shareholder is also not entitled to attend or vote at meetings of the Company in respect of
any shares held by him in relation to which he or any other person appearing to be interested
in such shares has been duly served with a notice under section 793 of the 2006 Act (a
“Disclosure Notice”) and, having failed to comply with such notice within the period specified
in such notice or, in purported compliance with such notice, has made a statement which is
false or inadequate in a material particular if subsequently served with a direction notice
(“Direction Notice”). Such disentitlement will apply until seven days (or such shorter period
as the Board may resolve) after the default in respect of which the Direction Notice was issued
has been reached or until notification has been received by the Company that the relevant
shares have been transferred to a third party by means of an approved transfer.
9.2 General meetings
(a) The Company must hold an AGM each year in addition to any other general meetings held in
the year. The Board can call a general meeting at its own discretion and must call a general
meeting if the members of the Company requires it to do so.
(b) At least 21 clear days’ written notice must be given for every AGM. For all other general
meetings, not less than 14 clear days’ written notice must be given. The notice for any general
meeting must state: (i) the date, time and place of the meeting, (ii) in the case of special
business, the general nature of that business of the meeting and (iii) any intention to propose a
resolution as a special resolution and should contain the text of the resolution. The notice
should also contain a statement that a member entitled to attend and vote is entitled to appoint
one proxy to exercise all or any of the member’s rights to speak and vote at the meeting and
more than one proxy may be appointed if each proxy is appointed to exercise rights attached
to a different share or shares held by the member. All members who are entitled to receive
notice under the Articles must be given notice.
(c) Before any business can be transacted at a general meeting, there must be a quorum present,
being two qualifying persons (as defined in the Articles) entitled to vote at the meeting, each
being a member or a proxy for a member or a duly authorised corporate representative unless
each is only a qualifying person because (i) he is authorised to act as a representative of a
corporation in relation to the meeting and they are representatives of the same corporation or
(ii) he is appointed as a proxy of a member in relation to the meeting, and they are proxies of
the same member.
9.3 Dividends
(a) Subject to the Companies Acts, the Company may, by ordinary resolution, declare dividends to
be paid to members of the Company according to their rights and interests in the profits of the
Company available for distribution, but no dividend shall be declared in excess of the amount
recommended by the Board. No dividend shall be payable to the Company itself in respect of
shares held by it as treasury shares (except to the extent permitted by the Companies Acts).
(b) Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide,
all dividends shall be apportioned and paid pro rata according to the amounts paid on the
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shares (including any amount credited as paid on the shares) during any portion or portions of
the period in respect of which the dividend is paid. Any dividend unclaimed after a period of
12 years from the date of declaration shall be forfeited and shall revert to the Company.
(c) The Board may, if authorised by an ordinary resolution, offer shareholders the right to elect to
receive shares, credited as fully paid, instead of cash in respect of any dividend or any part of
any dividend, subject to the procedural requirements as set out in the Articles.
(d) The Company may, on recommendation of the Board, by ordinary resolution direct payment of
a dividend in whole or in part by the distribution of specific assets.
(e) The Board may retain, without liability to pay interest thereon, any dividend payable on shares
held by a member representing not less than 0.25 per cent. by number of the issued shares of
any class after there has been a failure by that member to comply with a Disclosure Notice
served on that member pursuant to section 793 of the 2006 Act requiring the disclosure of
information relating to interests in the shares concerned as referred to in paragraph 9.9
(Disclosure of interests in shares) below.
(f) If the Company is to be wound up the liquidator may, with the authority of special resolution
and subject to any provision of law, divide among the members in specie or kind the whole or
any part of the assets of the Company whether or not the assets consist of property of one kind
or properties of different kinds, and may for such purpose set such value as he/she deems fair
upon any one of more class or classes or property and may determine how such division is to
be carried out between the members or different classes of members.
9.4 Return of capital
On a voluntary winding-up of the Company, the liquidator may, with the sanction of a special
resolution of the Company and subject to the Companies Acts and the Insolvency Act 1986 (as
amended), divide amongst the shareholders of the Company in specie the whole or any part of the
assets of the Company and may for this purpose set such a value as he deems fair upon each kind of
property and may determine how such division shall be carried out as between members or different
classes of members, but no member shall be compelled to accept any asset in respect of which there
is a liability. The liquidator may also vest the whole or any part of the assets in trustees upon such
trusts for the benefit of the members as the liquidator, with the like sanction, shall determine.
9.5 Transfer of Shares
(a) All transfers of Certificated Shares (as defined in the Articles) in the Company may be effected
by a transfer in writing in any usual or common form or in any form acceptable to the Board
and all transfers of Uncertificated Shares (as defined in the Articles) need not be in writing and
should comply with such rules as the Board may adopt as permitted by the Companies Acts,
the 2001 Regulations, the UK Listing Authority or the London Stock Exchange. The instrument
of transfer of a Certificated Share shall be signed by or on behalf of the transferor and (except
in the case of fully paid shares) by or on behalf of the transferee. The transferor shall remain
the holder of the shares concerned until the name of the transferee is entered in the register of
members in respect thereof.
(b) The Board may in its absolute discretion refuse to register any transfer of shares that is not fully
paid up or on which the Company has a lien provided that in the case of a class of shares which
are listed on the London Stock Exchange such discretion shall not be exercised so as to prevent
dealings in those shares from taking place on an open and proper basis. The Directors of the
Company may also refuse to register a transfer of shares (whether fully paid or not) in favour
of more than four persons jointly.
(c) The Board may decline to register (in the case of a Certificated Share) any instrument of
transfer unless:
(i) it is a duly stamped instrument of transfer;
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(ii) it is in respect of only one class of share;
(iii) it is lodged with the Company; and
(iv) it is accompanied by the relevant share certificate(s) and such other evidence as the
Board may reasonably require to show the right of the transferor to make the transfer.
(d) The Board may decline to register an Uncertificated Share if the 2001 Regulations allow it to
do so and must do so where the 2001 Regulations so require.
(e) Shares may not be transferred to a bankrupt person or a person who is mentally disordered or
a patient for the purposes of any statute relating to mental health.
(f) If the Board refuses to register a transfer it shall send, in the case of Certificated Shares, to the
transferee notice of the refusal with reasons for the refusal by such time as is the earlier of: (i)
the expiration of 2 months after the date upon which the instrument or transfer was lodged; or
(ii) the time required by the rules of the London Stock Exchange in the case of a Uncertificated
Share, within 2 months of receipt of instructions to update the register of members to show the
transferee as holder thereof.
(g) Where a holder of shares which represent 0.25 per cent. or more of the class of shares concerned
has been served with a Direction Notice after there has been a failure to provide the Company
with information required by a Disclosure Notice (as defined below), no transfer of any shares
held by the holder shall be registered unless the exception contained in the Articles applies.
9.6 Variation of rights
(a) Subject to the Companies Acts, all or any of the rights attached to any class of share may
(unless otherwise provided by the terms of issue of shares of that class) be varied (whether or
not the Company is being wound up) either with the written consent of the holders of not less
than three-quarters in nominal value of the issued shares of that class or with the sanction of
special resolution passed at a separate general meeting of such holders. The quorum at any such
general meeting is two persons holding or representing by proxy at least one-third in nominal
value of the issued shares of that class excluding any shares of that class held as treasury shares
and at an adjourned meeting the quorum is one holder present in person or by proxy, whatever
the amount of his shareholding. Any holder of shares of the class in question present in person
or by proxy may demand a poll. Any holder of the Shares of the class present in person or by
proxy may demand a poll. Every holder of shares of the class shall be entitled, on a poll, to one
vote for every share of the class held by him. Except as mentioned above, such rights shall not
be varied.
(b) The rights conferred upon the holders of any shares or class of shares shall not, unless
otherwise expressly provided in the Articles or the conditions of issue of such shares, be
deemed to be varied by the creation or issue of new shares ranking pari passu therewith or
subsequent thereto or the purchase by the Company of any of its own shares.
9.7 Share capital and changes in capital
(a) Subject to and in accordance with the provisions of the Companies Acts, the Company may by
ordinary resolution increase its capital by such a sum to be divided into shares of such amounts
as the resolution shall prescribe.
(b) Subject to the provisions of the Articles and the Companies Act, the power of the Company to
offer, allot and issue any unissued shares shall be exercised by the Board at such time and for
such consideration and upon such terms and conditions as the Board shall determine.
(c) The Company may by ordinary resolution:
(i) consolidate and divide all or any of its share capital into shares of larger nominal value
than its existing shares;
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(ii) cancel any shares which, at the date of passing of the resolution, have not been taken, or
agreed to be taken, by any person and diminish the amount of its capital by the amount
of the shares so cancelled; and
(iii) subdivide its shares, or any of them, into shares of smaller nominal value than is fixed
by the memorandum of association (subject to the provisions of the 1985 Act).
(d) Subject to the Companies Acts, the Company may by special resolution reduce its share capital,
any capital redemption reserve or any share premium account in any way.
(e) Subject to the Companies Acts, the Articles and any confirmation or consent required by law,
the Company may purchase all or any of its own shares of any class and any shares to be
purchased may be selected in any manner by the Company.
(f) The Board is generally and unconditionally authorised pursuant to section 80 of the 1985 Act
to exercise for each prescribed period (as defined in the Articles) all the powers of the Company
to allot relevant securities up to an aggregate nominal amount equal to the Section 80 Amount
(as defined in the Articles), as if section 89(1) of the 1985 Act did not apply to such an
allotment.
(g) Subject to the Companies Acts and the 2001 Regulations, the UK Listing Authority and the
London Stock Exchange, the directors may determine that any class of shares may be held in
uncertificated form and that title to such shares may be transferred by means of a Relevant
System (as defined in the Articles). The provisions of the Articles shall not apply to shares of
any class which are in uncertificated form to the extent that such Articles are inconsistent with
the holding of shares of that class in uncertificated form, the transfer of title to shares of that
class by means of a Relevant System, or any provision of the 2001 Regulations.
9.8 Company lien on shares
(a) If a member fails to pay in full any call or instalment of a call on the due date for payment, the
Board may at any time serve a notice on him/her requiring payment and stating that in the event
of non-payment in accordance with such notice the shares on which the call was made will be
liable to be forfeited.
(b) The Company shall have a first and paramount lien on every share (not being a fully paid share)
for all monies (whether presently payable or not) called or payable at a fixed time in respect of
such share.
(c) The Company may sell in such manner as the Board thinks fit any share on which the Company
has a lien 14 days after a notice in writing is served on the member stating and demanding
payment of the sum presently payable and giving notice of intention to sell if payment is not
received on or before the due date.
9.9 Disclosure of interests in shares
(a) Section 793 of the 2006 Act provides a public company with the statutory means to ascertain
the persons who are, or have within the last three years been, interested in its relevant share
capital and the nature of such interests. When a shareholder receives a Disclosure Notice
pursuant to Section 793 he or she has 28 days (or 14 days where the shares represent at least
0.25 per cent. of their class) to comply with it, failing which the Company may decide to
restrict the rights relating to the relevant shares and send out a Direction Notice to the holder.
The Direction Notice will state that the identified shares (“Relevant Shares”) no longer give the
owner of the Relevant Shares any right to vote at a shareholders’ meeting or to exercise any
other right in relation to the Relevant Shares.
(b) Once the Direction Notice has been given if the Board is satisfied that all the information
required has been supplied or if the Relevant Shares subject to the Direction Notice are
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transferred pursuant to an approved transfer (as defined in the Articles), the Company shall
withdraw the Direction Notice.
9.10 Non-UK shareholders
Shareholders with addresses outside the United Kingdom are not entitled to receive notices from the
Company unless they have given the Company an address within the United Kingdom at which such
notices shall be served.
9.11 Untraced shareholders
Subject to various notice requirements, the Company may sell any of a shareholder’s shares in the
Company if, during a period of 12 years, at least three dividends on such shares have become payable
and no dividend has been claimed during that period in respect of such shares and the Company has
received no communication from such shareholder.
9.12 Borrowing powers
The Board may exercise all the powers of the Company to borrow money and to mortgage or charge
all or any of its undertaking, property and assets (present and future) and uncalled capital and, subject
to any relevant statutes, to issue debentures and other securities, whether outright or as collateral
security for any debt, liability or obligations of the Company or any third party provided that the
Board shall restrict the borrowings of the Company and exercise all powers of control exercisable by
the Company in relation to its Subsidiary, so as to secure (in relation to its Subsidiaries so far as the
Board is able) that the aggregate principle amount from time to time of all borrowings by the Group
(excluding any money owed between members of the Group) subject to the Articles shall not at any
time without the previous sanction of an ordinary resolution of the Company exceed an amount equal
to five times the Adjusted Capital and Reserves (as defined in the Articles).
9.13 Directors
(a) The provisions in the Articles governing directors’ interests are divided into the position before
1 October 2008 and after 1 October 2008. Before 1 October 2008, save as mentioned below in
sub-paragraph (f), a director shall not vote in respect of any matter in which he has a material
interest (otherwise than by virtue of his interests in shares or debentures or other securities of,
or otherwise in or through, the Company). A director shall not be counted in the quorum at a
meeting in relation to any resolution on which he is debarred from voting. After 1 October 2008
a director must avoid a situation where he has, or can have a direct or indirect interest that
conflicts or may conflict with the Company’s interest.
(b) The relevant provisions of the Articles in relation to directors’ interests were amended on 24
April 2008 so as to provide that on 1 October 2008 or such later date on which section 175 of
the 2006 Act comes into effect the Board may, in accordance with the Articles, authorise a
matter proposed to it which would, if not authorised, involve a breach by the director of his
duty under the Companies Acts to avoid a situation in which he has, or can have, a direct or
indirect interest that conflicts, or possibly may conflict, with the Company’s interests.
(c) Provided that the director has disclosed to the Board or, if such interest arises post 1 October
2008 the Board has approved, the nature and extent of his interest as required by the Company
Acts, the directors may despite his office:
(i) hold any other office or place of profit with the Company (except that of Auditor) in
conjunction with his office of Director for such period, subject to the provisions of the
Companies Acts, upon such terms as the Board may determine and may be paid such
extra remuneration therefore (whether by way of salary, commission, participation in
profits or otherwise) as the Board may determine and such extra remuneration shall be
in addition to any remuneration provided for by or pursuant to any other Article;
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(ii) act by himself or his firm in a professional capacity for the Company (otherwise than as
Auditor) and he or his firm shall be entitled to remuneration for professional services as
if he were not a director; or
(iii) be or become a director or other officer of, or otherwise interested in, any company
promoted by the Company or in which the Company may be interested or as regards
which it has any power of appointment.
(d) A director shall not be required, by reason of being a director (or by reason of the fiduciary
relationship established though being a director), to account to the Company for any
remuneration or other benefit which he derives from or in connection with any matter which
has been authorised by the Board pursuant to the Articles or by ordinary resolution of the
Company (subject to any terms, limits or conditions attaching to that authorisation) arising
from any office or employment, transaction or assignment or interest in any body corporate
which the Director is permitted to hold or enter into. No transaction or arrangement authorised
in accordance with the Articles shall be avoided on the grounds of any such remuneration,
benefit or interest.
(e) A director is not under any duty to the Company in respect of any information which he obtains
or possess through any position other than as a director of the Company and in respect of which
he owes a duty of confidentiality to another person, and is not in breach of any duties owed to
the Company pursuant to the Companies Acts if he fails to disclose such confidential
information to the Board or to the Company or if he fails to use or apply that information in
performing his duties as a director.
(f) A director shall (in the absence of material interests other than those indicated below) be
entitled to vote (and be counted in the quorum) in respect of any resolution concerning any of
the following matters:
(i) the giving of any guarantee, security or indemnity in respect of money lent by him or
obligations undertaken by him for the benefit of the Company or any of its subsidiary
undertakings;
(ii) the giving by the Company or any of its Subsidiaries of any guarantee, security or
indemnity to a third party in respect of a debt or obligation of the Company or any of its
Subsidiaries in respect of which such director has himself given an indemnity or that he
has guaranteed or secured in whole or in part;
(iii) any transaction for the subscription for shares, debentures or other securities of the
Company or any of its Subsidiaries issued or to be issued pursuant to any offer or
invitation to members or debenture holders of the Company or any class thereof or to
the public or any section thereof, or to underwrite or sub-underwrite any such shares,
debentures or other securities;
(iv) any transaction in which such director is interested by virtue of his interest in shares or
debentures or other securities of the Company or by reason of any other interest in or
through the Company;
(v) any transaction concerning any other company in which he is interested directly or
indirectly whether as an officer, shareholder, creditor or otherwise howsoever provided
that he does not hold an interest in more than one per cent. of the shares in that company;
(vi) any transaction concerning the adoption, modification or operation of a superannuation
fund or retirement, death or disability benefits scheme that relates both to directors and
employees of the Company or of any of its subsidiaries and that does not accord to any
director as such any privilege or advantage not generally accorded to the employees to
whom such scheme or fund relates;
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(vii) any transaction concerning any insurance (or after 1 October 2008 the granting of any
indemnities) which the Company is empowered to purchase and/or maintain for or for
the benefit of any directors of the Company;
(viii) any transaction involving the adoption of an arrangement for the benefit of employees
of the Company or of any of its subsidiaries under which the director benefits in a
similar manner to the employees and that does not accord to any director as such any
privilege or advantage not generally accorded to the employees to whom such
arrangement relates;
(ix) before 1 October 2008, (save in relation to any matter concerning or directly affecting
his own participation therein), any transaction involving the adoption or modification of
any executive share option scheme operated by the Company and approved by the Inland
Revenue under the Income and Corporation Taxes Act 1988; and
(x) after 1 October 2008, any proposal under which he may benefit concerning the provision
to directors of funds to meet expenditure incurred or to be incurred by them in defending
proceedings or in connection with any application under any of the provisions
mentioned in the Companies Acts or otherwise enabling any such person to avoid
incurring that expenditure.
(g) The non-executive directors shall be paid such remuneration by way of fees for their services
as may be determined by the Board subject to any maximum limit imposed by ordinary
resolution of the Company. The directors shall also be entitled to be repaid by the Company all
reasonable hotel expenses and other expenses of travelling to and from board meetings,
committee meetings, general meetings or otherwise incurred while engaged in the business of
the Company.
(h) Any director of the Company who holds any executive office or who serves any committee, or
who other performs services which in the opinion of the directors are outside the scope of the
ordinary duties of a director, may be paid such extra remuneration by way of salary,
commission or otherwise as the directors may determine.
(i) The directors and officers of the Company may be indemnified against all costs, charges,
expenses, losses and liabilities which they may incur in the execution of the duties of their
office and the directors may exercise all the power of the Company to grant those indemnities
including monies incurred by any director in defending himself in any proceedings, civil or
criminal which relate to anything done or omitted to be done by him as officer or employee of
the Company, including any investigations by a regulatory authority.
(j) One-third of the directors are obliged to retire by rotation at every AGM. The directors are eligible
for re-election at the third AGM after the AGM at which they were elected. Any director
appointed by the Board holds office only until the next AGM, when he is eligible for re-election.
(k) Unless and until otherwise determined by ordinary resolution of the Company, the directors
(other than alternate directors) shall not be less than three or more than ten in number.
9.14 Capitalisation of profits
The Company may, upon the recommendation of the Board, pass an ordinary resolution to the effect
that it is desirable to capitalise all or any part of the amount for the time being standing to the credit
of any reserve or fund (whether or not available for distribution) or to the credit of any share premium
account or any capital redemption reserve and accordingly that such amount be set free for
distribution among the members of any class of members who would be entitled thereto if distributed
by way of dividend and in the same proportions, on the footing that the same be not paid in cash but
applied either in or towards paying up the amounts for the time being unpaid on any shares in the
Company held by such members respectively or in payment up in full of unissued shares, debentures
or other obligations of the Company, to be allotted and distributed credited as fully paid among such
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members, or partly in one way and partly in the other, and the board shall give effect to such resolution
provided that, for the purposes of this Article, a share premium account and a capital redemption
reserve may be applied only in the paying up of unissued shares to be allotted to such members
credited as fully paid.
9.15 Electronic communications
The Company may communicate electronically with its members in accordance with the provisions
of the Companies Acts.
9.16 CREST and Uncertificated Securities
(a) The Articles are consistent with membership and allow for the holding and transfer of shares
in uncertificated form.
(b) The Company shall also conform with the terms of the 2001 Regulations, in maintaining
Uncertificated Shares in the capital of the Company.
10. DIRECTORS INTERESTS
10.1 Board of Directors
The Directors, their functions within the Company and brief biographies are set out in paragraph 7 of
Part V of this document.
10.2 Other directorships
In addition to the Company, the Directors hold or have held in the past 5 years the following
directorships:
Director Current directorships Past directorships
Domino’s Pizza Group Ltd
DP Realty Ltd
DP Capital Ltd
The American Pizza Company Ltd
Live Bait Ltd
DP Group Developments Ltd
DP Pizza Ltd
DP Newcastle Ltd
DPGS Ltd
Realprojects Limited
Christopher
Moore
Domino’s Pizza Group Ltd
DP Realty Ltd
DP Capital Ltd
Live Bait Ltd
DP Group Developments Ltd
DP Peterborough Ltd
DP Newcastle Ltd
DP Milton Keynes Ltd
DPG Holdings Ltd
Dominoid Ltd
Full House Restaurants Ltd
DP Pizza Ltd
The American Pizza Company Ltd
Triple ‘A’ Pizza (Norwich) Ltd
DPGS Ltd
DP Newcastle and Sunderland Ltd
DPGL Birmingham Ltd
Stephen Hemsley
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Director Current directorships Past directorships
DP Realty Ltd
DP Capital Ltd
Domino’s Pizza Group Ltd
International Franchise Systems, Inc.
DP Pizza Ltd
The Celebrated Group plc
(in liquidation)
DPGS Ltd
UCM Group plc
Hamilton Private Capital (UK)
Limited (dissolved)
Colin Halpern
Domino’s Pizza Group Ltd
DP Realty Ltd
DP Newcastle Ltd
DP Capital Ltd
Live Bait Ltd
DP Group Developments Ltd
DP Peterborough Ltd
DP Pizza Ltd
DP Milton Keynes Ltd
DPG Holdings Ltd
The Bulb Man (UK) Ltd
The American Pizza Company Ltd
DPGL Birmingham Ltd
Health Club Holding Ltd
Holmes Place Holdings Ltd
Triple ‘A’ Pizza (Norwich) Limited
Realprojects Ltd
DPGS Ltd
DP Newcastle and Sunderland Ltd
Health Club Group Plc
Holmes Place International Holdings
Ltd
Holmes Place Health Clubs Ltd
Holmes Place Bodycare Ltd
Holmes Place Equipment Procurement
Ltd
Holmes Place Management Ltd
HPH Finance Holdco UK Ltd
Holmes Place Leisure Ltd
Holmes Place Leisure 2 Ltd
Future Fitness Ltd
Holmes Place (Ealing) Ltd
Holmes Place (Hammersmith) Ltd
Holmes Place (Kingston) Ltd
Holmes Place (Putney) Ltd
Rhodes-Cooke Healthcare Ltd
Holmes Place (Education) Ltd
Holmes Place Leisure 3 Ltd
Cardpoint Ltd
Holmes Place (Dorset) Ltd
(now dissolved)
Holmes Place (Oxford Street) Ltd
(now dissolved)
Holmes Place Family Fitness Ltd
(now dissolved)
Holmes Place (Bromley) Ltd
(now dissolved)
Holmes Place (Hampstead) Ltd
(now dissolved)
Holmes Place City Ltd
(now dissolved)
Holmes Place Concept Training Ltd
(now dissolved)
Holmes Place Ltd
(now dissolved)
Onyxfield Ltd
(now dissolved)
Lee Ginsberg
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Director Current directorships Past directorships
Prestbury Investment Holdings Ltd
Seymour Pierce Holdings Ltd
Play Holdings Ltd
Sonoma Ltd
Saracens Ltd
Syncbeam Ltd
English Wines Group Plc
Brendon Street Securities Ltd
Brendon Street Investments Ltd
Moneypitch Company Ltd
RT Marketing Ltd
PIHL Property Holdings Ltd
Premier Team Promotions Ltd
Premier Team Holdings Ltd
Networkers International Plc
PIHL Equity Holdings Ltd
British Seafood Distribution Group
Holdings Ltd
British Seafood Group Holdings Ltd
PIHL Equity Holdings Ltd
PIHL Property Administration Ltd
The Lord’s Taverners Ltd
Networkers International plc
PIHL Equity Assessments Ltd
Networkers International (UK) plc
PIHL Equity Administration Ltd
Current partnershipsPIHL Property LLP
PIHL Equity LLP
Saracens Property Investments LLP
Prestbury Two LLP
Prestbury (Scotland) Limited
Partnership
Prestbury 1 Limited Partnership
The Greenhouse Fund Ltd
Healthcare Enterprise Group plc
Electric Word plc
WILink plc
Invox plc
Oak Bay Ltd
Extreme Group Ltd
Investment Management Holdings plc
Urbium plc
Premier Rugby Ltd
Spaces Personal Storages Ltd
The Mill Hill School Foundation
Harvey Thorneycroft Ltd
Columbus Group plc
English Rugby Partnership Ltd
Maybeat Limited
Nigel Wray
HS Real LLC
Cheval Commercial Finance Ltd
Cheval Specialist Bridging Ltd
Cheval Bridging Finance Ltd
Cheval Property Developments Ltd
Cheval Finance Ltd
Cheval Property Finance plc
Credit Investment Limited
Ambition Capital Limited
Red Hot Concepts Inc.
Garden State Fresh LLC
Universal Services Group Inc
NPS Technology Group Inc
Medtrx Holdings LLC
Medtrx Capital LLC
Dayenn Ltd
Restaurant House LtdColin Halpern
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201
Director Current directorships Past directorships
Britvic plc
Spice plc
Old Buckenham Hall (Brettenham)
Educational Trust Ltd
Old Cannon Holdings Ltd
Old Cannon Brewery Ltd
Greene King Plc
The Belhaven Group Ltd
Beards Of Sussex Ltd
Country Style Inns Ltd
Greene King Acquisitions No.2 Ltd
Greene King Neighbourhood Estate
Pubs Ltd
Greene King Neighbourhood Pub
Holdings Ltd
Greene King Retailing Parent Ltd
Greene King Retailing Ltd
Greene King Services Ltd
Greene King Pension Scheme Ltd
Pubco plc
Canndhu Ltd
Countryside Inns & Hotels Ltd
Greene King Brewing and Retailing
Ltd
Greene King Retail Services Ltd
Beards of Sussex Group Ltd
Greene King Leasing No. 1 Ltd
Greene King Leasing No. 2 Ltd
Old English Inns Trustees Company
Ltd
Michael Shallow
The Prestbury Group
Cenkos Channel Islands Ltd
Cenkos Securities plc
Cenkos Fund Management Ltd
Cenkos Fund Managers Ltd
SEC Investment Trust
Fishers International (UK)
I Value plc
Prestbury Residual Limited
UBC Media Group plc
Strategic Equity Capital plc
UBC Media Group plc
UBC Media Group Trustees Ltd
John Hodson Ltd
Cooper Gay (Holdings) Ltd
Kaupthing Singer & Friedlander
Group plc
Clarke London Ltd
PC&W Properties Ltd
Sinjul Investments Ltd
Ancomass Ltd
Kaupthing Singer & Friedlander Ltd
Singer & Friedlander Holdings Ltd
Singer & Friedlander Investment
Management Ltd
Singer & Friedlander Investment
Properties Ltd
Hillgrove Developments (North West)
Ltd
Haxted Investment Management Ltd
53 Fulham Park Gardens Ltd
Singer & Friedlander Investment
Management Holdings Ltd
Boddington Hill Management
Company Ltd
Coventbrook Limited
Gilbert Estate Ltd
Bread Street (Singer & Friedlander
Life & Pension Trust) Ltd
Bread Street Pension Trust Ltd
Sharepart Ltd
Singer & Friedlander Securities Ltd
Inter$link Limited
John Hodson
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Director Current directorships Past directorships
Camelot Group plc
Camelot Global Services Ltd
National Lottery Enterprises Ltd
CISL Ltd
Camelot Lotteries Ltd
Blue Sonic Ltd
The Press Complaints Commission
Ltd
The Born Free Foundation Ltd
Mulberry’s of Beaconsfield Ltd
RAC plc
Wyevale Garden Centres Ltd
Incorporated Society of British
Advertisers Ltd
The Camelot Foundation
The Advertising Standards Authority
Ltd
WACL Forum Ltd
WACL Ltd
Dianne
Thompson
The Sun Hotel Hitchin Ltd
Morrells of Oxford Ltd
Greene King Leisure Holdings Ltd
Greene King Leisure Pub Holdings
Ltd
Musicmeadow Ltd
Repairdesign Ltd
Sapphire Food North East No. 1 Ltd
Sapphire Food North West No. 3 Ltd
Sapphire Food South East No. 4 Ltd
Sapphire Food South West No. 2 Ltd
Sapphire Rural Destination No. 5 Ltd
Shopgoal Ltd
Greene King Retailing (No. 2) Ltd
Rushmere Sports Club Ltd
Belhaven Brewery Company Ltd
Greene King E Ltd
Greene King D Ltd
Greene King C Ltd
Greene King B Ltd
Greene King A Ltd
The Big Pub Company Ltd
Dalgety Taverns Ltd
Wireland Ltd
Unicorn Inns Ltd
Patcham 1995 Ltd
Greene King (Leasing) Ltd
Greene King (Thos Peatling) Ltd
Rayment & Company Ltd
Greene King Employment Services
Ltd
Greene King (Biggleswade) Ltd
Belhaven Finance Ltd
Hartford End Limited
T. D. Ridley & Sons Limited
T. D. Ridley & Sons (Brewers)
Limited
The Magic Pub Company Ltd
Old English Pubs Ltd
Old English Inns Ltd
Michael Shallow
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10.3 (a) Save as disclosed in paragraph 10.3(b) below, none of the Directors:
(i) has any convictions in relation to fraudulent offences for at least the previous 5 years; or
(ii) has been declared bankrupt or been a director or member of the administrative,
management or supervisory body of a company or a senior manager of a company at the
time of any receivership, compulsory liquidation or creditors’ voluntary liquidation for
at least the previous 5 years; or
(iii) has been subject to any official public incrimination and/or sanctions by any statutory or
regulatory authority (including designated professional bodies) or has ever been
disqualified by a court from acting as a director of a company or from acting as a
member of the administrative, management or supervisory bodies of a company or from
acting in the management or conduct of the affairs of any company for at least the
previous 5 years.
(b) John Hodson was a director of Ancomass Limited, he was appointed pre-5 June 1992 and
resigned on 31 December 2004. This company is now in liquidation.
John Hodson was a director of Singer & Friedlander Holdings Limited, he was appointed pre-
5 June 1992 and resigned on 31 December 2004. This company is now in liquidation.
Michael Shallow was a director of Pubco plc, he was appointed on 16 February 1995 and
resigned on 9 January 2006. This company is now in liquidation.
Colin Halpern was a director of The Celebrated Group plc, he was appointed on 15 December
1997. This company is now in liquidation.
Colin Halpern was a director of Restaurant House Limited (a subsidiary of The Celebrated
Group plc), he was appointed on 24 June 1994. This company is now in liquidation.
10.4 Director’s interests in the Company’s issued share capital
(a) The interests (all of which are or will be beneficial unless otherwise stated and other than with
respect to the reversionary interests held over Ordinary Shares) of the Directors, their
immediate families and persons connected with the Directors (within the meaning of section
252 of the 2006 Act) in the share capital of the Company, other than with respect to
reversionary interests held over Ordinary Shares (as detailed at paragraph 10.5(c) below)
which:
(i) have been notified to the Company pursuant to the provisions of the Companies Acts; or
(ii) are required to be entered in the register of directors’ interests maintained under the
provisions of the Companies Acts; or
(iii) are interests of a Connected Person which would, if the Connected Person were a
Director,
be required to be disclosed under (i) or (ii) above and the existence of which is known to or
could with reasonable diligence be ascertained by that Director as at 13 May 2008 (the latest
practicable date prior to publication of this document) are as follows:
Number of PercentageOrdinary Shares of issued
at date of OrdinaryDirector this document Share capital
Colin Halpern(i) 13,007,328 7.99%
Stephen Hemsley(ii) 7,030,000 4.32%
Christopher Moore 2,880,076 1.77%
Nigel Wray(iii) 36,495,118 22.42%
Michael Shallow(iv) 48,000 0.03%
John Hodson(v) 48,000 0.03%
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(i) 13,007,328 Ordinary Shares are held by HS Real. HS Real is owned by a discretionary trust, the beneficiaries
of which are the adult children of Colin and Gail Halpern.
(ii) 3,200,000 Ordinary Shares are held by CTG Investment Limited, a discretionary trust of which Stephen Hemsley
and his family are potential beneficiaries. 3,590,000 Ordinary Shares in total are held by The Stephen Hemsley
Trust Nos. 1 to 5, a discretionary trust of which Stephen Hemsley and his family are potential beneficiaries.
240,000 Ordinary Shares are held in Stephen’s self invested pension plan.
(iii) 15,961,129 Ordinary Shares are held by RBC Trustees (CI) Limited (previously held by Abacus (CI) Limited
which merged with RBC Trustees (CI) Limited), 828,585 Ordinary Shares are held by Damor Investments
Limited, 177,600 Ordinary Shares are held by Abacus (Nominees) Limited and 137,600 Ordinary Shares are
held by S & F Nominees Limited, all of which are beneficially owned by the family trusts of Nigel Wray,
principal beneficiaries of which are Nigel Wray’s children. 19,377,404 shares are held by Syncbeam Limited, a
company wholly owned by Nigel Wray. 12,800 Ordinary Shares are held by Lucy and Joe Wray.
(iv) 48,000 Ordinary Shares are held by Brewin Dolphin Securities Limited on behalf of Michael Shallow.
(v) 48,000 Ordinary Shares are held in John Hodson’s self invested pension plan.
10.5 Reversionary interests and share options
(a) The Company has set up the EBT which operates a long-term incentive plan under which
senior executives of the Company may be incentivised by the grant to them of reversionary
interests over a portion of the assets of the trust.
(b) Reversionary interests over assets held in the EBT are capable of vesting within a five year
period should certain performance criteria be met, based on earnings per share and net profit
of the Company before tax (as further described in paragraph 15 (Share Option Schemes)
below).
(c) The following is a summary of the reversionary interests in the following number of Ordinary
Shares held by each of the executive Directors as at 13 May 2008 (the latest practicable date
prior to publication of this document):
No of ordinary shareswith reversionary interests
Director as at 13 May 2008
Stephen HemsleyGrant date27 April 2006 1,600,000
6 March 2007 1,600,000––––––––3,200,000
Christopher MooreGrant date27 April 2006 1,120,000
8 March 2007 1,120,000
22 February 2008 1,260,000––––––––3,500,000
Lee GinsbergGrant date31 October 2005 1,200,000
6 March 2007 400,000
22 February 2008 750,000––––––––2,350,000––––––––
Total 9,050,000
–––––––––(d) Save as disclosed in paragraphs 10.4 and this paragraph 10.5, immediately following
Admission, no Director nor any Connected Person will have any interest, whether beneficial or
non-beneficial, in the share or loan capital of the Company or any of its Subsidiaries. For the
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purposes of the Companies Acts, the Directors are considered to have an interest in Ordinary
Shares acquired by the EBT from time to time, as they are potential beneficiaries of the EBT.
10.6 Directors interests in transactions
(a) Save as disclosed in 10.6(b) and Paragraph 7 (Related Party Transactions) of this Part VIII, no
Director has or has had any interest in any transaction which is of an unusual nature, contains
unusual terms or is significant in relation to the business of the Group and which was effected
during the current or immediately preceding financial year or during any earlier financial year
and remains in any respect outstanding or unperformed.
(b) There are no potential conflicts of interest between any duties owed by the Directors to the
Company and their private interests and/or other duties.
(c) There are no loans or guarantees granted or provided by any member of the Group to or for the
benefit of any Director.
11. DIRECTORS’ SERVICE AGREEMENTS, REMUNERATION AND BENEFITS
11. 1 Directors’ service agreements
Agreements (or in the case of the Non-Executive Directors (except Colin Halpern), letters of
appointment) have been entered into between the Company and the Directors, the principal terms of
which are summarised below:
(a) Lee Ginsberg is employed by the Company in the post of Chief Financial Officer. He has
entered into a service agreement with the Company which is subject to termination by the
Company giving 12 months’ notice to Lee or Lee giving the Company 6 months’ notice.
During the financial year ended 30 December 2007, Lee received a salary of £180,000, was
provided with additional benefits to the total amount of £31,000, and the Company made
contributions in the total amount of £18,000 to his pension plan. The Company is obliged to
provide Lee with private medical insurance, permanent health insurance, life assurance and
travel insurance. In the financial year ended 30 December 2007, Lee received a bonus of
£180,000.
(b) Stephen Hemsley is employed by the Company in the post of Executive Chairman. He has
entered into a service agreement with the Company which is subject to termination by the
Company giving 12 months’ notice to Stephen or Stephen giving the Company 6 months’
notice. During the financial year ended 30 December 2007, Stephen received a salary of
£240,000, benefits to the total amount of £35,000, and the Company made contributions in the
total amount of £24,000 to his pension plan. The Company is obliged to provide Stephen with
private medical insurance, permanent health insurance, life assurance and travel insurance. In
the financial year ended 30 December 2007, Stephen received a bonus of £240,000.
(c) Christopher Moore is employed by the Company in the post of Chief Executive Officer. He has
entered into a service agreement with the Company which is subject to termination by the
Company giving 12 months’ notice to Christopher or Christopher giving the Company
6 months’ notice. During the financial year ended 30 December 2007, Christopher received a
salary of £200,000 was provided with benefits in the total amount of £24,000, and the
Company made contributions in the total amount of £19,000 to his pension plan. The Company
is obliged to provide Christopher with private medical insurance, permanent health insurance,
life assurance and travel insurance. In the financial year ended 30 December 2007, Christopher
received a bonus of £200,000. Christopher’s appointment was renewed at the AGM of the
Company held on 24 April 2008.
(d) Each of the service agreements referred to above imposes on the relevant Director an obligation
to retain the confidential nature of the Company’s confidential information and trade secrets.
Each service agreement contains post termination restrictive covenants which provide that the
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relevant Director may not, for a period of six months after the termination of his employment,
less any period spent on garden leave, be involved in any capacity in any business which
competes with that of the Company or for a period of 12 months solicit customers or employees
for the benefit of a business which competes with that of the Company or solicit or interfere
with the supply of goods from any suppliers to the Company for the benefit of a business which
competes with the Company.
(e) The Non-Executive Directors (other than Colin Halpern) are appointed on 3 year letters of
appointment with the Company terminable at one months notice by the Board.
(f) Nigel Wray has entered into a letter of appointment with the Company as a Non-Executive
Director, he was originally appointed on 15 November 1999. Nigel Wray is not directly
remunerated by the Company and instead a management fee is paid to Brendon Street
Investments Limited, a company of which Nigel is director, in respect of his services. During
the financial year ended 30 December 2007, Nigel received fees in the total amount of £28,000.
Nigel’s appointment was renewed at the AGM of the Company held on 24 April 2008.
(g) John Hodson has entered into a letter of appointment with the Company for his role as a Non-
Executive Director. He was originally appointed on 14 February 2005, however this initial term
expired on 14 February 2008 and was renewed at the AGM of the Company held on 26 April
2007. During the financial year ended 30 December 2007, John received fees in the total
amount of £30,000.
(h) Michael Shallow has entered into a letter of appointment with the Company dated 7 May 2008
for his role as a Non-Executive Director. During the financial year ended 30 December 2007,
Michael received fees in the total amount of £30,000.
(i) Dianne Thompson has entered into a letter of appointment with the Company dated 7 May
2008 for her role as a Non-Executive Director. During the financial year ended 30 December
2007, Dianne received fees in the total amount of £28,000.
(j) Pursuant to a management agreement dated 15 November 1999, Colin Halpern is seconded to
the Company from IFS. This agreement was subsequently novated to HS Real on 30 December
2007. The management fees are subject to annual review. During the financial year ended 30
December 2007, the Company paid a management fee of £240,000 (including expenses) in
respect of Colin’s services and Colin received a bonus of £100,000. Colin was appointed as
Non-Executive Vice Chairman of the Company at the beginning of 2008. Colin’s appointment
as a Non-Executive Director was renewed at the AGM of the Company held on 24 April 2008.
(k) There are no provisions in the agreements referred to in this paragraph 11.1 for compensation
payable upon early termination of any of the relevant Directors’ contracts or engagements. The
relevant Director may be entitled to submit a claim for damages for breach of contract should
his service contract or engagement be terminated early by the Company, in breach of contract.
(l) There are no service agreements existing or proposed between the Directors and the Company
or any of its subsidiaries which are not terminable within one year by the relevant party without
payment of compensation (other than statutory compensation).
(m) There is no arrangement under which any Director has agreed to waive future emoluments and
there has been no waiver of emoluments during the financial year immediately preceding the
date of this document.
(n) The aggregate remuneration and benefits in kind of the Directors of the Company in respect of
the financial year ended 30 December 2007 was £1,890,000. The aggregate remuneration and
benefits in kind of the Directors of the Group in respect of the financial year ending
31 December 2008 under the arrangements in force at the date hereof is expected to be
approximately £1,876,000. These figures include pension contributions made by the Company,
which totalled £61,000 during the financial year ended 2007.
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12. SIGNIFICANT SHAREHOLDERS
12.1 In addition to the interests of Directors disclosed in paragraph 10.4 (Director’s interests in theCompany’s issued share capital) above, as at 13 May 2008 (being the latest practicable date prior to
the publication of this document) the Company is aware of the following existing shareholders of the
Company who will be interested, directly or indirectly, in 3 per cent. or more of the issued share
capital of the Company immediately following Admission:
Percentageof issuedOrdinary
Number of Share capitalOrdinary at date of this
Shareholder Shares document
William Blair & Company 7,925,120 4.86%
Domino’s Pizza UK & IRL plc Employee Benefit Trust(i) 7,337,696 4.51%
Moonpal Singh Grewal 7,124,516 4.38%
Standard Life Investments Limited 7,893,627 4.85%
(i) Ogier Employee Benefit Trustee Limited hold the shares as trustee of the Domino’s Pizza UK & IRL plc Employee
Benefit Trust.
12.2 Save as disclosed in paragraph 10.4 (Director’s interests in the Company’s issued share capital) and
paragraph 12.1 above, the Company is not aware of any person who will, immediately following
Admission, be interested directly or indirectly in 3 per cent. or more of the issued share capital of the
Company. The Company is not aware of any arrangements the operation of which may at a subsequent
date result in a change of control of the Company.
12.3 Those interested, directly or indirectly, in 3 per cent. or more of the issued share capital of the
Company will not have different voting rights from other holders of shares.
13. EMPLOYEES
13.1 The number of employees of the Group (excluding franchisees) analysed by category of activity
during each of the last three financial years ended 2007 was as follows:
2007 2006 2005Category of employee Number Number Number
Administration 145 130 120
Production and distribution 171 157 146
Store employees 317 306 408
TOTAL 633 593 674
13.2 Between 30 December 2007 and 13 May 2008 (the latest practicable date prior to the publication of
this document) the number of employees, their categories of activity and geographical location has
not changed materially.
13.3 The Group’s business is almost entirely franchised which means that the Group has a small central
team and a much larger group of franchisees. As at 30 December 2007, the number of franchisees and
team members in the franchisees’ stores was approximately 12,000.
14. CORPORATE GOVERNANCE
14.1 Board of Directors
The Board comprises eight members, five of whom are Non-Executive Directors and meets regularly
throughout the year. All necessary information is supplied to the Directors on a timely basis to enable
them to discharge their duties effectively. Additionally, special meetings take place or other
arrangements are made when Board decisions are required in advance of regular meetings. Certain
matters are reserved for consideration by the Board (with other matters delegated to Board
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committees). The Board is responsible for leading and controlling the Company and in particular for
formulating, reviewing and approving the Company’s strategy, budget, major terms of capital
expenditure, acquisitions and disposals and senior personnel appointments. The Directors hold regular
Board meetings at which operating and financial reports are considered.
The Company adheres to principles embodied in the Combined Code to the extent appropriate for a
company of its size and nature of business. Details of non-compliance within that code are set out at
paragraph 8 (Corporate Governance) of Part V of this document. At present, the Board delegates
specific responsibilities to the committees as described below.
14.2 The Audit Committee
The Audit Committee is responsible for ensuring that the financial performance of the Group is
properly reported on and monitored through, amongst other things, the planning and review of the
Group’s annual and interim financial statements and the supervision of its Auditors in the review of
such financial statements. The committee meets not less than four times a year and the Company’s
Auditors, the Chairman, the Chief Executive, and the Chief Financial Officer may attend and speak at
meetings of the Audit Committee. The Audit Committee focuses particularly on the Group’s
compliance with legal requirements, accounting standards and the Listing Rules and on ensuring that
effective systems for internal financial control and for reporting non-financial operating data are
maintained. The ultimate responsibility for reviewing and approving the annual report and accounts
and interim statements will remain with the Board.
The Combined Code recommends that the Audit Committee should comprise at least three or in the
case of smaller companies, two members, who should all be independent non-executive directors, and
that at least one member should have recent and relevant financial experience. As the Company moves
from a smaller company into a size that will take it into the FTSE 350 the Board will consider the
requirement to appoint an additional non-executive director to the Audit Committe. The Audit
Committee is currently chaired by Michael Shallow and its other member is John Hodson.
14.3 The Remuneration Committee
The Remuneration Committee is primarily responsible for reviewing the performance of the
Executive Directors and senior employees of the Company and setting the scale and structure of their
remuneration. This committee meets not less than twice a year and has responsibility for determining,
within agreed terms of reference, the Company’s policy on the remuneration of senior executives and
specific remuneration packages for Executive Directors, including pension rights and compensation
payments. It is also responsible for making recommendations for grants of options under the Share
Schemes.
The Combined Code provides that the Remuneration Committee should comprise at least three or in
the case of smaller companies, two members, all of whom are independent non-executive directors.
The Remuneration Committee is currently chaired by John Hodson and its other members are Dianne
Thompson and Michael Shallow.
14.4 Nomination Committee
The Nomination Committee assists the Board in discharging its duties in relation to the composition
of the Board. The Nomination Committee is responsible for evaluating the balance of skills,
knowledge and experience on the Board, the size, structure and composition of the Board, retirements
and appointments of additional and replacement Directors and must make appropriate
recommendations to the Board on such matters. The Committee meets not less than twice a year and
otherwise as required.
The Combined Code provides that a majority of the members of the Nomination Committee should
be independent non-executive directors. The Nomination Committee is chaired by Dianne Thompson
and its other members are Michael Shallow and Colin Halpern.
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14.5 Internal financial controls
The Directors have overall responsibility for ensuring that the Group maintains internal controls to
provide reasonable assurance on the reliability of the financial information used within the business
and for safeguarding the assets. There are limitations in any system of internal controls and
accordingly, even the most effective system can only provide reasonable and not absolute assurance
with respect to preparation of the financial information and the safeguarding of the assets.
The key elements of internal and financial controls are as follows:
(a) Control Environment – the presence of a clear organisational structure and well-defined lines
of responsibility and delegation of appropriate levels of authority.
(b) Risk Management – business strategy and plans are reviewed by the Board.
(c) Financial Reporting – a comprehensive system of budgets and forecasts with monthly reporting
of actual results against targets.
(d) Control and Monitoring Procedures – ensuring authorisation levels and procedures and other
systems of internal financial controls are documented, applied and regularly reviewed.
14.6 Going concern
The Directors are satisfied that the Group has adequate resources to continue in existence for the
foreseeable future and for this reason, they continue to adopt the going concern basis of preparing the
financial statements.
14.7 Charitable donations
During 2006, the Special Olympics replaced the successful two-year association with Make-A-Wish
Foundation® UK as the Group’s new charity of choice. The Special Olympics is a voluntary
organisation, which specialises in year-round, local-level sports training for people with learning
disabilities as well as local, national and international competition.
The Group is involved with two separate charities, Special Olympics GB and Special Olympics
Ireland, in order to create opportunities for involvement by team members, right across the system.
During 2007 the Group donated a lump sum of £21,000 to Special Olympics GB and £10,000 to
Special Olympics Ireland.
15. SHARE OPTION SCHEMES
15.1 Domino’s Pizza Group Limited (Unapproved) Share Option Scheme
On 31 March 1999, the Group introduced the Domino’s Pizza Group Limited (Unapproved) Share
Option Scheme (the “Old Scheme”) in order to provide employee share incentives in the future and
to motivate, retain and reward Directors, employees and consultants who by their efforts are able to
influence the performance and success of the Company’s business. Options were granted to eligible
employees (being employees and Directors of the Company and its Subsidiaries who were not within
2 years of their contractual retirement age and who were not otherwise excluded by the relevant
legislation) over the shares in DPG. Such options were exercisable only on the condition that certain
performance levels were achieved by the Company. Only a certain percentage of options granted
could be exercised in a given year and a single employee was only entitled to hold a certain aggregate
number of options in relation to their total earnings per year.
The Old Scheme has now been superseded by the Unapproved Scheme which was introduced
pursuant to the admission of the Company to trading on AIM on 24 November 1999. The terms of the
Unapproved Scheme are set out in paragraph 15.2 below and, except as otherwise set out in paragraph
15.2(b) (Rollover Options) are identical to that of the Old Scheme.
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A total of 13,240,465 options over the shares in DPG were granted under the Old Scheme. Following
the introduction of the Unapproved Scheme on 24 November 1999 (as described in paragraph 15.2
below) no further options were granted.
15.2 Domino’s Pizza Employee Share Option (Unapproved) Scheme and Domino’s Pizza EmployeeShare Option (Approved) Scheme (the “1999 Schemes”)
(a) General
Pursuant to the Placing and in accordance with resolutions of the Board passed on
15 November 1999, the Company introduced the Domino’s Pizza Employee Share Option
(Unapproved) Scheme (the “Unapproved Scheme”) and the Domino’s Pizza Employee Share
Option (Approved) Scheme (the “Approved Scheme”) (together with the Unapproved Scheme,
the “1999 Schemes”).
The terms of the Approved Scheme are identical in all material respects to the Unapproved
Scheme, unless stated herein otherwise. The Approved Scheme is approved by the Inland
Revenue under the Income and Corporation Taxes Act 1988 (which confers certain tax relief’s
on participants). As at 13 May 2008 (the latest practicable date prior to publication of this
document), no options have been granted under the Approved Scheme.
Benefits under the Approved Scheme and Unapproved Scheme are not pensionable.
(b) Rollover options
Pursuant to the Placing and the introduction of the 1999 Schemes, all participants in the Old
Scheme were offered the opportunity to release their options over shares in DPG (the “Old
options”) in return for equivalent shares in the Company under the Unapproved Scheme (the
“Rollover options”). Rollover options would be exercisable within the same timeframes as the
Old options, and were given the same values, exercise price and performance targets.
This offer was made in accordance with the Group re-organisation, pursuant to which the
Company acquired the entire issued share capital of DPG. The Old options became exercisable
on the acquisition by the Company of DPG, but only to the extent that the performance target
was satisfied. In addition, six months from the acquisition occurring, the Old options were to
lapse to the extent that they had not been exercised. The participants in the Old Scheme were
therefore offered options over shares in the Company in exchange for their Old options to avoid
the situation in which benefits attaching to the Old options would be lost.
Participants in the Old Scheme were asked to agree to waive all rights they may have had under
the Old options in return for DPG procuring the grant to them by the Company of the same
number of Rollover options to acquire Ordinary Shares in the Company. Every participant in
the Old Scheme accepted this offer and agreed to hold. Rollover options under the Unapproved
Scheme on identical terms to the Old options surrendered.
(c) Eligibility under the 1999 Schemes
The 1999 Schemes are open to employees or full-time Directors of the Company and its
Subsidiaries (i.e. those who are obliged to work at least 25 hours a week in one or more Group
companies) and who are not otherwise excluded by the relevant legislation.
(d) Options under the 1999 Schemes
Options (which may relate to new or existing shares) can only be granted under the 1999
Schemes within the 6 weeks of the announcement by the Company of its final and/or interim
results for any period, or at any other times which the Directors consider to be sufficiently
exceptional. Options were also granted prior to the Placing and in the 6 week period following
the Placing.
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No payment is required for the grant of an option. Options are not transferable other than
where, by virtue of a participant’s death, they may be exercised by his personal representatives.
No options may be granted under the 1999 Schemes in any year which would cause the number
of shares in the Company issued or issuable under all share options granted in the previous 10
years, or issued in that period otherwise than pursuant to options, under the 1999 Schemes or
any other employees’ share scheme adopted by the Company, to exceed 10 per cent. of the
Company’s issued ordinary share capital at that time. Options granted on or prior to the
Placing, or options granted in return for the release of those held under the Old Scheme, are
not counted for these purposes.
(e) Limit on Individual Participation in the 1999 Schemes
Save where the Remuneration Committee determines otherwise, no option may be granted to
an individual if, at the time it is granted, it would cause the aggregate market value (as at the
date of grant) of the shares which he may acquire pursuant to options granted in the preceding
10 years, under the 1999 Schemes or any other share option scheme adopted by the Company,
to exceed 4 times his annual earnings. Options which have been released continue to count
against the individual’s entitlement, but options that have been exercised and options granted
on or prior to the Placing or options granted in return for the release of those held under the
Old Scheme, are excluded.
The aggregate market value (as at the date of grant) of shares under option to an individual at
any given moment pursuant to the Approved Scheme or any other approved executive share
option scheme established by the Company or an associated company shall not exceed
£30,000.
(f) Exercise Price of options
The price per Ordinary Share payable on the exercise of an option will not be less than the
higher of:
(i) Under the Approved Scheme:
(A) the market value of a share in the Company, as agreed with the Inland Revenue;
or
(B) should the Company become fully listed on the London Stock Exchange, the
middle market quotation of a share in the Company,
in either case on the day before the option is granted or such other day as may be agreed
with the Inland Revenue.
(ii) Under the Unapproved Scheme:
(A) the middle-market quotation for an Ordinary Share as derived from the Daily
Official List of the London Stock Exchange; or
(B) should the Company’s shares not appear in the Daily Official List, the value of a
share as reasonably determined by the Directors,
in either case on the day before the option was granted or some other day within the
30 days beforehand determined by the Directors.
In any event the price may not be less than the nominal value of an Ordinary Share if the
option is expressed to relate solely to new Ordinary Shares.
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(g) Exercise of options
The exercise of options granted under the 1999 Schemes depends on certain performance
conditions being reached by the Company. The remuneration committee is responsible for
management of the 1999 Schemes and has resolved that the exercise of options granted under
the 1999 Schemes will be subject to the condition that the growth in basic earnings per share
(“EPS”) in any financial year between the grant and exercise of the options exceeds the growth
in the Retail Price Index (“RPI”) in the previous financial year by at least 5 per cent.
For these purposes:
(i) On the date of grant, the Company’s EPS shall be based on the audited accounts for the
period ended immediately prior to the date of grant and the RPI shall be the figure for
the month to which those audited accounts are made up;
(ii) For each subsequent year, the Company’s EPS shall be based on the Company’s audited
accounts for that year and the RPI shall be the figure for the month to which those
audited accounts are made up; and
(iii) The RPI is the general index of retail prices (for all items) published by the Department
of Employment or, if that index is not published for the month in question, any
substituted index or index figures published by the Department of Employment.
The Directors may make adjustments to the method of calculating EPS to take account of any
factors considered by the Directors to be relevant.
An option may only be exercised in respect of:
(i) The first 331/3 per cent. of the Ordinary Shares comprised in that option if the
performance condition is satisfied for the first of the 3 years comprising the 3 year
period;
(ii) The next 331/3 per cent. of the Ordinary Shares comprised in that option if the
performance condition is satisfied in respect of the second of the 3 years comprising the
3 year period; and
(iii) The final 331/3 per cent. of the Ordinary Shares comprised in that option if the
performance condition is satisfied in respect of the last of the 3 years comprising the
3 year period.
Options normally lapse on cessation of employment. However, exercise is permitted:
(i) following cessation of employment in certain compassionate circumstances; otherwise
only at the Directors’ discretion; and
(ii) on a reconstruction, takeover or winding-up of the Company.
In such cases the performance conditions cease to apply, except that they continue to apply in
the case of normal retirement and the Directors have discretion as to whether they shall
continue to apply in the case of a reconstruction, takeover or winding-up.
(h) Rights attaching to shares
All Ordinary Shares allotted under the 1999 Schemes will rank equally with all other Ordinary
Shares of the Company for the time being in issue (except for any rights arising by reference
to a record date before the date of allotment).
(i) Variation of capital
In the event of any increase or variation of share capital, or (except in the case of the Approved
Scheme) of the payment of a capital dividend or of any other circumstances similarly affecting
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options, the Directors may make such adjustments as they consider appropriate to the number
of shares subject to options and the price payable on their exercise.
(j) Alterations to the 1999 Schemes
The Directors may at any time alter or add to the 1999 Schemes in any respect, provided that
the prior approval of the Company in general meeting is obtained for alterations or additions to
the advantage of participants to the rules governing eligibility, limits on participation, terms of
exercise, non-assignability of options and adjustment of options. Such prior approval is not
required for minor amendments for administrative advantage, to take account of a change in
legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for
participants or Group companies. Also, the above does not restrict the ability of the Directors
to adjust performance conditions to take account of supervening events (e.g. a variation of
share capital).
(k) Options granted
As at 13 May 2008, a total of 33,979,756 options have been granted pursuant to the
Unapproved Scheme. No options have ever been granted pursuant to the Approved Scheme.
During the financial year ended 30 December 2007, 1,090,536 options were granted. The
weighted average fair value of each option granted was 28.1p.
15.3 The EMI Scheme
(a) General
The Company established the Domino’s Pizza UK & IRL plc 2003 Enterprise Management
Incentive Scheme (the “EMI Scheme”) on 4 September 2004.
Benefits under the EMI Scheme are not transferable (except on death, to personal
representatives) and are not pensionable.
(b) Grants of options
Options may be granted during a 42-day period following shareholders’ approval and any
announcement of the Company’s interim and final results, and outside these periods if the
Remuneration Committee resolves that exceptional circumstances exist. Options may also be
granted during the period of 14 days from an individual first becoming an employee.
No options may be granted when there is a restriction on dealing pursuant to the Model Code
on directors’ dealings in securities as set out in the Listing Rules.
No options may be granted more than 10 years after the approval of the EMI Scheme by
shareholders.
The Board may grant options to subscribe for or purchase Ordinary Shares and the Trustee of
the Company’s employee share trust (with the agreement of the Board) may grant options to
purchase Ordinary Shares to eligible employees.
Eligible employees are all employees and executive directors of the Group who are required to
devote at least 25 hours per week or, if less, 75 per cent. of their working time to the Group.
(c) Option Exercise Price
The price per Ordinary Share at which options to subscribe may be exercised may not be less
than the nominal value of an Ordinary Share.
(d) Plan limits
The total number of unissued Ordinary Shares over which options may be granted when
aggregated with the total number of Ordinary Shares issued pursuant to share awards or made
issuable pursuant to options granted under any employees’ share scheme in the ten years
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immediately preceding the date upon which an option is granted, shall not exceed ten per cent
of the Company’s issued Ordinary Shares at the date of grant.
No options may be granted if the gross assets of the Company are more than £30 million.
(e) Limits on participation by employees
The maximum value of Ordinary Shares (as at the relevant dates of grant) over which an
individual may be granted options under the EMI Scheme when aggregated with any other
options granted under the EMI Scheme in the preceding three years shall not exceed £100,000
(or such other limit as appears from time to time in the relevant legislation).
(f) Performance Conditions
The Board may impose objective conditions on the exercise of options and these performance
conditions are specified at the date of grant. Existing options may be exercised if the
Company’s growth in EPS exceeds the growth in RPI by 5 per cent. per year.
(g) Exercise of options
Options may be exercised in whole or in part on or after the date specified by the Board at the
date of grant if the performance targets have been met. For the existing options, the Board
specified that they may, under normal circumstances, be exercised as follows:
• in respect of one-third of the shares following the first anniversary of the date of grant;
and
• in respect of a further one-third of the shares following the second anniversary of the
date of grant; and
• in respect of the final one-third of the shares following the third anniversary of the date
of grant
provided that the performance conditions have been met.
Options may be exercised earlier:
• if an option holder dies; or
• if an option holder ceases to be employed by a Group company due to injury, ill health,
disability, redundancy or retirement (approved options only); or
• if the option holder’s employing company or business is transferred outside the Group
(approved options only); or
• if the option holder ceases employment for any other reason and the Board agrees to the
exercise of his options; or
• if the Company is taken over, or there is a scheme of arrangement or a voluntary winding
up.
(h) Lapse
Options lapse on the earliest of the following events:
• the tenth anniversary of the date of grant; or
• the first anniversary of the option holder’s death; or
• six months after the date on which the option becomes exercisable for one of the reasons
detailed in (g) above; or
• the end of the specified period following a take over; or
215
• an option holder being declared bankrupt; or
• the surrender of the option.
(i) Issue of shares
Options may be granted over new or existing Ordinary Shares. Ordinary Shares will be allotted
or transferred to a participant no later than 30 days following the exercise of an option.
Ordinary Shares allotted upon the exercise of an option will, upon the holder’s name being
entered on the Company’s register of members, rank equally with the then issued Ordinary
Shares (save for any entitlements accruing to shares by reference to a record date preceding the
date of entry on the register of members).
(j) Change of control
If there is a change of control of the Company, option holders may, with the consent of the
acquiring company, exchange options over Ordinary Shares for new options of an equivalent
value over shares in the acquiring company.
(k) Variation of share capital
Subsisting options granted under the EMI Scheme may be adjusted to reflect variations in the
Company’s share capital.
(l) Amendments
The Board may amend the rules of the EMI Scheme provided that provisions relating to
eligible employees, the limits on the number of Ordinary Shares which may be utilised under
the EMI Scheme, the maximum entitlement of any participant and the basis on which options
may be adjusted to the advantage of option holders may not be altered without the prior
approval of shareholders of the Company in a general meeting (except for minor amendments
which benefit the administration of the EMI Scheme, or to take account of changes in
legislation or to maintain favourable tax, regulatory or exchange control treatment).
(m) Other
Participants in the EMI Scheme are not entitled to compensation for loss of options due to
termination of their office or employment and their rights and obligations are not affected by
participation in the EMI Scheme.
15.4 The Sharesave Plan
(a) General
The Company established the Domino’s Pizza UK & IRL plc Savings Related Share Option
Plan (the “Sharesave Plan”) on 30 November 2005.
The Directors supervise the operation of the Sharesave Plan.
Benefits under the Sharesave Plan are not transferable (except on death) and are not
pensionable.
(b) Eligibility
All employees, including full-time executive directors, of the Company and its UK subsidiaries
are eligible to participate in the Sharesave Plan following a qualifying period of employment.
The Directors have the discretion to invite other employees (who are not automatically eligible)
to join.
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(c) Grant of options
Invitations to apply for options may be distributed within six weeks following the preliminary
announcement of the Company’s final or the announcement of the Company’s interim results;
following the announcement of changes to relevant legislation; following the date on which a
new savings contract prospectus is announced or takes effect; and at other times under
exceptional circumstances.
No options may be granted more than 10 years after the approval of the Sharesave Plan by
shareholders.
(d) Option price
The price at which a participant may subscribe for shares on the exercise of an option shall not
be less than the greater of
• the nominal value of a share; and
• 80 per cent. of the market value of a share on the dealing day preceding the date of
invitation.
The price is subject to adjustment as specified in paragraph (i) below.
(e) Limits on the grant of options
The total number of unissued Ordinary Shares over which options may be granted when
aggregated with the total number of Ordinary Shares issued pursuant to share awards or made
issuable pursuant to options granted under any employees’ share scheme in the ten years
immediately preceding the date upon which an option is granted, shall not exceed ten per cent
of the Company’s issued Ordinary Shares at the date of grant.
(f) Limits on participation by employees
An option holder must take out a savings contract under which regular savings contributions
will be made over three years, which are (together with any bonus or interest) sufficient to
acquire the Ordinary Shares under the option. The monthly savings amount, when aggregated
with the amount which an employee is saving at any time under any other contracts, may not
be more than the statutory maximum, currently £250, nor less than the statutory minimum,
currently £5.
(g) Exercise of options
An option may usually be exercised in the six months after the end of the three-year savings
period.
Options may be exercised early in the event of injury, disability, retirement or redundancy.
Options may also be exercised in the event of a takeover, scheme of arrangement or voluntary
winding up of the Company. Alternatively, on a takeover, if the acquiring company agrees,
participants may exchange their options for options of a similar value over shares in the
acquiring company or its parent.
Where options are exercised early, they may only be exercised using the proceeds of the
savings contract at the time.
(h) Issue of shares
Options may be granted over new or existing Ordinary Shares. Ordinary Shares will be allotted
or transferred to a participant no later than 30 days following the exercise of an option.
Ordinary Shares allotted upon the exercise of an option will, upon the holder’s name being
entered on the Company’s register of members, rank equally with the then issued Ordinary
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Shares (save for any entitlements accruing to shares by reference to a record date preceding the
date of entry on the register of members).
(i) Capital re-organisation
If the issued share capital of the Company is varied on a capitalisation issue, rights issue or sub-
division, consolidation or reduction of capital, the directors may, on the advice of the
Company’s auditors, adjust the number of Ordinary Shares comprised in each option and/or the
relevant option price. No such adjustment may be made without the prior approval of HMRC.
(j) Amendments
The Directors may amend the Sharesave Plan provided that:
• no amendments may adversely affect a participant as regards options granted before the
date of amendment without his consent;
• no amendment to a key feature shall take effect without the prior approval of HMRC.
(k) Other
Participants in the Sharesave Plan are not entitled to compensation for loss of options due to
termination of their office or employment and their rights and obligations are not affected by
participation in the Sharesave Plan.
2005
Dividend yield (%) 3.75
Expected volatility (%) 17.0
Historical volatility – 250 day (%) 28.1
Risk-free interest rate (%) 4.2
Expected life of reversionary interests (years) 3.3
Weighted average exercise price (pence) 75.88
Weighted average share price (pence) 75.88
The expected life of the options is based on an average of exercise period, which is between
three to three and a half years.
The expected volatility reflects the assumption that the historical volatility is indicative of
future trends, which may also not necessarily be the actual outcome. No other features of
options were incorporated into the measurement of fair value, and non-market conditions have
not been included in calculating the fair value.
There were no options granted in the financial year ended 30 December 2007. The weighted
average fair value of each option granted in 2005 was 20.6p.
All of the Executive Directors are saving the maximum amount (£250 per month) which will
entitle them to 12,320 shares after the three year term.
15.5 The Employee Benefit Trust
(a) The Company has established Domino’s Pizza UK & IRL plc Employee Benefit Trust (“EBT”)
for the benefit of employees.
(b) The Employee Benefit Trust operates a long-term incentive plan under which senior executives
may be incentivised by the grant to them of reversionary interests over a portion of the assets
of the trust.
(c) Awards have previously been made to senior executives of the Company under the terms of the
current LTIP arrangement, at the discretion of the trustees upon the recommendation of the
Remuneration Committee. Future Awards may be considered by the trustees, again at the
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recommendation of the Company, to senior executives of the Company, however, these will be
made under the terms of the new LTIP arrangement, revised to take account of guidelines laid
down by the Association of British Insurers with regard to the remuneration of senior
employees and executives.
Current LTIP arrangements
General
(a) The EBT operates a long term incentive plan (“LTIP”) under which senior executives may be
incentivised by the grant to them of reversionary interest over a portion of the assets of the trust.
These interests are capable of vesting within a five year period, only if a strict and objective
performance criteria as recommended by the Remuneration Committee to the trustees of the
EBT (see below), is achieved.
(b) Upon the vesting of an LTIP award the senior executives are only entitled to the increase in
value as represented by the LTIP award, above the market value of the respective portion of the
assets of the EBT, from the original date of the LTIP award. If within the specified Employment
Period the senior executive ceases to hold any office or employment within the Group for any
reason other than retirement, ill health or disability, redundancy or the transfer of the
employment outside of the Group, the LTIP award will lapse. Should the senior executive cease
employment for any of the aforementioned reasons, he/she will be deemed a Good Leaver
under the terms of the LTIP and will be entitled to a proportionate vesting of their LTIP award,
provided that the overall performance criteria is met.
Vesting of an LTIP Award
(c) If at the date of vesting the EBT fund consists of Ordinary Shares in the Company, the trustees
of the EBT shall endeavour to satisfy the LTIP awards via the delivery of Ordinary Shares to
the senior executives in satisfaction of their respective LTIP awards.
Performance Condition
(d) The Remuneration Committee currently proposes to the trustees of the EBT a Performance
Condition based on earnings per share (“EPS”) and the Company’s profit before tax (“PBT”),
for their consideration. The Company’s EPS is compared by the Board at the end of each
Financial Year (“FY”) throughout the Performance Period with the Performance Condition,
until the earlier of the end of the Performance Period or such time as the Performance
Condition is met.
(e) If at any time during the Performance Period the EPS and PBT targets set are achieved, then
the Performance Condition is deemed to be met. As such, the LTIP award will no longer be
subject to the Performance Condition and will vest.
(f) If at any time during the Performance Period the senior executive becomes a Good Leaver,
or a Relevant Transaction should occur, a proportion of the LTIP award will vest, provided
that during the period commencing on the date on which the holder of an LTIP award
becomes a Good Leaver or the occurrence of a Relevant Transaction and ending on the
publication of the results of the Company for the fifth FY following the date of grant, the
Performance Condition is satisfied in full. For the avoidance of doubt an LTIP award or a
proportion thereof will not vest, until such time as the last of the Conditions is met and the
results of the Group for the fifth FY following the date of grant of the LTIP award have been
published.
(g) Should a senior executive become a Good Leaver and/or a Relevant Transaction take place
during the first half of the FY, the growth in the Company’s EPS is measured by reference to
the latest available audited financial statements. Alternatively, should a senior exective become
a Good Leaver and/or a Relevant Transaction take place during the second half of the FY, the
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growth in the Company’s EPS is measured by reference to the next available audited financial
statements.
Limits
(h) There are currently no overall or individual limits under the LTIP with regard to the awards.
(i) During the financial year ended 30 December 2007, further reversionary interests were granted
over 5,200,000 shares in the Company. As at 30 December 2007, the Trust held 6,609,878
shares, which had a historic cost of £4,402,810 on a market value of £11,352,465.
(j) As at 30 December 2007, reversionary interests in the over 11,632,000 shares in the Company
had been granted. Details of the reversionary interests held by the Executive Directors of the
Company are set out at paragraph 10.5 (Reversionary interests and share options) of this
document.
(k) The reversionary interests are capable of vesting provided that certain performance criteria
have been reached in respect of diluted EPS. Detailed below are the performance criteria to be
satisfied before reversionary interests currently held by the Executive Directors may vest:
Interestrepresented
Target by suchGrant price Target Net profit number
Grant date per interest Diluted EPS before tax of shares
31 October 2005 92.19p 8.44p £20,000,000 1,200,000
27 February 2006 130.16p 9.66p £22,300,000 480,000
27 April 2006 151.56p 9.66p £22,300,000 2,720,000
16 May 2006 146.97p 9.66p £22,300,000 320,000
6 March 2007 210.00p 12.50p £28,600,000 5,200,000
22 February 2008 212.0p 16.40p £37,000,000 3,790,000–––––––––
Totals 13,710,000
–––––––––15.6 The New Long Term Incentive Plan (“the New LTIP”)
(a) Operation
The Domino’s Pizza UK & IRL plc new Reversionary Interest Arrangement is also referred to
as the new long-term incentive plan, (“the New LTIP”).
Awards under the New LTIP may be granted by the trustee (the “Trustee”) of the Domino’s UK
& IRL plc Employee Benefit Trust (the “Trust”), following a recommendation from the
Remuneration Committee of the Board (the “Committee”). However, the Trustee shall not be
bound to follow any such recommendation.
The adoption of the Trust was approved by shareholders of the Company on 4 September 2003.
The New LTIP has been approved by the Trustee in its revised form.
(b) Eligibility
Any employee (including an executive director) of the Company and its subsidiaries will be
eligible to participate in the New LTIP, at the discretion of the Trustee.
(c) Awards under the New LTIP
The Trustee may make a New LTIP award over a proportion of the assets held by the Trust. The
participant will be entitled to the future growth in value of the assets comprised in such an
award, subject to the requirement for continued employment and the satisfaction of challenging
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performance conditions. Each award will be represented by a pre-determined number of
Ordinary Shares.
The assets representing each award will be allocated within the Trust for the purposes of the
award. The number of Ordinary Shares representing an award may be adjusted in the event of
a variation of capital or a similar event which affects Ordinary Shares generally.
Each award will be governed by a single deed of appointment made by the Trustee in favour of
the participant.
New LTIP awards may be granted within the period of six-weeks following the Company’s
announcement of its results for any period or at any other time when the Trustee (following
consultation with the Committee) determines there are exceptional circumstances which justify
the granting of awards.
A New LTIP award may not be granted more than 10 years after the Trust, in conjunction with
which the New LTIP operates, was initially approved by shareholders (in 2003).
No payment is required for the grant of an award. Awards are not transferable except on death
or to a permitted transferee (broadly, an immediate relative or family trust of the participant).
Awards are not pensionable.
(d) Individual limit
In any financial year, an employee may not receive an award representing assets having a value
in excess of 300 per cent. of his annual base salary in that financial year. In exceptional
circumstances, such as recruitment or retention, this limit is increased to 600 per cent. of an
employee’s annual base salary.
The current intention is that, in a financial year, awards will not normally be granted to an
eligible employee in respect of assets with a value exceeding 100 per cent. of annual base
salary and 100 per cent. of bonus paid for the previous financial year.
(e) Performance conditions
The vesting of the New LTIP awards will be subject to performance conditions.
The current intention is that the first grant of New LTIP awards to be made after Admission will
be subject to a performance condition based on average annual compound growth in the
Company’s adjusted earnings per share (“EPS”) over a three-year performance period.
This first grant of New LTIP awards will vest as follows:
Average annualcompound EPS growth Level of vesting
Less than RPI + 9% 0%
RPI + 9% 25%
RPI + 12% (or better) 100%
Between RPI + 9% and RPI + 12% Straight-line vesting between 25% and 100%
The Trustee may, following consultation with the Committee, set different performance targets
from those described above for future awards provided that, in the reasonable opinion of the
Committee, the new targets are not materially less challenging in the circumstances than those
described above.
The Trustee may, with the consent of the Committee and the participant, vary the performance
conditions applying to an existing award, without prior shareholder approval, if an event has
occurred which causes the Trustee to consider that it would be appropriate to amend the
performance conditions, provided the Trustee considers the varied conditions are fair and
reasonable and not materially less challenging than the original conditions would have been but
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for the event in question. However, the Trustee, with the consent of the Committee and the
participant, shall be required to amend the performance condition (to the extent necessary) in
the event of any variation in share capital so as to ensure that the participant is not adversely
affected in any way.
(f) Vesting of the New LTIP awards
The New LTIP Awards normally vest three years after grant to the extent that the applicable
performance conditions (see above) have been satisfied and provided the participant is still
employed in the Company’s group.
(g) Leaving employment
As a general rule, an award will lapse upon a participant ceasing to hold employment or be a
director within the Company’s group.
However, if a participant ceases to be an employee or a director because of his death, ill-health,
disability, redundancy, retirement or his employing company or the business for which he
works being sold out of the Company’s group then his award will vest on the date when it
would have vested if he had not ceased such employment or office, subject to the performance
conditions measured at that time.
(h) Corporate events
In the event of (i) a takeover or winding up of the Company (not being an internal corporate
reorganisation) or (ii) a demerger, special dividend or other similar event which the Board
determines would substantially affect the current or future value of awards, all awards will vest
early subject to the extent that the performance conditions have been satisfied at that time (or,
in the reasonable opinion of the Trustee (following consultation with the Committee), would
have been likely to have been met had the performance period run its full course).
(i) Overall New LTIP limits
The assets over which awards may be awarded may include new issue Ordinary Shares,
treasury shares or Ordinary Shares purchased in the market.
In any ten calendar year period, the Company may not issue (or grant rights to issue) more than
10 per cent of the issued ordinary share capital of the Company under the New LTIP and any
employee share plan adopted by the Company.
Treasury shares will count as new issue Ordinary Shares for the purposes of this limit unless
institutional investors decide that they need not count. For the avoidance of doubt, Ordinary
Shares purchased in the market (other than treasury shares) will not count towards this limit.
Ordinary Shares issued or to be issued under awards or options granted before the Company
was admitted to trading on the Alternative Investment Market will not count towards this limit.
The Trust will not hold more than 5 per cent. of the issued ordinary share capital of the
Company without (i) prior shareholder approval or (ii) agreeing in writing to waive the voting
rights in respect of Ordinary Shares held in excess of 5 per cent. of the issued ordinary share
capital of the Company.
(j) Alterations to the New LTIP
The Trustee may, with the consent of the Committee, at any time, amend the New LTIP in any
respect, provided that the prior approval of shareholders is obtained for any amendments that
are to the advantage of participants in respect of the rules governing eligibility, limits on
participation, the overall limits on the issue of Ordinary Shares or the transfer of treasury shares
and the basis for determining a participant’s entitlement to, and the terms of, the Ordinary
Shares or cash to be acquired.
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The requirement to obtain the prior approval of shareholders will not, however, apply to any
minor alteration made to benefit the administration of the New LTIP, to take account of a
change in legislation or to obtain or maintain favourable tax, exchange control or regulatory
treatment for participants or for any company in the Group.
15.7 Pensionability
No benefits received under any of the share option schemes described at paragraphs 15.1 to 15.6
above are pensionable.
16. PROPERTY, PLANT AND EQUIPMENT
16.1 The principal property of the Group is at Lasborough Road, Kingston, Milton Keynes MK10 0AB and
is a freehold office block and commissary. The freehold of this property is held by DP Group
Developments Limited, a Subsidiary of the Company.
16.2 As at 13 May 2008 (being the latest practicable date before publication of this document), the Group
has a total of 515 stores in operation, the vast majority of which are leased by franchisees.
16.3 During 2008, the Group will acquire freehold land for a new commissary and headquarters in Milton
Keynes and construction of this new site is expected to be completed towards the end of 2009. Project
costs of £25,000,000 are expected to be incurred. The Group has obtained a credit facility from
Barclays Bank plc in order to fund this project, details of which are provided at paragraph 18.3(d)
(New financing arrangements) of this Part VIII.
16.4 The Group intend to expand their existing commissary at Penrith during 2008 at an expected cost of
£4,000,000, which will double the capacity of that facility.
16.5 The Group operate a commissary in Naas, in the Republic of Ireland. The Group are looking to
expand this commissary in the future in order to meet increasing demand for the Group’s products in
Ireland.
16.6 The Group are also looking to establish a fourth commissary in the UK within the next 5 to 7 years,
thereby completed the structure anticipated as required for the desired eventual expansion of the
Group to 1,000 stores.
17. UNITED KINGDOM TAXATION
The following statements are intended only as a general guide to current UK tax legislation and to the current
practice of HM Revenue & Customs (“HMRC”) and may not apply to certain shareholders in the Company,
such as dealers in securities, insurance companies and collective investment schemes. They relate (except
where stated otherwise) to persons who are resident and ordinarily resident in the UK for UK tax purposes,
who are beneficial owners of Ordinary Shares and who hold their Ordinary Shares as an investment. Any
person who is in any doubt as to his or her tax position, or who is subject to taxation in any jurisdiction other
than that of the UK, should consult his or her own professional advisers immediately.
17.1 Dividends
(a) Under UK tax legislation, the Company is not required to withhold tax at source from dividend
payments it makes.
(b) Individual shareholders resident for tax purposes in the UK should generally be entitled to a
tax credit in respect of any dividend received equal to one-ninth of the amount of the dividend.
(c) An individual shareholder’s liability to income tax will be calculated on the sum of the dividend
and the tax credit (the “gross dividend”). This will be regarded as the top slice of the
individual’s income and will be subject to UK income tax at the rates described below.
(d) The tax credit equals 10 per cent. of the gross dividend. The tax credit will be available to set
against a shareholder’s liability (if any) to income tax on the gross dividend.
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(e) Individual shareholders liable to income tax at the starting, lower or basic rate will be liable to
income tax on dividend income received at the rate of 10 per cent. of the gross dividend. This
means that the tax credit will satisfy the income tax liability of a UK resident individual
shareholder liable to pay income tax at the starting, lower or basic rate.
(f) The rate of income tax applied to dividends received by a UK resident individual liable to
income tax at the higher rate will be 32.5 per cent. After taking into account the 10 per cent.
tax credit, a higher rate taxpayer will be liable to additional income tax of 22.5 per cent. of the
gross dividend, equal to 25 per cent. of the net dividend.
(g) Trustees who are liable to income tax at the rate applicable to trusts (currently 40 per cent.) will
pay tax on the gross dividend at the dividend trust rate of 32.5 per cent. against which they can
set the tax credit. To the extent that the tax credit exceeds the trustees’ liability to account for
income tax the trustees will have no right to claim repayment of the tax credit.
(h) A corporate shareholder resident for tax purposes in the UK will not normally be liable to
corporation tax on any dividends received, but cannot claim payment of the tax credit from
HMRC.
(i) United Kingdom pension funds and charities are generally exempt from tax on dividends which
they receive but they are not entitled to claim repayment of the tax credit.
(j) Individual shareholders who are resident for tax purposes in countries other than the UK but
who are Commonwealth citizens, nationals of states which are part of the European Economic
Area, residents of the Isle of Man or the Channel Islands or certain other persons are entitled
to a tax credit as if they were resident for tax purposes in the UK which they may set off against
their total UK income tax liability. Such shareholders will generally not be able to claim
payment of the tax credit from HMRC.
Other shareholders who are not resident in the UK for tax purposes should consult their own
advisers concerning their tax liabilities on dividends received. They should note that they will
not generally be entitled to claim payment of any part of their tax credit from HMRC under any
double taxation treaty or otherwise or such claim may be negligible.
17.2 Chargeable gains
A subsequent disposal of shares may result in a liability to taxation of chargeable gains, depending
upon individual circumstances.
17.3 Stamp duty and stamp duty reserve tax (“SDRT”)
(a) The statements below are intended as a general guide to the current position. They do not apply
to certain intermediaries who are not liable to stamp duty or SDRT, and special rates may apply
to persons connected with depository arrangements or clearance services.
(b) In relation to stamp duty and SDRT.
(i) The issue of Ordinary Shares will not give rise to a liability to stamp duty or SDRT.
(ii) Any subsequent conveyance or transfer on sale of Ordinary Shares will usually be
subject to stamp duty on the instrument of transfer at a rate of 0.5 per cent. of the amount
or value of the consideration (rounded up, if necessary, to the nearest £5). A charge to
SDRT at the rate of 0.5 per cent. will arise in relation to an unconditional agreement to
transfer such shares. However, where within six years of the date of the agreement (or,
if the agreement was conditional, the date the agreement became unconditional) an
instrument of transfer is executed pursuant to the agreement and stamp duty is paid on
that instrument, any liability to SDRT will be cancelled or repaid.
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(iii) A transfer of Ordinary Shares effected on a paperless basis through CREST (where there
is a change in the beneficial ownership of the Ordinary Shares) will generally be subject
to SDRT at the rate of 0.5 per cent. of the value of the consideration given.
(c) Where Ordinary Shares are issued or transferred to (a) a person, or a nominee for a person,
whose business is or includes the provision of clearance services or (b) a person, or a nominee
for a person, whose business is or includes issuing depository receipts, stamp duty or SDRT
will generally be payable at a higher rate of 1.5 per cent. of the amount or value of the
consideration payable, or in some circumstances, 1.5 per cent. of the value of the Ordinary
Shares. This liability for stamp duty or SDRT will strictly be payable by the depositary or
clearance service operator or their nominee, as the case may be, but will, in practice, generally
be reimbursed by participants in the clearance service or depositary receipt service. Subsequent
dealings in Ordinary Shares which are in the form of depository receipts or held in a clearance
service and on which the 1.5 per cent. charge has been paid are generally free of stamp duty
and SDRT.
(d) The above statements are intended as a general guide to the current position. Certain categories
of person are not liable to stamp duty or SDRT, and others may be liable at a higher rate or may,
although not primarily liable for the tax, be required to notify and account for it under the
Stamp Duty Reserve Tax Regulations 1986, as amended. Special rules apply to agreements
made by market intermediaries and to certain sale and repurchase arrangements and stock
borrowing arrangements.
18. MATERIAL CONTRACTS
Save as disclosed below, no member of the Group has entered into any material contract, not being a contract
entered into in the ordinary course of business, since its incorporation nor has any member of the Group
entered into any other contract, not being a contract entered into in the ordinary course of business, which
contains any provision under which any member of the Group has any obligation or entitlement which is
material to the Group as at the date of document:
18.1 UK Master Franchise Agreement
(a) Pursuant to the Master Franchise Agreement, DPG has exclusive rights to develop, operate and
sub-licence Domino’s Pizza Stores, and to use and sub-licence the use of the “Domino System”
(as per the operating manual) and the associated trademarks in the operation of the stores in the
UK, Northern Ireland and the Republic of Ireland (the “Territory”) for the development term.
The current development term lasts until 31 December 2016 (the “Development Term”). This
term was originally due to expire on 31 December 2003, however was extended by the sixth
amendment agreement entered into by the parties on 21 July 2003 and again by the seventh
amendment agreement entered into by the parties on 20 September 2006 (the “Seventh
Amendment Agreement”). The Development Term may be renewed provided that DPG is in
compliance with all the material terms of that agreement. Under the renewal process, DPG has
the option to request a right to grant franchises for an additional Development Term of ten
years.
The Master Franchise Agreement was assigned by DPII to DPIF on 16 April 2007.
If the Development Term or a renewed Development Term expires or is terminated by DPIF in
the event that DPG fails to meet the minimum development quotas (being the sole termination
event of the Development Term), DPG continues to have Operation Rights (as defined below)
and has the right to continue to act as franchisor with respect to the franchise agreements
entered into prior to expiration of the Development Term or termination of the Development
Term as aforesaid. However, DPG has no further rights to grant any franchises or enter into any
franchise agreements (other than upon an assignment or renewal of an existing franchise
agreement).
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(b) Pursuant to the Master Franchise Agreement, DPG is given the operating rights to maintain its
entire right, title and interest and all liabilities and obligations in respect of each area
development agreement and franchise agreement entered by DPG as master franchisor
pursuant to the Master Franchise Agreement and is entitled to use and sub-licence the use of
the Domino System and the associated trademarks in operation of Domino’s stores in the
Territory (the “Operation Rights”). The Operation Rights continue indefinitely until all of the
franchise agreements that DPG has with its franchisees (and itself for corporate stores) have
expired or otherwise been terminated. Therefore, so long as any franchise agreements with
DPG remain in force, the Master Franchise Agreement shall remain in force as well, subject to
DPIF’s right to require the sale or assignment to it of any franchise agreements or stores as set
out in paragraph 18.1(z) below. Franchise agreements have an initial term of ten years and can
be renewed at the franchisee’s option. The renewed franchise agreement also contains a
renewal clause, thus the franchise agreement continues for as long as the franchisee exercises
their option to renew. If all franchisees and DPG (in respect of its corporate stores), do not
renew their franchise agreements and DPG cannot find suitable replacement franchisees, there
would eventually come a time when there are no franchise agreements in effect and therefore
the Operation Rights would end.
(c) DPG has the exclusive right to establish a commissary on the terms and conditions of the
Know-How Agreement, as described in further detail at paragraph 18.2 below), pursuant to
which DPIF grants the right to use its technical knowledge and know-how to DPG and agrees
not to establish a competing commissary and to provide ongoing support and assistance to the
commissary.
(d) DPIF agrees during the Development Term not to operate or grant to any person any right
relating to the operation of a Domino’s Pizza Store (as defined in the Master Franchise
Agreement) or use of the marks within the Territory other than in accordance with the Master
Franchise Agreement.
(e) DPG is required to open and maintain a certain number of stores per year, referred to as the
“minimum development quota”. Details of the minimum development quota are set out in
schedule 2 to the Master Franchise Agreement. This schedule was amended pursuant to the
Seventh Amendment Agreement. This schedule stipulates the total minimum number of stores
to be in operation each year. Should there be a shortfall in these quotas, DPIF has the right to
undertake such development itself or through another party subject to any prior rights granted
to franchisees.
(f) Prior written approval from DPIF is required before DPG grants any sub-franchises. DPIF must
not unreasonably withhold or delay giving its consent to any sub-franchisee. Without such
approval, DPG must, on receipt of DPIF’s written request to do so, terminate the relevant sub-
franchise agreement. In addition, if DPG is in breach of the Master Franchise Agreement, and
has received a notice of default, DPG is not able to enter into any further sub-franchise
agreements. DPIF may provide its consent to such further sub-franchises conditionally on the
correction by DPG of the relevant breach.
(g) On the signing of each new franchise agreement for the first twelve stores per calendar year,
DPG must pay to DPIF a non-refundable store opening fee of £3,000 less applicable
withholding taxes paid by DPG; the next twelve stores opened in that calendar year carry a fee
of £1,500; no fees are payable for that same calendar year following the signing of these 24
franchises.
(h) DPG is prevented from charging any franchisee a combined development and franchisee fee in
excess of £15,000 per store without the consent of DPIF. DPG must supply to DPIF all relevant
information regarding development fees or consideration in kind received pursuant to a
franchise or area agreement.
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(i) A continuing royalty fee (“Royalty Fee”) is paid by DPG to DPIF in US Dollars (or at DPIF’s
option in local currency). Pursuant to the Seventh Amendment Agreement, DPG has agreed to
pay a Royalty Fee equal to 3 per cent. of the sales of the stores in the Territory. DPIF has agreed
to waive 0.30 per cent. of this royalty fee provided that DPG is in compliance with the
minimum development quota.
(j) In the event that royalty charges paid by any sub-franchisee exceeds 5.5 per cent. DPG shall
pay to DPIF 20 per cent. of such excess as an additional component of the Royalty Fee but
DPG may retain the remaining 80 per cent. of the excess.
(k) DPG must collect 5 per cent. of monthly sales from each UK franchisee and 4 per cent. of
franchisees in the Republic of Ireland and set it aside in a separate advertising fund. Advertising
is monitored by DPIF and if DPG’s advertising practices fall short of its standards, and the
inconsistency is not corrected in a reasonable period of time, DPIF has the right to direct and
administer the advertising fund. DPG has reasonable access to advertising materials developed
by DPIF for use elsewhere in the world.
(l) If DPG does not meet its minimum development quotas, then DPIF is required to contribute to
the advertising fund the lesser of one quarter of 1 per cent. of the store sales or £100,000, which
amount increases in line with the general index of retail prices in the previous year.
(m) DPG must appoint an individual devoted to development, management and the supervision of
the stores in the Territory.
(n) DPG has to use its best endeavours to ensure that all franchisees comply with their franchise
agreements entered into pursuant to the Master Franchise Agreement, including taking all steps
to correct any breach of such agreements. DPIF has the right to inspect all the stores in the
Territory and all the books and records of DPG and all the franchisees and to take an inventory
of the assets of all the stores. DPIF also has the right to audit the advertising fund and all sales
reports, financial statements and tax returns which DPG is required to submit under this
agreement. Any understatement shall result in an increase of fees to be paid to DPIF in
correlation with the understatement given.
(o) DPG must establish a book keeping and record keeping system conforming to requirements
prescribed by DPIF and submit monthly reports on the sales and products sold by all stores
franchised, quarterly unaudited statements (within 30 days of the end of each fiscal quarter),
annual unaudited statements (within 90 days of each end of fiscal year), tax returns should
DPIF so request and any other information that DPIF may reasonably request. DPIF may
require DPG to obtain and submit within 90 days an audited statement of profit and loss and
financial condition for any financial year if DPIF reasonably believes that DPG has submitted
reports which contain material inaccuracies.
(p) DPG may not use or approve for use by franchisees any ingredients, supplies or materials to be
used in preparation, packaging and delivery of pizza unless they or their supplier have been
previously approved in writing by DPIF (not to be unreasonably withheld or delayed). DPIF
have the right to inspect without notice the facilities of any approved supplier to test whether
DPIF’s quality standards are met.
(q) Any modifications by DPG to Domino’s operating manual shall be submitted to DPIF, which
should only be those reasonably required to comply with legal requirements or for commercial
success in the Territory. Otherwise, DPIF has the right from time to time to modify in any way
the operating manual which it will then communicate to DPG. DPG must abide by any change
provided that it will not place DPG in contravention of applicable law or have materially
adverse commercial effect within the territory or adversely affect DPG’s fundamental status
and rights.
(r) DPG acknowledges DPIF’s ownership of all trademarks licensed to DPG in the Master
Franchise Agreement and is specifically granted the right to use the name DPG. On termination
227
or expiration of the Master Franchise Agreement, DPG is to take all action to cancel or transfer
(at DPIF’s option) all business names and other registrations relating to the use of the specified
Domino’s names and marks and to notify listing agencies of the termination of DPG’s right to
use the same in connection with its telephone number. DPG may use and register a business
name approved by DPIF as the sole name to identify the business carried on by DPG, subject
to consent from DPIF not to be unreasonably withheld.
(s) DPG is obliged to notify DPIF of any infringement or challenge to DPG’s use of any of the
marks or any claim in any right of the marks. DPIF has sole discretion as to whether to take
action and to take such action as it deems appropriate.
(t) During the term of the Master Franchise Agreement, DPG must not have any direct or indirect
interest (other than 5 per cent. of an entity listed on a recognised investment exchange) without
the prior written approval of DPIF in any business primarily engaged in sit down, delivery or
carry out pizza or an entity which may franchise or licence such activities located in the
Territory. For a period of one year from the termination of the Master Franchise Agreement,
DPG are prohibited from holding such an interest without the written consent of DPIF.
(u) DPG and the franchisees have the sole right to determine the prices to be charged by their
stores.
(v) DPG has the right to terminate if DPIF breaches the Master Franchise Agreement and fails to
cure the breach within 30 days of receiving written notice from DPG (or other reasonable
amount of time) and termination shall be effective 90 days after delivery to DPIF of notice of
termination. DPG may also terminate if DPIF ceases or takes steps towards ceasing to carry on
business, or any insolvency proceeding are taken against DPIF. DPG also has the right to
terminate if the Know-How Agreement (as detailed at paragraph 18.2 below) is terminated for
any reason by DPG.
(w) DPIF may terminate the Master Franchise Agreement, effective on delivery of a notice of
termination, in the following circumstances:
(i) DPG enters into any insolvency arrangements;
(ii) DPG, on three or more occasions in a one year period, fails to submit when due sales
reports or financial statements or to pay the Royalty Fee, advertising fee or other
payments;
(iii) DPG is convicted of any offence or crime affecting (or conduct which could
substantially impair) the goodwill associated with the Domino’s name or marks;
(iv) DPG makes a material misrepresentation to DPIF in respect of its application for the
franchise;
(v) DPG intentionally under-reports sales or if an audit by DPIF discloses such
understatement and DPG fails to pay the applicable fees with interest within five days
of receipt of the final audit report;
(vi) DPG misuses the trademarks, breaches confidentiality, breaches the in-term restrictive
covenant or assigns any of its rights in contravention to the Master Franchise Agreement
or fails to properly execute any documents which are reasonably necessary to give effect
to the provisions of the Master Franchise Agreement and fails to correct such breach
within 30 days of written notice.
(x) In addition, DPIF may terminate the agreement effective on delivery of a notice of termination
if DPG fails to comply with any other provision of the Master Franchise Agreement and fails
to correct that relevant failure within:
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(i) 7 days of notice if it relates to the use of any trademarks or the quality of pizza or
beverage or cleanliness or sanitation of any store owned by DPG; or
(ii) 30 days if such failure is to pay any money due and payable under the Master Franchise
Agreement or other related agreements between DPG or DPIF or its affiliates or
Subsidiaries.
(y) If DPG breaches (not being a breach listed in paragraphs 18.1(w) or (x) above) the Master
Franchise Agreement and fails to cure the breach within 30 days after receipt of written notice
(or such other period as may be reasonable given the nature of the breach) then DPIF may
terminate the agreement effective 90 days after delivery to DPG of notice of breach.
(z) DPG’s right to enter franchise agreements is suspended from receipt of notice of termination.
DPIF has the option to purchase the franchise agreements from DPG at fair market value. If
DPIF purchases the franchise agreements it shall also have the option to purchase the assets of
each store owned or controlled by DPG and DPG’s interests as UK Master Franchisees and
such franchise agreements shall terminate. Unless the franchise agreements terminate in this
manner, they will continue in force and effect in accordance with their provisions.
(aa) On termination, DPG must immediately cease to use or display confidential information, trade
secrets and anything to do with the Domino System and the trademarks and if it does not do
so, DPIF has the right to enter the premises to remove the items containing such trademarks.
(bb) The Master Franchise Agreement is governed by Michigan law and all claims are to be referred
(on the demand of either party) to arbitration at the American Arbitration Association.
18.2 Know-How Agreement
(a) The Know-How Agreement dated 29 December 1993 between (1) DPII and (2) DPG as
subsequently assigned by DPII to DPIF on 16 April 2007 grants the right to use the technical
knowledge and know-how of DPIF to DPG in relation to the establishment and operation of
commissaries by DPG and the distribution of products in the territory.
(b) The consideration for entering into this agreement was one quarter of 1 per cent. of the royalty
sales which is included in the Royalty Fee payable under the Master Franchise Agreement and
a continuing and non-refundable royalty fee of 1 per cent. of the gross sales of all other
products.
(c) The term of the Know-How Agreement is co-terminous with the Master Franchise Agreement
and shall terminate upon the date of termination of the Master Franchise Agreement.
(d) In the event that the Master Franchise Agreement terminates, DPIF has the option of
purchasing any commissary from DPG or the proportion of such commissary in relation to the
operation of Domino’s stores. The purchase price for such commissary is to be at fair market
value. In the event the commissary is located on premises which were leased by DPG, DPG
shall provide a sub-lease to DPIF for the duration of the lease term.
(e) The usual commercial termination clauses (insolvency and failure to pay) are included.
(f) Governing law is that of the state of Michigan, USA and any claim is initially to be referred to
the American Arbitration Association.
18.3 Banking arrangements
(a) Bank revolving facility
The Group has entered into an agreement dated 28 February 2007 to obtain a revolving credit
facility from Barclays Bank plc (“Barclays”). The limit for this facility is £6,000,000. The
facility is repayable within 3 to 12 months and interest is charged at 0.50 per cent. per annum
above LIBOR. The facility is secured by share pledges, constituting first fixed charges over the
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shares of DPG Holdings Limited (“DPGHL”) and DPG as well as negative pledges given by
the Company, DPGHL and DPG. The amount drawn down under this facility as at 30
December 2007 stood at £6,000,000.
(b) Bank loans
The Group has entered into an agreement to obtain bank loans and mortgage facilities. These
are secured by a fixed and floating charge over the Group’s assets and an unlimited guarantee
provided by the Company. At 30 December 2007, the balance due under these facilities was
£7,721,000, all of which is in relation to the EBT. During the financial year ended 30 December
2007, the terms of this loan were renegotiated and transferred from National Westminster Bank
plc (“NatWest”) to Barclays. The loan bears interest at 0.50 per cent. above LIBOR. The loan
has a term of 7 years and matures on 31 January 2014.
(c) Other loans
The remaining loans are repayable in equal instalments over a period of up to 5 years and these
loans are unsecured. The interest rate on these loans is fixed at an average of 8.5 per cent.
(d) New financing arrangement
On 20 December 2007 the Group entered into a revolving credit facility with Barclays in order
to fund the development of a new commissary site at Milton Keynes and an extension of the
Group’s existing commissary at Penrith. Interest is charged at 0.50 per cent. above LIBOR. As
at 30 December 2007, the Group has available £25,000,000 undrawn committed borrowing
facilities in respect of which all conditions precedent have been met. These facilities are
available to the Group until December 2012 and are secured by loss guarantees, negative
pledges and charges over Company credit balances.
18.4 Leasing support offered by DP Capital
In order to assist the franchisees of the Group in developing and maintaining the franchisees’ stores,
DP Capital a subsidiary of the Group provides leasing support to franchisees for the fit out of new
stores and the refit of existing stores. New advances of £1,300,000 were made during 2007. After
repayments, the balance outstanding and owed to DP Capital on these leases as at 30 December 2007
was £2,800,000. These facilities are financed by the limited recourse loan facility provided by
Barclays (as detailed at paragraph 18.3(a) above).
18.5 Finance leases
(a) The Group uses finance leases and hire purchase contracts to acquire certain plant, machinery
and equipment. These leases have terms of renewal but no purchase options or escalation
clauses. Renewals are at the option of the lessee. The present value of future minimum lease
payments under finance leases and hire purchase contracts are as follows:
(i) future minimum payments due not later than one year: £10,000; and
(ii) future minimum payments due after one year but not more than 5 years: £18,000.
18.6 Property leased to franchisees
(a) For 472 stores in the franchisee system, the Group has entered into commercial leases, taking
the head lease, and then subletting the properties to the franchisees. These leases have an
average duration of between 10 and 25 years. As at 30 December 2007, future minimum rentals
payable under the headleases are as follows:
(i) future minimum payments due not later than one year: £10,070;
(ii) future minimum payments due after one year but not more than 5 years: £34,504; and
(iii) future minimum payments due after 5 years: £71,904.
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(b) The sub-leases have a fixed term of 10 years which may be renewed and have no break clause.
Future minimum rentals receivable these sub-leases are as follows:
(i) future minimum payments due not later than one year: £8,330;
(ii) future minimum payments due after one year but not more than 5 years: £28,647; and
(iii) future minimum payments due after 5 years: £19,392.
(c) In addition the Group has entered into commercial leases on motor vehicles and items of plant,
machinery and equipment. These leases have an average duration of between 3 and 5 years.
18.7 Sponsor’s Agreement
The Company has entered into a sponsor’s agreement with Numis (the “Sponsor’s Agreement”)
pursuant to which Numis have agreed to act as Sponsor for the Company in accordance with the
requirements of the Listing Rules and the Prospectus Rules.
Under the Sponsor’s Agreement:
(a) The Company has agreed to pay Numis a corporate finance fee of £200,000, and all proper and
reasonable costs, charges and expenses incidental to the London Stock Exchange and Official
List applications as payment for their services as Sponsor to the Company.
(b) Numis have agreed to use all reasonable endeavours to make the London Stock Exchange and
Official List applications, obtain approval of the FSA for the Prospectus and the approval of the
London Stock Exchange for the Ordinary Shares to be admitted to trading on the London Stock
Exchange:
(c) The Sponsor’s Agreement may be terminated by Numis in the event of a breach of a material
obligation or a breach of warrant or in the event that the FSA or London Stock Exchange reject
the Company’s application. The agreement may also be terminated by the Company on notice.
The Sponsor’s Agreement contains certain indemnities, undertakings and warranties given by the
Company to Numis.
19. WORKING CAPITAL
The Company is of the opinion that, taking into account available banking facilities, the Group has sufficient
working capital for its present requirements, that is for at least the next 12 months from the date of this
document.
20. SIGNIFICANT CHANGE
There has been no significant change in the financial or trading position of the Group since 30 December
2007, being the date to which the last audited consolidated accounts of the Group were drawn up.
21. LITIGATION
There have been no governmental, legal or arbitration proceedings (including any such proceedings which
are pending or threatened of which the Company is aware) during the 12 month period prior to the date of
this document against, or being brought by, the Company or any member of the Group which may have or
have had in the recent past significant effects on the Company’s and/or the Group’s financial position or
profitability.
22. GENERAL
22.1 No proceeds are being raised on behalf of the Company in connection with Admission.
22.2 The total costs (including fees and commissions) (exclusive of recoverable VAT) payable by the
Company in connection with the Admission are estimated to amount to be approximately £900,000.
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22.3 Ernst & Young LLP, which is authorised and regulated in the UK by the Financial Services Authority,
have given and have not withdrawn their written consent to the inclusion in this document of their
report as set out in Part VII of this document and the references to such report and to their name in
the form and context in which they are included, and they have authorised the contents of their report
for the purposes of the Prospectus Rules.
22.4 Numis, which is authorised and regulated in the UK by the Financial Services Authority is acting in
the capacity as Sponsor to the Company. Numis has given and not withdrawn its written consent to
the inclusion in this document of references to its name in the form and context in which they appear.
22.5 CREST, the computerised paperless system for settlement of sales and purchases of shares in the
London securities markets, commenced operation in July 1996.
The CREST Regulations provide for the transfer of shares in the UK without stock transfer forms, and
the evidencing of title to shares without share certificates, through a computer-based system and
procedures, defined in the CREST Regulations as a Relevant System, which is operated by Euroclear
UK and Ireland Limited.
The Articles contain specific provisions to enable the Ordinary Shares to be dematerialised into a
Relevant System, including CREST. Shareholders will continue to be able to hold the Ordinary Shares
to which they become entitled in electronic form in an account on the CREST system or in the
physical form of certificates. Each shareholder will be able to choose whether or not to convert his
Ordinary Shares into uncertificated form and the Registrars will continue to register written
instructions of transfer and issue share certificates in respect of the Ordinary Shares held in
certificated form.
A copy of the Articles is available for inspection as set out in paragraph 23 (Documents available forinspection) below.
22.6 Ernst & Young LLP, of 400 Capability Green, Luton, LUI 3LU, Chartered Accountants, regulated by
the Institute of Chartered Accountants in England and Wales, have been the Company’s auditors since
1999. No auditors resigned, were removed, or were not re-appointed during the period 1 January 2005
to 30 December 2007.
22.7 The ISIN number for the Ordinary Shares is GBOOB1S49Q91. The SEDOL number of the Company
is B1S49Q9.
22.8 The financial information in this document relating to the Company and the Group and in particular
the financial information contained in Part VII of this document, does not constitute statutory accounts
within the meaning of section 240 of the 1985 Act. Ernst & Young LLP have audited the statutory
accounts of the Company and have given unqualified audit reports on the statutory accounts of the
Company for the 52 weeks ended 30 December 2007, 31 December 2006 and 1 January 2006. None
of those Company reports contained any statement under section 237(2) or (3) of the 1985 Act. The
statutory accounts of the Company for the 3 financial years ended 30 December 2007 have been
delivered to the Registrar of Companies in England and Wales.
22.9 Application has been made to the UK Listing Authority for all the shares in the Company (issued and
to be issued) to be admitted to the Official List and to the London Stock Exchange and to be admitted
to trading on the market for listed securities of the London Stock Exchange. It is expected that
Admission will become effective and that dealings in the Ordinary Shares will commence on 19 May
2008.
22.10 There are no arrangements in place under which future dividends are to be waived or agreed to be
waived.
22.11 During the current year and the 3 financial years ended 30 December 2007, the main investments of
the Group other than those described in paragraph 6 (The Company and its Subsidiaries), paragraph
7 (Related Party Transactions), or paragraph 18 (Material Contracts), have comprised capital
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expenditure and have seen expenditure of approximately £11,711,000 as at 30 March 2008,
principally in the UK and financed primarily from internal sources.
22.12 Save as disclosed in paragraph 18 (Material Contracts), there is no other contract (not being a contract
entered into in the ordinary course of business) entered into by the Company which contains any
provision under which the Company has any obligation or entitlement which is material to the
Company as at the date of this Prospectus.
22.13 Where information contained in this Prospectus has been sourced from third parties the Company
confirms that such information has been accurately reproduced and, so far as the Company is aware
and is able to ascertain from the information published by those third parties, no facts have been
omitted which would render the reproduced information inaccurate or misleading.
23. DOCUMENTS AVAILABLE FOR INSPECTION
23.1 Availability of Prospectus
Copies of this document can be obtained during normal business hours until the close of Admission
from either of the following:
Numis Securities Limited The registered office of the Company
Domino’s House
Lasborough Road
10 Paternoster Square Kingston,
London, EC4M 7LT Milton Keynes MK10 0AB
23.2 Documents available for inspection
Copies of the following documents will be available for inspection at the registered office of the
Company and at the offices of Mayer Brown International LLP, 11 Pilgrim Street, London, EC4V
6RW during normal business hours on any weekday (Saturdays, Sundays and public holidays
excepted) from the date of this document for a period of at least 14 days:
(a) the Memorandum of Association of the Company and the Articles as amended by special
resolution passed at the AGM held on 24 April 2008;
(b) the audited consolidated accounts of the Company for the 3 financial years ended 30 December
2007;
(c) the audited consolidated statements of the Group for the 3 financial years ended 30 December
2007;
(d) the financial information set out in Part VII of this document;
(e) the service agreements and letters of appointment referred to in paragraph 11.1 (Directors’service agreements) of this Part VIII;
(f) the letters of consent referred to in paragraphs 22.3 and 22.4 above; and
(g) the rules of the 1999 Schemes, the Old Scheme, the EMI Scheme and the Sharesave Scheme
and the Employee Benefit Trust as referred to in paragraph 15 (Share Option Schemes).
In addition, copies of this document are available, for inspection only, from the Document Viewing
Facility, UK Listing Authority, The Financial Services Authority, 25 The North colonnade, Canary
Wharf, London E14 5HS.
Dated: 14 May 2008
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sterling greenaways 99939
Admission to the Official List
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